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https://www.courtlistener.com/api/rest/v3/opinions/1699704/ | 488 So.2d 1092 (1986)
Salvadore A. MARZULA, Plaintiff-Appellant,
v.
T.E. WHITE, Jr., d/b/a T.E. White Maintenance Co., Defendant-Appellee.
No. 17,743-CA.
Court of Appeal of Louisiana, Second Circuit.
May 7, 1986.
Rehearing Denied June 5, 1986.
*1094 Hall & Golden by W. Eugene Golden, Shreveport, for plaintiff-appellant.
Mayer, Smith & Roberts by Richard G. Barham, Shreveport, for defendant-appellee.
Before HALL, JASPER E. JONES and SEXTON, JJ.
JASPER E. JONES, Judge.
The plaintiff in this personal injury action is Salvadore A. Marzula. The defendant is T.E. White, Jr., doing business as T.E. White Maintenance Company. Marzula appeals a judgment holding his negligence and that of his supervisor contributed 70% to the cause of his injury and applying comparative negligence to reduce the value of his claim by 70%. Defendant answered the appeal seeking to have the judgment against him reversed. We amend and affirm.
The assignments of error made by the parties present four issues for decision:
(1) Did the trial court err in failing to find defendant's employees were the borrowed employees of plaintiff's employer and, therefore, the co-employees of plaintiff, resulting in plaintiff's cause of action being barred by LSA-R.S. 23:1032?
(2) Did the trial court err in finding defendant and his employees negligent?
(3) Did the trial court err in finding plaintiff contributorily negligent?
(4) Did the trial court err in imputing the negligence of plaintiff's supervisor to plaintiff to reduce his recovery?
Background Facts
Plaintiff was an employee of Pumpmasters Corporation, a firm engaged in the business of installing service station equipment. In February, 1981, Pumpmasters had a contract which required the installation of underground gasoline storage tanks at a convenience store being constructed in Shreveport, Louisiana.
Pumpmasters contracted with the defendant to excavate the hole for the tanks because the large size of the tanks made it impractical to bury them with its own small earth moving equipment. Pumpmasters frequently made such arrangements with defendant when its own equipment was inadequate for a job.
On February 3, 1981, three of defendant's employees dug the hole for the tanks using two large trackhoes. When the hole had been dug to a depth of approximately twelve feet, digging was stopped while Marzula and Brewster, an employee of defendant, descended into the hole to aid Leo Jones, Pumpmasters' superintendent, in taking measurements to determine the dimensions of the hole. While the men were in the hole, one side of it collapsed causing serious injuries to Marzula.
Marzula brought this action alleging the accident was caused by the negligence of White. White answered denying any negligence and pleading contributory negligence of the plaintiff asserting plaintiff's sole remedy was in worker's compensation. White then made a motion for summary judgment on the ground he and his employees were statutory employees of Pumpmasters and this tort action was, therefore, barred by the Worker's Compensation Law. The district judge granted the motion for summary judgment and plaintiff appealed. This court reversed the granting of the motion for summary judgment. On remand by agreement of counsel and the court, the trial was bifurcated and the liability issue was tried first. The trial court found defendant's employees were not the borrowed employees of Pumpmasters and plaintiff, therefore, was not barred by the Worker's Compensation Law from suing White in tort.[1] The trial court further *1095 found the accident was caused by the combined fault of plaintiff, Leo Jones and White. The trial judge determined the defendant to be 30% at fault and plaintiff and his supervisor to be 70% at fault.
ISSUE NO. 1"Borrowed Employees"[2]
Defendant, contends the trial court erred in finding that his employees were not the borrowed employees of Pumpmasters Corporation. He argues that Leo Jones, the foreman of Pumpmasters, was in total charge of the excavation and had the authority to send any of his employees off the job. Defendant further argues that Leo Jones told his employees where and how to dig the hole. Therefore, he contends his employees were the statutory employees of Pumpmasters and plaintiff's exclusive remedy is in worker's compensation under LSA-R.S. 23:1032.
Plaintiff contends the trial court was correct in holding that the employees of T.E. White, Jr., were not the statutory employees of Pumpmasters. Plaintiff points out that T.E. White, Jr. paid these employees and had the sole authority to hire and fire them. Plaintiff further argues that defendant's employees were in actual control of the operation of the excavating equipment. Finally, plaintiff points out that Pumpmasters frequently made such arrangements with defendant when its own equipment was inadequate for a job.
APPLICABLE LAW
Whether a person is a borrowed servant is an issue of fact. LeBlanc v. Roy Young, Inc., 308 So.2d 443 (La.App. 3d Cir.1975), writ den., 313 So.2d 240 (1975); Vincent v. Ryder Enterprises, Inc., 352 So.2d 1061 (La.App. 3d Cir.1977); Nichols Construction Corp. v. Spell, 315 So.2d 801 (La.App. 1st Cir.1975).
There is a presumption that the general employer retains control of his employee. Benoit v. Hunt Tool Co., 219 La. 380, 53 So.2d 137 (1951); Pagitt Well Service, Inc. v. Sam Broussard, Inc., 293 So.2d 631 (La.App. 3d Cir.1974), writ den., 295 So.2d 817 (La.1974).
The party who alleges that an employee has become a borrowed servant bears the burden of proof on that issue and a mere showing of a division of control is not enough to meet that burden. Benoit v. Hunt Tool Co., supra; Nichols Construction Corp. v. Spell, supra.
In order for an employee of the general employer to become the borrowed employee of the special employer, it must be shown that the employer-employee relationship between the general employer and his employee has been suspended and a new and like relationship has been created between the general employer's employee and the special employer. This change of relationship does not occur when the work being performed by the general employer's employee is the general employer's work and where he retains some control over his employee. Benoit v. Hunt Tool Co., supra; LeBlanc v. Roy Young, Inc., supra.
In the instant case, the trial judge held that defendant's employees were not the borrowed employees of Pumpmasters. The trial judge found defendant's employees controlled the operation of the excavating equipment and were hired by defendant. Although the trial judge found Leo Jones controlled the starting and stopping of the work and the location, shape and slope of the excavation, he concluded that this was not enough control over the employees of *1096 T.E. White, Jr., to make them the borrowed employees of Pumpmasters. We agree.
It was defendant's burden to prove that the employer-employee relationship with his employees had been suspended and a new and like relationship was created between these employees and Pumpmasters. This change of relationship does not occur when the work being performed by the general employer's employee is the general employer's work and where he retains some control over his employee. Benoit v. Hunt Tool Co., supra. Here, defendant, as the general employer, retained some control over these employees. Defendant had the sole authority to fire these employees and they were in control of the manner in which these machines were operated. The fact that Pumpmasters and defendant had a continuing arrangement where they loaned each other employees for their mutual benefit also tends to negate the application of the borrowed employee doctrine. See LeJeune v. Allstate Ins. Co., 365 So.2d 471 (La.1978). The record reveals defendant inspected the hole while it was being excavated. Defendant was checking on the work being performed by his employees. If he had been dissatisfied with the manner in which they were functioning he could have given them new directions or terminated them. This fact shows that the employer-employee relationship between defendant and his employees was not suspended. The trial court was, therefore, correct in finding that defendant's employees were not the borrowed employees of Pumpmasters.
ISSUE NO. 2Defendant's Negligence
Defendant answered the appeal contending the trial court erred in finding him 30% liable for plaintiff's injuries. He argues that his employees were not negligent because it was Leo Jones who decided not to slope or brace the sides of the excavation. He points out that one of his employees, Phillip Brewster, questioned the wisdom of excavating the site without sloping the sides, but Leo Jones instructed the employees to continue the excavation without sloping the sides. Defendant further points out that both trackhoes were approximately thirty to forty feet away from the hole when the cave-in occurred. Therefore, he argues the finding of fault against him and his employees is manifestly erroneous and should be overturned.
Plaintiff contends the defendant's employees were negligent in failing to comply with the U.S. Department of Labor Occupational Safety and Health Administration regulations governing such excavations which require sloping the walls of the hole. Plaintiff further contends defendant was negligent in failing to take steps to rectify the danger presented by the unsloped excavation. In addition, plaintiff contends the defendant's employees were negligent in operating their equipment near the edge of the excavation while plaintiff was taking measurements.
The trial judge found defendant's employees negligent in "knowing of the danger of what they were doing as part of the combined effort and should bear a part of the cost thereof." The trial court also found White at fault.
The trial court was right in finding White and his employees negligent. The evidence established the manner in which the hole was dug created a danger of cave-in and that the defendant and his employees were well aware of this fact. At least one of the defendant's employees was negligent in operating one trackhoe near the excavation site while plaintiff was inside taking measurements. Thomas E. White, IV, who operated one of the trackhoes on this job, testified the other trackhoe was being operated near the hole when the cave-in occurred.[3] This testimony is somewhat corroborated by the testimony of Leo Jones who testified that one of the trackhoes was *1097 idling near the excavation. The evidence established that vibration from the trucks or the operation of the heavy trackhoe machine could contribute to the cause of the cave-in.
Negligence is conduct which falls below the standard established by law for the protection of others against unreasonable risk or harm. It is a departure from the conduct expected of a reasonable prudent man under like circumstances. Pence v. Ketchum, 326 So.2d 831 (La.1976); Craft v. Caldwell Parish Police Jury, 455 So.2d 1226 (La.App. 2d Cir.1984). We conclude that defendant's employees were negligent in continuing to operate one of the trackhoes near the excavation when the cave-in occurred. We further conclude that T.E. White, Jr., was negligent in observing the unsloped sides of the excavation, but failing to take any steps to rectify the danger. T.E. White, Jr., testified that he knew the hole should have been sloped to some extent, but after talking to Leo Jones about it Jones decided to take a chance rather than slope it. White stated that he did not stay on the job and pursue the consideration of sloping the excavation to prevent or lessen the possibility of cave-in.[4] Although Jones denied seeing White on the job the morning of the cave-in, he testified that he and White usually jointly considered whether or not there was a danger of cave-ins and made, together, a determination of the extent of slope required in the hole.[5] These circumstances, established in the record, provide substantial evidence to support the trial judge's conclusion that defendant, T.E. White, Jr., was guilty of negligence which contributed to the accident which caused plaintiff's injuries. Defendant was negligent in leaving the job and permitting the excavation to continue without any slope to the side of the hole. The trial court, therefore, was correct in finding T.E. White, Jr., and his employees negligent.
ISSUE NO. 3Plaintiff's Contributory Negligence
Plaintiff contends the trial court erred in finding that he was contributorily negligent. He argues that an employee who undertakes a task which involves a risk of harm as a condition of his employment cannot be held at fault when he is injured while doing his best to discharge his employment duties. Plaintiff contends that because he was ordered to enter the excavation by his supervisor, he did not voluntarily assume the risk of injury from a cave-in. He contends he did not act unreasonably in entering the excavation because he could not refuse to do so without the fear of losing his job. Plaintiff testified he had a wife and a two week old son at the time of the accident.
Defendant argues the trial court was correct in finding plaintiff contributorily negligent. Defendant argues plaintiff could have taken the measurements from the top rather than the bottom of the excavation. Defendant further argues the trial court was correct in concluding that plaintiff knew the risk of injury because he personally observed an earlier cave-in.
The trial court found the accident was caused in part by plaintiff's supervisor who directed the digging of the hole without sloping the sides. The trial court also found that plaintiff's supervisor contributed to plaintiff's harm by ordering him to go into the hole and measure it. The trial court found the plaintiff to be contributorily negligent in taking the measurements from the bottom, rather than the top of the hole because he knew a cave-in could occur while he was in the hole which had not been braced or sloped and in which an earlier cave-in had occurred.
APPLICABLE LAW
Contributory negligence is conduct on the part of the plaintiff which is below the *1098 standard to which he should conform for his own safety and of a reasonable man under like circumstances. Straley v. Calongne Drayage & Storage, Inc., 346 So.2d 171 (La.1977); Craft v. Caldwell Parish Police Jury, supra. The burden of proving contributory negligence rests upon the defendant. Brown v. White, 430 So.2d 16 (La.1982).
A workman who has no alternative but to subject himself to hazardous duties in order to perform his work pursuant to a direct order of a supervisor is not guilty of unreasonable conduct by failing to avoid a known risk because to decline to do the work could subject him to the loss of his job which he needs for the support of himself and his family. Chaney v. Brupbacher, 242 So.2d 627 (La.App. 4th Cir.1970); Blakeney v. Tidewater Compression Service, 463 So.2d 914 (La.App. 2d Cir.1985), writ den., 467 So.2d 535 (La.1985); Price v. Mitchell Const. Co., Inc., 482 So.2d 869 (La.App. 2d Cir.1986), writ den., 484 So.2d 671 (La.1986); see Brown v. White, supra. A workman whose duties require that he work in hazardous circumstances who is injured while doing his best to discharge those duties is not guilty of contributory negligence even though he is fully aware of the risk of injury to which he is subjected while performing his work. Okeefe v. Warner, 288 So.2d 911 (La.App. 1st Cir. 1973), writ den., 293 So.2d 170 (La.1974); Blakeney v. Tidewater Compression Service, supra; Price v. Mitchell Const. Co., Inc., supra.
In the instant case, Marzula testified, and the trial judge found, that he was directed by his supervisor to enter the excavation to take measurements. He was working as an assistant to his supervisor who was at the top of the hole. Plaintiff further testified that he felt he had to either follow these directions or go home. There was no evidence that plaintiff was doing anything less than his best to discharge his duties when he was injured. Plaintiff was, therefore, not unreasonable in entering the excavation and taking the measurements as directed. Leo Jones testified that he directed plaintiff to enter the hole and drive some stakes while Jones obtained a grade reading. The task was performed under the very eye of the supervisor and the defendant who has the burden of proving contributory negligence did not show that the plaintiff had any alternative to the performance of the job while being in the hole. There is no evidence that the task could have been performed in any other manner. The plaintiff did not voluntarily subject himself to a known risk of harm. He was mandated to undertake the risk by economical necessity and for this reason his conduct was not unreasonable and he was not guilty of contributory negligence. The trial court was clearly wrong in finding plaintiff contributorily negligent.
ISSUE NO. 4Did the Trial Court Err in Imputing the Negligence of Plaintiff's Supervisor to Plaintiff?
The trial court found the plaintiff and his superior, Jones, jointly guilty of 70% of the fault that brought about the accident. We have found that the plaintiff is not guilty of any contributory negligence. The fault of Leo Jones was substantial and contributed, along with the fault of defendant, White, to causing the accident. The evidence established Jones had been in this business many years and supervised the digging of many holes. He knew the walls of the hole should have a slope or be braced to eliminate the danger of cave-in. Jones directed the hole be dug without sloping the sides and made no attempt to brace them. The plaintiff had no control whatsoever over his superior, Jones, and Jones' fault cannot be attributed to the plaintiff. The trial court is clearly wrong to impute the negligence of Leo Jones to the plaintiff and use the imputed negligence of Jones to reduce plaintiff's claim under the rules of comparative negligence.
When the negligence of two tortfeasors contributes in causing harm to a third party, each tortfeasor is responsible for the damage and they are solidarily liable. *1099 LSA-C.C. art. 2324.[6]Dixie Drive-It Yourself System of New Orleans Co. v. American Beverage Co., 242 La. 471, 137 So.2d 298 (1962); Shaw v. New York Fire & Marine Underwriters, Inc., 252 La. 653, 212 So.2d 416 (1968); Coleman v. Douglas Public Service, Inc., 423 So.2d 1205 (La. App. 4th Cir.1983), writ den., 429 So.2d 153 (La.1983). The principal result of solidarity is to prevent division of the debt and to obligate each debtor for the whole, as if he were alone. Hoefly v. Government Employees Ins. Co., 418 So.2d 575 (La.1982).
In the instant case, plaintiff was barred by LSA-R.S. 23:1032 (see footnote 1) from suing his employer and fellow employee in tort.
We find the doctrine of comparative fault not to be applicable because the plaintiff was not guilty of any negligence that contributed to the accident. The defendant is liable to the plaintiff for all of his damages caused by the defendant's fault.
We AMEND the trial court judgment and recast it to read as follows:
IT IS ORDERED, ADJUDGED AND DECREED that there be judgment here in favor of the plaintiff, SALVADORE A. MARZULA, and against the defendant, T.E. WHITE, JR., d/b/a T.E. WHITE MAINTENANCE COMPANY, for one hundred percent (100%) of the damages suffered by plaintiff.
All cost on appeal are assessed against the defendant.
NOTES
[1] LSA-R.S. 23:1032 provides in pertinent part:
"The rights and remedies herein granted to an employee or his dependent on account of an injury, or compensable sickness or disease for which he is entitled to compensation under this Chapter, shall be exclusive of all other rights and remedies of such employee, his personal representatives, dependents, or relations, against his employer, or any principal or any officer, director, stockholder, partner or employee of such employer or principal, for said injury, or compensable sickness or disease. For purposes of this Section, the word `principal' shall be defined as any person who undertakes to execute any work which is a part of his trade, business or occupation in which he was engaged at the time of the injury, or which he had contracted to perform and contracts with any person for the execution thereof."
[2] The resolution of this issue is of very little importance since the evidence established that the defendant, who was not contended to be a borrowed employee, was guilty of substantial negligence that contributed to plaintiff's injury.
[3] Q. He was moving the machine, and moving the sand with a machine at that time?
A. Yes.
Q. At the edge of the hole?
A. Yes, I believe. I don't really recall what he was doing but he was doing something. I was over there talking to Leo.
[4] "The hole should have been sloped to some extent. To what extent I don't know. I didn't stay on the job long enough to worry with that. I don't know how much it could have been sloped."
[5] "Generally we got our heads together, as far as Mr. White and myself, and decided what to do with it. And normally I don't have to tell Mr. White to do it. He knows to taper the hole and also I know to taper it if it is extremely bad."
[6] C.C. art. 2324 provides in pertinent part:
"Persons whose concurring fault has caused injury, death or loss to another are also answerable in solido .." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1704045/ | 347 So.2d 274 (1977)
Joseph C. CORCELLER, Jr. and Rellecroc, Inc.
v.
John H. BROOKS, Laborde & Brooks and St. Paul Fire & Marine Insurance Company.
No. 8030.
Court of Appeal of Louisiana, Fourth Circuit.
May 17, 1977.
Rehearing Denied June 30, 1977.
*276 Koerner, Babst & Lambert, Louis R. Koerner, Jr., Stephen M. Bernstein, New Orleans, for plaintiffs-appellants.
Wiedemann & Fransen, A. Remy Fransen, Jr., Raul R. Bencomo, New Orleans, for defendants-appellees.
Before GULOTTA, STOULIG and SCHOTT, JJ.
GULOTTA, Judge.
In this legal malpractice suit, plaintiff[1] appeals from the dismissal, after jury trial, of his claim for damages. Alleged as causes of the damages are the attorney's improvident advice resulting in an injunction suit being filed against plaintiff; the attorney's failure to timely answer the petition for injunction and damages causing a default money judgment to be taken against plaintiff; in an unrelated matter, defendant's dereliction resulting in a deficiency judgment being rendered against plaintiff; and defendant's failure to refund or otherwise account for $1,250.00 advanced by plaintiff for court costs and travel expenses.[2]
The undisputed facts are that plaintiff operated a Bonanza Pit Restaurant beginning in early May, 1970, pursuant to a franchise agreement with Bonanza International. According to the contract, plaintiff was required to pay a certain percentage of his gross receipts on a weekly basis as royalties and was obligated to submit weekly accounting reports. In November of the same year, plaintiff received a letter from Bonanza International advising him to remove any references to the Cartwright television series theretofore associated with the Bonanza franchise. Corceller then consulted defendant Brooks for legal advice concerning his rights and obligations under the franchise agreement.
The following chronology is helpful.
First week of Corceller and Brooks discussed
April 7, 1971 the possibility of filing a suit
to rescind the franchise agreement
in order that Corceller might recover
his initial investment in
the restaurant and the royalties
which he had paid.
April 7, 1971 As a result of their discussion,
Corceller paid to Brooks the sum
of $1,250.00 to cover the costs
and travel expense incurred in
filing the proposed suit.
April 20, 1971 Brooks filed suit on behalf of
Corceller in a state court.[3]
August 24, 1971 Bonanza International's attorney
made demand for past due royalties
and reports.[4]
September 7, 1971 Bonanza International cancelled
the franchise due to the nonpayment
of royalties.
September 17, 1971 Bonanza International filed suit
in U.S. District Court requesting
an injunction against plaintiff's
operation of the franchise and
seeking a claim for damages.[5]
October 28, 1971 The Federal Court issued a preliminary
injunction ordering plaintiff
to discontinue use of any Bonanza
trademarks and to cease
operation of a low-cost steak restaurant
*277
within a 25-mile radius of
the existing outlet.
June 8, 1972 The Federal Court found Corceller
in contempt of its injunction.
August 9, 1972 Bonanza filed a request for a
"clerk's default" on the damage
aspect of its suit.
August 15, 1972 Defendant was relieved of possession of the Corceller file.
August 21, 1972 The Federal judge ordered the
default judgment.
October 18, 1972 During the hearing at which Corceller did not appear, the
Federal judge rendered damages in favor
of Bonanza. The default judgment and damages rendered were
affirmed on appeal. Following the default judgment for damages
against plaintiff, this action
in legal malpractice was filed.
In answers to interrogatories, the jury found: 1) . . .; 2) that defendants represented plaintiff at the time the alleged loss was sustained; 3) that defendants warranted or guaranteed a favorable result to their representation of plaintiff which was not obtained; 4) that defendants were negligent in their representation of plaintiff; 5) that their negligence was a proximate cause of injury and damage to plaintiff; 6) however, that plaintiff was guilty of contributory negligence and/or assumption of risk.
Plaintiff assigns as error the following: 1) that the trial judge, in his charge to the jury, erroneously gave instructions on negligence, contributory negligence and assumption of risk. Plaintiff claims his cause of action is based on breach of contract and not tort. In this connection, plaintiff claims that the attorney's failure to produce the result warranted by him constituted a breach of contract. Corceller points out that in answer to an interrogatory, the jury found that Brooks warranted or guaranteed a favorable result in his representation of plaintiff which was not obtained; 2) that, even assuming plaintiff's claim sounds in tort, the trial judge erred in failing to charge the jury on comparative negligence; and finally, 3) that the trial judge erred in failing to furnish interrogatories to the jury which separated each of plaintiff's several claims from the others. According to Corceller, the defense of comparative negligence or contributory negligence may have been applicable to those claims which are based on a tort but are clearly not applicable to aspects of his complaint based on breach of contract.
At the outset, we find no merit to plaintiff's contention that this malpractice suit is one based on breach of contract. Though it is true that a contractual agreement between Corceller and Brooks established the attorney-client relationship, this contract of employment merely gave rise to the attorney's legal duty "to exercise at least that degree of care, skill, and diligence which is exercised by prudent practicing attorneys in his locality". Ramp v. St. Paul Fire and Marine Insurance Company, 263 La. 774, 269 So.2d 239, 244 (1972). As the Louisiana Supreme Court stated therein:
"The risk of the expenditure of sums of money for costs of litigation, including attorney's fees, directly flowed from the breach of the duty owed by the attorneys to these plaintiffs. Therefore the defendant attorneys were negligent in their acts and omissions toward the plaintiffs, and that negligence was the cause of the damage suffered by them."
We are mindful of our decisions dealing with medical malpractice, Barrios v. Sara Mayo Hospital, 264 So.2d 792 (La.App. 4th Cir. 1972) and Creighton v. Karlin, 225 So.2d 288 (La.App. 4th Cir. 1969), wherein we stated that an injured plaintiff may sue a professional in tort or in contract from a breach of implied warranty to perform his services in conformity with community standards. Nevertheless, in such cases, this breach of warranty is, in effect, the negligence of a professional that act or omission which is below the standards of similar practitioners in the community.
Warranty or guarantee by an attorney of a particular result of a litigious claim is foreign to the nature of the legal profession.[6] This is not to say that we *278 cannot conceive that an attorney may guarantee that he will follow a particular course of action or do a specific thing on the client's behalf. However, because the dispute between Corceller and Bonanza involved litigious rights, the attorney for Corceller could not have warranted or guaranteed a result favorable to plaintiff. Under the circumstances, we conclude the trial judge erroneously charged the jury on "warranty or guarantee of a favorable result" and erroneously included an interrogatory to the jury on defendants' failure to obtain a warranted favorable result. We further conclude, however, that the error is not reversible but harmless, particularly in view of the jury's findings of negligence and contributory negligence.
We find no merit further to plaintiff's contention that the doctrine of comparative negligence (based on LSA-C.C. art. 2323[7] rather than contributory negligence should be applied in malpractice cases. Our jurisprudence has consistently rejected application of the comparative negligence doctrine. See Crum v. Holloway Gravel Company, Inc., 273 So.2d 566 (La. App. 1st Cir. 1973), writ refused, 276 So.2d 701 (La.1973); Belle Alliance Co. v. Texas and P. Ry. Co., 125 La. 777, 51 So. 846 (1910); Legendre v. Consumers' Seltzer & Mineral Water Mfg. Co., 147 La. 120, 84 So. 517 (1920). Plaintiff's argument in this respect might be more appropriately made before the Louisiana Supreme Court.
We do find merit, however, to plaintiff's argument that the interrogatories submitted to the jury should have been structured to allow separate consideration of each of plaintiff's claims. Having found negligence on the part of the defendant proximately causing injury to plaintiff, the jurors were confronted with interrogatory no. 6 which they answered in the affirmative:
INTERROGATORY 6.
"Was plaintiff Joseph C. Corceller, Jr. guilty of contributory negligence and/or assumption of risk?
YES √ NO_____
"If your answer is `YES,' you will return a verdict for defendants.
"If your answer is `NO,' you will return a verdict for plaintiff, Joseph C. Corceller, Jr. and against defendants, find the amount of plaintiff's damages and return a verdict in that amount."
Though the trial judge in his charge instructed the jury to consider plaintiff's claims separately, the interrogatory did not define those claims to which contributory negligence and assumption of risk are responsive defenses. Absent this differentiation, the jury could not have known which of plaintiff's claims are subject to the defense of contributory negligence and assumption of risk and which of those claims are not.
It is true that the defense of contributory negligence is applicable to plaintiff's claims relating to the termination of the franchise, the injunction and the default judgment in favor of Bonanza.[8] Assumption of risk, however, is not a viable defense in the instant case. Corceller's contempt of the Federal Court injunction and his failure to pay the royalties to Bonanza are proper factual questions to be considered by the jury in the determination of the question of contributory negligence. We do not feel that this conduct falls within the category of assumption of risk. We conclude, therefore, that interrogatory no. 6 erroneously included the words "assumption of risk". Again, we conclude that the error, in this respect, is not reversible but harmless. The record clearly supports a factual conclusion that Corceller's contempt of the Federal Court injunction and his failure to *279 pay the royalties contributed to the termination of the franchise, the issuance of the injunction and the default money judgment.
The defense of contributory negligence, however, is not applicable to Corceller's claim either for a return and/or an accounting of the $1,250.00 advance covering court costs and expenses or to the deficiency judgment in favor of National Cash Register. As pointed out, plaintiff's acts which defendants argue constitute contributory negligence and assumption of risk are his financial inability to pay the royalty charges, his evasive testimony at the injunction hearing resulting in the granting of the injunction and his contempt of the injunctive order of the Federal Court resulting in the deficiency judgment against him in that court. These defenses are not applicable and facts supporting these defenses were not even asserted in connection with the claims for return of the advanced court costs and the cash register deficiency judgment.
According to the Code of Civil Procedure and the jurisprudence, the trial judge has the discretion to submit a case to the jury on special interrogatories but is not required to do so.[9] Nevertheless, in a matter involving a cause of action in which several claims are asserted to which different defenses are responsive, the trial judge, in order to assist the jury in its deliberation, should direct interrogatories to the jury which would allow a separate jury finding on each claim and on the defense applicable to that claim.
Accordingly, we conclude the trial judge erred in the instant case in failing to include an interrogatory defining those claims asserted by plaintiff to which contributory negligence is a viable defense and those claims to which this defense is not applicable.
No useful purpose would be served in remanding this matter to the trial court where the record contains evidence sufficient to dispose of the matter in this court. See Gonzales v. Xerox Corporation, 320 So.2d 163 (La.1975); Morgan v. Liberty Mutual Insurance company, 323 So.2d 855 (La. App. 4th Cir. 1975).
Our review of the evidence leads us to a conclusion that the record supports the jury's finding of negligence on the part of defendant Brooks. Corceller testified that Brooks had advised him in early January, 1971, to discontinue paying royalties and submitting accounting reports. This testimony was refuted by Brooks. Though we are unaware of the reason for the jury's finding of negligence on the part of defendant, it is reasonable that the jury concluded Brooks advised Corceller to discontinue the royalty payments and that nonpayment permitted Bonanza International to invoke the termination clause of the franchise contract. Further, a reasonable basis exists for the jury's determination that defendant failed to file timely an answer to Bonanza's claim for damages in the Federal Court. Though defendant testified that an oral agreement existed between him and the Bonanza attorneys that no default would be taken, his statement was inconsistent with those of the Bonanza attorneys who testified that no such agreement existed. The evidence indicates that defendant simply failed to file an answer prior to the clerk's entry of a default which the Federal trial judge refused to set aside.
Again, though the record fails to disclose the reason for the jury's finding of contributory negligence, there exists evidence from which the jury could have reasonably concluded that plaintiff was experiencing extreme financial difficulty prior to January, 1971, and for this reason plaintiff was unable to make the royalty payments. Evidence supports a conclusion by the jury that plaintiff's own penury was a cause of the termination of the franchise and Bonanza's injunction against him.
*280 The jury could have reasonably concluded also that plaintiff's contempt of the Federal Court injunction led to his downfall. Evidence taken at contempt hearings in Federal Court indicates that plaintiff refused to discontinue the use of the Bonanza trademarks. Despite the Federal Court order, he continued to operate a low-cost steak restaurant in violation of the injunction. His contemptuous action constituted grounds for the Federal Court's refusal to set aside the default.[10] Accordingly, his contributory negligence in these respects does not permit him to recover for damages resulting from the termination of the franchise and the adverse Federal Court judgment.
Turning now to plaintiff's claim against defendant on the deficiency judgment rendered in the NCR matter, we conclude Corceller failed to show by a preponderance of the evidence that Brooks was negligent. The sole testimony on this claim was given by Phillip T. Hager, a former associate of Brooks who handled the cash register problem. According to Hager, Corceller's son telephoned him and informed him that NCR was about to seize the cash register under executory process. Corceller's son was seeking an extension of time in which to use the register until a replacement could be obtained. Hager made an agreement with an opposing attorney and a five-day extension was granted. Corceller obtained a new cash register from another source and the NCR machine was seized. Following the sale of the machine, NCR obtained a deficiency judgment against Corceller.
Though plaintiff asserts that the attorney's improper handling of the matter caused the adverse judgment, no evidence was introduced by plaintiff to show that NCR would have accepted the return of the cash register alone in settlement of Corceller's obligation to pay the purchase price. There is no indication in the record that NCR was willing to forego its right to have the machine seized by the sheriff under executory process. Accordingly, we find no proof in the record supporting plaintiff's claim of defendant's negligence in connection with the NCR seizure.
Finally, we conclude plaintiff is entitled to the return of the $1,250.00 advanced to defendant for court costs and other expenses. Receipt of the amount is admitted by defendant; however, he characterizes the check as "a retainer" given to him at the inception of plaintiff's state court suit. Evidence is lacking to support this contention. Plaintiff testified the sum was paid on April 7, 1971, to cover anticipated travel expenses in prosecuting the suit. Corceller stated that he himself bore the cost of all expenses during a trip taken by Brooks and him to Dallas where the discovery deposition of a Bonanza executive was obtained.
In brief and oral argument on appeal, defendant asserts the doctrine of quantum meruit in extinguishment of the obligation for return of the deposit. We reject this argument. The affirmative defense of the "extinguishment of the obligation in any manner" must be affirmatively pleaded. See LSA-C.C.P. art. 1005. This defense was not pleaded in the instant case. Under the circumstances, we conclude that plaintiff is entitled to the return of the sum of $1,250.00.
Defendant asserts as a bar to plaintiff's claim a release executed by plaintiff upon receipt of the sum of $ 8,500.00 from Bonanza International and others in connection with a settlement between those parties. Because of the result reached, no necessity exists for consideration of the effect of the *281 release on the claims asserted by plaintiff. Our judgment in favor of plaintiff on the issue of the $1,250.00 advance payment has no relationship to that release.
Accordingly, the judgment of the trial court dismissing plaintiff's suit on all claims, with the exception of his claim for costs advanced, is affirmed. That part of the judgment denying to plaintiff recovery of the $1,250.00 advance in costs is reversed and set aside. Accordingly, judgment is amended and cast as follows: Judgment is now rendered in favor of plaintiff and against defendants in the sum of $1,250.00, together with interest from date of judicial demand. In all other respects, plaintiff's claim is denied. Costs to be paid by plaintiff.
AFFIRMED IN PART; REVERSED IN PART.
NOTES
[1] The claim by plaintiff Rellecroc, Inc. against defendant attorney and his liability insurer has been abandoned.
[2] Damages alleged by plaintiff, in addition to the claim for advanced costs, include: loss resulting from the deficiency judgment; additional attorney's fees expended in attempting to correct the default judgment; physical disability, loss of earnings, embarrassment, humiliation, grief, mental anguish on account of injunctive proceedings; loss of patrimony; adverse publicity; and loss of assets.
[3] "Joseph C. Corceller, Jr. and Rellecroc, Inc. v. Bonanza International", No. 134-381 on the docket of the 24th Judicial District Court.
[4] The last royalty payment and accounting had been made on January 3, 1971.
[5] "Bonanza International, Inc. and Stewart Investments, Inc. v. Joseph Charles Corceller, Jr.", C.A. No. 71-2594 on the docket of the United States District Court for the Eastern District of Louisiana.
[6] See: Professor Litvinoff's treatise on obligations. La. Civil Law Treatise, Vol. 7, Sec. 182.
[7] LSA-C.C. art. 2323 reads as follows:
Art. 2323. Computation of damages
"Art. 2323. The damage caused is not always estimated at the exact value of the thing destroyed or injured; it may be reduced according to circumstances, if the owner of the thing has exposed it imprudently."
[8] See 7 Am.Jur.2d, Attorneys at Law § 167; Theobald v. Byers, 193 Cal.App.2d 147, 13 Cal. Rptr. 864, 87 A.L.R.2d 986, Cal.Dist. Court of Appeal, hearing denied by Supreme Court of California, 1961.
[9] LSA-C.C.P. arts. 1811, 1812; Mulkey v. Aetna Casualty & Surety Company, 210 So.2d 897 (La.App. 1st Cir. 1968); Hocut v. Insurance Company of North America, 254 So.2d 108 (La.App. 3d Cir. 1971), writ denied, 260 La. 411, 256 So.2d 292 (1972).
[10] As the Fifth Circuit Court of Appeals stated in Bonanza International, Inc. v. Corceller, 480 F.2d 613, 614 (1973), affirming the default judgment:
"There is evidence, moreover, that defendant [Corceller] refused to obey the Court's orders, and such action constitutes sufficient grounds for a default judgment. * * *
"Defendant [Corceller] elected not to appear at a full hearing on the question of damages [subsequent to termination of defendant's employment]. Damages awarded pursuant to default cannot be questioned for the first time upon appeal. * * *" | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1806037/ | 991 F.Supp. 519 (1998)
Mavis D. SHARP
v.
KMART CORPORATION, et al.
Civil Action No. 96-3312-B-M1.
United States District Court, M.D. Louisiana.
January 5, 1998.
*520 Sydney Picou-Kendrick, St. Francisville, LA, Randolph Alexander Piedrahita, Due', Caballero, Perry, Price & Guidry, Baton Rouge, LA, Christopher Lee Whittington, Baton Rouge, LA, for Mavis D. Sharp.
Gayla M. Moncla, Cullen J. Dupuy, Breazeale, Sachse & Wilson, Baton Rouge, LA, for KMart Corporation, Fred Pininger.
RULING ON PLAINTIFF'S MOTION FOR LEAVE TO AMEND PLAINTIFF'S FIRST SUPPLEMENTAL COMPLAINT AND MOTION TO REMAND
POLOZOLA, District Judge.
This motion requires the Court to determine the meaning of 28 U.S.C. § 1447(e). Specifically, the Court must determine whether a post-removal amendment to a complaint which adds a non-diverse party would destroy the Court's subject matter jurisdiction under 28 U.S.C. § 1332 and 28 U.S.C. § 1447(e).
Plaintiff has filed motions for leave to amend her complaint and to remand. The proposed amendment seeks to add a non-diverse party. Plaintiff contends that if the Court allows her to add a non-diverse party, the Court must remand the case. Defendant contends that diversity jurisdiction is determined at the time of removal and any post-removal amendment to add a non-diverse party would not destroy diversity jurisdiction.
The Court heard oral arguments on this motion and found that if a non-diverse party is added after the case is removed to federal court, the clear language of 28 U.S.C. § 1447(e) requires the Court to remand the suit. The Court now supplements its oral reasons with this opinion.
I. FACTUAL AND PROCEDURAL HISTORY
Plaintiff, Mavis D. Sharp, originally filed this lawsuit in the Nineteenth Judicial District, Parish of East Baton Rouge, State of Louisiana against Kmart Corporation ("Kmart") and Fred Pininger, a manager of Kmart. Kmart is a foreign corporation, and Pininger and Sharp are Louisiana citizens.
Defendants timely removed the matter to this Court arguing the Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332.[1] The plaintiff filed her first motion to remand, arguing that this Court lacked subject matter jurisdiction because the parties were not completely diverse. Kmart, on the other hand, argues that the party sought to be joined was fraudulently joined solely for the purpose of defeating diversity jurisdiction. This Court initially agreed with the defendant and denied plaintiff's first motion to remand, finding that there was no possibility of recovering against the non-diverse defendant in this case.[2]
*521 After this Court's initial ruling, the parties participated in discovery.[3] On May 12, 1997, the plaintiff filed a motion for leave of court to file a first supplemental and amending petition for damages. In this amended complaint, the plaintiff seeks to add Savell Enterprises, Inc., a Louisiana corporation. Shortly thereafter, the plaintiff filed a second motion for remand. In this second remand motion, the plaintiff argued that if her motion for leave to amend was granted, complete diversity would not be present, and the Court would have to remand for lack of subject matter jurisdiction. Kmart opposed both motions.
It is well settled that lack of complete diversity between the parties when a suit is brought pursuant to 28 U.S.C. § 1332 deprives a federal court of jurisdiction.[4] Both Sharp and Kmart cite 28 U.S.C. § 1447(e) and Hensgens v. Deere & Company as the controlling law on the question of whether diversity is destroyed if a non-diverse party is added to a suit after the case is removed to federal court. However, there are some cases which suggests that the Hensgens analysis is no longer controlling after the United States Supreme Court decision in Freeport-McMoRan, Inc. v. KN Energy Inc.[5] Thus, the Court must now decide which standard the Court should apply in determining whether a non-diverse party may be added to the suit which was removed to federal court on the basis of diversity jurisdiction. This Court will first examine Hensgens case and the history behind Section 1447(e) and then turn to Freeport-McMoRan case.
A. Hensgens v. Deere & Company
Rule 15(a) of the Federal Rules of Civil Procedure provides that leave to amend a complaint should be given freely when "justice so requires." The question which remains is whether that same standard applies when a party desires to amend a suit which has been removed to federal court, particularly when the amendment would destroy complete diversity of citizenship. This question was answered by the Fifth Circuit in Hensgens v. Deere & Co. In Hensgens, the Fifth Circuit found that where a district court is faced with a motion to amend the complaint to add a non-diverse defendant in a removed case, the district court should scrutinize the amendment more closely than it does an ordinary amendment.[6] In short, the right to freely amend set forth in Rule 15 of the Federal Rules of Civil Procedure does not apply where a party seeks to add a nondiverse party in a removed case.
When a case is removed to federal court, diversity must exist at the time the action is commenced and when the notice of removal is filed.[7] The Hensgens court explained, however, that the addition of a non-diverse party after removal will defeat jurisdiction.[8] The court stated, while "most post-removal developments amendment of pleadings to below the jurisdictional amount or change in citizenship of a party will not divest the Court of subject matter jurisdiction, an addition of a non-diverse defendant to a case will do so."[9]
In Hensgens the Fifth Circuit noted that when the court is faced with a motion to amend to add a non-diverse party after removal, justice requires that the district court consider a number of factors to balance the defendant's interest in maintaining the federal forum with the competing interests of not *522 having parallel law suits. The Hensgens court stated:
[T]he court should consider the extent to which the purpose of the amendment is to defeat federal jurisdiction, whether plaintiff has been dilatory in asking for amendment, whether plaintiff will be significantly injured if amendment is not allowed, and any other factors bearing on the equities. The district court, with input from the defendant, should then balance the equities and decide whether amendment should be permitted.[10]
The law in the Fifth Circuit was clear after Hensgens. If a court allows the joinder of a non-diverse party, the case must be remanded; however, if the court denies the motion to amend, it need not remand the suit to state court.[11]
B. Section 1447(e)
In 1988, after Hensgens was decided, Congress amended 28 U.S.C. § 1447 to include subsection (e). Section 1447(e) states in pertinent part: "If after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court." The Fifth Circuit has cited Hensgens with approval after the passage of Section 1447(e).[12] Moreover, some courts have noted that Section 1447(e) was a codification of the Hensgens opinion.[13]
The legislative history behind the passage of Section 1447(e) is instructive. Essentially, Section 1447(e) gives the court two options when a diversity case has been removed and the plaintiff then seeks to add a party whose citizenship would destroy complete diversity requirement: (1) deny the motion and retain the case; or, (2) grant the motion and remand the suit to state court. Congress had considered a middle ground, which would have allowed the joinder and at the same time allowed a court in its discretion to keep the case and decide it on its merits.[14] Congress rejected this last alternative because it would have manifested a departure from the traditional requirement of complete diversity and "provide[d] a small enlargement of diversity jurisdiction."[15] Congress adopted the narrow language reflected in Section 1447(e) to avoid expanding federal diversity jurisdiction.[16]
C. Freeport-McMoRan, Inc. v. KN Energy Inc. And Its Prodgeny
There are a number of recent opinions from federal district courts that follow the *523 Hensgens case.[17] Some district courts, however, have held that Hensgens is no longer controlling[18] after the United States Supreme Court case of Freeport-McMoRan, Inc. v. KN Energy, Inc.[19]
In Freeport, a gas seller (McMoRan Oil and Gas Company) and its parent company (Freeport-McMoRan, Inc.) sued a buyer (KN Energy, Inc.) for breach of contract. Federal subject matter jurisdiction was based on diversity of citizenship. Thereafter, petitioners sought leave to amend their complaint to substitute non-diverse party as a plaintiff under Rule 25(c) of the Federal Rules of Civil Procedure.[20] The district court permitted petitioners to add the party. After trial in favor of petitioners, the court of appeals reversed the district court's decision finding that the suit should have been dismissed because the addition of the non-diverse party after suit was filed destroyed diversity jurisdiction.[21]
The United States Supreme Court reversed the Tenth Circuit Court of Appeals holding that diversity jurisdiction, once established, is not defeated by the addition of a non-diverse party to the action. The Court reasoned that "a contrary rule could well have the effect of deterring normal business transactions during the pendency of what might be a lengthy litigation."[22] The Supreme Court also explained that the case of Owen Equipment & Erection Co. v. Kroger[23] "casts no doubt ... that diversity jurisdiction is to be assessed at the time the lawsuit is commenced."[24] The Freeport Court limited its holding to parties who were not indispensable. The Court found that if the party who has been added was indispensable at the time the plaintiff filed its complaint, the addition of a non-diverse party would defeat diversity jurisdiction.[25]
*524 The language in Freeport "diversity jurisdiction, once it is established, is not defeated by the addition of a non-diverse party to the action" read in a vacuum could vastly change the law in diversity cases where a new party is added who would have otherwise destroyed diversity jurisdiction. But one commentator noted, "[i]t is doubtful that this broad statement applies to defendants newly joined by plaintiff."[26] Commentators and a recent court of appeals opinion characterized Freeport's holding as follows: the addition of a non-diverse, non-indispensable party pursuant to Rule 25(c) does not deprive the court of subject matter jurisdiction.[27]
The Fifth Circuit has analyzed and applied the Freeport decision in Whalen v. Carter.[28] In Whalen, the court found that a non-diverse limited partnership which was added after the suit was filed did indeed destroy diversity jurisdiction because the limited partnership was an indispensable party.[29] In support for this proposition, the court cited Freeport.
The motion to amend which is now pending before this Court involves the joinder of a non-diverse, non-indispensable party after removal. The non-diverse party is not being substituted into this case under Rule 25(c), but instead, the plaintiff seeks to add the party as an additional defendant in the suit. The Fifth Circuit has not addressed the issue of whether Freeport's holding is limited to cases involving Rule 25(c) joinder. However, cases in the Eastern and Western District have found that Freeport applies not just to cases involving Rule 25(c) substitutions, but also to cases where a party seeks to add a non-diverse, non-indispensable party.[30]
Thus, in Kerr v. Smith Petroleum Co.,[31] the plaintiffs filed suit for damages against foreign corporations that owned an offshore platform alleging jurisdiction based on diversity of citizenship. After the suit was filed, the plaintiff added two non-diverse defendants. Sometime thereafter, the plaintiffs argued that the court lacked subject matter jurisdiction over the claims.[32] The district court began its analysis with Hensgens, but then turned to Freeport and Whalen.[33] The Kerr court found that "[b]ecause these nondiverse defendants were not indispensable at the time of the filing of this lawsuit, their later addition [did] not destroy diversity jurisdiction *525 under Freeport-McMoRan as construed by Whalen."[34] Moreover, in Shaw v. Meridian Oil, Inc.,[35] the court held after Freeport, "Hensgens is no longer controlling."[36] In Shaw, the plaintiffs originally filed suit in state court against Meridian Oil and the case was removed to federal court based on diversity jurisdiction. Later, the plaintiffs were allowed to amend their complaint to add a non-diverse Louisiana corporation as a defendant. The court held that the addition of this non-diverse party who was not an indispensable party as a defendant did not defeat the court's subject matter jurisdiction over the entire case. The court cited Freeport in support of this conclusion. Interestingly enough, the court then went on to state that it was, nevertheless, necessary to examine whether the claims against this nondiverse party fell within the court's supplemental jurisdiction under 28 U.S.C. § 1367(a). The Shaw court found Section 1367(b) limits supplemental jurisdiction where the district court's original jurisdiction was based on diversity. Because the nondiverse party was made a defendant pursuant to Rule 20 of the Federal Rules of Civil Procedure, the court, following § 1367(b), found that it could not exercise supplemental jurisdiction over the claims.
There has been no court of appeals case directly on point which followed the Kerr and Shaw interpretation of Freeport. There has been one First Circuit Court of Appeals case and one D.C. Circuit Court of Appeals case that are both instructive on the issue now pending before the Court regarding the applicability of Freeport. In fact, the Shaw court cited the First Circuit Court of Appeals case of Casas Office Machines v. Mita Copystar of America,[37] noting its outcome was consistent with the First Circuit although the opinion in Casas used different reasoning.
In Casas, the First Circuit Court of Appeals did cite Freeport, generally noting that Freeport held diversity jurisdiction was not defeated by the addition of a party who was not indispensable because there was complete diversity when the action commenced.[38] Nonetheless, the court found that the joinder or substitution of a non-diverse defendant after removal destroys diversity, regardless of whether such defendants are dispensable or indispensable to the action.[39] Accordingly, when the fictitious defendants in Casas were replaced with non-diverse defendants after removal, the court held subject matter jurisdiction was defeated.[40] The Casas court focused its analysis on Section 1447(e) and stated "[w]e think that, had Congress decided that federal courts could retain jurisdiction over cases in which plaintiffs joined or substituted dispensable, non-diverse defendants after removal, it would have made that plain in § 1447(e)."[41]
The recent D.C. Circuit case is also instructive. In Burka v. Aetna Life Ins. Co.,[42] the court found that defendants' Rule 25(c) motion to substitute a non-diverse, non-indispensable party as a defendant did not defeat diversity jurisdiction.[43] The Burka court stated that the Freeport case "establishes that the addition of a non-diverse party pursuant to Rule 25(c) does not deprive the District Court of subject matter jurisdiction, and hence does not require remand or dismissal."[44]*526 The defendants had filed a Rule 25(c) motion in Burka a week before the plaintiff sought to join the non-diverse defendant pursuant to Rule 19. The plaintiffs argued that joinder under Rule 19 would destroy diversity and the case should be remanded under § 1447(e). Plaintiffs also argued that even if the court did allow defendants' earlier motion under Rule 25(c), that Rule 25(c) triggered the application of the remand provisions set forth in § 1447(e). The Burka Court held a Rule 25(c) transfer-of-interest based substitution is not a form of "joinder" within the meaning of Section 1447(e).[45] Explaining its ruling further, the Burka court concluded, "we find nothing in the law suggesting that either Rule 19 or section 1447(e) trumps Rule 25(c) when all may be applicable, especially when the Rule 25 motion was filed first in time."[46]
D. Does Freeport Tacitly Overrule Hensgens?
The issue in this case is whether this Court must apply the precepts of Hensgens and the clear language of § 1447(e) to decide whether a non-diverse party who is not indispensable may be added to a suit, or whether the language in Freeport renders Hensgens inapposite. The Fifth Circuit has not squarely addressed this issue. While the Fifth Circuit did discuss the precepts of Freeport in Whalen, the holding of the court in Whalen is that the addition of a nondiverse, indispensable party will divest the court of subject matter jurisdiction. That edict was clear even in Hensgens. This Court must focus on whether the Freeport and Whalen decisions mandate that subject matter jurisdiction will not be affected by the addition of a non-indispensable party.
There is no indication in the Freeport opinion that its holding applies in circumstances such as the instant case, where a non-diverse, non-indispensable party in a removed case is joined after the case has been removed. This Court agrees with the D.C. Circuit Court of Appeals characterization of the Freeport holding and application. The Freeport case centers around a Rule 25(c) transfer-of-interest-based substitution. Freeport precisely holds that if diversity existed at the time the law suit was filed, the fact a party later assigned its cause of action to a non-diverse party who was brought in on a Rule 25 motion does not divest the court of jurisdiction once properly attached.[47] Further, the Whalen Court, while discussing Freeport, simply holds that an addition of a non-diverse party who is indispensable will indeed destroy subject matter jurisdiction. The principals set forth in Freeport and Whalen, however, do not effect the outcome in the case at hand. The instant case does not involve a Rule 25(c) motion, nor does it involve the addition of a indispensable party. Thus, Section 1447(e) and the Hensgens case control the outcome of the case at hand.[48]
If this Court followed Kerr and Shaw's interpretation of Hensgens and Freeport in this removal case, then Section 1447(e) would have no meaning. Kerr finds that any addition of a party does not defeat diversity jurisdiction. The legislative history of Section 1447(e) is clear that Congress was careful not to expand the federal court's subject matter jurisdiction in the slightest.[49] Congress specifically rejected language which would have statutorily allowed a district court to retain jurisdiction even though a non-diverse party was added to suit after the case had been removed and the parties have established subject matter jurisdiction pursuant to 28 U.S.C. § 1332. The general language in Freeport as interpreted by Kerr and Shaw expands a federal court's subject matter jurisdiction. This Court finds that the United States Supreme Court's holding Freeport *527 is limited to a case where a party is added under Rule 25(c). This holding is consistent with the clear language of 28 U.S.C. § 1447(e).
According to the unambiguous language in Section 1447(e), when a plaintiff seeks to join a non-diverse party, the district court may either grant the amendment and remand because complete diversity would no longer be present or deny the amendment and retain jurisdiction over the case because the remaining parties are completely diverse. The Court has discretion when considering whether to allow the addition of a non-diverse, non-indispensable party. In such circumstances, Hensgens is still applicable and sets forth factors the court may consider in exercising that discretion.
This Court finds that the holdings of the Freeport and Whalen cases do not render the Fifth Circuit case of Hensgens inapposite. The Hensgens case is still controlling. The language of 28 U.S.C. § 1447(e) is clear. If a non-diverse party is added to the case after it is removed to federal court and destroys complete diversity of citizenship between the parties, the Court must remand the suit to state court.
II. CONCLUSION
After the Court issued its oral reasons, the parties entered into a stipulation which moots plaintiff's motion to amend and to remand. Therefore, plaintiff's motion to amend and to remand shall be denied as moot.
It is so ordered.
NOTES
[1] At the time this suit was removed, 28 U.S.C. § 1332(a) stated in pertinent part:
The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $50,000, exclusive of interest and costs, and is between ... (1) citizens of different states.
....
As of January 1, 1997, the jurisdictional amount has been raised to $75,000. However, jurisdictional amount is not question in this motion to remand.
[2] In this unpublished ruling, signed October 7, 1996, this Court cited the following cases in support of its ruling: Campbell v. J.R. Galloway, Kmart Corp. and ABC Insurance Co., 1991 WL 81702 (E.D.La.1991); Williams v. The Great Atlantic & Pacific Tea Co., Inc., No 90-0471, slip op. at 3 & 4 (E.D.La.1990).
[3] On October 24, 1996, the parties entered into a scheduling order with Magistrate Judge Riedlinger.
[4] Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806).
[5] 498 U.S. 426, 111 S.Ct. 858, 112 L.Ed.2d 951 (1991).
[6] Hensgens v. Deere & Co., 833 F.2d 1179 (5th Cir.1987), cert. denied, 493 U.S. 851, 110 S.Ct. 150, 107 L.Ed.2d 108 (1989).
[7] JUDGE DAVID HITTNER, FEDERAL CIVIL PROCEDURE BEFORE TRIAL ¶ 2:649 (5th Cir. ed.1996).
[8] 833 F.2d at 1180-81 (citing Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 374, 98 S.Ct. 2396, 2403, 57 L.Ed.2d 274 (1978)).
[9] IMFC Professional Services of Florida v. Latin American Home Health, Inc., 676 F.2d 152, 157 (5th Cir.1982).
[10] Hensgens, 833 F.2d at 1182. This Court followed this mandate of Hensgens in Depriest v. BASF Wyandotte Corporation, 119 F.R.D. 639 (M.D.La.1988), wherein this Court denied the plaintiff's motion to amend the complaint. The Court found that the addition of the corporation would not aid discovery nor the preparation of plaintiff's case. Furthermore, the Court ruled that a complete resolution of the dispute does not require the joinder of the corporation. Just because the corporation may be liable under the theory of respondeat superior, the Court noted, does not affect the liability of its agent. Depriest, 119 F.R.D. at 640. See also Miller v. Dow Corning Corporation, 771 F.Supp. 1171 (M.D.La. 1990). In Miller, this Court found that the amendment to add a non-diverse party would not be permitted where, although there was no indication that the amendment was intended to destroy diversity and the filing of the motion to amend was not necessarily dilatory, the equities in the case leaned toward retaining jurisdiction. This Court noted there had been considerable discovery and the plaintiff could pursue his remedies against the non-diverse defendant in state court and would not be significantly injured if the motion was denied. Further, this Court noted that evidence against the two parties would be quite different. Miller, 771 F.Supp. at 1172.
[11] Depriest, 119 F.R.D. at 639-40.
[12] Tillman v. CSX Transportation, Inc., 929 F.2d 1023 (5th Cir.1991); Templeton v. Nedlloyd Lines, 901 F.2d 1273, 1275-76 (5th Cir.1990) (discussing the legislative history behind § 1447(e)).
[13] See Heininger v. Wecare Distributors, Inc., 706 F.Supp. 860, 862 n. 4 (S.D.Fla.1989); Chism v. Burlington Northern Railroad, Co., 1996 WL 408907 (N.D.Miss.1996).
[14] David D. Siegel, Commentary on 1988 Revision of Section 1447, in 28 U.S.C.A. § 1447 (1994) (hereinafter "Siegel Commentary").
[15] Siegel Commentary.
[16] Templeton, 901 F.2d at 1274 (citing H.R.REP. NO. 889, 100th Cong., 2d Sess., 72-73, reprinted in 1988 U.S.CODE CONG. & ADMIN. NEWS 5982, 6032-33).
[17] A number of recent district court cases have followed Hensgens without discussion of whether the Freeport case changes the inquiry. See Whitworth v. TNT Bestway Transportation, Inc., 914 F.Supp. 1434 (E.D.Tex.1996) (denying leave to add a non-diverse party following removal); Chism v. Burlington Northern Railroad Company, 1996 WL 408907 (N.D.Miss.1996) (citing Freeport for the proposition that joinder of a non-diverse party who is indispensable at the commencement of the action divests the court of jurisdiction, but following the precepts of Hensgens to grant the amendment of the non-diverse non-indispensable party and remand the case); Hooker v. Hoover, 1995 WL 840767 (N.D.Tex. 1995) (granting plaintiff's motion to amend the complaint); In Re Norplant Contraceptive Products Liability Litigation, 898 F.Supp. 433 (E.D.Tex.1995) (allowing plaintiffs in a removed case to amend their complaint to add non-diverse defendants); Horton v. Scripto-Tokai Corporation, 878 F.Supp. 902 (S.D.Miss.1995) (allowing plaintiff to add a non-diverse defendant); O'Connor v. Automobile Ins. Co. of Hartford Connecticut, 846 F.Supp. 39 (E.D.Tex.1994) (finding that insured was not entitled to add a non-diverse defendant this removed case).
[18] See Kerr v. Smith Petroleum, 889 F.Supp. 892 (E.D.La.1995); Shaw v. Meridian Oil, Inc., 1996 WL 521411 (W.D.La.1996) (unreported opinion, U.S. Magistrate Judge Wilson). But see Smith v. Lucas Tire Co., Inc., 1995 WL 57295 (E.D.La. 1995) (following Hensgens allowing the plaintiff to add a non-diverse defendant and distinguishing Freeport).
[19] 498 U.S. 426, 111 S.Ct. 858, 112 L.Ed.2d 951 (1991) (Per Curiam).
[20] Rule 25(c) of the Federal Rules of Civil Procedure reads in pertinent part:
In case of any transfer of interest, the action may be continued by or against the original party, unless the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.
[21] Freeport-McMoRan, Inc. v. KN Energy, Inc., 907 F.2d 1022 (10th Cir.1990).
[22] Freeport, 498 U.S. at 428, 111 S.Ct. at 859. The court of appeals had relied on the case of C.T. Carden v. Arkoma Associates, 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990). The Supreme Court explained in Freeport that C.T. Carden dealt with the issue of whether limited partners must be taken into account in determining whether diversity jurisdiction exist in an action brought by a limited partnership. In C.T. Carden, the original plaintiff was a limited partnership. The Freeport Court noted that nothing in C.T. Carden suggests any change in the "well-established rule that diversity of citizenship is assessed at the time the action is filed." Freeport, 498 U.S. at 428, 111 S.Ct. 858, 860, 112 L.Ed.2d 951.
[23] 437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978).
[24] Freeport, 498 U.S. at 428, 111 S.Ct. 858, 860, 112 L.Ed.2d 951.
[25] Freeport, 498 U.S. at 428, 111 S.Ct. 858, 860, 112 L.Ed.2d 951. See also Whalen v. Carter, 954 F.2d 1087, 1096 (5th Cir.1992) ("[T]he Court in Freeport McMoRan concluded that the addition of a nondiverse party does not defeat diversity jurisdiction unless the party was indispensable at the time the plaintiff filed his complaint."); Burka v. Aetna Life Ins. Co., 87 F.3d 478, 482 (D.C.Cir.1996) (finding "a Rule 25(c) addition of a nondiverse party may destroy diversity if the added party was indispensable at the time the action began").
[26] JUDGE DAVID HITTNER, FEDERAL CIVIL PROCEDURE BEFORE TRIAL ¶ 2:379.1 (5th Cir. ed.1996).
[27] 6 JAMES WM. MOORE, MOORE'S FEDERAL PRACTICE, ¶ 25.30[7] (3rd ed.1977); JUDGE DAVID HITTNER FEDERAL CIVIL PROCEDURE BEFORE TRIAL, ¶ 2:379.1 (5th Cir. ed.1996); Burka v. Aetna Life Ins. Co., 87 F.3d 478, 482 (D.C.Cir.1996).
[28] 954 F.2d 1087 (5th Cir.1992).
[29] Whalen, 954 F.2d at 1096.
[30] See Kerr v. Smith Petroleum Co., 889 F.Supp. 892 (E.D.La.1995) (Jones, J.); Shaw v. Meridian Oil, Inc., 1996 WL 521411 (W.D.La.1996) (Wilson, Mag.).
[31] 889 F.Supp. 892 (E.D.La.1995) (Jones, J.).
[32] Kerr, 889 F.Supp. at 893.
[33] When discussing the Whalen case, the Eastern District Court noted that the court in Whalen found the limited partnership was not indispensable under Rule 19(b). Then the court went on to reason that because the added parties in Kerr were not indispensable under Rule 19(b), the addition of the parties did not destroy diversity. This Court reads Whalen differently. In Whalen the limited partnership, PHC & Associates, was added as a defendant after the suit was filed. The Whalen court pointed out after reviewing Freeport that "if PHC & Associates is not an indispensable party, the district court erred in refusing to exercise subject matter jurisdiction over Whalen's state law claims." Conversely, if PHC & Associates is an indispensable party, then the district court did not err in dismissing the state law claims for want of diversity jurisdiction; then the Whalen court went on to state quite clearly, "we conclude that PHC & Associates is indeed an indispensable party." Whalen, 954 F.2d at 1096. The Whalen court, at this point, reviewed Rule 19(b) factors and stated "the district court cannot resolve Whalen's state-law claims in equity and good conscience without the joinder of PHC & Associates." Whalen, 954 F.2d at 1096. The court went on to remand the question of whether the district court could exercise supplemental jurisdiction over the state law claims. Whalen, 954 F.2d at 1097, n. 9, n. 10.
[34] Kerr, 889 F.Supp. at 896.
[35] 1996 WL 521411 (W.D.La.1996) (Wilson, Mag.).
[36] Shaw, 1996 WL 521411, at *1.
[37] 42 F.3d 668 (1st Cir.1994).
[38] Casas, 42 F.3d at 673.
[39] Casas, 42 F.3d at 675.
[40] Casas, 42 F.3d at 674-75. The Casas court maintained that the characterization of a party as indispensable does effect the options of a court. If the defendant is indispensable, the district court's only option is to deny the joinder and dismiss or allow the joinder and remand. However, if the party is dispensable, the district court has the option to deny joinder and retain jurisdiction or permit the joinder and remand the case. The Casas court cited Hensgens as authority for this proposition. Casas, 42 F.3d at 675.
[41] Casas, 42 F.3d at 675.
[42] 87 F.3d 478 (D.C.Cir.1996).
[43] Burka, 87 F.3d at 482.
[44] Burka, 87 F.3d at 480.
[45] Burka, 87 F.3d at 484.
[46] Burka, 87 F.3d at 484.
[47] JUDGE DAVID HITTNER, FEDERAL CIVIL PROCEDURE BEFORE TRIAL ¶ 2:374.1 (5th Cir. ed.1996).
[48] This Court agrees with the reasoning of the Burka court; Rule 25(c) is wholly distinguishable from a joinder that triggers Section 1447(e).
[49] In Shaw v. Meridian Oil Inc., 1996 WL 521411, the court found that nothing in 1447(e)'s history suggests that it was intended to limit the subject matter jurisdiction of the district court. See this Court's discussion in § II(B). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1836025/ | 143 B.R. 837 (1992)
In the Matter of COVENTRY COMMONS ASSOCIATES, Debtor.
No. 91-CV-75730-DT.
United States District Court, E.D. Michigan, S.D.
April 14, 1992.
Douglas D. Roche, William T. Burgess, Michael C. Hammer, Detroit, Mich., for creditor.
Barbara Rom, Vicki R. Harding, Detroit, Mich. (John C. Murray, Oak Brook, Ill., of counsel) for debtor.
OPINION
DUGGAN, District Judge.
Presently before the Court is an appeal by The Travelers Insurance Company ("Travelers"), pursuant to Bankruptcy Rule 8001(a), from the bankruptcy court's *838 Order of October 28, 1991, determining the rights between Travelers and Chapter 11 debtor Coventry Commons Associates ("Coventry") as to the rents in a shopping center. This Court has jurisdiction of this matter pursuant to 28 U.S.C. § 158(a). This Court heard oral argument on the appeal on April 8, 1992.
The first issue raised in the appeal is whether Travelers has a perfected security interest in the post-petition rents of the shopping center by virtue of the assignment of rents entered into between it and Coventry. The bankruptcy court ruled below that Travelers has an "inchoate" interest in the rents.
The parties agree that state law, here Michigan law, determines Travelers' rights to the rents in the shopping center. See Butner v. United States, 440 U.S. 48, 55-57, 99 S.Ct. 914, 918-19, 59 L.Ed.2d 136 (1979). In Michigan, the assignment of rents is governed by statuteM.C.L.A. §§ 554.231 and 554.232 (West 1988) ("§ 231" and "§ 232"). These provisions, this Court concludes, permit a mortgagor to grant to a mortgagee an assignment of rents as additional security and that the assignee/mortgagee's rights are perfected and binding against the assignor/mortgagor when such assignment is recorded and a default occurs in the terms and conditions of the mortgage. In the present case it is undisputed that Travelers recorded the assignment of rents and that Coventry defaulted under the terms of the mortgage.
The bankruptcy court ruled that, since Travelers did not record a notice of default and did not send copies of such notice to the tenants of the shopping center, as provided in §§ 231 and 232, Travelers does not have an existing interest in the rents of the shopping center under Michigan law. 134 B.R. 606. Accordingly, the bankruptcy court characterized Travelers' interest in the rents as "inchoate"an interest in the right to receive the rents at some future time.
In this Court's opinion, the bankruptcy court's ruling added the notice and recording requirements required by §§ 231 and 232 for an assignee of rents to enforce such assignment against tenants to the requirements for an assignee to enforce an assignment against the assignor. This Court's reading of §§ 231 and 232 supports the conclusion that such additional requirements are not required when the assignee seeks to enforce an assignment of rents against the assignor only (the underlined language indicates the additional requirements imposed on an assignee seeking to enforce an assignment as to the tenants):
Such assignment of rents shall be binding upon such assignor only in the event of default in the terms and conditions of said mortgage, and shall operate against and be binding upon the occupiers of the premises from the date of filing by the mortgagee in the office of the register of deeds for the county in which the property is located of a notice of default in the terms and conditions of the mortgage and service of a copy of such notice upon the occupiers of the mortgaged premises. (M.C.L.A. § 554.231)
Sec. 2. The assignment of rents, when so made, shall be a good and valid assignment of the rents to accrue under any leases in existence or coming into existence during the period the mortgage is in effect, against the mortgagor or mortgagors or those claiming under or through them from the date of the recording of such mortgage, and shall be binding upon the tenant under the lease or leases upon service of a copy of the instrument under which the assignment is made, together with notice of default as required by section 1. (M.C.L.A. § 554.232)
Case law also supports this Court's conclusion as to the interpretation of §§ 231 and 232. Specifically, this Court finds persuasive Judge Brody's ruling on the requirements of §§ 231 and 232 as set forth in In re P.M.G. Properties, 55 B.R. 864 (Bankr.E.D.Mich.1985).[1]
*839 As Travelers has a perfected present security interest in the rents, such rents must be treated as cash collateral as required under 11 U.S.C. §§ 363(a) and 552(b). The rents are cash collateral because both the bankruptcy estate and Travelers have an interest in the rents and the rents are subject to a security agreement as provided by § 552(b). See In re Bethesda Air Rights Ltd. Partnership, 117 B.R. 202, 209-10 (Bankr.D.Md.1990) (where rents are treated as security, rents collected post-petition are cash collateral, even where creditor had perfected its interest in the rents pre-petition and had satisfied state law requirements to enforce assignment of rents).
As the rents are cash collateral, the debtor, here Coventry, may not use such rents without first gaining the approval of the bankruptcy court. This is because, under the Bankruptcy Code, Travelers, as a party holding an interest in the rents, is entitled to require that its interest in the rents is adequately protected. 11 U.S.C. §§ 363(c)(2)(B) & (e).
The bankruptcy court, both in its original and supplemental rulings, did not expressly determine whether Travelers' interest in the rents, as cash collateral, was adequately protected under the terms of the Bankruptcy Code. Since this Court has concluded that Travelers has a perfected security interest in the rents and that such rents are cash collateral, the question presented is whether the decision of the bankruptcy court with respect to the use of the rents would be the same if that court had specifically determined that the rents were cash collateral. In other words, did the opinion of the bankruptcy court take into account the burden imposed upon Coventry under 11 U.S.C. § 363(c)(2)(B) and (e), and did that court intend by its ruling to affirmatively state that Coventry has met such burden?
At oral argument on this issue counsel for the respective parties did not agree as to whether the bankruptcy court considered the rents as cash collateral. Counsel also did not agree as to whether that court's ruling would be the same if there had been made a determination consistent with this Court's ruling that the rents are cash collateral. It may well be that the bankruptcy court believed that the provisions that were made for the use of the rents by Coventry were consistent with the use of cash collateral pursuant to §§ 363(c)(2)(B) & (e). If so, on remand a decision from the bankruptcy court to that effect can be quickly obtained. If, on the other hand, the bankruptcy court concludes, accepting this Court's interpretation that the rents are cash collateral, that additional proceedings are necessary, that court will take whatever further action is necessary.
This Court shall therefore remand this action to the bankruptcy court for a decision and/or proceedings not inconsistent with this Opinion.
*840 An Order consistent with this Opinion shall issue forthwith.
NOTES
[1] Both Coventry and the bankruptcy court cite to the Michigan Supreme Court's decision in Security Trust v. Sloman, 252 Mich. 266, 274, 233 N.W. 216 (1930), wherein the court ruled that under the predecessor to the current assignment of rents statute, a mortgage trustee "is entitled to the rents [of a mortgaged property] upon default and performance of the statutory conditions." Coventry and the bankruptcy court interpret this holding as meaning that all statutory conditions specified in §§ 231 and 232 must be complied with before an assignment of rents takes effect. Such conclusion reads too much into the holding and ignores §§ 231's and 232's separation between enforcement of an assignment of rents on the assignor as opposed to occupiers of the mortgaged premises. Indeed, in a case decided a few years after Sloman, the Michigan Supreme Court enforced the provisions of the 1925 Act against a lessee in possession of mortgaged property by requiring him to pay rents to the trustee, noting that the lessee had been served a copy of the notice of default and that such notice had been recorded. Abrin v. Equitable Trust Co., 271 Mich. 535, 538, 261 N.W. 85 (1935). See also Detroit Properties Corp. v. Detroit Hotel Corp., 258 Mich. 156, 159-60, 242 N.W. 213 (1932) (service and recording of notice of default was required before enforcement of assignment rents against receiver because receiver was in possession of mortgaged property); Detroit Trust Co. v. City Service Co., 262 Mich. 14, 41-42, 247 N.W. 76 (1933) (same); Giblin v. Detroit Trust Co., 270 Mich. 293, 298-299, 258 N.W. 635 (1935) (where owner of property voluntarily gave possession of premises to trustee and occupiers of premises had been paying rent to the trustee over a period of time, trustee excused from recording and serving notice of default on occupiers when seeking to enforce an assignment of rents). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1833777/ | 365 B.R. 246 (2007)
In re DELCO OIL, INC., Debtor.
No. 3:06-bk-03241-GLP.
United States Bankruptcy Court, M.D. Florida, Jacksonville Division.
March 21, 2007.
*247 Bradley R. Markey, Richard R. Thames, Stutsman, Thames & Markey P.A., Jacksonville, FL, for Debtor.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This case is before the Court upon the Motion for Relief From Stay filed by CapitalSource. After hearings held on December 18, 2006 and January 12, 2007, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
1. Debtor was a motor fuel distributor headquartered in DeLand, Florida. On April 26, 2006, Debtor, as borrower, entered into a Revolving Credit and Security Agreement (the "Credit Agreement") with CapitalSource Finance LLC ("Capital-Source"). (Debtor's Ex. 1 [Credit Agreement].)
2. By entering into the Credit Agreement, CapitalSource agreed to make loans and other financial accommodations to Debtor via a revolving facility of up to $18 million. In exchange, Debtor pledged as collateral all of its right, title, and interest in and to, the Debtor's collections, cash payments, and inventory. (Debtor's Ex. 1 at § 2.11.) The Credit Agreement required Debtor to maintain its bank accounts with Fifth/Third Bank.
3. In June 2006, unbeknown to Capital-Source, Debtor opened a money market account with Mainstreet Community Bank with a deposit of $500,000 to secure a letter of credit issued by Mainstreet Bank in favor of Valero Energy Corporation. (CapitalSource Ex. 17 Deposition of W. Flowers, p. 28, 1. 4-p. 31, 1. 3).
4. On October 12, 2006, Debtor also secretly opened a checking account at Mainstreet Bank. (12/8/06 Tr. at 25). Debtor deposited approximately $600,000 into the checking account prior to the filing of the bankruptcy petition. (12/8/06 Tr. at 25).
5. CapitalSource does not have a Deposit Account Control Agreement with respect to the Mainstreet Bank accounts that were secretly opened. (12/ 18/06 Tr. at 47; 1/12/07 Tr. at 28-29).
6. CapitalSource has sufficiently traced the pre-petition deposits into the Mainstreet Bank account. David Phelps, a consultant for CapitalSource, testified that all the pre-petition deposits into the Mainstreet account has been traced through bank deposits. (1/12/07 Tr. at 29). Todd Gehrs, an officer of CapitalSource, testified that although he had not personally traced all the deposits into the Mainstreet Bank, as access was not provided by the Debtor, that he could surmise that the origin of the funds came from CapitalSource's cash collateral that had been improperly diverted. (12/18/06 Tr. at 33).
7. On October 17, 2006, Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On November 9, 2006, the Court entered an order denying Debtor's motion to use CapitalSource's cash collateral. On December 1, 2006, the case was converted to a Chapter 7 and Aaron Cohen was appointed as the Interim Chapter 7 Trustee. As of the petition date, the Debtor was indebted to Capital-Source under the Credit Agreement in an aggregate principal amount of over seventeen million.
*248 8. CapitalSource has established that the post-petition funds in Debtor's bank accounts, constitute direct proceeds of its pre-petition collateral without the addition of other estate resources. (12/18/06 Tr. at 44; 1/12/07 Tr. at 20-26).
9. Aaron R. Cohen, as the Interim Chapter 7 Trustee and the Florida Department of Revenue (the "Limited Objectors") oppose the stay being lifted as to all pre-petition funds in the Mainstreet Bank accounts and to all of Debtor's post-petition bank deposits.
10. One day prior to the filing of the bankruptcy petition, CapitalSource filed suit against the Debtor in Maryland seeking a temporary restraining order to require Debtor to deposit funds into the Fifth/Third Bank pursuant to the Credit Agreement. (12/18/06 Tr. at 23).
11. The "Limited Objectors" consent to CapitalSource pursuing the Maryland litigation for the limited purpose of foreclosing its lien on collateral as to which the automatic stay is lifted, and for the purpose of liquidating the debt to the limited extent necessary to pursue claims against third party guarantors. The Limited Objectors object to CapitalSource's pursuit of the Maryland lawsuit for the purpose of determining CapitalSource's claim to the disputed bank accounts.[1]
12. On January 31, 2007, CapitalSource filed an adversary proceeding against the Interim Trustee seeking declaratory relief with respect to CapitalSource's alleged lien on the Mainstreet Bank accounts and the imposition of an equitable constructive trust.
CONCLUSIONS OF LAW
In assessing whether to lift the automatic stay, pursuant to § 362(g)(1), Capital-Source bears the burden of proof on the issue of Debtor's equity in the property. The Limited Objectors bear the burden on every other issue. 11 U.S.C.A. § 362(g)(2). The Interim Trustee and Florida Department of Revenue have filed a limited objection to CapitalSource's Motion for Relief From Stay. Neither Limited Objector asserts that cause does not exist to lift the stay, rather they claim that CapitalSource cannot meet its burden of establishing that the funds maintained in the Mainstreet Bank accounts are traceable collateral of CapitalSource's loan or "identifiable proceeds" of that collateral.
A. PRE-PETITION MAINSTREET BANK DEPOSITS
The Limited Objectors assert that CapitalSource's security interest does not extend to the pre-petition Mainstreet Bank account funds because (1) CapitalSource does not have a signed Bank Account Control Agreement and (2) CapitalSource has not met its burden of establishing which pre-petition deposits constitute identifiable cash proceeds. CapitalSource maintains that the funds in the Mainstreet Bank accounts constitute cash collateral or identifiable proceeds therefrom.
Pursuant to Florida Statutes § 679.3121(2)(a), a signed Bank Account Control Agreement is necessary in order to create a perfected interest in a bank *249 account. Florida Statute § 679.3121(2)(a), provides, in pertinent part:
Except as otherwise provided in § 679.3151(3) and (4) for proceeds:
(a) a security interest in a deposit account may be perfected only by control under s. 679.3141.
The official comment to UCC Revised § 9-312, upon which Fla. Stat.
679.3151(2)(a) is similar, provides in pertinent part:
5. Deposit Accounts. Under new subsection (b)(1), the only method of perfecting a security interest in a deposit account as original collateral is by control. Filing is ineffective, except as provided in Section 9-315 with respect to proceeds. As explained in Section 9-104, "control" can arise as a result of an agreement among the secured party, debtor, and bank, whereby the bank agrees to comply with instructions of the secured party with respect to disposition of the funds on deposit, even though the debtor retains the right to direct disposition of the funds.
Based upon the above, the Limited Objectors maintain that without a control agreement as to the Mainstreet Bank account that CapitalSource cannot establish a prima facie security interest in the prepetition account. Although CapitalSource recognizes that it lacks a deposit account agreement it contends that because the Mainstreet Bank accounts were concealed that the Interim Trustee should be estopped from relying on the lack of such an agreement. Additionally, CapitalSource argues that the pre-petition funds constitute "identifiable cash proceeds" of collateral in which it has a" security interest.
Florida Statutes, Section 679.3151 addresses the secured party's rights on disposition of collateral and in proceeds. This section provides, in pertinent part:
(1) (b) A security interest attaches to any identifiable proceeds of collateral.
(2) Proceeds that are commingled with other property are identifiable proceeds:
* * *
(b) if the proceeds are not goods, to the extent that the secured party identifies the proceeds by a method of tracing, including application of equitable principles, that is permitted under law other than this chapter with respect to commingled property of the type involved.
Although the Limited Objectors do recognize that CapitalSource may eventually establish that a portion of the pre-petition contents of the Mainstreet Bank account may constitute "identifiable proceeds" of its collateral, they maintain that Capital-Source has not yet sufficiently traced the deposits or identified the origin of each deposit. Conversely, CapitalSource maintains that the unrebutted testimony proffered at the hearings by Todd Gehrs, an officer of CapitalSource and David Phelps, a consultant for CapitalSource, supports a finding that the pre-petition deposits constitute identifiable cash proceeds of its collateral.
Mr. Phelps testified that all the prepetition deposits into the MainStreet Bank account had been traced through bank statements. (1/12/07 Tr. at 29). Mr. Gehrs testified that although he had not personally traced all the deposits into the Mainstreet Bank, as access was not provided by the Debtor, that he could surmise that the origin of the funds came from CapitalSource's cash collateral that had been improperly diverted. (12/18/06 Tr. at 33).
Upon weighing the testimony proffered, in light of the lack of access provided on behalf of the Debtor, the Court finds that CapitalSource has sufficiently carried its burden of establishing that the prepetition *250 deposits into the Mainstreet Bank account constitute identifiable cash proceeds of collateral in which it holds a perfected security interest. Additionally, as the Mainstreet Bank accounts were set up covertly by Debtor, the lack of deposit account agreement should not be used as a sword against CapitalSource. Thus, the Court finds that CapitalSource is entitled to Relief From Stay as to the pre-petition deposits in the Mainstreet Bank account
POST-PETITION BANK DEPOSIT
11 U.S.C. § 552(a) generally cuts off a secured creditor's lien on collateral acquired after the commencement of the case. However, § 552(b)(1) creates an exception for "proceeds" of pre-petition collateral to the extent provided "by applicable law." As the secured creditor has the burden of proof, CapitalSource must demonstrate, pursuant to 11 U.S.C. § 552(b), that its security interest, created by the Credit Agreement, extends to property of the Debtor acquired before the commencement of the case and to proceeds, products, offspring, or profits of such property. In re Lykes Bros. S.S. Co., 216 B.R. 856, 863 (Bankr.M.D.Fla.1996).
The concept of "proceeds" is only implicated when "one asset is disposed of and another is acquired as its substitute." Id at 864. "Section 552(b) is intended to cover after-acquirer' property that is directly attributable, without addition of estate resources." Collier on Bankruptcy ¶ 552.02[2][a].
In the instant case, the Limited Objectors maintain that Debtor's post-petition cash flow was generated from a wide variety of additional estate resources, including: fuel tax withholding; labor; use of Debtor's real estate for storage and sale of product; and use of Debtor's truck fleet for distribution and delivery of product. CapitalSource maintains that none of the funds remaining in Debtor's bank accounts can be traced to funds set aside to pay taxes or were generated using unencumbered assets of the Debtor. The Court will examine each of these categories separately.
Fuel Tax Withholding
Mr. Gehrs, an officer for CapitalSource, testified that although Debtor had established a separate tax account, presumably for the payment of fuel taxes, there were no funds in that account at any relevant time. (12/18/06 Tr. at 44). Additionally, Mr. Phelps testified that even if funds to pay fuel taxes had not been segregated in a separate tax account, any funds from the company's other bank accounts that had been earmarked for payment of the September fuel taxes had been spent within a few days of the bankruptcy filing. (1/12/07 Tr. at 20-24). Mr. Phelps further testified that, "as of the bankruptcy filing, the taxes that would have been due the State of Florida were being paid to the fuel supplier." (1/12/07 Tr. at 24).
Labor
Mr. Phelps also testified that no unencumbered assets of Debtor were used to pay for labor that generated any of the funds currently in the Mainstreet Bank d account. Specifically, Mr. Phelps stated that, "[t]o the extent that the labor was paid for, it was paid for using Capital Source's cure letter as cash collateral" or by third-parties. (1/12/07 Tr. at 24-25).
Real Estate
In regards to Debtor's real estate, Mr. Phelps's testified that because all Debtor's real estate was fully encumbered, it was not an unencumbered asset that contributed to the generation of funds currently in the Mainstreet Bank Account. (1/12/07 Tr. at 25).
Truck Fleet
As to the use of Debtor's truck fleet, Mr. Phelps testified that "there was no value created [by the truck fleet] in that all the *251 expenses for operating the trucks, the repairs, maintenance, insurance, was all paid for using CapitalSource's . . . cash collateral." (1/12/07 Tr. at 25-26).
Based upon the testimony proffered, CapitalSource maintains that it has carried its burden of establishing that the post-petition bank deposits constitute direct proceeds of its pre-petition collateral without the addition of other estate resources. The Court agrees and finds that CapitalSource has produced sufficient evidence to carry its burden as to the post-petition bank deposits.
CONCLUSION
Based upon the above, the Court finds CapitalSource's Motion for Relief From the Automatic Stay is entitled to be Granted. The stay shall be modified to permit CapitalSource to foreclose and gain possession of its collateral and continue its prosecution of the Maryland lawsuit. The Court will enter a separate order that is consistent with these Findings of Fact and Conclusions of Law.
NOTES
[1] The Limited Objectors also oppose Capital-Source's pursuit of the Maryland lawsuit to the extent that the lawsuit would have a determinative or evidentiary effect on the bankruptcy case. Thus, the Limited Objectors request that the Court place language in the Relief From Stay Order that would further limit CapitalSource's pursuit of the Maryland lawsuit. However, the Court clearly stated at the January 12, 2007, hearing that it was simply going to deal with the Motion For Relief From Stay and that no additional language would be contained in the order. (January 12, 2007, Tr. p. 37, 1.3-21). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1362498/ | 686 F. Supp. 1004 (1987)
TANG YEE-CHUN, a/k/a/ "Tang Lam-lap", Petitioner,
v.
Romolo J. IMMUNDI, United States Marshal for the Southern District of New York, Respondent.
CHAN WAI-KING, a/k/a/ "Rita Chan", Petitioner,
v.
Romolo J. IMMUNDI, United States Marshal for the Southern District of New York, Respondent.
Nos. 87 Civ. 8652 (ELP), 87 Civ. 8653 (ELP).
United States District Court, S.D. New York.
December 28, 1987.
*1005 M. Cherif Bassiouni, Chicago, Ill., Lawrence H. Schoenbach, New York City, for petitioner Tang.
Susan G. Kellman, New York City, for petitioner Chan.
A.U.S.A. Catherine Gallo, Rudolph W. Guiliani, U.S. Atty., S.D.N.Y., New York City, for respondent.
ORDER AND OPINION
PALMIERI, District Judge:
In an opinion and order filed November 30, 1987, 674 F. Supp. 1058, this Court certified *1006 the extraditability of Tang Yee-Chun ("Tang") and Chan Wai-king ("Chan") for crimes charged by the government of Hong Kong. The discussion which follows assumes a familiarity with that opinion.
Both Tang and Chan have remained in custody at the Metropolitan Correctional Center since their arrest on March 6, 1987. By the terms of this Court's order of November 30, 1987 their incarceration was to continue until their surrender to the proper authorities. Tang and Chan have now challenged the legality of their continued detention by way of petitions for writs of habeas corpus.
The procedural history of this matter has been marked by petitioners' repeated substitutions of counsel and requests for adjournment. This situation led Judge Cedarbaum of this Court to say at a hearing on August 21, 1987 that "these defendants obviously prefer to stay in the M.C.C., even in prison, rather than go back to Hong Kong". The same comment can be made today with equal validity. The Court set down the hearing for October 19th "peremptorily, which means that there will be no further adjournments". When the hearing finally took place on October 20, 1987, new counsel was admitted pro hac vice on motion of Tang's attorney and it was he who took up most of the time for the petitioners. The thrust of his remarks was that the petitioners had been prejudiced by the government's failure to file a formal complaint and to make a detailed correlation of the evidence with the charges. This was an extraordinary contention completely inconsistent with any binding precedent known to the Court as well as with the fact that neither the Federal Rules of Criminal Procedure nor the Federal Rules of Evidence apply to extradition proceedings. Fed.R.Crim.P. 54(b)(5); Fed.R.Evid. 1101(d)(3).
It therefore comes as little surprise to this Court that the petitioners' briefs contain extravagant and unsupported statements highly critical of government counsel and of this Court.
The Hearing of October 20, 1987
The hearing afforded the petitioners was in compliance with 18 U.S.C. § 3190. See Opinion, 674 F.Supp. pp. 1061 et seq.
Tang's counsel repeatedly referred to "due process" and even went so far as to claim that in an extradition proceeding the person sought to be extradited was entitled to a presumption of innocence.[1] The Court pointed out that there could be no trial on the merits here and that the issue of guilt or innocence was a matter to be decided by the courts in Hong Kong. The statements of the Court that it would not accept affidavits were intended to address this issue. The real complaint of the petitioners is that they were not afforded a formal trial in the United States to establish their innocence. The petitioners complain that they received only one day to submit explanatory material. This does not reflect what occurred. Not only did petitioners fail to make any offer of proof at the hearing, but their request for the submission of written materials was granted, although they were given a week, not the 30 days they requested. Additionally, any misconception the petitioners may have had about the Court's willingness to hear explanatory material should have been dispelled by the Court's letter to all counsel dated October 26, 1987, which was read verbatim to all counsel by telephone on the morning of October 26 and which gave them an extra day:
"Having reviewed the minutes of the hearing held on October 20, 1987, I wish to clarify the statement I made that I would not accept any affidavits (transcript p. 66). I was referring to the long stated view that an extradition hearing is not to be turned into an adjudication of guilt or innocence. Eg. Glucksman v. Henkel, 221 U.S. 508, 512, [31 S. Ct. 704, *1007 705, 55 L. Ed. 830] (1911); Melia v. United States, 667 F.2d 300, 302 (2d Cir.1981). I do not wish to be understood as rejecting in advance an offer of proof containing explanatory, as opposed to contradictory, material. In making any such offer, counsel should be guided by the discussion by Judge Griesa of this Court set forth in Matter of Sindona, 450 F. Supp. 672, 684-92 (S.D.N.Y.1978), writ of habeas corpus denied sub nom Sindona v. Grant, 461 F. Supp. 199 (S.D.N. Y.1978), aff'd, 619 F.2d 167 (2d Cir.1980) [cert. denied, 451 U.S. 912, 101 S. Ct. 1984, 68 L. Ed. 2d 302 (1981)].
"The Court recognizes that this letter may put extra time pressure on counsel. Therefore, counsel for the relators and for the government are granted an extra 24 hours to submit their papers."
Both petitioners took advantage of that clarification: Tang submitted three affidavits and one affirmation, along with many exhibits; Chan submitted an affirmation with twenty seven exhibits. But those submissions, after careful review, were not accepted because they were exculpatory, rather than explanatory, in nature. See Opinion at 1063-64, 1066-67. The Court's refusal to accept their offers of proof is not reviewable on petitions for writs of habeas corpus. "The `wrongful exclusion of specific pieces of evidence, however important, does not render the detention illegal.'" Messina v. United States, 728 F.2d 77, 80 (2d Cir.1984) (quoting Collins v. Loisel, supra 259 U.S. at 316, 42 S.Ct. at 472).
The Hearing of October 29
After the hearing of October 20, 1987 it became necessary to hold another hearing and to suffer another change of attorneys, this time in behalf of Chan, because of the attached letter (Appendix A) addressed to the Court by Chan's counsel under date of October 28, 1987. Because Chan's attorney discovered that, without his knowledge, Chan had sworn to a self-incriminating affidavit in an attempt to exculpate Tang, he no longer felt it possible to work with Chan. The Court was constrained to hold a hearing with Chan present. This occurred on October 29. On this occasion Chan stated that her attorney had breached his ethical obligations, thereby opening the door to the entry of still another attorney. When it became clear that the Court would be required to permit new counsel to enter the case, Chan agreed she would make her choice of new counsel by November 3, 1987, five days later, and the Court accepted Chan's stipulation set forth in her own words that she "would accept with the Court's permission to have Mr. Bornstein to withdraw from the case, but with the understanding that incoming lawyer would have the privilege of correcting or supplementing whatever is needed to be supplemented in the memorandum." Ms. Susan Kellman, Chan's fourth attorney since March, thereupon entered the case and is now representing her. In consequence, a memorandum of law and a supplementary affidavit were submitted on November 15, 1987, well over two weeks after the time scheduled for submission had Chan's counsel not been replaced.
Surprisingly, Chan nonetheless complains that there was a deprivation of due process for lack of time, even though papers were submitted on her behalf on November 15, 1987 after she had taken the time she needed with her new attorney. All this spelled out the right to submit explanatory material. She was chargeable with the knowledge of the phone call and letter of October 26, 1987. The Court consistently disapproved of an evidentiary hearing on the issue of petitioners' guilt or innocence and sent its letter of October 26, 1987 to avoid any misunderstanding on this subject.
At the very hearing of October 29, 1987 when she discharged her counsel and before she chose her new attorney, the Court said:
"I am not deciding the guilt or innocence of either Mr. Tang or Miss Chan. I have said that repeatedly, but I don't seem to have made my point sufficiently persuasive because so much of what has been submitted to me are matters that are pertinent to their guilt or innocence but not to the matter of probable cause *1008 for the consideration of the Judge sitting in the extradition proceeding."
As the hearing developed on October 29, 1987, Tang appeared and his counsel were present. The Hong Kong counsel for both Tang and Chan were present. The colloquy which followed made it clear to the Court that Tang and Chan and their counsel were on the friendliest terms and were cooperating with each other. Indeed the briefs presently before the Court have several identical arguments which make their cooperation abundantly clear.
It is ironic that Tang never requested additional time when, in his presence, Chan's time to obtain a new lawyer was extended to five days, with more time to follow ("whatever you need") for the submission of papers. In fact the Court explained in the presence of Tang and his counsel that the entire basis for the briefing schedule of October 20 had evaporated as a result of Chan's discharge of her counsel on October 29, 1987. Notwithstanding this, Tang's counsel never sought to engage the Court in a discussion of a revised schedule or some accommodation in view of all the extra time being taken by Chan. The conclusion seems inescapable that Tang neither wanted nor needed any extra time.
Alleged Procedural Improprieties
What has just been stated reveals the weaknesses of the petitioners' complaint that they suffered because they had only seven days after the October 20 hearing to submit their papers.[2] It is clear from the extensive affidavits offered that they had been preparing for longer than seven days. Indeed, both of the petitioners had been appraised of the case against them for at least six months prior to the hearing. From the outset, they had before them all the Hong Kong warrants, which set out the particulars of each charge. For six months prior to the evidentiary hearing, they had eighteen volumes of documentation, including several narratives of the events which allegedly took place. They had the daily assistance of Hong Kong attorneys, and the services of accountants and American attorneys during the entire six months leading up to the evidentiary hearing. The Court was aware of these facts when it fixed their briefing schedule.
Their complaint that they did not have enough time is, in any event, not an appropriate issue in a petition for habeas corpus. Because extradition hearings are not governed by any federal rules of procedure, matters such as timing must be left to the extradition Court's sound discretion. Despite the petitioners repeated complaints that they have been denied due process,[3] the fact that they raise substantially no new legal arguments in these petitions leads to the conclusion that they suffered no harm from the Court's exercise of discretion in arranging for a briefing schedule.
Evidence Claimed to have been Improperly Received
Petitioners argue that the Court should not have admitted certain affidavits offered by the government, because they allegedly were signed by witnesses who cannot speak or read English. The petitioners did not then and do not now present any factual basis for that assertion; nor do they identify the witnesses whom they claim have no knowledge of English.
The treaty provides, in relevant part,
"any deposition or statement or other evidence given on oath or affirmed, or *1009 any certified copy thereof shall be received in evidence ...
(a) if it is authenticated ... by being certified by a judge, magistrate or other competent authority of the requesting Party, or in the case of a copy by being so certified to be a true copy of the original...." Art. VII, 28 U.S.T. at 231.
The relevant statute, 18 U.S.C. § 3190, mandates that "the certificate of the principal diplomatic or consular officer of the United States resident in such foreign country shall be proof that the [evidence] so offered [is] authenticated in the manner required". It is the law of this Circuit that at an extradition hearing the proper authentication of documents conclusively supports their admissibility. Galanis v. Pallanck, 568 F.2d 234, 240 (2d Cir.1977). That interpretation of § 3190 comports with a proper construction of the Treaty. Tang claims that certain affirmations accepted in evidence against him were signed by witnesses who cannot speak or read English; and that the Court "did not deny this fact; rather it sloughed it off as simply technical". The Court was in no position to deny or confirm this assertion and can only refer to the affirmation of the translator for the government of Hong Kong who identifies thirteen witnesses whose affirmations she translated. The Court was bound by statute, 18 U.S.C. § 3190, to accept these documents when they were duly authenticated by the United States Consul General at Hong Kong. Additionally, the evidence indicates that the most important affirmations were not translated from Chinese to English, but appear to have been made by persons with a knowledge of English. The affirmation of the Hong Kong translator, Choi Chow Wai-chun (affirmed March 31, 1987), while identifying some Chinese witnesses, makes no mention of the most important witnesses. Thus the record contains no indication that David Mace (a partner of the accounting firm of Arthur Anderson who was hired by the Hong Kong government as an expert to sort out the events surrounding the collapse of Tang and Chan's company), Agnes Kwok (the nominal president of that company), Eva Hui (one of Tang's lieutenants) or any of the Hong Kong investigatory authorities cannot speak or read English. Petitioners' assertions to the contrary are without any basis in the record before the Court. It cannot be said that there was not any competent evidence before the extradition Court; and more than that is not reviewable on a petition for habeas corpus. Fernandez v. Phillips, 268 U.S. 311, 312, 45 S. Ct. 541, 542, 69 L. Ed. 970 (1925).
There is nothing in the Treaty or the applicable statute requiring the Court to undertake an independent inquiry into the accuracy of any translations submitted with a formal request for extradition. Such a requirement would place an unbearable burden upon extradition courts and seriously impair the extradition process.
Probable Cause
Petitioners argue that there is "no evidence" that the loans involved were false, that they had knowledge of their falsity, or that Tang directed the creation of the false loans or had the requisite specific intent.
As the Court held, ample evidence was presented establishing probable cause to believe that Tang and Chan directed the making of fraudulent loans to persons who did not exist or who had no knowledge of the loans.[4] The Court marshalled the evidence and carefully reviewed it in its Opinion of November 30, 1987, 674 F.Supp. at 1063-1067. It would be beyond the scope of review permitted on a habeas petition to do so again. Fernandez v. Philips, supra. Tang's assertion that the Court "summarily dismissed the issue of probable cause" belies the careful attention given to the issue by the Court.
Double Criminality
A prominent element of extradition treaties has been the requirement that the *1010 crime for which an accused is extradited be criminal pursuant to the laws of both the requesting and the requested nations. This "double criminality" requirement has been held to require two findings by an extradition Court: (1) that the acts alleged to have been taken by the accused, if proven, would be crimes under United States law; and (2) that the crime charged by the requesting nation be substantially analagous to a United States crime. Shapiro v. Ferrandina, supra, 478 F.2d at 909.
Petitioners attack the finding that the acts they allegedly undertook would be crimes under United States law. There is evidence that they undertook a large scale scheme to defraud and used international telephone and telegraph services to execute it. There is evidence that they and their agents made fraudulent entries in the books of the bank they controlled. In the United States, those activities are criminal. See Opinion 674 F.Supp. at 1063-66.
Petitioners also attack the finding that the Hong Kong crimes they are charged with having committed are substantially similar to United States crimes. But their argument need not be addressed. They fail to attack the extradition Court's finding that 18 U.S.C. § 1001 is substantially similar to both of the Hong Kong ordinances they are accused of violating. Opinion 674 F.Supp. at 1067. They fail to attack the extradition Court's finding that 18 U.S.C. § 1006 is substantially similar to both of the Hong Kong ordinances they are accused of violating. Ibid.
18 U.S.C. § 1005 is also substantially similar to both of the Hong Kong ordinances at issue. Ibid. Petitioners attack that finding by asserting that an "essential element" of the offense is that the falsified records or documents at issue belong to a bank in the Federal Reserve System. The Hong Kong ordinances are generalized, they argue, while § 1005 applies specifically and only to certain American banks. Their reliance on United States v. Mize, 756 F.2d 353 (5th Cir.1985) and United States v. Bliss, 642 F.2d 390 (10th Cir.1981) is misplaced. Mize holds that proof of a bank's status as a "Federal Reserve Bank, member bank, national bank or insured bank" is an essential element of a conviction under § 1005, and Bliss assumes that proposition. But the necessity of proving that element derives from the fact that it is the jurisdictional predicate of the federal court's judgment. See Mize, 756 F.2d at 356 ("federal jurisdiction depended upon the government's establishing the Bank's status as a `member bank'").[5] Were the petitioners' argument to be accepted, no federal crime could be substantially similar to a foreign crime for purposes of satisfying the double criminality requirement. This incongruous result is averted by accepting the notion that what is an essential element for one purposeconviction after a criminal trial in the United Statesis not relevant for anotherassuring that a person is not extradited on the basis of acts which would not subject him to liability if committed in the United States.
New York Penal Law § 175.10 is substantially similar to both of the Hong Kong ordinances at issue. See Opinion 674 F.Supp. at 1067. The petitioners argue that the level of intent required by § 175.10 "sharply distinguishes" it from one of the Hong Kong ordinances (§ 19(1)), but fail to make the same argument with regard to the other (§ 21(1)). In any event, the distinction that the petitioners attempt to draw is not persuasive. § 175.10 requires the prosecutor to prove an intent to defraud, which the petitioners contend means to cheat or deprive another of some property *1011 or right. § 19(1) apparently requires the prosecutor to prove the accused "dishonestly, with a view to gain for himself or another or with the intent to cause loss to another" committed the acts in question. The petitioners argue that the fact that a person could be convicted under the Hong Kong statute for acts taken merely with a view to gain for himself and not with the intent to cause loss to another makes the New York statute dissimilar for purposes of this analysis. Though the two statutes are phrased differently, they both make the same activity criminal.
The Supreme Court cases which have addressed the issue do not support the petitioners' position. In Collins v. Loisel, 259 U.S. 309, 311-12, 42 S. Ct. 469, 470, 66 L. Ed. 956 (1922), the accused contended that the crime of "cheating", of which he was accused under the law of India, merely required "a promise of future performance which the promisor does not intend to perform, while to convict of obtaining property by false pretenses [the American counterpart] it is essential that there be a false representation of a state of things past or present" (emphasis supplied). That fine distinction appears remarkably similar to the one drawn by the petitioners. The Court, per Justice Brandeis, rejected it: "The law does not require that ... the scope of the liability shall be coextensive, or, in other respects, the same in the two countries. It is enough if the particular act charged is criminal in both jurisdictions."
In Kelly v. Griffin, 241 U.S. 6, 13-14, 36 S. Ct. 487, 489, 60 L. Ed. 861 (1916), the accused contended that he could not be extradited to Canada for perjury because that country defined perjury as covering false evidence in a judicial proceeding "whether such evidence is material or not". In contrast the law of Illinois, the requested state from which the accused was to be sent, required materiality. The Court, per Justice Holmes, dismissed the argument: "As to this it is enough to say that the assertions charged here were material in a high degree, and that the treaty is not to be made a dead letter because some possible false statements might fall within the Canadian law that perhaps would not be perjury by the law of Illinois."
Finally, in Wright v. Henkel, 190 U.S. 40, 58, 23 S. Ct. 781, 785, 47 L. Ed. 948 (1903), the Court rejected the argument that the distinctions between the British fraud statute's intent requirement and a similar New York statute's treatment of intent should prohibit extradition. "Absolute identity is not required. The essential character of the transaction is the same, and made criminal by both statutes." Ibid.
The petitioners' arguments are similar to those made in Collins, Kelly and Wright which were firmly rejected.[6] Their reliance on United States v. Rauscher, 119 U.S. 407, 7 S. Ct. 234, 30 L. Ed. 425 (1886) and its progeny is misplaced. Those cases address the rights of persons who stand accused of crimes by the United States and who invoke the "principle of speciality" in order to limit their prosecution once they have been returned to stand trial in this country. Those cases are inapplicable to the inverse situation. As is explained in Shapiro v. Ferrandina, supra, 478 F.2d at 906 & n. 10, the principles upon which extradition is based, as well as the Constitution's separation of powers doctrine and the limitations imposed by Article III, restrain a Court from rendering an advisory opinion as to what extent a foreign court should prosecute a person who has been extradited. Nor are the United States courts' tightly bound to the particular charges which were requested. See Fiocconi v. Attorney General, 462 F.2d 475, 478-81 (2d Cir.), cert. denied, 409 U.S. 1059, 93 S. Ct. 552, 34 L. Ed. 2d 511 (1972).
*1012 The Claimed Lack of Notice
The petitioners assert that they were inadequately informed of the charges made against them because only one complaint was filed by the United States Attorney, and this came before the filing of the formal request for extradition. The petitioners would have a second complaint itemize and analyze the federal crimes which the United States Attorney believes are substantially similar to the Hong Kong crimes of which they stand accused. The Court rejected this contention since it had no basis in binding precedent. See Opinion 674 F.Supp. at 1069. Imposing this requirement on the extradition process would be unwise for two reasons. First, the identification of specific crimes serves no purpose in light of the petitioners' claim that "no" United States crime is substantially analogous to the Hong Kong crimes at issue. Because they undertake to demonstrate that all United States crimes are dissimilar, the identification of specific crimes in the complaint would be pointless. Second, such a requirement would thwart the flexibility with which pleadings in extradition cases are treated in order to prevent foreign governments from being subjected to technical pleading requirements in the United States courts. See, e.g. Shapiro v. Ferrandina, 478 F.2d 894, 899-900 (2d Cir.) (complaint's erroneous statement of petitioner's whereabouts does not render it defective), cert. dismissed, 414 U.S. 884, 94 S. Ct. 204, 38 L. Ed. 2d 133 (1973); United States ex rel. Rauch v. Stockinger, 269 F.2d 681, 687-88 (2d Cir.) (complaint's lack of specification of overt acts and omission of the words "with intent" does not render it defective), cert. denied, 361 U.S. 913, 80 S. Ct. 257, 4 L. Ed. 2d 183 (1959), reh'g denied, 361 U.S. 973, 80 S. Ct. 584, 4 L. Ed. 2d 553 (1960). Therefore, the Court rejects petitioners "acknowledgement" that the United States Attorney's Hearing Memorandum constitutes an "Extradition Complaint". It was a legal brief. It was not a pleading.
Absence of Warrants and Sufficiency of the Statement of Facts
Tang renews his complaint that extradition should not lie for charges 45 and 46. He apparently misunderstands the limited role an extradition Court must play. It is not for the Court to grant or deny extradition. That decision is properly left to the Secretary of State. The Court once again points out the fact of the missing warrants, but notes that sufficient evidence exists to sustain the charges. See Opinion 674 F.Supp. at 1060-61 (citing Hill v. United States, 737 F.2d 950, 925 (11th Cir. 1984)).
He also for the first time complains of a missing "statement of facts" for certain of the charges against him. This contention is frivolous. The facts surrounding each and every charge against Tang were sufficiently stated in the Hong Kong government's "Statement of Facts". The charges at issue, 28-31, are covered in paragraph 16, which reads in part: "On different dates between the 2nd January, 1982 and the 15th June, 1982 A & P recorded in its books of account further false loans totalling HK$ 3,810,000 to CHIU Sikyin, LEUNG Ngan-yuk, LO Lai-hing, Carmen WONG, William CHEUNG and to Luxembourg finance Company Ltd...." Charges 28-31 all involve false loans allegedly made in January 1982.
The United Kingdom's Ability to Abide by the Treaty
Chan argues, as she did at the extradition hearing, that this Court must demand assurances from the United Kingdom that it will abide by the Treaty's terms. The Court considered Chan's argument and found it meritless. See Opinion of November 30, 1987, 674 F.Supp. at 1068-69. The Court found the possibilities raised by her alleged expert to be too remote and speculative to shock the Court's sense of decency, and to be less severe than the possibilities facing others who had fruitlessly raised the same argument before other courts. See id. 674 F.Supp. at 1068. Her petition raises nothing new, and ignores the applicable precedents. To accept her position, the Court would have to impinge upon the explicit authority of coordinate branches of government to make treaties. See e.g., Terlinden v. Ames, 184 *1013 U.S. 270, 288, 22 S. Ct. 484, 491, 46 L. Ed. 534 (1902) ("the question whether power remains in a foreign state to carry out the treaty obligations is in its nature political and not judicial"). Her desire to remain in the United States on humanitarian grounds can be raised before the Secretary of State, not before the Courts. Sindona v. Grant, 619 F.2d 167, 174 (2d Cir.1980).
Conclusion
The procedures pursuant to which petitioners were certified to be extraditable to Hong Kong comported with applicable treaty and statutory provisions. The petitions for writs of habeas corpus are denied.
The stay previously granted by this Court shall continue until such time as the Court of Appeals disposes of a motion for its continuance, provided such motion is made not later than January 12, 1988.
SO ORDERED.
*1014 APPENDIX A
*1015
NOTES
[1] As a preliminary matter, the Court rejects the petitioners' argument that Quinn v. Robinson, 783 F.2d 776, 817 n. 41 (9th Cir.), cert. denied, ___ U.S. ___, 107 S. Ct. 271, 93 L. Ed. 2d 247 (1986), requires the review of due process claims. The portion of the opinion they cite was dictum. The petitioners appear to argue that the Court should create a number of procedural rights for them which do not appear in the statutes or reported cases.
[2] In point of fact petitioners' time was extended to eight days by the letter and telephone call of October 26, 1987.
[3] For instance, by way of a due process claim, Chan asserts "in light of the constrained discovery requests made by Mrs. Chan and the overall weakness of the Hong Kong government's extradition case, discovery should have been granted". This apparently was an attempt to come within the dictum in Quinn v. Robinson, supra at 817 n. 41. But Chan never requested discovery. She also fails to point out any holding of any court granting a writ of habeas corpus for denial of discovery, let alone for not ordering discovery which was not requested. Chan apparently saw this argument to be so self-evident that she omitted reference to it in her brief to the Court. But the point of this argument escapes the Court.
[4] As the Court also held, their intent can be inferred from their behavior, including Tang's flight from Hong Kong and his use of aliases. The fact that he may now be a resident alien in the United States does not affect this conclusion.
[5] Accord United States v. Trevino, 720 F.2d 395, 400-01 (5th Cir.1983) (quoting United States v. Platenburg, 657 F.2d 797, 799 (5th Cir.1981) ("federal jurisdiction depends on this status"); United States v. Fitzpatrick, 581 F.2d 1221, 1223 (5th Cir.1978) ("insured status ... had to be proved in order to establish federal jurisdiction"); and United States v. Murrah, 478 F.2d 762, 764 (5th Cir.1973) ("it is necessary to allege and prove it in order to establish federal jurisdiction")); United States v. McRary, 665 F.2d 674, 678-79 (5th Cir.1982) ("when a federally created crime involves an area traditionally left to the domain of the states, the jurisdictional authority of the United States becomes a crucial part of the proof") (citing United States v. Bass, 404 U.S. 336, 349-50, 92 S. Ct. 515, 523, 30 L. Ed. 2d 488 (1971)), cert. denied, 456 U.S. 1011, 102 S. Ct. 2306, 73 L. Ed. 2d 1307 (1982).
[6] Their reliance on Caplan v. Vokes, 649 F.2d 1336 (9th Cir.1981) is misplaced. The extradition court there adapted verbatim the government's proposed findings of fact, which formed the bulk of a 175 page document. The court's sole finding there consisted of two sentences, which disposed of 60 charges involving forgery, false accounting and at least four sections of the British Theft Act. Most important, the record in that case "simply [did] not permit ... review ... because it contain[ed] nothing from which [the appellate Court could] discern the extradition court's reasoning as to extraditability". Id at 1343-44. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1723274/ | 477 So. 2d 254 (1985)
Robert FALLS, et al.,
v.
MISSISSIPPI POWER & LIGHT Company.
No. 54940.
Supreme Court of Mississippi.
August 28, 1985.
Rehearing Denied October 2, 1985.
*255 Fredrick B. Clark, Greenwood, Don Barrett, Barrett, Barrett, Barrett & Patton, Lexington, for appellants.
David H. Nutt, Jackson, for appellee.
Before ROY NOBLE LEE, P.J., and ROBERTSON and SULLIVAN, JJ.
ROY NOBLE LEE, Presiding Justice, for the Court:
The Circuit Court of Holmes County granted a summary judgment in favor of Mississippi Power & Light Company on a wrongful death claim filed by Robert Falls and other family members on the account of the electrocution death of Henry Lee Falls. The Falls have appealed to this Court and assign the following error in the lower court's decision:
The lower court committed reversible error in holding that, as a matter of law, Mississippi Power & Light Company was the statutory employer of appellants' decedent, and, as such, appellants' exclusive remedy is a workmen's compensation claim.
The complaint charged that on August 26, 1982, the deceased, while employed by the Deviney Company, was trimming and cutting the tops from pine trees under and around appellee's high voltage power lines on the Natchez Trace Parkway near Port Gibson, Mississippi, pursuant to his instructions; that one of the tree tops fell upon the appellee's power lines, resulting in deceased's electrocution and death; and that the appellee negligently installed and maintained its power lines, which negligence proximately caused or contributed to Falls' death. The complaint further charged that the Deviney Company was an independent contractor; that decedent was an employee of the Deviney Company; and that the negligence of appellee caused decedent's death.
Appellee answered and denied that it was negligent, it admitted that Deviney is an independent contractor and that decedent was Deviney's employee. Appellee also stated four affirmative defenses and filed an amended answer alleging that appellee was the statutory employer of decedent and that appellants' exclusive remedy is a workmen's compensation claim. This is the sole question involved in the appeal.
Appellants concede that, if appellee was decedent's statutory employee, then appellee is immune from third party liability, since under such a relationship, appellee would have a duty to provide for workmen's compensation, either through itself or a subcontractor.
The National Park Service granted a special use permit to appellee for the period March 1, 1976, through December 31, 1985, over the Natchez Trace Parkway, for the purpose of providing electrical service to its customers through distribution and transmission lines in the area served by Mississippi Power & Light Company, subject to *256 certain conditions and restrictions. Appellee was permitted to keep its right-of-way clear of trees, brush and stumps, and, in doing so agreed to abide by requirements of the special use permit.
Appellee contends, and so persuaded the lower court, that under the special use permit it became a contractor and, in this case, a prime contractor, or owner contractor; that the Deviney Company was its subcontractor; and that, therefore, the decedent became its statutory employee, which conferred immunity upon it from a third party common-law action.
The contract executed between appellee and the Deviney Company contained the following language under Paragraphs (1) and (4):
1. Contractor agrees, at his sole cost and expense, to perform all the labor and services and furnish all the tools and equipment necessary to complete in good, substantial, workmanlike and approved manner, the work hereinafter specified and referred to, and to perform the same in accordance with plans and specifications furnished by the Owner and conditions and provisions of this agreement hereinafter mentioned.
* * * * * *
4. Contractor shall effect, maintain and furnish evidence of insurance satisfactory to the owner in the following minimum amounts:
(a) Workmen's Compensation Insurance for operations in the State of Mississippi, including Employers Liability Insurance in the minimum amount of $100,000.00.
* * * * * *
Contractor shall, before commencing work on this contract, deliver to Mississippi Power & Light Company, attention: Insurance Manager, P.O. Box 1640, Jackson, Ms. 39205, certificates from insurance companies, or their agents, stating that said insurances are in force and that they will give Mississippi Power & Light Company ten (10) days written notice prior to the effective date of any change or cancellation of any of the policies, such certificates to be on forms provided by the Owner.
Appellee contends (1) that it was a statutory employer of the decedent and is protected from tort liability under the provisions of Mississippi Code Annotated § 71-3-9 (1972), and (2) that appellee was also decedent's statutory employer because it contractually required Deviney Company to carry workmen's compensation on the decedent. The answer to those positions are dispositive of the legal issue before this Court.
Mississippi Code Annotated § 71-3-7 (1972) provides in part, the following:
Every employer to whom this chapter applies shall be liable for and shall secure the payment to his employees of the compensation payable under its provisions.
In the case of an employer who is a subcontractor, the contractor shall be liable for and shall secure the payment of such compensation to employees of the subcontractor, unless the subcontractor has secured such payment.
Section 71-3-71, among other things, provides that the acceptance of compensation benefits from, or making a claim for compensation against an employer or insurer for the injury or death of an employee shall not affect the rights of the employee or his dependents to sue any other party at law for such injury or death.
Under § 71-3-71, liability to secure workmen's compensation covering the decedent attaches only (1) if he was an employee of appellee, which appellee admits he was not; and (2) appellee had qualified as a contractor (prime) and the Deviney Company had qualified as a subcontractor within the meaning of § 71-3-7. Appellee contends that the special use permit executed by appellee and the National Park Service constituted a contract as specified in § 71-3-7; that the Deviney Company became the subcontractor; and that appellee is within the statute and immune from a third party claim.
*257 In a supplemental brief, citing authorities from other jurisdictions, appellee also takes the position that, if an owner or principal contracts a portion of its normal trade, business or occupation to be performed by another, then the entity performing that work is the agent of the owner; and that, since construction and maintenance of appellee's distribution facilities were part of its business, it became the statutory employer of Deviney Company and Deviney's employees.
Appellee cites and relies upon Dagenhardt v. Special Machine & Engineering, 418 Mich. 520, 345 N.W.2d 164 (1984), wherein the Michigan Court said:
In any event, it does not alter the worker's disability compensation scheme, i.e., the party liable to pay disability compensation benefits is immune from tort liability. The contrary result reached by the Court of Appeals in this case unfairly imposes two burdens upon a principal which are never imposed upon an injured worker's direct employer.
345 N.W.2d at 169.
Appellee urges that the same reasoning in Dagenhardt applies to the case sub judice and that appellee would be subject to dual liability without the benefit of exclusive remedy.[1] Appellee also cites cases from the Louisiana jurisdiction, viz, Rachal v. Audubon Park Commission, 467 So. 2d 1281 (La. App. 1985); Rowe v. Northwestern National Insurance Company, 461 So. 2d 603 (La. App. 1984); Brown v. Ebasco Services, Inc., 461 So. 2d 443 (La. App. 1984); Klohn v. Louisiana Power & Light Co., 394 So. 2d 636 (La. App. 1981); and Gray v. Louisiana Power & Light Co., 247 So. 2d 137 (La. App. 1971); and Va.Code Annotated §§ 65-28 and 65-29 (1950).
Those decisions are distinguished from the present case because the state statutes are different from the Mississippi statutes, and this Court has decided the issue adversely to appellee's position.
Appellee argues that Doubleday v. Boyd Construction Co., 418 So. 2d 823 (Miss. 1982), and Nations v. Sun Oil Co., 695 F.2d 933 (5th Cir.1983), support its position. Appellants agree that those cases were correctly decided, but say that Doubleday does not apply to the case sub judice.
In Doubleday,[2] the Mississippi Highway Department contracted with Boyd Construction Company as the prime contractor, and Boyd subcontracted work to Ratliff Company, which employed Doubleday. He was injured when struck by an automobile and filed a personal injury suit in the Circuit Court against Boyd Construction Company. This Court held that, where a prime contractor required the subcontractor to secure workmen's compensation insurance on its employees, the prime contractor "secured" compensation insurance for the benefit of the subcontractor's employee within the meaning and purpose of the workmen's compensation statute and was not "any other party" provided by the statute (§ 71-3-71) who could be sued by the employee or his dependents.
The Doubleday Court quoted the Florida Supreme Court in Miami Roofing & Sheet Metal Co. v. Kindt, 48 So. 2d 840 (Fla. 1950), which held:
We hold, therefore, that a contractor is liable for and shall secure compensation to the employees of his subcontractors, even though such contractors have the status of independent contractors, and that if such contractor has in fact, secured such compensation, either directly or indirectly through the subcontractor, the remedy under the Act is exclusive. Id. at 843.
We agree with this decision even though Fla. Stat. Ann. § 440.10 (West *258 1981) differs somewhat from Miss. Code Ann. § 71-3-7 (1972). It is our opinion the legislature did not intend to subject a general contractor to common law liability if he complied with § 71-3-7 by requiring the subcontractor to have workmen's compensation insurance. It would defeat the purpose of the statute, we think, if such an improbable result followed.
418 So.2d at 826.
Nations v. Sun Oil Co., supra, followed the principle established in Doubleday. However, we think the difference in those cases and the case here is that, on the facts of the present case, appellee was not a prime or general contractor within the meaning of those decisions and the statute.
In Jones v. Florida Power Corp., 72 So. 2d 285 (Fla. 1954), the Florida Power Corporation contracted with two different independent contractors for the construction of an extension to one of its offices. The contract recited that they were employed as independent contractors and required each of them to carry workmen's compensation insurance on their employees. Jones was an employee of one of the independent contractors and was injured in the course of his employment. After collecting workmen's compensation benefits, Jones filed a common-law personal injury suit against Florida Power Corporation and the other independent contractor, charging them with negligence. The defendants filed motions for summary judgments alleging that they were not third parties within the meaning of the Workmen's Compensation Act. The summary judgments were granted. The cases were appealed to the Florida Supreme Court, which Court held that the fact the Florida Power Corporation required the independent contractor to provide workmen's compensation for those employees was commendable, but irrelevant to a determination of the question presented, and reversed the summary judgments. The Court said:
The question is whether the Workmen's Compensation Act imposed upon the Corporation [Florida Power] the duty, as an "employer" and "contractor", to secure compensation for such employees. It is the liability to secure compensation which gives the employer immunity from suit as a third party tortfeasor.
72 So.2d at 287.
The principle established in Jones was followed by the Florida Supreme Court in West v. Sampson, 142 So. 2d 74 (Fla. 1962); State v. Luckie, 145 So. 2d 239 (Fla. 1962); and Florida Power and Light Company v. Brown, 274 So. 2d 558 (Fla. 1973).
Appellee MP & L was a permittee under the special use permit granted it by the National Park Service and was required to fulfill certain provisions of that permit in order to exercise same. The permit did not constitute appellee/permittee as a general or prime contractor for work to be done by Deviney Company along the right-of-way of appellee pursuant to its contract with appellee. We hold that Deviney Company and its employees were not statutory employees of appellee and that no statutory obligation was imposed upon appellee to provide workmen's compensation coverage for Deviney and its employees.[3] Therefore, appellee became a third party and liable to a common-law action claim and was "any other party" within the meaning of § 71-3-71.
We are of the opinion that the lower court erred in sustaining the motion for summary judgment and the judgment of the lower court is reversed and the cause is remanded for a trial on the merits.
REVERSED AND REMANDED.
PATTERSON, C.J., WALKER, P.J., and HAWKINS, DAN M. LEE, PRATHER, ROBERTSON, SULLIVAN and ANDERSON, JJ., concur.
NOTES
[1] There is no dual liability in the present case.
[2] Since original briefs were filed in this cause, the United States District Court for the Northern District of Mississippi in Harris, et al. v. 4-County Electric Power Ass'n, No. ED-83-446-WK-P, and the United States District Court for the Southern District of Mississippi in Sheppard, et al. v. South Central Bell Telephone Co., No. S 82-0867(N), followed our holding in Doubleday v. Boyd Construction Co., 418 So. 2d 823 (Miss. 1982), on facts similar to the case sub judice, and held that a third party claim would lie.
[3] This is so even though in the Deviney contract appellee required Deviney to obtain workmen's compensation coverage. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1372249/ | 185 Ga. App. 161 (1987)
363 S.E.2d 605
PRECISION LABEL INDUSTRIES, INC.
v.
JONES et al.
74496.
Court of Appeals of Georgia.
Decided December 2, 1987.
Henry D. Green, Jr., for appellant.
Robert E. Flournoy III, for appellees.
McMURRAY, Presiding Judge.
On July 1, 1982, Charles R. Jones (defendant), the president and sole stockholder of Atlanta Tape & Label Company, Inc. (ATL), entered into an agreement in his individual and corporate capacity, with Precision Label Industries, Inc. (plaintiff) for the sale of ATL's label making business. Pursuant to the sales contract, defendant was to provide plaintiff sales information, through May 31, 1982, which would reflect the value of ATL's label making business as of the date of the sales agreement. Defendant did not comply with this provision and instead provided plaintiff information on ATL's accounts receivable. The accounts receivable information did not reveal the loss of a major customer of ATL who had comprised about 34 to 40 percent of ATL's past revenues. The sales information which was required to be provided by defendant under the sales agreement would have revealed the loss of this account.
On July 21, 1982, the parties completed the sale by transferring the assets and liabilities of ATL to plaintiff. In return, plaintiff paid the purchase price for the business. After the closing, plaintiff discovered the irretrievable loss of the major customer, continued to operate its business and, over one year after the date of sale, sued defendant and ATL's predecessor company, Jeraco, Inc., for damages alleging fraud and breach of contract.
The evidence adduced at trial showed that defendant did not fraudulently withhold or conceal the sales information from plaintiff and that plaintiff was aware, at the time the sales agreement was executed and at the time of closing, of defendant's non-compliance in providing it the sales information under the sales agreement.
Upon the close of evidence, plaintiff moved for a directed verdict on the breach of contract count, arguing that the undisputed evidence showed that defendant did not provide the sales information as required by the sales contract. Defendant argued that plaintiff waived this requirement of the contract. The trial court denied plaintiff's motion *162 for directed verdict, submitted the case to the jury and verdicts were returned in favor of defendant and Jeraco, Inc. on both the breach of contract claim and the fraud claim. After the denial of plaintiff's motion for judgment notwithstanding the verdict and in the alternative motion for new trial, plaintiff filed this appeal from the judgment entered on its breach of contract claim. Held:
1. In its first two enumerations of error, plaintiff contends the trial court erred in failing to grant its motion for directed verdict and its motion for judgment notwithstanding the verdict. Plaintiff argues that the undisputed evidence showing that defendant did not comply with the terms of the sales contract by failing to provide the sales information demanded that a verdict be directed in its favor for breach of contract. We do not agree. "`Where a party who is entitled to rescind a contract on ground of fraud or false representations, and who has full knowledge of the material circumstances of the case, freely and advisedly does anything which amounts to a recognition of the transaction, or acts in a manner inconsistent with a repudiation of the contract, such conduct amounts to acquiescence, and, though originally impeachable, the contract becomes unimpeachable in equity. If a party to a contract seeks to avoid it on the ground of fraud or mistake, he must, upon discovery of the facts, at once announce his purpose and adhere to it. Otherwise he can not avoid or rescind such contract.' Gibson v. Alford, 161 Ga. 672, 673 (5) (132 S.E. 442). See also Karpas v. Candler, 189 Ga. 711 (7 SE2d 243).
"Forfeitures of rights under valid legal contracts are not favored under the law. Our courts generally are quick to seize upon any waiver of a forfeiture, the rule being that the right to rescind for any breach must be asserted promptly, and a waiver of a breach or forfeiture can not be recalled. 17 CJS 897, § 409; 17 CJS 917, § 433; 12 AmJur 1016, § 436; McDaniel v. Mallary Bros. Machinery Co., 6 Ga. App. 848 (66 S.E. 146); Williams v. Empire Mutual &c. Ins. Co., 8 Ga. App. 303, 304 (7) (68 S.E. 1082); Farmers Mutual Co-operative Fire Ins. Co. v. Kilgore, 39 Ga. App. 528 (147 S.E. 725); Grolier Society v. Freeman, 45 Ga. App. 465 (165 S.E. 290); Cartwright v. Bartholomew, 83 Ga. App. 503, 507 (64 SE2d 323)." Pearson v. George, 209 Ga. 938, 945 (2), 946 (77 SE2d 1).
In the case sub judice, although the undisputed evidence showed that defendant did not comply with the sales contract by failing to provide plaintiff the sales information, evidence presented at trial authorized a finding that plaintiff was aware of defendant's breach prior to execution of the sales agreement and prior to closing. Consequently, plaintiff's failure to repudiate the sales contract on that ground prior to closing constituted a waiver thereof. In other words, because of plaintiff's acquiescence to said breach, neither an action to rescind the sales contract nor an action for damages based on breach *163 of the contract can be sustained. The trial court did not err in failing to grant a verdict in favor of plaintiff. See 6 EGL 124, Contracts, § 97 (1978 Rev.). See also 41 ALR2d 1173, § 8 (b).
2. Plaintiff contends in its third and fourth enumerations of error that the trial court erred in instructing the jury on "contractual waiver ..." Plaintiff argues that the issue of "contract waiver was not properly before the jury ..."
Pretermitting the issue of the propriety of submitting the issue of contractual waiver to the jury, in light of our holding in Division 1 of this opinion, there was no harm in instructing the jury in this regard as the jury's conclusion was authorized as a matter of law under the evidence adduced at trial.
3. In its final enumeration of error, plaintiff contends the trial court erred in failing to "charge the jury on rules of contract construction and parol evidence ..." This enumeration of error is without merit. Plaintiff failed to request such charges and therefore waived its right to complain on appeal. OCGA § 5-5-24 (b). Contrary to plaintiff's assertion, we do not find the trial court's failure to charge the jury in this regard harmful as a matter of law. See OCGA § 5-5-24 (c) and Widener v. Mitchell, 137 Ga. App. 730, 731 (4) (224 SE2d 868).
Judgment affirmed. Sognier, J., concurs. Beasley, J., concurs in the judgment only. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1851689/ | 247 Miss. 822 (1963)
157 So. 2d 494
McMAHON
v.
McMAHON
No. 42792.
Supreme Court of Mississippi.
November 18, 1963.
Joe G. Moss, Raymond; T. Eugene Caldwell, Jackson, for appellant.
*824 Wells, Thomas & Wells, Roland D. Marble, Jackson, for appellee.
*825 McELROY, J.
This is an appeal from a decree of the Chancery Court of the First Judicial District of Hinds County, Mississippi. The bill of complaint of the appellant, Mrs. Lydia McMahon, alleged that a certain purported quitclaim deed dated October 10, 1944 was a forgery, asked that the same be canceled and that she be adjudicated the legal holder of an undivided one-fourth interest in certain real estate, and that a judgment be entered against the appellee in the sum of $34,000 plus interest from July 27, 1959 for one-fourth of the proceeds of part of the property, with a lien imposed on the remaining property.
This is the second time this appeal has come before the court. In the first trial the appellee incorporated a demurrer in his answer. The court sustained the demurrer and dismissed appellant's bill of complaint. This appeal was reversed and remanded in McMahon v. McMahon, 243 Miss. 89, 137 So. 2d 520. The allegations of the bill of complaint are well stated in this appeal.
When the bill of complaint was remanded the court allowed the appellant to amend her bill of complaint to show that a right-of-way agreement was executed by the appellee and others in favor of the power and light company to cross the land involved for a consideration *826 of $20,000, and praying for an additional judgment in the amount of $5,000 plus interest, and to make appellant's interest in said lands subject to the right-of-way, making the total sum of $39,000, and imposing a lien on the land until the amount is paid.
The court on motion of the appellee required the appellant to amend the bill of complaint: (1) that the quitclaim deed in question was a forged deed; or (2) that the quitclaim deed was signed by complainant as a result of fraud and duress.
The amended bill of complainant alleged that the quitclaim deed was secured by fraud and duress on the part of the appellee, that a fiduciary relationship existed between the parties at a time when there was great sorrow in her life and when her affairs were in a personal and peculiar knowledge of the appellee, and that she had signed said deed at a time when she was required by the appellee and his attorney to execute many instruments which she believed to be in connection with her late husband's estate.
At the time the case was set for hearing, which was around June 13, 1962, the appellee filed an answer to the amended bill of complaint to which he attached a written agreement alleged to have been entered into by the appellant and the appellee on the same date as the quitclaim deed was signed, that is, on October 10, 1944. That agreement, in part, is as follows:
"The undersigned, Mrs. Lydia Schloesser McMahon, has on this date executed a Quit Claim Deed to the undersigned, W.A. McMahon, on the N. 1/2 of the S. 1/2 of Section 12, Township 5, Range 1 West, in the First Judicial District of Hinds County, Mississippi and does herein release and relinquish unto the said W.A. McMahon, all rights, claims, and interest, if any, against all the assets and property owned by the Estates of John B. McMahon and Mrs. Malissa McMahon, deceased, in consideration of the said W.A. McMahon paying *827 all costs, expenses, and Attorneys fee and all Inheritance and Estate Taxes in connection with the Estate of James Hutson McMahon, deceased, being administered upon in the Chancery Court of the First Judicial District of Hinds County, Miss., at Jackson, Mississippi, and all costs and expenses in connection with the Probating of his will in said Estate, and in further consideration of the said W.A. McMahon relinquishing and forever waiving all claims for his services in managing the property and collecting rents and in having repairs made on the property of James Hutson McMahon, deceased, and Mrs. Lydia Schloesser McMahon in the City of Jackson, Mississippi and in the First Judicial District of Hinds County, Mississippi, and for his services in getting tenants for said houses and in paying taxes on same and in doing everything in connection therewith.
"...
"The said Mrs. Lydia Schloesser McMahon hereby acknowledges payment in full of all sums of money due her deceased husband, James Hutson McMahon and herself for their interest in the property known as No. 938 Hunt Street, Jackson, Mississippi and being the sum of $2,000.00."
This agreement was sworn to by the parties.
Both appellant and appellee were advanced in years. In fact, the appellant had had a stroke and could hardly talk, and her evidence amounted to very little, if anything, in the trial of the case.
W.A. McMahon was called as an adverse witness and testified that he had operated the place as a farm since he was eighteen years of age, that he had been there for a period of around sixty-seven years, that he had exercised absolute control over the property for such period of time, and that after the death of his father and mother he took charge and operated the place; in fact, the only difference was that they were gone. Mrs. *828 McMahon was the widow of the brother of the appellee, Hut McMahon who died in the year 1942. Hut owned some property in Jackson and he collected the rents for him and paid the taxes for him and kept a set of books on it; there was some agreement to pay him 20% for this, but for some reason he had never charged this or taken it out of the rent checks as they were paid. He placed tenants on the property owned by the appellant, made repairs, paid the taxes and insurance, all without consulting the appellant, and she always accepted his judgment without question. He stated that sometime in 1944 Mrs. McMahon came up here to see something about selling some property, which Mr. Lewis wanted to know about, and he gave them their address, and that they met in Mr. J. Sivley Rhodes' office. He stated that he didn't have Mr. Rhodes as his attorney, but that he was there for Mrs. McMahon's attorney. He said that at that meeting some question came up about the one-fourth interest in the property, that he told her that since he had been taking care of the property for both her and her husband and that her husband had promised to pay him 20% for his services, that he was going to claim that against her if she was going to try to claim the property. He further stated that he told her in Mr. Rhodes' office that she was not entitled to a foot of the place, but he knew that the court would give it to her, and also told her that if she did not pay him for services he had rendered, he was going to file suit against the estate of her deceased husband.
Mr. McMahon stated that the deed of October 10, 1944 and also the contract signed at that time were outgrowths of this meeting in Mr. Rhodes' office, that he agreed to pay appellant's attorneys fees and all court costs in connection with appellant's husband's estate, not knowing what the amount might be, in return for the appellant conveying to him her interest in the property, that she was to give him a deed for some other *829 land for $2,000 as more or less part of the consideration, that he never did get the land deed, but he did give her a check for the $2,000 and he considered that as part of the consideration of her quitclaim deed here.
Since there was property in Jackson to be sold, it was necessary for the husband's will to be probated here, although he had lived in Louisiana. The will was admitted to probate in the chancery court around October 7, 1944. This deed was filed of record in the office of the chancery clerk of Hinds County, Mississippi on October 11, 1944, and was immediately recorded. The decree probating the will was entered around June 29, 1945, and about the same date appellant sold by warranty deed to W.E. Lewis and wife the lot which she had contracted to sell in August of 1944.
On December 27, 1946 the appellee bought out the interests of his remaining cotenants, Neil G. McMahon and Lucille McMahon McNeil. During all of this time, appellant continued to sell lots that she owned in Hinds County, which goes to show, and it is undisputed in the record, that the appellant knew the effects of signing the deed. She knew what she was doing and intended to sell her property.
It is undisputed that W.E. Lewis wanted to buy a lot from the appellant, that W.E. Lewis had as his lawyer J. Sivley Rhodes, to check the title and draw him a contract to purchase the lot from Lydia McMahon, and that W.E. Lewis introduced W.A. McMahon to John Sivley Rhodes, the attorney, that John Sivley Rhodes never represented W.A. McMahon, but did represent Mrs. Lydia McMahon as executrix of the estate of James Hutson McMahon, the deceased husband.
There is very little conflict of any testimony in the case occurring around the date of October 10, 1944. Mr. Rhodes' deposition was taken, but he was a very sick man at the time, had cataracts on his eyes, didn't see, and it seemed that his memory was very bad, in fact, he *830 didn't remember much about any of the occurrencies. At first he said there was nothing done in his office about the deed, then he finally stated that he couldn't remember anything that happened eighteen years ago, that his memory was very poor on the question.
However, there was other testimony introduced by Linton Godown that in his opinion the quitclaim and the agreement were typed on the same typewriter on which the papers in the Estate of James Hutson McMahon, Deceased, were typed, which estate was handled by John Sivley Rhodes; that all of the instruments were probably typed by the same typist.
In other words, the only testimony in this case was given by the appellee in the case, a man eighty odd years old, against whom a bill was drawn charging duress and force and threats which caused Lydia McMahon to sign the papers. His entire testimony is to the effect that he did not force Lydia McMahon to sign the quitclaim deed, agreement, or any other instrument, and that John Sivley Rhodes did not force her to sign anything. No one denied that the quitclaim deed and agreement were executed and acknowledged in the offices of Mr. Rhodes on October 10, 1944.
All of these events took place in 1944. Subsequently, in 1957, Mr. McMahon's wife lost her mind and memory, thirteen years after the deed was signed, and is now unable to testify.
The Mississippi Power & Light Company and the State Highway Commission have purchased a right-of-way through this land and paid a valuable consideration. A new home has been built on the land, and above all, the value of the land in 1944 was estimated somewhere, we would say, around $20,000, and now has approached somewhere over the $200,000 mark. Even the attorney, notary public, who took the acknowledgement on the quitclaim deed and the agreement, passed away in 1960, *831 sixteen years after the acknowledgment and just one year before the suit was filed by the appellant.
The appellant, in basing her claim for cancellation of the quitclaim deed on a charge of fraud and duress, abandoned the fact that she did not know about executing the paper, and charged the existence of a confidential relationship between herself and the appellee.
The appellee's contention was that there was no fraud or duress, that no confidential or fiduciary relationship ever existed between the appellant and appellee, and that the statute of limitation applied, that is, sections 709-710, Miss. Code 1942, Rec., and if that wasn't sufficient, the equitable doctrine of laches would bar the action of the appellant.
The Chancellor's opinion, in part, is as follows:
"This controversy is between an eighty year old complainant and a Defendant who is approaching his eighty-fifth birthday. It involves essentially a quitclaim deed executed on October 10, 1944, a deed on which light is thrown by an agreement executed on the same day, October 10, 1944, by Mrs. Lydia Schloesser McMahon and W.A. McMahon.
"The burden of proof of establishing a confidential or fiduciary relationship rests upon the Complainant or the one who asserts it. Once that fiduciary or confidential relationship is established, then certain presumptions come into play, but first the confidential or fiduciary relationship must be established. This does not involve a traditional or legal fiduciary or confidential relationship; it is not a relationship of attorney and client, doctor and patient, or trustee and cestui que trust, so, not being a confidential or fiduciary relationship in law, it must be established as a confidential or fiduciary relationship in fact.
"...
"During this period of time from 1944 to 1954, there was no question of this quitclaim deed or this agreement. *832 There was no attempt to hide anything. The quitclaim deed was immediately placed of record after its execution; it was on the land records of this County for the world to see."
Finally the court concluded that Mrs. Lydia McMahon did execute the quitclaim deed, did execute the agreement on the same date, October 10, 1944, that these were arms length transactions with her brother-in-law and she knew exactly what she was doing and so intended the effect which these instruments carried; that she did receive consideration as recited over her signature in the receipt, release and agreement.
Even if what the court found to be true and correct were not so, the doctrine of laches, estoppel, and the statutes of limitation would have applied in this case and the complainant would have been forever barred by those doctrines and the ten-year statute of adverse possession from asserting any rights to this land, but the court finds and bases its opinion primarily on the fact that there was no confidential or fiduciary relationship established, and that these parties were dealing at arms length with each other.
The contention of the appellant in this case is based primarily on the question of concealed fraud. She cites sections 709 and 710 of Miss. Code 1942, Rec., and section 710 states in part: "but in every case of a concealed fraud, the right of any person to bring suit in equity for the recovery of land, of which he or any person through whom he claims may have been deprived by such fraud, shall be deemed to have first accrued at and not before the time at which the fraud shall, or, with reasonable diligence might, have been first known or discovered." The exception is to the effect that in case of concealed fraud, the right of a person to bring suit in equity for recovery of land of which he has been deprived by fraud shall be deemed to have first accrued at and not before the time which the fraud shall or with *833 reasonable diligence might have been first known or discovered. At one time there was a question whether these statutes actually applied in equity, but the question has been decided in the case of Neal v. Teat, 240 Miss. 35, 126 So. 2d 124.
In Griffith's Mississippi Chancery Practice, section 182, in part is found:
"Concealed fraud avoiding limitations must be averred and proved specifically, clearly and distinctly as in other cases charging fraud... . the bill must excuse the delay or avoid the limitations by specific averments of the facts and circumstances, precisely and definitely, which constitute the excuse."
This principle is supported in part by the case of Gordon v. Anderson, 90 Miss. 677, 44 So. 67. See also Note 173 A.L.R. 276.
(Hn 1) In the case of Jones v. Rogers, 85 Miss. 802, 38 So. 742, which was taken to the U.S. Supreme Court on writ of error, suit was brought by certain heirs who alleged concealed fraud in handling of the estate of one of their ancestors, in which case all of the proceedings in the estate were duly recorded in the public records of the county where the action was brought within the state of Mississippi. In the course of the opinion the court lays down five facts which must be alleged in order for the complainant to take advantage of the exceptions in the statute of limitation, that is, concealed fraud. The five facts which must be alleged are, in the words of the court, as follows:
"To prevent this statute from beginning to run against them in favor of defendants, complainants must not only allege (1) fraud, and the facts or acts constituting it; (2) that these acts of fraud were committed by defendants, or some one in privity with them; (3) that they were concealed from complainants by defendants or their privies; (4) that complainants did not discover or know of this fraud over 10 years before instituting *834 their suit; but (5) they must also allege and show that they exercised reasonable diligence to discover it sooner, or that they could not, with reasonable diligence, have discovered it sooner.
"... In addition, the particular acts which constituted the fraud, combination, or confederacy are not alleged in the bill, but mere vague, indefinite, general, and uncertain averments are made. And no principle is more firmly settled or more familiar to the profession than that fraud will not be inferred or presumed, and cannot be charged in general terms, but that the specific and positive facts which constitute it must be distinctly and definitely averred, and it must be shown that defendants participated therein." (emphasis added)
(Hn 2) Applying the above principles to the case at bar, it is clear that appellant can not allege that the facts in this suit were concealed from appellant by appellee or his privies, because of the fact that the quitclaim deed was duly recorded in the public records of Hinds County at all times since October 11, 1944, some eighteen years prior to filing of the bill of complaint.
(Hn 3) The fact that the deed was duly of record prevents the rule of concealed fraud applying, for this court has said in the case of Adams v. Belt, 136 Miss. 511, 100 So. 191, at p. 194, that the rule of concealed fraud can not apply to those things that are of public record. The court stated the principle as follows:
"Conceding for the sake of the argument that concealed fraud is here charged, the rule thereby sought to be invoked, that the limitation on the right to bring a suit to annul a decree commences only when the fraud on which the suit is predicated is or ought to have been discovered, cannot apply here, for defendants in the cause in which the orders and decrees here sought to be annulled were rendered were dead when the cause in which the decree here appealed from was rendered *835 was tried in the court below, and it does not appear from the evidence that they did not know of the matters on which the charge of fraud is predicated. Moreover the rule of concealed fraud cannot apply to those things that were here openly done or which appear of record. Thornton v. City of Natchez, 88 Miss. 1, 41 So. 498; Norris v. Haggin, 136 U.S. 386, 10 S. Ct. 942, 34 L. Ed. 424." (Emphasis added)
A more recent case in this line of decisions is Aultman v. Kelly, 236 Miss. 1, 109 So. 2d 344 (1959), wherein suit was filed to set aside a mineral conveyance of an ancestor in which suit the complainant alleged that the ancestor was incompetent at the time of the conveyance. The facts show that the ancestor died shortly after executing the conveyance and that more than ten years had elapsed from the time of his death until the time suit was filed. Defendants filed a plea in bar based on Code sections 709 and 710 and the lower court overruled the plea after which an appeal was taken to the Supreme Court. On appeal the Supreme Court ruled that, since the deed was filed of record immediately after delivery, constructive notice of the making of the deed began the moment it was lodged with the proper officer for record; and the Court stated the principle as follows:
"When the cause of action arose, the heirs, whether they had any actual knowledge of the deed or not, had constructive knowledge thereof, because it had been recorded. `Constructive notice of the making of a deed begins the moment it is lodged with the proper officer for record.' Sowell v. Rankin, 120 Miss. 458, 82 So. 317; Bank of Lexington v. Cooper, 115 Miss. 782, 76 So. 659; Mangold v. Barlow, 61 Miss. 593, 48 Am. Rep. 84. Besides, where the alleged fraudulent conveyance is recorded, the circumstances are public and the means of finding out the character of the transaction are available. Consequently, the running of the statute of limitation *836 is not prevented. Fleming v. Grafton, 54 Miss. 79." (Emphasis added)
(Hn 4) The long delay in complaining of the alleged fraud, of which appellant had constructive notice, is the basis for holding that appellant has acquiesced in the effect of the quitclaim deed and is deemed to have affirmed the deed and waived her right to rescind. See 9 Am. Jur. 389, Cancellation of Instruments, § 46.
(Hn 5) Before a party can claim the benefit of fraud, the party must clearly allege the facts and circumstances which constitute the fraud and prove, by clear and convincing evidence, that the alleged facts and events did occur and that thereby the victimized party was defrauded. (Hn 6) To establish fraud, there must be a representation of the falsity thereof, the materiality of the false representations, the speaker's intent that it be acted on by the other in the anticipated manner, the hearer's ignorance of its falsity, his reliance on its truth, his right to rely thereon, and his consequent and proximate injury. See 37 C.J.S., Fraud, § 2c(2).
It appears that had there been any fraud, it conceivably would have occurred on October 10, 1944, at a time when appellant was present, willing and able to act for her own said interest, and if there had been any fraud, not only was it not concealed fraud, but it was known to the appellant by her actual knowledge of the facts. Concealed fraud can not apply to those things which appear of record, therefore nothing contained in the quitclaim deed of October 10, 1944 can be regarded as concealed fraud.
In the case of Cunningham v. Lockett, 216 Miss. 879, 63 So. 2d 401 (1953), this Court held that blood alone is not sufficient to furnish the basis for a confidential relationship, but the material inquiry is whether at the very time the incident occurred the party claiming the confidential relationship possessed the mental capacity to understand and appreciate the nature and effect of *837 the act being done. In the Cunningham case the Court refused to hold that such a relationship existed on the basis of the fact that, significantly, the appellant therein continued to execute Deeds of Trust without complaint and to take other actions as to her land in due course. Similarly, appellant in the case at bar executed deeds as late as 1958 and 1959, and no complaint had been raised as to them.
(Hn 7) There is no doubt that one cotenant may purchase from another cotenant; in the case of Conner v. Conner, 238 Miss. 471, 508, 119 So. 2d 240 (1960), we find this statement:
"But the appellants' attorneys say that Governor Conner's possession and control of the property was that of managing cotenant holding for and on behalf of all of the cotenants, and that there is no testimony in the record to show that there was any change of possession after the execution of the deed by Jack to Governor Conner on January 3, 1930. That fact, however, is in our opinion not a controlling circumstance in this case. This is not a case where a managing cotenant, without the consent of the others has bought in an outstanding adversary title and asserted it for his exclusive benefit. It is well settled that one tenant can purchase the share of another just as he would buy property from a stranger. 14 Am. Jur. 130, Cotenancy, par. 62. A sale of an undivided interest by a tenant in common severs the relationship between himself and his cotenant, 86 C.J.S. Tenancy in Common, § 14, p. 375. After the execution of the deed by Jack to Governor Conner on January 3, 1930, Governor Conner was presumed to be in possession of the undivided 1/4 interest which he had purchased from Jack by virtue of the warranty deed which Jack had executed."
From the evidence adduced in the record, the court was eminently correct in its findings, and we are unable to say in any respect that the Chancellor was manifestly *838 wrong in the decree or order entered in this case. The case is therefore affirmed.
Affirmed.
McGehee, C.J., and Rodgers, Jones and Brady, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2633691/ | 176 P.3d 911 (2007)
STATE of Idaho, Plaintiff-Respondent,
v.
Darren B. HOOPER, Defendant-Appellant.
No. 33826.
Supreme Court of Idaho, Boise, September 2007 Term.
December 24, 2007.
*912 Molly J. Huskey, State Appellate Public Defender, Boise, for appellant. Paula M. Swensen argued.
Honorable Lawrence G. Wasden, Attorney General, Boise, for respondent. Kenneth K. Jorgensen argued.
J. JONES, Justice.
Darren B. Hooper was convicted of lewd conduct with his daughter, six-year-old A.H. At trial, the district court deemed A.H. unavailable and admitted a videotaped interview of the child. After Hooper's conviction, the U.S. Supreme Court decided Crawford v. Washington, 541 U.S. 36, 124 S. Ct. 1354, 158 L. Ed. 2d 177 (2004), and Davis v. Washington, 547 U.S. 813, 126 S. Ct. 2266, 165 L. Ed. 2d 224 (2006). Hooper appealed. The Court of Appeals held that a videotaped interview of the child victim was testimonial under Crawford and Davis, that the admission of the videotape was error, and that the error was not harmless. The court vacated the conviction and remanded for further proceedings. This Court granted the State's petition for review. We hold that the videotaped statements were testimonial in nature, based on Crawford and Davis, and that admission of the statements was not harmless error. We vacate the conviction and remand the case for further proceedings.
I.
On August 2, 2003, Crystal Hooper woke and learned Darren Hooper was in the bathroom with their daughter, A.H. The door was locked. Crystal Hooper used a screwdriver to open the bathroom door. She ordered A.H. into Crystal's bedroom and questioned Darren about his activities in the bathroom. Then, after speaking with A.H., Crystal accused Darren of sexually molesting A.H. and called the police.
When the police arrived, they questioned Darren and Crystal Hooper and attempted to question A.H. The police did not collect evidence at this time, but Detective Marshall and Detective Plaza arranged a forensic examination with on-call personnel at the Sexual Trauma Abuse Response ("STAR") Center in Ontario, Oregon.
*913 At the STAR Center, Dr. De La Paz first talked with Crystal Hooper and then conducted a sexual abuse examination of A.H., during which she found breaking and swelling in the rectal area. Jeremi Helmick, a STAR Center nurse and forensic interviewer, interviewed A.H. after Dr. De La Paz completed the medical examination. Helmick videotaped the interview while Detective Plaza observed from another room via a closed circuit system. At the end of the interview, Detective Plaza talked with Helmick and Crystal Hooper. Plaza collected the videotape and two swabs taken during the physical examination and put them into evidence storage at the Payette Police Department. Following the examination and interview, the police returned to the Hooper home to collect evidence, including a sheet from A.H.'s bed, underwear belonging to A.H. and a washcloth from the bathroom.
Prior to trial, the State served notice of intent to introduce the videotaped interview of A.H. and hearsay statements made by A.H. to the forensic examiner, based on Idaho Rules of Evidence 803(24) and 804(5). The District Court reserved ruling on the matter. At trial, the State called A.H. to testify. After A.H. was unable to take the oath, the district court declared A.H. unavailable and the state sought to introduce the videotaped interview. The defense objected based on the Defendant's Sixth Amendment right to confront and cross-examine witnesses against him.[1] The court admitted the videotape over Defendant's objection, based on a pre-Crawford analysis, and played the video for the jury.
The jury found Mr. Hooper guilty of lewd and lascivious conduct with a minor child under the age of sixteen pursuant to Idaho Code § 19-1508. The District Court sentenced Mr. Hooper to six years imprisonment, with two and one-half years fixed. Mr. Hooper timely filed his Notice of Appeal from his Judgment of Conviction. The Court of Appeals held that the admission of the videotaped interview violated Mr. Hooper's right to cross-examine his accuser as guaranteed by the Confrontation Clause: "The conclusion is inescapable that the nurse was acting in tandem with law enforcement officers to gain evidence of past events potentially to be used in a later criminal prosecution." The court further held the error was not harmless. As a result, the court vacated the Judgment of Conviction and remanded the case. This Court granted the State's Petition for Review.
II.
The question presented is whether videotaped statements made by a child during an interview by a forensic examiner at a sexual trauma abuse response center are testimonial when the police directed the child to the center and observed the interview from another room. We hold that the videotaped statements were testimonial in nature, based on Crawford and Davis, and that admission of the statements was not harmless error. We vacate the conviction and remand the case for further proceedings.
A.
When considering a case on review from the Court of Appeals, this Court gives serious consideration to the Court of Appeals' decision. State v. Cope, 142 Idaho 492, 495, 129 P.3d 1241, 1244 (2006) (quoting Garza v. State, 139 Idaho 533, 535, 82 P.3d 445, 447 (2003)). This Court does not merely review the correctness of the decision. Id. Rather, the Court acts as though it is hearing the matter on direct appeal from the trial court's decision. Id.
*914 When a violation of a constitutional right is asserted, the appellate, court should give deference to the trial court's factual findings unless those findings are clearly erroneous. Doe v. State, 133 Idaho 811, 813, 992 P.2d 1211, 1213 (Ct.App.1999) (citing State v. Peightal, 122 Idaho 5, 7, 830 P.2d 516, 518 (1992)). The appellate court exercises free review over the trial court's determination as to whether constitutional requirements have been satisfied in light of the facts found. Id. Hooper asserted below that admission of the videotaped interview violated his right to confront adverse witnesses under the Sixth Amendment's Confrontation Clause. This is a question of law over which the Court exercises free review. See Doe, 133 Idaho at 813, 992 P.2d at 1213.
B.
This is an issue of first impression for the Idaho Supreme Court. The U.S. Supreme Court's decision in Crawford v. Washington, 541 U.S. 36, 124 S. Ct. 1354, 158 L. Ed. 2d 177 (2004), significantly altered the Supreme Court's Confrontation Clause analysis. A subsequent case, Davis v. Washington, 547 U.S. 813, 126 S. Ct. 2266, 165 L. Ed. 2d 224 (2006), further clarified Crawford, but left many issues unresolved. State courts have interpreted these cases in varying ways, and the parties in the present case similarly disagree on the proper application of the Supreme Court precedent.
Hooper contends the videotaped statements are testimonial because the forensic nurse examiner was acting as an agent of the police and no emergency existed at the time the statements were taken. According to Hooper, investigative interrogations are directed at establishing the facts of a past crime in order to identify, or provide evidence against, the perpetrator. Since the purpose of a forensic interview is to collect information to be used in a criminal prosecution, and there is a clear connection between the police and the STAR Center, the interview was the functional equivalent of a police interrogation. Thus, it is testimonial under Crawford and Davis, and inadmissible unless the witness is unavailable and the defendant had a prior opportunity to cross-examine the witness.
The State argues the Court of Appeals erred in its application of Davis to this case. According to the State, Davis applies only to determine whether statements to law enforcement personnel or their agents are testimonial. Since Hooper has not shown the interviewer here was an agent of the police, Davis is inapplicable and the question is whether the statement at issue is one of the three "core testimonial statements" listed in Crawford. Pointing to the third formulation of "core testimonial statements," the State contends the evidence is nontestimonial because the defendant has not shown the circumstances of the interview would have led a child of the victim's age to reasonably believe she was making a statement for use at a later trial. The State asserts that, at most, Hooper is entitled to have this case remanded so that evidence of agency may be presented to the district court.
The Sixth Amendment's Confrontation Clause provides that, "[i]n all criminal prosecutions, the accused shall enjoy the right to be confronted with witnesses against him." U.S. Const. amend. VI, cited in Crawford, 541 U.S. at 42, 124 S. Ct. at 1359, 158 L.Ed.2d at 187. Prior to Crawford, the Supreme Court held that the Confrontation Clause did not bar admission of an unavailable witness's statement against a criminal defendant if the statement bears "adequate indicia of reliability." Roberts, 448 U.S. at 66, 100 S. Ct. at 2539, 65 L.Ed.2d at 608. To meet that test, the declarant must be unavailable and evidence must either fall within a "firmly rooted hearsay exception" or "bear particularized guarantees of trustworthiness." Id.
Crawford altered this analysis with regard to testimonial statements. In Crawford, the Court held that testimonial statements of witnesses absent from trial are admissible only where declarant is unavailable and where defendant had a prior opportunity to cross-examine the witness. 541 U.S. at 59, 124 S.Ct. at 1369, 158 L. Ed. 2d at 197. Although the Court declined to spell out a comprehensive definition of "testimonial," the Court did set forth some guidelines. First, the Court looked to Webster's dictionary *915 definition of "testimony" from 1828. Testimony is "[a] solemn declaration or affirmation made for the purpose of establishing or proving some fact." Crawford, 541 U.S. at 51, 124 S. Ct. at 1364, 158 L.Ed.2d at 192 (quoting 1 N. Webster, An American Dictionary of the English Language (1828)). The Court then listed three formulations of "core" testimonial statements:
(1) "ex parte in-court testimony or its functional equivalent-that is, material such as affidavits, custodial examinations, prior testimony that the defendant was unable to cross-examine, or similar pretrial statements that declarants would reasonably expect to be used prosecutorially;"
(2) "extrajudicial statements . . . contained in formalized testimonial materials, such as affidavits, depositions, prior testimony, or confessions;" and
(3) "statements that were made under circumstances which would lead an objective witness reasonably to believe that the statement would be available for use at a later trial."
Crawford, 541 U.S. at 51-52, 124 S. Ct. at 1364-1365, 158 L.Ed.2d at 192-193 (internal citations omitted). This is not an exclusive list of "testimonial" evidence. Rather, these formulations all share a "common nucleus" and then define the Clause's coverage at various levels of abstraction around it. Id.
The determination of whether evidence is testimonial requires the court to consider the purpose behind the Confrontation Clause. The Supreme Court based its holding in Crawford on the historical underpinnings of the Confrontation Clause, and noted that the Sixth Amendment must be' interpreted with this history in mind:
First, the principal evil at which the Confrontation Clause was directed was the civil-law mode of criminal procedure, and particularly its use of ex parte examinations as evidence against the accused. . . . The Sixth Amendment must be interpreted with this focus in mind.
541 U.S. at 50, 124 S. Ct. at 1363, 158 L.Ed.2d at 192 . For example, the Court noted that statements taken by police officers in the course of interrogations are testimonial "under even a narrow standard" because police interrogations bear a "striking resemblance to examinations by justices of the peace in England." Crawford, 541 U.S. at 52, 124 S. Ct. at 1364, 158 L.Ed.2d at 193. Thus, interrogations by law enforcement officers fall "squarely within that class" of testimonial hearsay. Id. In closing, the Court noted that "[W]hatever else the term [testimonial] covers, it applies at a minimum to prior testimony at a preliminary hearing, before a grand jury, or at a former trial; and to police interrogations. These ,are the modern practices with closest kinship to the abuses at which the Confrontation Clause was directed." Crawford, 541 U.S. at 68, 124 S. Ct. at 1374, 158 L.Ed.2d at 203.
The Supreme Court applied this new Confrontation Clause doctrine in consolidated cases Davis v. Washington and Hammon v. Indiana, 547 U.S. 813, 126 S. Ct. 2266, 165 L. Ed. 2d 224 (2006). In Davis, the Supreme Court began with the clarification that "[i]t is the testimonial character of the statement that separates it from other hearsay that, while subject to traditional limitations upon hearsay evidence, is not subject to the Confrontation Clause." Thus, the threshold question in a Confrontation Clause case is whether the statement is testimonial. If the evidence is testimonial, the evidence may be admitted only if the witness is unavailable to testify and the defendant had a prior opportunity to cross-examine the witness. Crawford, 541 U.S. at 59, 124 S. Ct. at 1369, 158 L.Ed.2d at 197; Davis, 547 U.S. at 821, 126 S. Ct. at 2273, 165 L.Ed.2d at ___.
In Davis, the Supreme Court held that "[s]tatements are nontestimonial when made in the course of police interrogation under circumstances objectively indicating that the primary purpose of interrogation is to enable police assistance to meet an ongoing emergency. They are testimonial when the circumstances objectively indicate that there is no such ongoing emergency, and that the primary purpose of the interrogation is to establish or prove past events potentially relevant to later criminal prosecution." Davis, 547 U.S. at 822, 126 S. Ct. at 2273-74, 165 L.Ed.2d at ___. Thus, a statement is testimonial under Crawford and Davis when the circumstances objectively indicate that the *916 primary purpose of the interrogation is to establish or prove past events potentially relevant to later criminal prosecution, unless made in the course of police interrogation under circumstances objectively indicating the primary purpose of the interrogation is to enable police assistance to meet an ongoing emergency.[2] 547 U.S. at 822, 126 S. Ct. at 2274, 165 L.Ed.2d at ___.
The circumstances surrounding the statements in Davis led the Court to conclude the statements were nontestimonial. In reaching its holding, the Court articulated certain factors that distinguished the nontestimonial statements in Davis from the testimonial statements in Crawford. First, the witness in Davis was speaking about events as they were actually happening, rather than describing past events. 547 U.S. at 827, 126 S.Ct. at 2276, 165 L.Ed.2d at ___. Second, any reasonable listener would recognize the witness in Davis was facing an ongoing emergency. Id. Third, the nature of what was asked and answered in Davis, viewed objectively, was such that the elicited statements were necessary to be able to resolve the present emergency, rather than simply to learn what had happened in the past. Id. Finally, the Court elaborated on the different levels of formality between the two interviews. Id. Based on these factors, the Court held that the statements in Davis were nontestimonial:
We conclude from all this that the circumstances of McCottry's interrogation objectively indicate its primary purpose was to enable police assistance to meet an ongoing emergency. She simply was not acting as a witness: she was not testifying. What she said was not a "weaker substitute for live testimony."
547 U.S. at 828, 126 S. Ct. at 2277, 165 L.Ed.2d at ___. Comparing the statements made in Davis to those in Crawford, the Court noted that, unlike the situation in Crawford, where the ex parte actors and evidentiary products of the ex parte communications aligned perfectly with their courtroom analogues, the statements made in Davis did not. Id. ("No `witness' goes to court to proclaim an emergency and seek help.").
The Court considered the same factors to hold the statements made in Hammon were testimonial. First, there was no emergency in progress. "It is entirely clear from the circumstances that the interrogation was part of an investigation into possibly criminal past conductas, indeed, the testifying officer expressly acknowledged." 547 U.S. at 829, 126 S.Ct. at 2278, 165 L.Ed.2d at ___. "Objectively viewed, the primary, if not indeed the sole, purpose of the interrogation was to investigate a possible crime." Id. In addition, the Court pointed to the formality of the statements, and that the statements were deliberately recounted in response to police questioning relating to how criminal conduct progressed: "Such statements under official interrogation are an obvious substitute for live testimony, because they do precisely what a witness does on direct examination; they are inherently testimonial." 547 U.S. at 830, 126 S.Ct. at 2278, 165 L.Ed.2d at ___. The Court distinguished the statements *917 based on the purpose of the interview and the similarities between this interview and live testimony.
We will employ a totality of circumstances analysis in order to determine whether the videotaped statements here were testimonial in nature. In this case, the police detectives arranged an examination with forensically-trained personnel at the STAR Center. The referral by police officers, in and of itself, is not of great significance, absent evidence of the purpose of the referral. Similarly, the fact that an interviewer has forensic training does not, in and of itself, make the statements "testimonial" in nature. The purpose of such interviews can be two-foldmedical treatment and forensic use. Statements made to medical personnel have frequently been held to be nontestimonial when the primary purpose was treatment, even where police officers referred the child to the medical personnel. See, e.g., People, v. Vigil, 127 P.3d 916, 923-24 (Colo. 2006) (statements made to a physician conducting a sexual assault exam were nontestimonial where the police officer was not involved in the medical examination and not present in the room when the doctor performed the examination); Commonwealth v. DeOliveira, 447 Mass. 56, 849 N.E.2d 218, 220 (2006) (child's statements to an emergency room physician were nontestimonial where police took the child to the emergency room to receive a medical assessment because the doctor's purpose was to determine whether the child was injured and whether she needed medical treatment); State v. Krasky, 736 N.W.2d 636, 642 (Minn.2007) (child's statements to nurse were nontestimonial even though police and social services jointly referred the child to the hospital where no law enforcement officer was present at the assessment and the primary purpose of the interview was to assess and protect the child's health and welfare).
A review of the factors in this case indicates that the interview was geared toward gathering evidence, rather than providing medical treatment. When the Officers questioned Darren Hooper, the accused abuser, Detective Marshall informed him that the child would be going to the STAR Center for an interview, and that "depending on the type of information [he] get[s] back from there, gonna depend on what kind of action is done." The Detective also asked Hooper whether there was any information A.H. was going to divulge to the counselors that Marshall should know "before [he] hear[s] it from them." See Davis, 547 U.S. at 829, 126 S. Ct. at 2278, 165 L.Ed.2d at . At the STAR Center, Detective Plaza observed the interview via a closed circuit system.
At the beginning of the interview, Helmick showed A.H. the camera and stated "That's where my special camera is and that makes it so I don't have to write everything down we talk about, cause I forget stuff sometimes, okay? . . . and my friend John [Detective Plaza] is watching to make sure that I remember to ask all the questions I need to ask, okay?" Helmick commenced the interview by describing certain rules to A.H. with regard to telling the truth: "Make sure that what we talk about is only the truth in here, okay?" Helmick then proceeded to ask questions regarding the event in question. She sought details, including questions seeking to identify the perpetrator: Who is that? What was his name? Where were you when that happened? How many times did it happen? Toward the end of the interview, Helmick consulted with the detective. When she returned to the room, she said "I did forget just a couple things," and continued to ask a few questions regarding specific details of what happened in the bathroom. At the end of the interview the detective talked with. Helmick and Crystal Hooper, then collected the videotape and two swabs taken during the physical examination and put them into evidence storage at the Payette Police Department. The police also returned to the Hoopers' home to collect additional evidence following the interview. These factors suggest the STAR Center interviewer was working in concert with the police to establish or prove past events relevant to a later criminal prosecution.
Based on the foregoing facts, we hold the videotaped statements were testimonial under Crawford and Davis. The circumstances surrounding this particular case objectively indicate that the primary purpose of the *918 interview was to establish or prove past events potentially relevant to later criminal prosecution, as opposed to meeting the child's medical needs. Helmick did not ask any questions regarding A.H.'s medical condition, or whether the child was injured. Further, this interview took place after a medical assessment and separately from the medical assessment. The police officer was present only at the second interview, not during Dr. De La Paz' examination. Unlike the situation in Davis, there is no evidence the statements were made in the course of police interrogation under circumstances objectively indicating the primary purpose of the interrogation was to enable police assistance to meet an ongoing emergency. The parties clearly anticipated that the videotaped statements would provide a substitute for the child's live testimony in court. Thus, the statements are admissible only if A.H. was unavailable and only if the defendant had a prior opportunity to cross-examine the witness. Since Hooper had no prior opportunity to cross-examine A.H., it was error to admit the videotape in evidence at trial.
C.
The State argues that even if the videotaped statements are testimonial in nature, the admission of the statements at trial was harmless error. An error that does not affect a defendant's substantial rights is considered harmless and does not require reversal or a new trial. State v. Doe, 137 Idaho 519, 527, 50 P.3d 1014, 1022 (2002). Whether a conviction for a criminal offense should stand when a state has failed to accord a constitutionally guaranteed right is a federal question. Chapman v. State of California, 386 U.S. 18, 20-21, 87 S. Ct. 824, 826, 17 L. Ed. 2d 705 (1967). Before a federal constitutional error can be held harmless, the court must be able to declare a belief that it was harmless beyond a reasonable doubt, Id. at 24, 87 S. Ct. at 828, 17 L.Ed.2d at 710. The test for harmless error is whether a reviewing court can find beyond a reasonable doubt that the jury would have reached the same result without the admission of the challenged evidence. Doe, 137 Idaho at 527, 50 P.3d at 1022 (quoting State v. Moore, 131 Idaho 814, 821, 965 P.2d 174, 181 (1998)).
Idaho courts applied the harmless error test to Confrontation Clause violations prior to Crawford and Davis. See, e.g., Doe, 137 Idaho at 526-27, 50 P.3d at 1021-22; State v. Green, 136 Idaho 553, 557, 38 P.3d 132, 136 (Ct.App.2001) ("A Confrontation Clause violation does not automatically require reversal; rather, the doctrine of harmless error applies."). In addition, courts in other states have applied the harmless error test to Confrontation Clause violations after Crawford and Davis. See, e.g., State v. Blue, 717 N.W.2d 558, 566 (N.D.2006); State v. Justus, 205 S.W.3d 872, 880-81, 878 (Mo. 2006). There is no reason to assume the harmless error test would not apply post Crawford.
Whether an error is harmless in a particular case depends upon a host of factors, including the importance of the witness' testimony in the prosecution's case, whether the testimony was cumulative, the presence or absence of evidence corroborating or contradicting the testimony of the witness on material points, the extent of cross-examination otherwise permitted, and, of course, the overall strength of the prosecution's case. Green, 136 Idaho at 558-559, 38 P.3d at 136-37 (quoting Delaware v. Van Arsdall, 475 U.S. 673, 684, 106 S. Ct. 1431, 1438, 89 L. Ed. 2d 674, 686 (1986)). In this case, the child's testimony was essential. Although there was some corroborating evidence, much of the physical evidence was inconclusive. We cannot find beyond a reasonable doubt that the jury would have reached the same result had the videotape been excluded.
III.
We vacate the conviction and remand the case for further proceedings consistent with this opinion. This result renders a discussion of additional issues unnecessary because Hooper's additional issues can be corrected on remand. Specifically, in response to Hooper's *919 argument that the jury instruction created a fatal variance from the indictment, we note that the jury instruction should match the indictment on remand. See State v. Sherrod, 131 Idaho 56, 59, 951 P.2d 1283, 1286 (Ct.App.1998).
Chief Justice EISMANN, and Justices BURDICK, W. JONES, and Justice Pro Tern TROUT concur.
NOTES
[1] Defense objected based on the Supreme Court's ruling in Ohio v. Roberts, 448 U.S. 56, 100 S. Ct. 2531, 65 L. Ed. 2d 597 (1980). One month after Hooper's conviction, the U.S. Supreme Court decided Crawford v. Washington, 541 U.S. 36, 124 S. Ct. 1354, 158 L. Ed. 2d 177 (2004), which significantly altered the Confrontation Clause analysis. When the U.S. Supreme Court applies a rule of federal law to the parties before it, "that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review." Harper v. Virginia Dep't of Taxation, 509 U.S. 86, 97, 113 S. Ct. 2510, 2517, 125 L. Ed. 2d 74 (1993). See also State v. Odiaga, 125 Idaho 384, 387-88, 871 P.2d 801, 804-05 (1994). Thus, we apply Crawford and Davis here.
[2] In Davis, where the statements were made to a 911 operator during the course of a domestic disturbance, the statements met the emergency exception and were deemed nontestimonial. See Davis, 547 U.S. 813, 126 S. Ct. 2266, 165 L. Ed. 2d 224. The Court referred to its statement in Crawford that interrogations by law enforcement officers fall "squarely within the class" of testimonial hearsay, and noted that it had in mind interrogations directed at establishing the facts of a past crime in order to identify the perpetrator. 547 U.S. at 826, 126 S.Ct. at 2276, 165 L.Ed.2d at ___. The product of such interrogation is testimonial. Id. The Court assumed for the purposes of the decision that even if 911 operators are not themselves law enforcement officers, they may at least be agents of law enforcement when they conduct interrogations of 911 callers and therefore the court considered their acts to be the acts of the police for the purposes of the decision. 547 U.S. at 823 n. 2, 126 S. Ct. at 2274 n. 2, 165 L.Ed.2d at ___ n. 2. Nevertheless, the statements were nontestimonial because they were not aimed at establishing the facts of a past crime, but rather describe a situation as it happened to enable police assistance for the victim. On the other hand, statements made to police officers who arrived on the scene after the disturbance had terminated, where the parties were separated and questioned individually, were deemed testimonial in Hammon because they were for the purpose of proving past events relevant to later criminal prosecution. 547 U.S. at 829-34, 126 S.Ct. at 2278-80, 165 L.Ed.2d at ___-___. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2633696/ | 176 P.3d 769 (2008)
Elizabeth FLOOD, Petitioner
v.
MERCANTILE ADJUSTMENT BUREAU, LLC, Respondent.
No. 06SC699.
Supreme Court of Colorado, En Banc.
January 22, 2008.
Rehearing Denied February 19, 2008.[*]
*770 Gary Merenstein, Boulder, Colorado, Pendleton, Friedberg, Wilson & Hennessey, P.C., Richard F. Hennessey, Susan M. Hargleroad, Karen E. Lorenz, Denver, Colorado, Attorneys for Petitioner.
Adam L. Plotkin, P.C., Adam L. Plotkin, Makyla M. Moody, Patricia A. Douglas Denver, Colorado, Attorneys for Respondent.
John W. Suthers, Attorney General, Laura E. Udis, First Assistant Attorney General, Denver, Colorado, Attorneys for Amicus Curiae Colorado Attorney General.
Justice HOBBS delivered the Opinion of the Court.
We granted certiorari in this Colorado Fair Debt Collection Practices Act[1] case to *771 review a decision of the District Court for Boulder County upholding a decision of the County Court for Boulder County.[2] Both courts ruled that the debt collection communication that Mercantile Adjustment Bureau, LLC ("MAB") sent to Elizabeth Flood complied with the notice provisions of section 12-14-109, and that MAB did not violate section 12-14-105(2) when it utilized an automated mailing service to print and mail the communication.
We reverse the district court's judgment in part and affirm its judgment in part. We hold that MAB's debt collection communication violated the notice provisions of section 12-14-109, but the use of an automated mailing service to print and mail the communication did not violate section 12-14-105(2). Accordingly, we remand this case to the district court, with directions to return it to the county court for entry of judgment consistent with this opinion, including a determination of whether Flood is entitled to damages, costs, and attorney's fees pursuant to section 12-14-113.[3]
I.
In January 2000, Flood purchased a used automobile. She financed the purchase through Citi Financial-Transouth ("Transouth"). Shortly after purchasing the car, Flood discovered it was damaged and returned it to the dealership. The dealer refused Flood's request for a refund; instead, the dealer provided Flood with a replacement vehicle.
In May 2000, the replacement vehicle began to exhibit electrical problems and, a few months later, broke down. Flood again sought to rescind the sale, but the dealer refused. Shortly thereafter, Flood lost her job and began to experience financial difficulties. After Flood missed several payments, Transouth repossessed her car and sold it for an amount less than what Flood owed on the vehicle. Transouth then transferred Flood's account to MAB.
On July 13, 2004, MAB sent Flood the written debt collection communication that is attached to this opinion as Appendix A.
MAB uses a mailing service, Unimail Corp. ("Unimail"), to print and mail its debt collection communications. It electronically transmits the necessary information to Unimail. Unimail then uses a mechanized process to print the communication, stuff and seal the envelopes, and place the sealed envelopes in the mail for delivery to the consumer. Unimail printed and mailed the above communication to Flood.
Flood filed suit against MAB in county court, bringing several claims under the Colorado statute. Flood alleged that the debt collection communication did not comply with section 12-14-109, because it failed to include necessary information and was contradictory about her rights and obligations under Colorado's statute. Flood also alleged that MAB impermissibly communicated with a third party, in violation of section 12-14-105(2), by outsourcing the printing and mailing of its collection communications to Unimail. Flood sought damages, costs, and attorney's fees against MAB pursuant to section 12-14-113 of the statute.
The county court entered judgment in favor of MAB, ruling that the collection communication complied with the notice requirements *772 of section 12-14-109, and use of an automated mailing service did not violate the statute's prohibition against third party communication in connection with the collection of a debt.
MAB then filed a bill of costs in the county court, as well as a motion requesting attorney's fees pursuant to section 12-14-113(1.5) of the statute. The county court denied MAB's request for attorney's fees pursuant to section 12-14-113(1.5), holding that this provision was preempted by the federal Fair Debt Collection Practices Act. However, the trial court did award MAB certain costs pursuant to Colorado's general costs statute, section 13-16-105, C.R.S. (2007).
Flood appealed the county court's judgment to the district court. MAB cross-appealed the county court's denial of its motion for attorney's fees. The district court upheld the judgment of the county court.
II.
We hold that MAB's debt collection communication violated the provisions of section 12-14-109, but the use of an automated mailing service to print and mail the communication did not violate section 12-14-105(2). Accordingly, we remand this case to the district court, with directions to return it to the county court for entry of judgment consistent with this opinion, including a determination of whether Flood is entitled to damages, costs, and attorney's fees pursuant to section 12-14-113 of the statute.
A.
Standard of Review
We review issues of statutory construction de novo. See CLPF-Parkridge One, L.P. v. Harwell Invs., Inc., 105 P.3d 658, 661 (Colo.2005); Colo. Dep't of Labor & Employment v. Esser, 30 P.3d 189, 194 (Colo. 2001). Our primary responsibility is to effectuate the General Assembly's intent. CLPF-Parkridge One, 105 P.3d at 660; People v. Yascavage, 101 P.3d 1090, 1093 (Colo.2004).
We construe a statute as a whole, giving consistent, harmonious, and sensible effect to all of its parts, and we will not adopt an interpretation that leads to illogical or absurd results. Colo. Water Conservation Bd. v. Upper Gunnison River Water Conservancy Dist., 109 P.3d 585, 593 (Colo.2005); Bd. of County Comm'rs, Costilla County v. Costilla County Conservancy Dist., 88 P.3d 1188, 1192 (Colo.2004).
In construing a statute, we may consider persuasive authority of another jurisdiction for example, when Colorado's statute is closely patterned on a related federal statute, as here. Furlong v. Gardner, 956 P.2d 545, 551 (Colo.1998); see also Udis v. Universal Commc'ns Co., 56 P.3d 1177, 1179 (Colo.App.2002) (relying on caselaw arising under the federal Fair Debt Collection Practices Act to assist in construing the Colorado Fair Debt Collection Practices Act).
In the case before us, the relevant provisions of the Colorado statute parallel the federal statute.[4] Because the Colorado statute is patterned on the federal statute, we look to federal caselaw for persuasive guidance bearing on the construction of our state's law. See Udis, 56 P.3d at 1180.
B.
The Federal Statute
The purpose of the federal statute is to protect consumers from harassing and abusive debt collection practices. See Russell v. Equifax, 74 F.3d 30, 33 (2d Cir.1996). We have previously observed that the federal statute is a remedial consumer protection statute and should be liberally construed in favor of the consumer. See Shapiro & Meinhold v. Zartman, 823 P.2d 120, 124 (Colo. 1992). In construing the federal statute, courts assess compliance with its statutory provisions using the "least sophisticated consumer" standard. E.g., Swanson v. S. Or. Credit Serv., Inc., 869 F.2d 1222, 1225 (9th Cir.1998) ("[I]f we find that the least sophisticated *773 debtor would likely be misled by the notice [sent to the consumer] . . . we must hold that the credit service has violated the Act."); United States v. Nat'l Fin. Servs. Inc., 98 F.3d 131, 135-36 (4th Cir.1996) (collecting cases); Clomon v. Jackson, 988 F.2d 1314, 1319 (2d Cir.1993).
As the United States Court of Appeals for the Second Circuit observes, "The basic purpose of the least-sophisticated-consumer standard is to ensure that the [federal statute] protects all consumers, the gullible as well as the shrewd. This standard is consistent with the norms that courts have traditionally applied in consumer-protection law." Clomon, 988 F.2d at 1318.
The federal statute requires debt collectors to inform consumers about their right to require verification of the alleged debt, or any portion of the debt, by the collection agency. See 15 U.S.C. § 1692g (2007). This provision is intended to eliminate the ongoing problem of debt collectors pursuing the wrong person, or seeking to collect a debt that has already been paid. See Terran v. Kaplan, 109 F.3d 1428, 1431 (9th Cir.1997). In determining whether a collection communication complies with this provision, the federal courts have required that the information required by section 1692g must be effectively conveyed in a suitable size that can be "easily read" and does not contain "contradictory" phraseology:
The [Federal Act] is not satisfied merely by inclusion of the required debt validation notice; the notice Congress required must be conveyed effectively to the debtor. It must be large enough to be easily read and sufficiently prominent to be noticedeven by the least sophisticated debtor. Furthermore, to be effective, the notice must not be overshadowed or contradicted by other messages or notices appearing in the initial communication from the collection agency.
Swanson, 869 F.2d at 1225; see also Equifax, 74 F.3d at 35 (holding that a collection communication that had all information required by section 1692g nevertheless violated that section because it impermissibly contained contradictory language that could cause the consumer to forgo her rights to contest the debt).
Contradictory language can impermissibly confuse the consumer about his or her rights and responsibilities under the statute. Macarz v. Transworld Sys., Inc., 26 F. Supp. 2d 368, 371 (D.Conn.1998). In Bartlett v. Heibl, 128 F.3d 497, 500 (7th Cir.1997), the United States Court of Appeals for the Seventh Circuit addressed several scenarios in which an unsophisticated consumer would be confused about her rights under the federal statute. The most likely scenario is a situation where the notice contains, but fails sufficiently to explain, "an apparent though not actual contradiction." Id. (emphasis in original). In Heibl, the court found an apparent contradiction in a collection communication that informed the consumer:" (1) that he had thirty days within which to dispute a debt under the notice provision of the federal statute and, (2) if he did not pay the balance due within a week, he would be sued. Id. at 500-01 (holding that "the net effect of the juxtaposition of the one-week and thirty-day crucial periods is to turn the required disclosure into legal gibberish" in violation of the Federal Act).
C.
The Colorado Statute
Like the federal statute, the Colorado statute shares the remedial purpose of protecting consumers against debt collection practices that take advantage of gullible, unwary, trustful, or cowed persons who receive a debt collection communication. Because the least sophisticated consumer standard is consistent with the Colorado statute's consumer protection purpose, we adopt this standard for assessing violations of section 12-14-109's consumer notice requirements.
The Colorado statute also requires debt collectors to inform consumers about their right to require verification of the alleged debt by the collection agency. See § 12-14-109. Section 12-14-109 sets forth requirements applicable to the collection agency's collection communication in this case and states, in relevant part:
*774 Validation of debts. (1) Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector or collection agency shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice with the disclosures specified in paragraphs (a) to (e) of this subsection (1). If such disclosures are placed on the back of the notice, the front of the notice shall contain a statement notifying consumers of that fact. Such disclosures shall state:
(a) The amount of the debt;
(b) The name of the creditor to whom the debt is owed;
(c) That, unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof the debt will be assumed to be valid by the debt collector or collection agency;
(d) That, if the consumer notifies the debt collector or collection agency in writing within the thirty-day period that the debt, or any portion thereof is disputed, the debt collector or collection agency will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector or collection agency;
(e) That upon the consumer's written request within the thirty-day period, the debt collector or collection agency will provide the consumer with the name and address of the original creditor, if different from the current creditor.
(2) If the consumer notifies the debt collector or collection agency in writing within the thirty-day period described in paragraph (c) of subsection (1) of this section that the debt, or any portion thereof, is disputed or that the consumer requests the name and address of the original creditor, the debt collector or collection agency shall cease collection of the debt, or any disputed portion thereof until the debt collection or collection agency obtains verification of the debt or a copy of a judgment or the name and address of the original creditor and mails a copy of such verification or judgment or name and address of the original creditor to the consumer.
§ 12-14-109, C.R.S. (2007) (emphasis added).
These provisions confer upon the recipient of a debt collection communication the right to obtain from the debt collection agency proof that he or she actually incurred the debt or suffered the judgment upon which the collection effort is based. This important right guards against such problems as identity theft, sending a debt collection communication to a person who has the same name as the debtor but is not that person, seeking an amount of payment that exceeds the debt owed, and seeking collection of a debt that has already been paid. However, the recipient of the communication loses the right to require that the collection agency provide this information if he or she fails to dispute the debt, or any portion thereof, in writing within thirty days of receipt of the collection agency's communication. See § 12-14-109(c)-(e) (emphasis added).
D.
MAB's Debt Collection Communication Violates Colorado's Statute
In this case, MAB's debt collection communication contains two apparent contradictions likely to confuse the consumer. First, the letter portion of the communication encourages Flood to contact MAB orally, while the required validation noticewhich states that Flood must contact MAB in writing to take advantage of her rights under the Colorado Actis buried in the fine print appended to the bottom of the communication. This structure is likely to confuse the least sophisticated consumer about the necessary means of communicating with MAB in order to dispute the debt.
Second, the conflicting deadlines contained in the communication further cloud the consumer's understanding of her legal rights under the Colorado statute. On the one hand, the consumer is presented with a date certain of August 21, 2004thirty-nine days from the date of the communicationto take advantage of MAB's settlement offer. On the other hand, the consumer is informed *775 that she has thirty days from receiving the communication to dispute in writing the validity of the debt.
The letter portion of the communication is two short paragraphs and appears to bear the signature of a real person:
Your account with CITI FINANCIAL-TRANSOUTH has been listed with our office for collection. The balance due is $5604.45. If you don't agree with the balance it is important that you contact our office to discuss this matter.
Please be advised that our client has authorized us to offer you substantial savings to settle this account. We will accept $2522.00 if payment is received by 08-21-04. Contact our office for more information.
Respectfully,
J. Dial
Mercantile Adjustment Bureau, LLC
P.O. Box 9315A
Rochester, N.Y. 14604
1-877-230-8414
Thus, the letter portion of the communication is cordial and encouraging. It purports to contain J. Dial's phone number. It underscores the importance of picking up the phone "to discuss this matter" if you "don't agree with the balance." It promises to cut the asserted debt in half if payment is received by August 21, 2004thirty-nine days from the communication's date.
However, the letter portion of the communication does not clearly state that the recipient is entitled to have proof that she actually owes the asserted debt. Nor does it state that the recipient loses this right if she fails to dispute in writing all or any portion of the debt within thirty days of receiving the communication.
To the contrary, the letter portion of the communication invites a phone call as the only necessary means for disputing the debt and it sets forth no deadline for making this phone call. The letter portion of the communication ends with the closing "Respectfully." This closing is clearly intended to convey that the writer is dedicated to protecting all of the recipient's rights in the matter.
Furthermore, "J. Dial" is a fictitious person, and only the smaller print below the letter portion of the communication refers to the thirty day written notice provision upon which the statutory rights of the letter recipient turn. The rest of the debt collection communication below the signature block of the letter portion states:
THERE WILL BE A $20.00 FEE ADDED ON ALL RETURNED CHECKS.
THIS COMMUNICATION IS FROM A DEBT COLLECTOR THIS IS AN ATTEMPT TO COLLECT A DEBT. ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE.
Unless you notify this office within 30 days after receiving this notice that you dispute the validity of the debt or any portion thereof, this office will assume the debt is valid. If you notify this office in writing within 30 days from receiving this notice, this office will: obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such judgment or verification. If you request this office in writing within 30 days after receiving this notice, this office will provide you with the name and address of the original creditor, if different from the current creditor.
FOR MORE INFORMATION ABOUT THE COLORADO FAIR DEBT COLLECTION ACT VISIT WWW.AGO. STATE.CO.US/CAB.HTM.
"Pick up the phone and let's talk, you really don't need to write" is plainly the tone and content of the letter portion of the communication. The gullible, unwary, trustful, or cowed recipientthe least sophisticated consumercan easily rely only on this section of the communication to his or her detriment. "J. Dial" clearly appears to be speaking on behalf of MAB for everything above the signature line, including the apparent representation that one can effectively dispute the debt orally for all purposes. If the recipient reads down to the printed material below J. Dial's "signature," the import of the smaller print is veiled, confused, contradictory, and overshadowed by the letter portion of the communication.
*776 In addition, the only date mentioned in the letter portion of the communication is the date for taking advantage of the half-payment offerAugust 21, 2004, thirty-nine days from the date of the communication. If a consumer receiving the communication waited until the end of the thirty-nine day period to make a written request for verification of the debt, he or she would be beyond the thirty day period for invoking this right in writing.
We conclude that MAB's communication to Flood did not comply with Colorado's statute; the county court and district court erred in concluding otherwise. In the letter portion of the communication, MAB prominently and expressly encouraged Flood to contact it by phone if she had any issue with the alleged debt, and it made an offer to settle the matter.
Our decision today does not prohibit or penalize a collection agency from inviting oral communication or making a settlement offer. Such invitations may aid the consumer, and the statute allows them. However, when these invitations are made, the collection agency must prominently alert the consumer: (1) of his or her right to documentation verifying the amount of the debt and that the consumer actually owes the debt, and (2) that the consumer must make a written request for verification within thirty days of receiving the communication or else lose this right. This is what the General Assembly clearly intends for the notices contained in section 12-14-109 to accomplish.
The peculiar wording of the debt collection communication in this case leads the least sophisticated consumer into believing that oral communication alone will suffice to trigger all of her rights under the statute. In the personalized letter portion inviting oral communication, there is no prominently displayed message of her right under sections 12-14-109(1)(d) and -109(2) to receive verification of the debt from MAB and explaining that this right would be lost if she did not dispute the debt in whole or part by writing within thirty days of receiving the communication.
This debt collection communication as a whole is confusing, contradictory, and misleading in light of the message contained in the letter portion of the communication. The extended time for taking advantage of the settlement offercouched within a personalized assurance that all her rights will be preserved through oral communicationeffectively misleads the consumer into delaying the transmission of the consumer's written request for the verifying documentation, thereby causing the loss of valuable consumer rights.
The overarching purpose of the Colorado statute is to prevent and remedy deceptive and abusive debt collection practices. See §§ 12-14-106 to -108 (forbidding harassing, abusive, misleading, and unfair debt collection practices). While the statute provides that the collection agency may make the required section 12-14-109 disclosures on the back of the notice if the front of the notice contains a statement notifying consumers of that fact, see § 12-14-109(1), the statute does not authorize the collection agency to couch, conceal, veil, contradict, or minimize the required disclosures so as to confuse or mislead the consumer into foregoing her rights.
When a consumer disputes in writing the alleged debt in whole or in part, the agency must cease further debt collection efforts while it gathers and supplies verifying proof of the debt to the consumer, pursuant to section 12-14-109(2).[5] The General Assembly intended that these verification-of-debt and cessation-of-debt-collection rights be a functioning part of the statute. The consumer's choice not to invoke these rights must be preceded by the collection agency's plain, effective, and unqualified conveyance of the notices required by section 12-14-109. For the aforementioned reasons, we hold that the collection communication sent to Flood by MAB failed to effectively convey the required notices.
*777 E.
MAB's Use of an Automated Mailing Service Does Not Violate Section 12-14-105(2)
Flood also argues that MAB violated section 12-14-105(2) by using an automated mailing service to prepare and mail its debt collection communications. With certain exceptions, section 12-14-105(2) prohibits communications between a debt collector and third parties. Our analysis of section 12-14-105(2) leads us to conclude that the General Assembly did nod intend for section 12-14-105(2) to prohibit a debt collector from using an automated mailing service.
The federal statute contains a nearly identical provision, 15 U.S.C. § 1692c(b) (2007). The purpose of section 1692c(b) is to "protect a consumer's reputation and privacy, as well as to prevent loss of jobs resulting from a debt collector's communication with a consumer's employer concerning the collection of a debt." West v. Costen, 558 F. Supp. 564, 575 (W.D.Va.1983) (citations omitted).
The record here shows that MAB utilized an entirely automated printing and mailing service. The county court found that MAB electronically transmitted the information included in its collection communications to Unimail. Unimail then printed the collection communications, which were mechanically stuffed into envelopes.
The county court concluded that the use of such a highly automated procedure did not violate section 12-14-105(2) because it did not threaten the consumer with the risk of being coerced or embarrassed into paying a debt because the debt collector contacted an employer, family member, friend, or other third party. See also Pearce v. Rapid Check Collection, Inc., 738 F. Supp. 334, 337 (D.S.D. 1990) (holding that a debt collector's communication to the bank at which the consumer had bounced two checks did not constitute impermissible third party contact because there was no chance the communication was used to embarrass the plaintiff and no chance that the communication would cause an invasion of privacy or loss of employment).
We agree with the holding of the county court. The use of an automated mailing service, such as Unimail, by a debt collector is a de minimis communication with a third party that cannot reasonably be perceived as a threat to the consumer's privacy or reputation. Cf. FTC Official Staff Commentary § 805(b)(3), 53 Fed.Reg. 50097, 50104 (Dec. 13, 1988) (stating that "incidental contacts" between a debt collector and a telephone company for the purpose of transmitting information to the consumer do not constitute an impermissible communication with a third party).
Accordingly, we hold that MAB's use of Unimail to automatically print and mail its debt collection communications did not violate section 12-14-105(2). Thus, we affirm that part of the district court's judgment upholding the county court's judgment on this issue.
In light of our holding that MAB violated section 12-14-109, we vacate that portion of the county court's and district court's judgment against Flood and award of costs to MAB. We direct the county court, on remand, to determine whether Flood is entitled to statutory damages, costs, and attorney's fees as provided in section 12-14-113.
III.
Accordingly, we reverse the judgment of the district court in part and affirm the judgment in part. We remand this case to the district court, with directions to return the case to the county court for further proceedings consistent with this opinion.
Justice EID concurs in part and dissents in part, and Justice RICE and Justice COATS join in the concurrence and dissent.
Justice EID, concurring in part and dissenting in part.
While I agree with the majority that MAB may use an automated mailing service, see maj. op. at 777, I disagree with its holding that "MAB's debt collection communication violated the notice provisions of section 12-14-109." Id. at 771. The majority does not dispute that MAB's disclosures to Flood contained all of the information required by section 12-14-109; instead, it finds that the *778 disclosures contained "two apparent contradictions likely to confuse the consumer." Maj. op. at 774. Unlike the majority, I would find MAB's disclosures to be in compliance with section 12-14-109. In my view, the majority's holding todaywhich penalizes MAB for permitting consumers to contact it by phone and for giving consumers additional time to consider a settlement offer after they dispute a debtmay well harm consumers in the long run. I therefore respectfully dissent from the majority's holding that MAB's disclosures violated section 12-14-109.
I.
Section 12-14-109 requires a collection agency to send a consumer written notice containing the following five disclosures:
(a) The amount of the debt;
(b) The name of the creditor to whom the debt is owed;
(c) That, unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector or collection agency;
(d) That, if the consumer notifies the debt collector or collection agency in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector or collection agency will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector or collection agency;
(e) That upon the consumer's written request within the thirty-day period, the debt collector or collection agency will provide the consumer with the name and address of the original creditor, if different from the current creditor.
§ 12-14-109(1)(a)-(e), C.R.S. (2007). The majority does not dispute that MAB's disclosure complied with these requirements, as its letter to Flood contained the amount of the debt, MAB's name, and an almost verbatim restatement of the language of subsections (c), (d), and (e) regarding Flood's rights (1) to dispute the debt, (2) to request, in writing, a verification of the debt, and (3) to request, in writing, the name and address of the original creditor. See maj. op. appendix A. MAB had no additional duties under section 12-14-109 unless and until Flood disputed her debt. See § 12-14-109(2).[1]
Despite MAB's compliance with section 12-14-109, the majority concludes that MAB's letter to Flood contained "two apparent contradictions" that "couch, conceal, veil, contradict, or minimize the required disclosures so as to confuse or mislead [Flood] into foregoing her rights." Maj. op. at 774, 776. In my view, however, these "apparent contradictions" are illusory.
A.
The first "apparent contradiction," according to the majority, is that "the letter portion of the communication encourages Flood to contact MAB orally," while the required disclosures are "buried in the fine print appended to the bottom of the communication."[2]Id. at 774. The majority posits that somehow the consumer will be confused and attempt *779 to invoke her section 12-14-109 rights orally, instead of in writing. Id. at 774-76. But importantly, only two rights must be invoked in writing: the right to obtain a verification of the debt, and the right to obtain the name and address of the original creditor. See § 12-14-109(d), (e). Those two rights are not discussed in the body of the letter, and only appear in the disclosures, which clearly state that the requests must be in writing. These express statements are not, in my view, contradicted in any way by the body of the letter, which urges that "[i]f you don't agree with the balance it is important that you contact our office to discuss this matter," and includes an address and phone number. Significantly, this statement is in full compliance with section 12-14-109(c), whichin contrast to subsections (d) and (e)permits the consumer to dispute the debt orally. See § 12-14-109(c) (omitting any reference to "in writing" or "written request"). This statement, is also entirely consistent with the letter's disclosures, which, as noted above, contain an almost verbatim recitation of subsection (c).
The majority apparently believes that any mention of oral communication in connection with debt collection, whatever the context and for whatever purpose, will necessarily contradict an express statement requiring writing in certain instances. In other words, according to the majority, a consumer will assume that if she can contact the collection agency orally for some purposes, she can do so for all purposes. Maj. op. at 775. Yet this is how the statute is structured: Subsection (d) and (e) rights must be invoked in writing, but the right described in subsection (c) may be invoked through written or oral communication. This distinction is in the statute, and MAB should not be faulted for replicating it.
After today, to avoid any such "confusion" posited by the majority, collection agencies may simply prevent consumers from contacting them by phone. For many consumers, however, phoning is the easiest, most convenient, and most accessible means of communication. By equating any mention of oral communication with confusion, today's decision, in my view, will ultimately harm the very people the majority seeks to help.
The majority also faults MAB for failing to mention Flood's section 12-14-109 rights in the body of the letter, and accuses it of "bur[ying]" the disclosures "in the fine print" at the bottom of the letter. Maj. op. at 774. As for the "fine print," the typeface used in the body of the letter is virtually the same size as the typeface used in the disclosures. More importantly, the majority's complaint that "there is no prominently displayed message of [Flood's] right," id. at 776, is curious considering that its analysis is entirely dependent upon its belief that the consumer would perceive contradictions between the body of the letter and the disclosures. In other words, under the majority's theory, the disclosures must have been "sufficiently prominent to be noticed." Swanson v. S. Or. Credit Serv., Inc., 869 F.2d 1222, 1225 (9th Cir.1988) (applying this requirement to disclosures in debt collection letters). In fact, MAB could have placed the disclosures on the back of the letter to Flood, or it could have sent the letter alone and then waited up to five days before sending the disclosures. See § XX-XX-XXX(1). It was certainly not required to place the disclosures in the body of the letter, as the majority seems to contemplate. See maj. op. at 775 (noting that the body of the letter "does not clearly state" recipient's section 12-14-109 rights). In sum, MAB's disclosures were far more prominent than what the statute requires.
It is true that a consumer who reads only the body of the letter will not be informed of her legal rights. See maj. op. at 775. However, a consumer who reads the entire letter i.e., all the language plainly visible on the front pagewill be informed both that she may contact MAB, either in writing or orally, to dispute her debt and that she may request, in writing, verification of the debt and the name and address of the original creditor. Neither section 12-14-109 nor the least sophisticated consumer standard requires anything more. See Durkin v. Equifax Check Servs., Inc., 406 F.3d 410, 418 (7th Cir.2005) (stating that the least sophisticated consumer is deemed to possess "rudimentary knowledge" and to be "capable of making *780 basic logical deductions and inferences"); Clomon v. Jackson, 988 F.2d 1314, 1319 (2d Cir.1993) ("[E]ven the `least sophisticated consumer' can be presumed to possess a rudimentary amount of information about the world and a willingness to read a collection notice with some care.") (citation omitted).
B.
The majority's second "apparent contradiction" is "the conflicting deadlines contained in the communication"thirty-nine days to take advantage of MAB's settlement offer and thirty days to dispute the validity of the debt. Maj. op. at 774. It offers no analysis of why the two dates are contradictory, except for the fact that they are different. Again, as with the written and oral communication issue discussed above, difference is not necessarily confusion. We must examine the reason for the difference. With regard to the dates included in the letter, common sense and caselaw require that the settlement date be later than the thirty day dispute date.
A consumer in Flood's position has two payment options: She can pay the debt, or pay the settlement amount (which is less than half that amount). But before making any payment, she would want to know first if the debt was valid. Thus, a consumer in Flood's position should dispute the debt first, and then, if the debt ends up being valid, pay the lesser settlement amount. If the statute entitles her to thirty days to dispute the debt amount, see section 12-14-109(2), then the settlement deadline should be set beyond the thirty days. Thus, the fact that MAB's settlement deadline is later than the dispute deadline is not confusing to the consumer, as the majority believes, it is helpful to the consumer.
To put it somewhat differently, if the settlement deadline were the same as the dispute deadlineas the majority seems to require Flood would have been forced to choose either to settle the debt or to take advantage of the full thirty days to which she was legally entitled for the purpose of disputing the debt. See § 12-14-109(2). According to the federal courts' interpretation of the least sophisticated consumer standard, this type of choice is impermissibly contradictory and coercive. See, e.g., Peter v. GC Servs. L.P., 310 F.3d 344, 349 (5th Cir.2002) ("Courts have generally found contradiction or apparent contradiction of the printed . . . notice where payment is demanded in a concrete period shorter than the thirty day statutory contest period."); Graziano v. Harrison, 950 F.2d 107, 111 (3d Cir.1991) ("There is a reasonable probability that the least sophisticated debtor, faced with a demand for payment within ten days and a threat of immediate legal action if payment is not made in that time, would be induced to overlook his statutory right to dispute the debt within thirty days."); Swanson, 869 F.2d at 1225-26 (same). If the federal standard does indeed apply in Colorado, see maj. op. at 773, then MAB was required to set the settlement deadline later than the dispute deadline.
Today's opinion, combined with federal caselaw, effectively prohibits collection agencies from setting any deadline for acceptance of settlement offers. A thirty day deadline (or less) will be deemed coercive by federal caselaw, but a deadline of more than thirty days will be deemed confusing under the majority's decision. The combined effect of the federal caselaw and the majority's opinion will be to discourage, and perhaps bar, settlement offers in Colorado. Yet for many consumers, accepting the settlement amountwhich is less, and in many cases far less, than the debt amountwill be the best option. Again, as with the issue of oral communications, I fear that the majority's approach will ultimately harm consumers.
II.
MAB's disclosures comply with the requirements of section 12-14-109, and contain no contradictory information. I therefore respectfully dissent from that portion of the majority's opinion holding that MAB's disclosures violated section 12-14-109.
I am authorized to state that Justice RICE and Justice COATS join in this concurrence and dissent.
*781 Appendix A (Debt Communication Letter, consumer's personal information redacted)
NOTES
[*] Justice Rice, Justice Coats and Justice Eid would have Granted the Petition.
[1] The Colorado Fair Debt Collection Practices Act is codified at sections 12-14-101 to -137, C.R.S. (2007). Throughout this opinion we will cite to the relevant provisions within the Colorado Revised Statutes.
[2] We granted certiorari in this case to consider the following questions: (1) whether Colorado caselaw requires strict compliance with the notice provisions of the Colorado Fair Debt Collection Practices Act, and, if so, whether the notice here complied, when it gave notice to an alleged debtor using different language than that required by the statute; (2) whether the collection agency violated section 12-14-105(2) by outsourcing its operations to a prohibited company; and (3) whether a prevailing debt collector is entitled to recover costs under Colorado's general cost statute when the specific fees and cost provisions of section 12-14-113(1.5) are preempted by the Federal Fair Debt Collection Practices Act.
[3] Because we have ruled in favor of Flood on the issue of whether MAB's collection communication complies with section 12-14-109, MAB is no longer a prevailing debt collector. Accordingly, we decline to address the third issue before us whether a prevailing debt collector is entitled to recover costs under Colorado's general cost statute when the specific fees and cost provisions of section 12-14-113(1.5) are preempted by the Federal Fair Debt Collection Practices Act.
[4] Compare § 12-14-109 (Colorado Act validation notice requirements), and § 12-14-105(2) (Colorado Act limitations on third party communications), with 15 U.S.C. § 1692g (2007) (Federal Act validation notice requirements), and 15 U.S.C. § 1692c(b) (2007) (Federal Act limitations on third party communications).
[5] In addition, section 12-14-107(1)(i) of the Colorado Statute requires that when communicating with any person about a disputed debt, including credit reporting agencies, the debt collector must inform those agencies that the debt is disputed.
[1] Section 12-14-109(2) requires that if the consumer provides a written dispute or request for the original creditor's name and address, then the collection agency must cease its debt collection activities until it mails a verification or the requested name and address to the consumer. However, the fact that a written dispute will stop collection activities is not one of the disclosures required by section 12-14-109, See § 12-14-109(d), (e) (requiring disclosure only of the consumer's ability to request debt verification as well as the original creditor's name and address). The majority opinion might be read to suggest that the collection agency must provide the consumer with some notice of her right to stop collection activities while the requested information is obtained. See maj. op. at 776 (stating that the consumer must have adequate notice before choosing not to invoke her right to cessation of debt-collection activities). But the statute contains no such requirement.
[2] The majority goes so far as to state that "MAB prominently and expressly encouraged Flood to contact it by phone." Maj. op. at 776 (emphasis added). This is obviously not the case, as the actual language of the letter to Flood does not use the words "call" or "phone," and in fact, it provides MAB's mailing address before MAB's phone number. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2633697/ | 176 P.3d 237 (2008)
In the Interest of A.A.
No. 98,835.
Court of Appeals of Kansas.
February 8, 2008.
*238 Kent A. Roth, of Roth Law Office, of Ellinwood, for appellant natural father.
Joel B. Jackson, of Great Bend, for appellant natural mother.
Julie A. Carroll, assistant county attorney, Douglas A. Matthews, county attorney, Jane Isern, guardian ad litem, and Paul J. Morrison, attorney general, for appellee.
Before MARQUARDT, P.J., GREEN and LEBEN, JJ.
LEBEN, J.
After A.A., a 10-year-old girl, was allegedly raped by her 15-year-old brother, H.A., she was declared a child in need of care and taken into protective custody. Eventually, the parental rights of Harold and Vickie A. to A.A. were terminated. Harold and Vickie have appealed, raising three claims.
First, they claim that the Revised Kansas Code for Care of Children unconstitutionally denies equal treatment based on race because the Indian Child Welfare Act precludes the termination of parental rights unless the parents' unfitness is proved beyond a reasonable doubt while the Kansas statute requires proof of unfitness "only" by clear and convincing evidence for non-Indians. But these laws differ for Indian tribes not because of their race but because of their unique historical claims to sovereignty and the decisions Congress has made because of that history. *239 Second, they claim that there is insufficient evidence to support the district court's decision. But Harold and Vickie's failure to address or even acknowledge the sexual abuse allegations combined with other evidence including their failure to make reasonable progress in creating a suitable home for their childprovided ample support for the decision when giving deference to the lower court, which heard the witnesses directly. Third, they claim that the district court abused its discretion either by denying a trial continuance or by failing to interview the then 11-year-old child. A trial judge is vested with wide discretion in such matters, and she was well within that discretion here.
The Case Arose Amid Serious Allegations and Ended in Termination of Parental Rights.
Police had responded to the parties' home after a third party had reported alleged sexual abuse by H.A. against both A.A. and the third party. The police officer who responded reported several reasons for concern about A.A.'s safety in the home:
A.A. did not have a bedroom and was sleeping on a couch in the living room, and H.A. was still living in the same residence. (A.A.'s bedroom had been given to another person who was living with the family.)
There were at least 5 cats and 1 dog inside the house, plus two more dogs outside. The house smelled strongly of a dirty cat litter box and old trash.
An old vehicle battery was lying just inside the front door; it had a stuffed bear on top of it.
There were large piles of animal feces and other trash just outside the front door.
There were prescription bottles lying around the room in which 10-year-old A.A. kept her toys.
The officer took A.A. into protective custody, concerned for her safety both because of the continued presence of H.A. and the living conditions at the house. A child-in-need-of-care petition was filed, and temporary custody was given to the Kansas Department of Social and Rehabilitation Services (SRS).
A.A. was taken into SRS custody in February 2006. Court orders entered then provided for supervised visitation with her parents, and the parents were ordered to cooperate with any case plans that might be entered. Frequent review hearings were held, and specific steps were outlined for reintegration of A.A. into her family. When little progress had been made in more than a year, however, the State filed a motion to terminate parental rights in May 2007.
The district court heard that motion in an evidentiary hearing on June 4, 2007. Six witnesses testified, including both parents.
The district court found that both parents were unfit "based upon their conduct and the lack of effort in this case." She noted that they had had 16 months to work on reintegration but had made little progress. Harold was living in his truck, which the court found not suitable for raising a child. Vickie was living with her mother, but the court found that Vickie had not taken advantage of SRS offers to clean her former residence and that Vickie had not provided a suitable home for A.A. to live in, either.
The Kansas Revised Code for Care of Children Does Not Violate Equal Protection Through Use of a Lower Evidentiary Standard thin Found in the Indian Child Welfare Act.
The Revised Kansas Code for Care of Children provides that parental rights may be terminated only upon a showing of unfitness by clear and convincing evidence. K.S.A. 2006 Supp. 38-2269(a). The Indian Child Welfare Act presents an even greater evidentiary hurdle before parental rights between Indian parents and children may be terminated: unfitness must be proved beyond a reasonable doubt. 25 U.S.C. § 1912(f) (2000). Harold and Vickie argue that they are denied equal protection of the law since termination of their parental rights is allowed under an evidentiary standard that is easier to meet than the one used in cases involving Native Americans.
This argument presents an issue of first impression in Kansas, but other states have rejected this argument after reviewing the *240 basis behind the difference in treatment. In one of those cases, the Nebraska Supreme Court upheld its state statute against an equal-protection challenge. In re Interest of Phoenix L., 270 Neb. 870, 708 N.W.2d 786 (2006). Nebraska's statutory scheme was the same as Kansas' in applying a standard of clear and convincing evidence in cases involving non-Indian families. The Nebraska court noted that the different standard for Indians was based not on race, but on their unique history as sovereign political communities. The Nebraska court found that there was a rational basis behind the different standards and concluded that its state statute on the termination of parental rights did not violate the equal-protection rights of non-Indians. 270 Neb. at 883-84, 708 N.W.2d 786. Several other courts have rejected similar challenges. E.g., Adoption of Hannah S., 142 Cal. App. 4th 988, 996, 48 Cal. Rptr. 3d 605 (2006); In re Marcus S., 638 A.2d 1158, 1159 (Me.1994); Matter of M.K., 964 P.2d 241, 244 (Okla.App.1998); State ex rel. CSD v. Graves, 118 Or.App. 488, 490-91, 848 P.2d 133 (1993).
We agree with the holding and rationale of these cases. The United States Supreme Court has consistently held that laws do not violate equal protection when they treat Indians differently than other groups. In United States v. Antelope, 430 U.S. 641, 645, 97 S. Ct. 1395, 51 L. Ed. 2d 701 (1977), the Court said that federal legislation "with respect to Indian tribes . . . is not based upon impermissible racial classifications." Rather, the Court noted that these classifications are based on the unique history of the federal government's relations with Indians. In Morton v. Mancari, 417 U.S. 535, 94 S. Ct. 2474, 41 L. Ed. 2d 290 (1974), the Court said that heightened scrutiny should not be applied to special legal status for Indians: "As long as the special treatment can be tied rationally to the fulfillment of Congress' unique obligation toward the Indians, such legislative judgments will not be disturbed." 417 U.S. at 555, 94 S. Ct. 2474. The higher standard of proof under the Indian. Child Welfare Act is rationally related to the government's purpose of protecting and preserving Indian families because it ensures that Indian children remain with Indian families unless there is no doubt that the child should be removed. The use of a lowerbut still quite stringentburden of proof in cases involving non-Indian parents does not violate equal protection.
Substantial Evidence Supported the District Court's Finding of Unfitness.
Harold and Vickie contend that there was not sufficient evidence for a finding of unfitness. On appeal, we look to see whether there is substantial evidencewhat a reasonable person would accept as sufficient to support a conclusionin support of the trial court's conclusions. We are required to view the evidence in the light most favorable to the judgment of the trial court, which heard the witnesses directly. We must not reweigh the evidence, substitute our evaluation of the evidence for that of the trial court, or pass upon the credibility of the witnesses. And we must be able to determine that the State's evidence was clear and convincing. In re J.D.C., 284 Kan. 155, 170, 159 P.3d 974 (2007).
Under this standard of review, there is sufficient evidence to support the district court's finding of unfitness. There was considerable testimony that both Harold and Vickie had failed to addressor even acknowledge the sexual abuse allegations made by A.A. Neither parent made substantial progress on the case plan regarding their living conditions. Harold was living in his truck at the time of the final hearing. Vickie was unemployed, did not have a driver's license, and was living with her mother in a home that social workers deemed unsuitable for children. For several months, both parents delayed in getting parenting evaluations required by the court as a step toward reintegration with A.A. Harold took no substantial steps toward implementing the recommendations of that evaluation; Vickie took some steps, but those steps occurred for the most part only days before the final hearing. Her willingness to make long-term changes thus was left subject to substantial question.
Cases like this are difficult ones. A parent may be labeled "unfit" under the law even though he or she loves the child and wants to *241 do the right thing, which may be the case here. But we must judge these cases based mostly upon actions, not intentions, and we must keep in mind that a child deserves to have some final resolution within a time frame that is appropriate from that child's sense of time. The parents in this case had from February 2006 until June 2007 to make the kinds of changes that would have kept A.A. with them. The district court's decision was squarely supported by the evidence. It is time to allow A.A. to move on with her life.
The District Court Did Not Abuse Its Discretion by Denying a Continuance or by Declining to Interview the Child.
Vickie argues that the district court wrongly denied her attorney's request for a continuance of the final hearing. Harold argues that the district court wrongly denied his request that the judge interview the child before making a decision. A district court has substantial discretion in controlling the proceedings before it. We review those decisions for abuse of discretion and reverse only if no reasonable person would take the view adopted by the district court. In re Adoption of J.A.B., 26 Kan. App. 2d 959, 964, 997 P.2d 98 (2000).
Vickie's attorney asked for a continuance of the June 4 hearing based on his statement that he did not receive the State's motion to terminate parental rights until May 22. How this might have occurred is not clear. The court file shows that the court clerk mailed a copy of the notice to himand to the other attorneys in the caseon May 9. Harold's attorney apparently received the motion in a timely manner; Harold filed a written response to it on May 21. In addition, Vickie was personally served with a copy of the motion by a sheriffs deputy on May 12.
Based on the claimed late notice of the hearing, Vickie's attorney argued that he had had inadequate time to prepare and that a necessary witness was on vacation and unable to testify. But a quick call to that witness' office found him in town, and he did testify. In addition, Vickie and her attorney had known since a February status hearing that the State was going to file a motion to terminate her parental rights to A.A.
Given this background, the presentation made by Vickie's attorney in support of the continuance request certainly did not provide a substantial reason for one to be granted. The attorney said that when he learned on May 22 of the upcoming June 4 hearing, he asked his client to check with the needed witness to see whether he would be available on June 4 and whether he would be subpoenaed to testify by the State. After the attorney said that he had assumed that this witness would be called by the State, the trial judge asked the appropriate follow-up question: "Why? Why did you assume that?" Vickie's attorney replied, "Because." There cannot be an abuse of discretion in denying the requested continuance where the attorney fails to provide adequate reasons for that continuance.
Harold argues that the district court abused its discretion by declining to interview A.A., which was requested at the end of the June 4 hearing. The district court declined the request, noting that it takes quite some time for a child to open up to a stranger and to be able to express her thoughts. The court also indicated that it did not wish to put the child into a situation in which "she is questioned about her making a choice" of whether to remain with her parents.
In support of his argument, Harold cites one out-of-state divorce case in which an appellate court concluded that the trial judge should have interviewed the child under that state's divorce law and the facts of the case at hand, Stringer v. Vincent, 161 Mich.App. 429, 434, 411 N.W.2d 474 (1987), and another in which the trial judge's decision not to interview the children in a divorce custody battle was upheld. Pekarek v. Pekarek, 384 N.W.2d 493, 498 (Minn.App.1986). Our case arises under the Revised Kansas Code for Care of Children, which has a provision requiring that the court allow any child over 10 who is of "sound intellect" to testify "if requested by the child." K.S.A. 2006 Supp. 38-2262. In our view, since the legislature specified only one situation where the child must testify, the decision in other situations would be within the judgment of the district judge. *242 A.A. made no request be heard personally, and the district court had ample information about A.A.'s emotional well-being from other witnesses. The district court did not abuse its discretion by declining to bring A.A. in for a personal interview.
The judgment of the district court is affirmed. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2633700/ | 176 P.3d 846 (2007)
Steve RINGQUIST and Diana Ringquist, Plaintiffs-Appellees,
v.
WALL CUSTOM HOMES, LLC, David Carter Wall, and William Winston Wall, Defendants-Appellants.
No. 06CA2256.
Colorado Court of Appeals, Div. V.
December 27, 2007.
*848 Bennington Johnson Biermann & Craigmile, LLC, Tami L. Sapp, Denver, CO, for Plaintiffs-Appellees.
Lawlis & Bruce, LLC, Robert J. Bruce, Delphine L. Farr, Denver, CO, for Defendants-Appellants.
Opinion by Judge GRAHAM.
Defendants, Wall Custom Homes, LLC, David Cater Wall, and William Winston Wall (collectively, Wall Custom Homes), appeal from the trial court's entry of summary judgment in favor of plaintiffs, Steve Ringquist and Diana Ringquist. We affirm and remand for an award of attorney fees and costs.
In 1999, the Ringquists purchased a home (the residence) built by Wall Custom Homes. In 2004, the Ringquists filed an action against Wall Custom Homes for damages arising out of construction defects in that residence. The parties thereafter entered into a settlement agreement, which provided in relevant part:
1. Sale of the Residence.
a. Purchase Price. Wall Custom Homes agrees to pay the Ringquists the sum of:
i. Five Hundred Thirty Thousand Dollars to be paid at the Closing . . .; and
ii. Fifty Percent of any gross sale proceeds in excess of Five Hundred Thirty Thousand Dollars, received by Wall Custom Homes upon resale of the Residence, to be paid within thirty days following such sale.
Pursuant to the settlement agreement, Wall Custom Homes purchased the residence from the Ringquists for the purchase price of $530,000. Wall Custom Homes then resold the residence to a third party for the purchase price of $599,000. At the closing, Wall Custom Homes issued a $65,000 check to the purchaser for necessary grading, drainage, and other repairs to the residence.
When Wall Custom Homes refused to pay the Ringquists $34,500, which the Ringquists asserted was 50% of the gross sale proceeds of the residence in excess of $530,000 (50% of ($599,000 minus $530,000)), the Ringquists brought an action for breach of the settlement agreement. Upon cross-motions for summary judgment, the trial court concluded:
13. In this case, the Settlement Agreement clearly states [Wall Custom Homes] agreed to pay the [Ringquists] "Fifty percent of any gross sale proceeds in excess of Five Hundred and Thirty Thousand Dollars.["] The term "gross" is generally accepted to mean the overall total exclusive of deductions, whereas the term "net" is generally accepted to mean the total amount remaining after deductions, as for charges or expenses.
14. Since the Settlement Agreement clearly states the terms in "gross sale proceeds" as opposed to "net sale proceeds," and the Settlement Agreement does [not] provide for the calculation of "gross sale proceeds," the Court must give meaning to the generally accepted meaning of "gross sale proceeds." The Court finds that the credit [Wall Custom Homes] gave to the purchaser of the residence should not be deducted from [the] amount required to pay [the Ringquists]. Thus, [the *849 Ringquists] are entitled to . . . 50% of $69,000, which is $34,500.
This appeal followed.
I. Standard of Review
Summary judgment is appropriate when the pleadings and supporting documentation demonstrate that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. W. Elk Ranch, L.L.C. v. United States, 65 P.3d 479, 481 (Colo.2002). We review the grant of a summary judgment motion de novo. Id.
The moving party has the initial burden to show that there is no genuine issue of material fact. Cont'l Air Lines, Inc. v. Keenan, 731 P.2d 708, 712 (Colo.1987). The nonmoving party is then required to establish that there is a triable issue of fact. Id. at 713. The nonmoving party is entitled to the benefit of all favorable inferences reasonably drawn from the facts, and all doubts must be resolved against the moving party. Brodeur v. Am. Home Assurance Co., 169 P.3d 139, 146 (Colo.2007); Clementi v. Nationwide Mut. Fire Ins. Co., 16 P.3d 223, 225-26 (Colo.2001).
II. "Gross Sale Proceeds"
Wall Custom Homes contends that the trial court erred in concluding that the "gross sale proceeds" are the purchase price of the residence ($599,000), without any deduction for the $65,000 check issued by Wall Custom Homes to the purchaser at closing. Specifically, Wall Custom Homes argues that the "gross sale proceeds" of the residence are $534,000, which amount is calculated by deducting $65,000 (the check issued by Wall Custom Homes to the purchaser at closing) from the purchase price of $599,000, because the payment of $65,000 was essentially a cost of the sale. We disagree.
The interpretation of a settlement agreement, like any contract, is a question of law that we review de novo. Bumbal v. Smith, 165 P.3d 844, 845 (Colo.App.2007). Hence, we need not defer to the trial court's construction of contractual language, nor to its finding that such language is unambiguous. Lake Durango Water Co. v. Pub. Utils. Comm'n, 67 P.3d 12, 20 (Colo.2003); Dorman v. Petrol Aspen, Inc., 914 P.2d 909, 912 (Colo. 1996). Nonetheless, we agree with the trial court's conclusion here.
In determining whether a provision in a contract is ambiguous, the instrument's language must be examined and construed in harmony with the plain and generally accepted meanings of the words used, and reference must be made to all the agreement's provisions. Lake Durango Water Co., 67 P.3d at 20; Fibreglas Fabricators, Inc. v. Kylberg, 799 P.2d 371, 374 (Colo.1990). When a contract is unambiguous, the court must give effect to the contract as written, unless the contract is voidable on grounds such as mistake, fraud, duress, undue influence, or the like, or unless the result would be an absurdity. Lake Durango Water Co., 67 P.3d at 20:
The fact that the parties disagree about the meaning of a term does not make that term ambiguous. See Cohen v. Empire Cas. Co., 771 P.2d 29, 31 (Colo.App.1989). Similarly, the mere fact that the parties attach a different, subjective meaning to a contract does not of itself create an ambiguity. See Lee v. BSB Greenwich Mortgage Ltd. P'ship, 267 F.3d 172, 178 (2d Cir.2001); Moore v. Kopel, 237 A.D.2d 124, 653 N.Y.S.2d 927, 929 (N.Y.App.Div.1997).
Here, the term "gross sale proceeds" is not defined in the settlement agreement. However, the absence of an explicit definition of "gross sale proceeds" does not by itself render that term ambiguous. See White v. Indus. Claim Appeals Office, 8 P.3d 621, 625 (Colo.App.2000) (concluding that because the term "recreational" is capable of a reasonable and practical construction based upon its plain meaning, the lack of a definition of the term does not create ambiguity as to the type of activity intended to be excluded from employment under that term). Rather, when a contract term is undefined, a court should look to the plain meaning of the language to ascertain whether there is ambiguity. See Enright v. City of Colorado Springs, 716 P.2d 148, 149 (Colo.App.1985) (where a term is not defined by the statute, *850 courts must assume that the General Assembly intended that the phrase be given its usual and ordinary meaning).
We hold that the term "gross sale proceeds" in the settlement agreement is unambiguous. It is clear that the "gross sale proceeds" are the receipts from the sale of the residence ($599,000), without any deductions. See Lee, 267 F.3d at 179. "Gross" is defined as "an overall total exclusive of deductions (as taxes, expenses)." Webster's Third New International Dictionary 1002 (1986). "Gross sales" is defined as "[t]otal sales (esp. in retail) before deductions for returns and allowances." Black's Law Dictionary 1365 (8th ed.2004). "Proceeds" is defined as "the amount of money received from a sale." Id. at 1242. The term "gross proceeds" is defined as "[t]he entire proceeds[;][t]he proceeds of a sale or of a collection without deduction for cost, commissions, or any other expenses whatsoever." Ballentine's Law Dictionary 537 (3d ed.1969). In contrast, the term "net proceeds" is defined as "[t]he amount received in a transaction minus the costs of the transaction (such as expenses and commissions)." Black's Law Dictionary 1242.
Here, any reasonable reading of "gross sale proceeds" must exclude the $65,000 check issued by Wall Custom Homes to the purchaser of the residence. Only "net sales proceeds," a term available to the parties which they did not use, could refer to the purchase price of the residence minus any money Wall Custom Homes paid to the purchaser. Wall Custom Homes has provided no reason to conclude that the customs, practices, usages, and terminology as generally understood in the home building industry call for a different interpretation of "gross sale proceeds." See Allstate Ins. Co. v. Parfrey, 830 P.2d 905, 912 (Colo.1992).
Wall Custom Homes cites several cases holding that "gross proceeds" are calculated by deducting certain costs. See Huddleston v. Grand County Bd. of Equalization, 913 P.2d 15, 21 (Colo.1996) (the gross proceeds of the ore are determined by deducting all costs of treatment, reduction, transportation, and sale of the ore); Paxson v. Cresson Consol. Gold Mining & Milling Co., 56 Colo. 206, 211, 139 P. 531, 532 (1914) (same); see also Tivolino Teller House, Inc. v. Fagan, 926 P.2d 1208, 1210-11 (Colo.1996) (the Limited Gaming Amendment, Colo. Const. art. XVIII, § 9(4)(a), defines "adjusted gross proceeds" as "the total amount of all wagers made by players on limited gaming less all payments to players"); cf. Rogers v. Westerman Farm Co., 29 P.3d 887, 897 (Colo.2001) (declining to adopt other jurisdictions' interpretation of the phrase "gross proceeds at the Well" to mean that royalties are to be calculated based on sales price minus post-production costs); Mittelstaedt v. Santa Fe Minerals, Inc., 954 P.2d 1203, 1206 (Okla.1998) (plain meaning of "gross proceeds" suggests payment to lessor is without deductions). However, these cases discuss the calculation of "gross proceeds" in specific industries and businesses, such as the oil and gas industry and the gaming industry, and are therefore inapplicable here.
That the parties may not have contemplated that Wall Custom Homes would pay an allowance to the purchaser of the residence is irrelevant, as a court has no right to add a new term to a contract. See Fountain v. Mojo, 687 P.2d 496, 499 (Colo.App.1984) (because the contract did not provide that the plaintiffs' loan approvals had to be unconditional, the division declined to rewrite the contract to add this term). The fact that in retrospect the agreement was not ideal for Wall Custom Homes cannot lead us to find ambiguity where none exists.
We note that the sales transaction could have been structured by including the allowance as a credit against the cost of the residence and accounting for it on the closing documents. Had the transaction been structured in that way, the purchaser would have been required to pay a smaller amount for the home and the gross proceeds of sale would have been reduced by $65,000. However the structure used here involved an outright sale for the sum of $599,000 and a side payment of $65,000, allowing the purchaser to receive cash at closing for use in the landscaping and repair of the property. Thus, it is clear that the gross proceeds of sale amounted to the higher, financed *851 amount as disclosed on the closing documents.
III. Attorney Fees and Costs
Pursuant to the settlement agreement, the Ringquists, as the prevailing party, are entitled to an award of attorney fees and costs, including fees and costs incurred in this appeal. See Brock v. Weidner, 93 P.3d 576, 580 (Colo.App.2004). We leave the determination of the amount of the attorney fees to the trial court on remand. C.A.R. 39.5; In re Marriage of Ikeler, 161 P.3d 663, 671 (Colo.2007).
The judgment is affirmed, and the case is remanded for determination of attorney fees and costs, including fees and costs incurred in this appeal.
Judge LOEB and Judge ROMAN concur. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2633703/ | 176 P.3d 560 (2008)
Ronald ENDICOTT and Donald Endicott, Respondents,
v.
Robert and Samantha SAUL, husband and wife, and Linda and Vernon Gabelein, husband and wife, Appellants. and
Emma Endicott, Appellant,
v.
Ronald Endicott and Donald Endicott, Respondents.
Nos. 58435-9-I, 58531-2-I.
Court of Appeals of Washington, Division 1.
February 4, 2008.
*563 John W. Demco, L'Nayim Shuman-Austin, Demco Law Firm PS, Matthew F. Davis, Attorney at Law, Seattle; WA, H. Clarke Harvey, Attorney at Law, Clinton, WA, for Appellants.
Carolyn Cliff, Attorney at Law, Langley, WA, for Respondents.
Michael Mert Waller, Zylstra Beeksma & Waller PLLC, Oak. Harbor, WA, for Guardian. Ad Litem.
H. Clarke Harvey, Attorney at Law, Clinton, WA, for Other Parties.
SCHINDLER, A.C.J.
¶ 1 Emma Endicott (Emma), Samantha and Robert Saul (the Sauls), and Linda and Vernon Gabelein (the Gabeleins) challenge the trial court's decision to establish a limited guardianship for Emma under the Guardianship Act, chapter 11.88 RCW, and to issue a protective order under the Abuse of Vulnerable. Adults Act (AVA), chapter 74.34 RCW. After a ten-day bench trial that took place over the course of three months, the trial court concluded clear, cogent, and convincing evidence established that Emma was at significant risk of personal and financial harm and that the Sauls and the Gabeleins unduly influenced and exploited Emma. Because substantial evidence supports the trial court's determination that Emma is incapacitated as to her person and as to her estate, that Emma is a vulnerable adult under the AVA, and that the Sauls and the Gabeleins exploited and unduly influenced Emma to sell her Whidbey Island view property to them for significantly below fair market value, we affirm.
*564 FACTS
¶ 2 Emma Endicott is an 80-year-old woman who has lived almost her entire life on Whidbey Island and was married to Orvel "Shorty" Endicott for 43 years. Emma has two sons from an earlier marriage, John Earl (Earl) Fisher and Robert (Bob) Fisher. Shorty and Emma had twin sons, Ronald (Ron) Endicott and Donald (Don) Endicott. Ron and Don lived with Emma and Shorty for most of their lives. Emma's son Earl lives with his family in Seattle. Bob and his spouse Sandy live nearby in the house built by Emma's father.
¶ 3 Emma and Shorty lived in a small neighborhood on Whidbey Island that has scenic views of Mutiny In 1947, Shorty inherited 24 acres of view property overlooking Mutiny Bay. In 1976, Emma inherited five acres and a one-third interest in her parents' house that is.located in the same general area.
¶ 4 During their 43-year marriage, Shorty managed and controlled all the finances and Emma and Shorty lived an extremely frugal life. Emma has never had a checking account or a credit card. Emma also never obtained a driver's license and, until shortly before the trial in this case, did not have a telephone.
¶ 5 Shorty died in 1998, leaving Emma the family home, the 24 acres of view and waterfront property, $114,000 in savings, and $556 per month from his pension benefits. Emma took over managing the finances and the property. After Shorty died, friends described Emma as devastated, lonely, and lost.
¶ 6 Initially, Emma relied on Ron and Don. But increasingly, Emma came to rely on Linda Gabelein and Samantha Saul. Linda is married to Vernon Gabelein. Emma's brother is married to Vernon Gabelein's sister. Linda has two daughters from a previous marriage, Samantha Saul and Dina Thompson. Samantha is married to Robert Saul, who grew up on Whidbey Island with Ron and Don. Linda Gabelein and Samantha Saul own homes in the same neighborhood as Emma and are both real estate agents with Windermere Real Estate (Windermere). Emma testified that Linda is like a daughter to her and that she worships Linda. Emma was also very close to Samantha. in June 2003, Emma executed a durable power of attorney, giving Samantha the authority to make all decisions on her behalf.
¶ 7 It is undisputed that Emma wants to live on her own in her house on Whidbey Island for the rest of her life. When Shorty died, Emma's childhood friend, Frank Robinson, offered to purchase a 445-foot beachfront portion of her property for $660,000. A long-time neighbor, Ray Lotto, later offered to buy most of Emma's property for $1.5 million and give Emma a life estate in her residence. Instead, in three separate real estate transactions, Emma sold the majority of her property to Dina Thompson and her spouse, to the Sauls, and to the Gabeleins. After the three real estate transactions with the Gabelein family members, Emma was left with 13.77 acres, but over a third of it was swamp and marshland.
¶ 8 In September 2001, Emma decided to sell the five acres she inherited from her parents after Earl and Bob Fisher were unable to agree on how to pay expenses for the prokrty.[1] After unsuccessfully attempting to sell the property by putting up a for sale sign, Emma asked Samantha, who had recently acquired her real estate license, to list the property for sale.
¶ 9 The assessed value for the five-acre parcel, was $82,326. Samantha originally listed the property for sale at $69,500. After two months, Samantha lowered the price to $64,500. When Dina Thompson and her spouse offered to buy the property for $52,000, Samantha acted as a dual agent for her sister and her brother-in-law and Emma. Emma relied on Samantha's advice and accepted the offer of $52,000. The court rejected Samantha's testimony that she did not suggest a price to her sister as not credible. Emma received $45,000 from the sale. Bob and Sandy Fisher were extremely upset that Emma sold the five acres and as a result were estranged from Emma for a number of years.
*565 ¶ 10 In February 2002, Emma sold another five acres of waterfront view property to Samantha and Robert Saul for $80,000. The 2001 assessed value of the property was $195,524. Samantha initially denied that she suggested the sales price of $80,000. But at trial Samantha admitted that she did. After purchasing the five acres, the Sauls invested $40,000 to $100,000 in improvements. When the Sauls applied for a home construction loan in July 2004, according to a bank appraisal, the five acre view property was valued at $400,000.
¶ 11 After the Sauls bought the property from Emma, Roy Lotto told Samantha he was willing to pay $1.5 million for the rest of Emma's property and would give Emma a life estate in her residence. Lotto said Samantha told him that she would be able to get the property for him. But in June 2004, Emma signed a purchase and sale agreement with Linda and Vernon Gabelein to sell five acres of prime view property next to the five acres Emma sold to the Sauls for $150,000. There is no dispute that the property was worth $324,000. The "Vacant Land Purchase and Sales Agreement" states that a five-acre parcel will "be created by Buyer paid short plat" with "all other expenses paid by Buyer" and a net purchase price of $150,000. The Addendum states that the "Seller may be selling the property substantially below market value as the property has not been exposed on the open market." The Addendum also states that because the buyer is a Windermere real estate agent, the agreement was "conditioned on review and approval by Sellers [sic] attorney." Because Emma's attorney was representing the Gabeleins in another real estate matter, Linda Gabelein arranged for Emma to meet with another attorney about the agreement. Emma's meeting with the attorney lasted approximately 20 to 30 minutes.
¶ 12 In September 2004, Emma and the Gabeleins signed another addendum to the Purchase and Sale Agreement that allowed the Gabeleins to assign their interest in the property to the Sauls and obtain a boundary line adjustment. It is undisputed that the purpose of the boundary line adjustment was to avoid the public notice requirement for a short plat and prevent Ron and Don from learning about the sale before it closed. According to an unchallenged finding, the Sauls and the Gabeleins acted with "deliberate secrecy" throughout this real estate transaction. Before signing the Addendum, Emma met with the same attorney again for about 20 to 30 minutes. Following the boundary line adjustment, Emma was left with a parcel of approximately nine acres, more than half of which is swamp and marshland. The sale closed on May 16, 2005. There is no dispute that, at closing, the property was worth $427,000.
¶ 13 During the evening of June 14, 2005, Emma fell down. Ron drove to Bob Fisher's house to call 911. When the paramedics arrived, Emma refused to go to the hospital. On the morning of June 16, Don found Emma on the floor and halfway under her bed. Ron and Don drove Emma to the hospital. Don said his mother's eyes were glazed, she was confused, and she did not know where she was. When they arrived at the hospital, the hospital personnel determined Emma was not competent to refuse hospitalization. The court concluded it was not likely that Ron and Don would have called 911 if Emma had not fallen, as they claimed. The trial court also concluded that Emma's memory was suspect and "she is suggestible to the memories of others, especially as to what happened the night before she went in to the hospital in June 2005."
¶ 14 At some point, Samantha notified the hospital that she had the power of attorney for Emma. Samantha also told the hospital social worker that Emma said Ron and Don hit her and that was why she was in the hospital. Samantha was present when the social worker interviewed Emma. Emma told the social worker that she did not remember why she was in the hospital, but that Ron and Don yelled at her a lot, that they were controlling, and they would not let her watch television. That same day, Emma filed a petition for a domestic violence protection order against Ron and Don. The court entered a temporary restraining order requiring *566 Ron and Don to move out of the house.[2] When Emma was released from the hospital, she went to live with Bob and Sandy Fisher. Emma lived with the Fishers until December.
¶ 15 On July 11, 2005, Ron and Don filed a petition to establish a guardianship for Emma and for her estate, to obtain a protective order for Emma as a vulnerable adult under the AVA, and to rescind the May 2005 real estate transaction with the Sauls and the Gabeleins. Ron and Don alleged that Emma was incapacitated as to her person and as to her estate, that the. Sauls and the Gabeleins exerted undue influence over Emma, and that the Sauls and Gabeleins financially exploited her.
¶ 16 Prior to trial, Emma, the Sauls, and the Gabeleins filed a motion to bifurcate the request to rescind the May 2005 real estate transaction. The Sauls and the Gabeleins also filed a motion to exclude evidence relating to alleged undue influence concerning the 2005 real estate transaction. The court granted the motion to bifurcate the request to rescind the 2005 real estate transaction, but denied the motion to, exclude testimony about undue influence related to the transaction.
¶ 17 A ten-day bench trial began in December 2005 and concluded in March 2006. During the course of the trial, the court heard testimony from 36 witnesses and admitted more than 75 exhibits. At the conclusion of the trial, the court issued a 55-page written opinion consisting of 94 separate findings of fact and 26 conclusions of law. The court concluded that Emma was incapacitated as to her person and as to her estate, that Samantha and Linda had a confidential and fiduciary relationship with Emma, that Emma was a vulnerable adult under the AVA, and that the Sauls and Gabeleins unduly influenced and financially exploited Emma. The court appointed. Emma's son Earl as a limited guardian with the "goal of allowing Emma to live in her house for as long as possible"[3] and entered a protective order under the AVA prohibiting the Sauls and the Gabeleins from transferring or encumbering the property Emma sold in May 2005.
ANALYSIS
¶ 18 On appeal, Emma, Samantha and Robert Saul, and Linda and Vernon Gabelein challenge the trial court's determination that Emma is incapacitated as to her person and as to her estate. Emma, the Sauls, and the Gabeleins also contend the trial court erred in shifting the burden to Samantha and Linda to prove lack of undue influence and finding Emma was a vulnerable adult under the AVA.
Standard of Review
¶ 19 We review the trial court's decision following a bench trial to determine whether the findings are supported by substantial evidence and whether those findings support the conclusions of law. Dorsey v. King County, 51 Wash.App. 664, 668-69, 754 P.2d 1255 (1988). Substantial evidence is the quantum of evidence sufficient to persuade a rational fair-minded person the premise is true. Wenatchee Sportsmen Ass'n v. Chelan County, 141 Wash.2d 169, 176, 4 P.3d 123 (2000). In determining the sufficiency of evidence, an appellate court need only consider evidence favorable to the prevailing party. Bland v. Mentor, 63 Wash.2d 150, 155, 385 P.2d 727 (1963). In evaluating the persuasiveness of the evidence, and the credibility of witnesses, we must defer to the trier of fact. Burnside v. Simpson Paper Co., 123 Wash.2d 93, 108, 864 P.2d 937 (1994). "[C]redibility determinations are solely for the trier of fact [and] cannot be reviewed on appeal." Morse v. Antonellis, 149 Wash.2d 572, 574, 70 P.3d 125 (2003). Unchallenged findings of fact are also verities on appeal. In re Estate of Jones, 152 Wash.2d 1, 8, 93 P.3d 147 (2004); RAP 10.3(g). We review questions of law de novo. Sunnyside Valley Irrigation Dist. v. Dickie, 149 Wash.2d 873, 879-880, 73 P.3d 369 (2003).
*567 ¶ 20 The clear, cogent and convincing burden of proof contains two components: (1) the amount of evidence necessary to submit the question to the trier of fact or the burden of production, which is met by substantial evidence; and (2) the burden of persuasion. As to the burden of persuasion, the trier of fact, not the appellate court, must be persuaded that the fact in issue is "highly probable." Colonial Imports, Inc. v. Carlton Northwest, Inc., 121 Wash.2d 726, 734-735, 853 P.2d 913 (1993),
¶ 21 In determining whether the evidence meets the "clear, cogent and convincing" standard of persuasion, the trial court must make credibility determinations and weigh and evaluate the evidence. Bland, 63 Wash.2d at 154, 385 P.2d 727.
What constitutes clear, cogent, and convincing proof necessarily depends upon the character and, extent of the evidence considered, viewed in connection with the surrounding facts and circumstances. Whether the evidence in a given case meets the standard of persuasion, designated as clear, cogent, and convincing, necessarily requires a process of weighing, comparing, testing, and evaluatinga function best performed by the trier of the fact, who usually has the advantage of actually hearing and seeing the parties and the witnesses, and whose right and duty it is to observe their attitude and demeanor.
Bland, 68 Wash.2d at 154, 385 P.2d 727.
Thus, the appellate court's role is limited to determining whether substantial evidence supports the trial court's findings of fact. Bland, 63 Wash.2d at 154, 385 P.2d 727. It is for the trial court, and not this reviewing court, to determine whether the evidence in a given case meets the standard of persuasion designated as "clear, cogent and convincing." Id.
Limited Guardianship
¶ 22 Emma, the Sauls, and the Gabeleins challenge the trial court's conclusion that Emma is incapacitated as to her person and as to her estate. The standard of proof in a guardianship proceeding is clear, cogent, and convincing evidence. RCW 11.88.045(3). In determining incapacity as to the person, the court must determine whether the individual is at significant risk, of personal harm "based upon a demonstrated inability to adequately provide for nutrition, health, housing, or physical safety." RCW 11.88.010(1)(a). In determining incapacity as to the estate, the court must decide if there is a significant risk of financial harm based upon a demonstrated inability "to adequately manage property or financial affairs." RCW 11.88.010(1)(b). The guardianship statute authorizes the superior court to appoint a guardian for an incapacitated person.
¶ 23 RCW 11.88.010 provides in pertinent part:
(1) The superior court of each county shall have power to appoint guardians for the persons and/or estates of incapacitated persons, and guardians for the estates of nonresidents of the state who have, property in the county needing care and atten tion.
(a) For purposes of this chapter, a person may be deemed incapacitated as to person when the superior court determines the individual has a significant risk of personal harm based upon a demonstrated inability to adequately provide for nutrition, health, housing, or physical safety.
(b) For purposes of this chapter, a person may be deemed incapacitated as to the person's estate when the superior court determines the individual is at significant risk of financial harm based upon a demonstrated inability to adequately manage property or financial affairs.
¶ 24. Under RCW 11.88.010(1)(c), the determination of incapacity "is a legal not a medical decision, based upon a demonstration of management insufficiencies over time in the area of person or estate. Age, eccentricity, poverty, or medical diagnosis alone shall not be sufficient to justify a finding of incapacity." In making this determination, the trial court considers evidence from all sources, not just experts. In re Guardianship of Stamm v. Crowley, 121 Wash.App. 830, 841, 91 P.3d 126 (2004).
¶ 25 Here, the trial court concluded clear, cogent, and convincing evidence established *568 that Emma is at a significant risk of personal harm "based on a demonstrated inability to adequately provide for her nutrition, health, or physical safety."
The court concludes, based on clear, cogent, and convincing evidence, that Emma is at significant risk of personal harm based on a demonstrated inability to adequately provide for her nutrition, health, or. physical safety. In the court's opinion, the professionals who have concluded otherwise have not had all of the information that was provided to this court during the trial, having based their opinions primarily on short interviews done months ago.
¶ 26 Substantial evidence supports the trial court's conclusion that Emma is incapacitated as to her person. The trial court found that the unbiased testimony of Emma's neighbors, Don Gulliford and Janet Lotto, was more credible than the testimony of other witnesses. According to the unchallenged testimony of Don Gulliford, he found Emma wandering along a roadside ditch in the summer of 2003, holding a toothbrush. When he stopped to help her, Emma did not appear to know where she was going and "seemed confused and [in need] of assistance." When Janet Lotto brought Emma food in November 2004 and in December 2004, Emma appeared confused and told Lotto to whisper "because she did not want Vernon Gabelein to know about the food." And according to the testimony of other witnesses, there were multiple occasions in 2005 when Emma did not recognize people she had known for decades. In addition, the court relied on Frank Robinson's undisputed testimony about Emma. Robinson was a friend of Emma's since childhood and regularly visited her, According to Robinson, in the summer of 2005 and at trial, Emma did not recognize him and acted agitated and confused when he spoke to her.
¶ 27 It is also undisputed, that when Emma was hospitalized in June 2005, the hospital personnel determined she was not competent to refuse medical care because she "was disoriented" and confused. Before Emma was admitted to the hospital in 2005, Emma had not been to a doctor or had any medical care for over thirty years.
¶ 28 There is also no dispute that "Emma does not cook, and relies on others for her meals." And on the occasions when Emma cooked, she burned or undercooked the food or cooked spoiled meat. Emma would also turn the stove on and sometimes forget to turn it off and often dropped her lit cigarettes on the floor without noticing. In addition, the trial court's finding that Emma continued to go through "the garbage at the county boat ramp, even after being advised that it was dangerous because needles from illegal drug use had been discarded there" is unchallenged.
¶ 29 The court considered but expressly rejected the opinion of the psychologist, Dr. Janice Edwards, that Emma did not need a guardian, because the opinion was based on a "short interview[] done months ago."
The court has struggled with these opinions because the court has respect for . . . these professionals. But . . . Dr. Edwards' impressions reflect a two-hour visit at the end of September of 2005.[Her] impressions are widely divergent from what the court observed of Emma over a period from December of 2005 through March 2, [2006], through ten days of trial. Even the guardian ad litem, who testified after Emma, acknowledged that if she were looking at Emma solely based on Emma's testimony in court, that she too might have doubts as to whether Emma needed a guardian.
. . .
The court is also mindful that the professionals based their opinions on information gathered when Emma was staying with Bob and Sandy Fisher. But the court concludes that things have changed since Emma moved back into her home alone on December 1, 2005. . . . The court concludes that Emma appears to have gone downhill since she started living alone on December 1, 2005.
In evaluating Dr. Edwards' opinion, the trial court expressly "credit[ed] the information elicited on cross-examination."
Dr. Edwards is a forensic psychologist who has done over 100 guardianship evaluations. However, the court credits the information *569 elicited during her cross-examination: that she was not aware of much of the evidence provided to the court in this trial. For example, Dr. Edwards was not aware . . . that Emma had not been to a doctor in over 30 years until she was hospitalized in June of 2005, that Emma had no preventative checkups or any well health care until the guardianship petition was filed, that Emma had refused emergency medical care, or that Emma was considered not competent to refuse hospitalization when she was admitted to the hospital in June of 2005.
¶ 30 During cross examination, the GAL also admitted that before her investigation was complete and before talking to "Earl Fisher, Emma's oldest son and the proposed guardian; Janet Lotto[; or] Emma's [siblings]," she had already decided that she would not recommend a guardianship.
¶ 31 Emma's trial testimony also supports the trial court's conclusion of incapacity. For instance, Emma's description about what she said when Janet Lotto brought food to her was incoherent:
Q. And you were in court when Janet Lotto described bringing food to you after Thanksgiving and Christmas?
A. Yes.
Q. And you told her to whisper and not to tell Vernon about it. Do you remember Janet saying that?
A. What? No. I know what that was all about. I don't know if I should tell it or not. But she got scared one night and she come up and I should have went with her. I told her afterwards, too, I said, Janet, should have went with you. Because it was not at night, it was in sort of the afternoon.
And Emma often had difficulty answering simple questions during the trial. For example, when asked "[h]ow long have you had that microwave?" she replied "[s]ince I've beenand you should see the house. They're painting the house inside. Inside. Linda and Sandy, my daughter-in-law, well, Linda, there'sand we were talking about it the other day, we're going to finish painting the inside." When asked "[w]hat did you believe that the property was worth when you agreed to sell it?" Emma replied "No, I sold it because . . . there was so much junk up there." Asked about the property that she sold for $150,000 that was worth $427,000, "Emma scoffed and said, `It's just sand'."
¶ 32 The court found Emma was "frail, confused, unsteady, disoriented, childlike, and oftentimes belligerent. . . ." According to the court, while it is not unusual for a person of Emma's age to be forgetful, "Emma's forgetfulness had another element to it. It is not that Emma could norremember something; it is that Emma refused to believe certain things had happened at all. On other occasions, Emma asserted certain information as if it was the truth when she clearly had no memory of the event." The trial court also clearly rejected the argument that an infection in February caused Emma's sometimes incoherent testimony.[4]
¶ 33 Emma, the Sauls, and the Gabeleins rely on Elston v. McGlauflin, 79 Wash. 355, 140 P. 396 (1914), to argue the trial court impermissibly relied on its own observations of Emma's behavior at trial as evidence of incapacity in violation of ER 605. Emma, the Sauls, and the Gabeleins specifically challenge findings of' fact 76, 92, and 93, claiming they were unable to challenge the court's *570 observations that were not made part of the record.
¶ 34 Finding of fact 76 states:
If Emma did not agree with the testimony from other witnesses, she would make faces of astonishment or bafflement, indicating clearly her disagreement with the testimony. She continued to talk in court, at times so loudly that she would have to be reminded by the court to be quiet. In December of 2005, during the testimony of her sister-in-law, Ruth Gabelein Ohm, Emma laughed, smiled, talked, and looked around as if she was at a social gathering. Emma's attorney frequently had to tell her to be quiet. The court understands that a guardianship proceeding is a difficult time for anyone. But Emma's behavior in court was dramatically different from anyone else that the court has observed in ten years on the bench.
¶ 35 Finding of fact 92 states:
As Ron was testifying, Emma was saying to her attorney, loudly enough for anyone in the courtroom to hear, "That's not true! That's not true!"
¶ 36 Finding of fact 93 states:
In reaching its decision in this case, the court has carefully considered the opinions of the professionals described above: i.e., that Emma is fine. But it is the court's strong impression, and the court finds, that Emma is not, in fact, fine but rather that she is incapacitated. Emma has not appeared to be fine to this court, or to many people who are part of her family or otherwise knowledgeable about her and who have nothing to gain from their testimony about their concerns.
¶ 37 Under ER 605 "[t]he judge presiding at the trial may not testify in that trial as a witness." In Elston, during the trial in an action to recover damages allegedly caused by negligent construction of an apartment building on a steep slope, the judge visited the site without the knowledge of the parties or counsel. Elston, 79 Wash. at 357, 140 P. 396. On appeal, the court held that the trial court's independent investigation impermissibly denied the parties a fair trial. Elston, 79 Wash. at 359, 140 P. 396. "The court unwittingly became a witness in the case and in some degree, at least, based his judgment upon his own independent experience and preconceived opinion." Id. Here, unlike in Elston, the trial judge did not conduct an independent investigation or make a decision based upon independent experience and preconceived opinions. And in deciding the incapacity and competency of a witness, the trial court is entitled to draw on its observations of the witness. See Day v. Santorsola, 118 Wash.App. 746, 765, 76 P.3d 1190 (2003); State v. Avila, 78 Wash.App. 731, 735, 899 P.2d 11 (1995).
¶ 38 The record also shows that on numerous occasions, the judge noted Emma's inappropriate courtroom behavior. For example, the court admonished Emma "to not make comments out loud during" the testimony of other witnesses. And as finding of fact 93 makes clear, the trial court considered but expressly rejected the expert opinions offered and primarily relied on the trial testimony of disinterested witnesses such as Don Gulliford, Janet Lotto, and Frank Robinson in reaching the conclusion that Emma is at significant risk of personal harm "based on a demonstrated inability to adequately provide for her nutrition, health, or physical safety."[5]
¶ 39 Substantial evidence also supports the trial court's conclusion that "Emma is at significant risk of financial harm based upon a demonstrated inability to adequately manage property or financial affairs." There is no dispute that Emma wishes to remain in her home as long as possible, but that "Emma is not able to protect her resources to meet her future needs" and her "uni[n]formed decisions will have an enormous impact on her" ability to do so. The parties also do not challenge the finding that Emma "has absolutely no idea of property values or financial planning" or that after months of litigation about the value of the properties she sold "Emma is unaware of the market value of the property that she sold *571 and does not even care." Although Emma insisted "I know what I sold," when she finally understood that she was being asked how much the property was worth, she admitted "I don't know. I don't know all that. Jeepers." Emma also testified that "I forget how many acres I've got left. I had 24 . . . but I don't have that much now. I don't know what all I have."
¶ 40 In addition, the evidence establishes Emma has difficulty paying bills and is unaware of her finances.[6] Emma relies on the bank tellers to make entries in her check register and could not account for the withdrawal of money. Emma did not recognize entries in her checkbook and could not explain the withdrawals from her account in 2004. And according to one of the court's unchallenged findings, "(iln addition to having unaccounted withdrawals from her savings, Emma has little understanding of `investments,' which also leaves her vulnerable to others."
¶ 41 Because substantial evidence supports the trial court's findings, we conclude the court did not err in appointing a limited guardianship for Emma to allow her to meet her medical and day-to-day needs and assist her in managing her finances and property.
Abuse of Vulnerable Adults Act Protection Order
¶ 42 Emma, the Sauls, and the Gabeleins also contend that the trial court erred in concluding Emma was a vulnerable adult and entering a protective order under the Abuse of Vulnerable Adults Act (AVA), chapter 74.34 RCW. Relying on former RCW 74.34.110(2),[7] Emma, the Sauls, and the Gabeleins assert that the court had to find by clear, cogent and convincing evidence that Emma was a vulnerable adult when she signed the purchase and sale agreement with the Gabeleins in 2004 and the evidence does not support finding Emma was a vulnerable adult in 2004.[8]
¶ 43 Statutory interpretation is a question of law we review de novo. Western Telepage, Inc. v. City of Tacoma, 140 Wash.2d 599, 607, 998 P.2d 884 (2000). The court's primary goal is "to ascertain and give effect to legislative intent." State v. Pac. Health Ctr., Inc., 135 Wash.App. 149, 158-59, 143 P.3d 618 (2006). Legislative intent is determined primarily from the statutory language, viewed "in the context of the overall legislative scheme." Collection Servs. v. McConnachie, 106 Wash.App. 738, 741, 24 P.3d 1112 (2001). If the statute's meaning is plain on its face, we give effect to that plain meaning. Dep't of Ecology v. Campbell & Gwinn, LLC, 146 Wash.2d 1, 9-10, 43 P.3d 4 (2002).
¶ 44 The stated purpose of the AVA is to protect vulnerable adults from abuse, financial exploitation, and neglect. RCW 74.34.110. Under the AVA, the court shall conduct a hearing on a petition for an order of protection and can enter an order to protect the vulnerable adult from exploitation, "not to exceed one year." Former ROW 74.34.130.
¶ 45 Former ROW 74.34.110(2) provides that:
A petition shall allege that the petitioner is a vulnerable adult and that the petitioner has been abandoned, abused, financially exploited, or neglected, or is threatened with abandonment, abuse, financial exploitation, or neglect by respondent.
¶ 46 A "vulnerable adult" is defined as a person Islixty years of age or older who has the functional, mental, or physical inability to care for himself or herself' or is "[f]ound incapacitated under chapter 11.88 ROW. . . ." Former ROW 74.34.020(13). The AVA establishes *572 an action for the protection of vulnerable adults in cases of "abandonment, abuse, financial exploitation, or neglect. . . ." The AVA definition of "abuse includes exploitation of a vulnerable adult. . . ." Former RCW 74.34.020(2). "[E]xploitation" is defined as "an act of forcing, compelling, or exerting undue influence over a vulnerable adult causing the vulnerable adult to act in a way that is inconsistent with relevant past behavior. . . ." Former RCW 74.34.020(2)(d). According to the statutory definition of "exploitation," exploitation can only occur when the adult is vulnerable. Under the plain language of the AVA, we conclude the court must find an individual is a vulnerable adult at the time of the alleged exploitation.
¶ 47 Relying on the opinion of Dr. Edwards and the fact that the GAL did not recommend a guardianship, Emma, the Sauls, and the Gabeleins contend the evidence does not support the trial court's conclusion that Emma was a vulnerable adult under the AVA in 2004 when she signed the purchase and sale agreement.
Since her husband died in 1998, Emnia has been vulnerable to others, who have taken advantage of her desire to please those 'persons she perceives as being her friends or looking out for her best interests, such as Linda Gabelein and Samantha Saul. Emma has sold property to members of the Gabelein family for a fraction of its Value jeopardizing her ability to remain in her home for the remainder of her life.
¶ 48 The testimony of Dr. Edwards and the GAL about Emma's mental capacity "presents one source of information among many, credibility is the province of the judge, and . . . the judge can cast a skeptical eye when called for." Stamm, 121 Wash.App. at 841, 91 P.3d 126. And the court rejected the opinion of Dr. Edwards as based on spending very limited time with Emma while she was being taken care of by and living with Bob and Sandy Fisher.
¶ 49 In addition, Emma, the Sauls, and the Gabeleins argue that Emma was not a vulnerable adult under the AVA because the GAL "concluded Emma was not an exploited vulnerable adult." They mischaracterize the GAL's testimony. While the GAL testified that she did not believe the Gabeleins had "purposely done something to hurt" Emma, the GAL's report states that "[n]one of this means that Emma has not been unduly influenced."
¶ 50 Evidence concerning Emma's incapacity under chapter 11.88 RCW also supports the trial court's conclusion that Emma was a vulnerable adult when she entered into the purchase and sale agreement with the Gabeleins in 2004.[9] For jnstance, in 2003, the same year that Don Gulliford found Emma wandering along a ditch, disoriented and confused, Emma gave Samantha Saul a durable power attorney apparently without realizing it was effective immediately. Emma told Dr. Edwards that "she had made a power of attorney over to Samantha Saul [that] . . . is not in effect, but will become active if she is unable to handle her own affairs."[10] And as previously described, it is undisputed that by 2004 Emma could not independently manage her finances or take care of herself. And Ron testified that he stopped accepting out-of-town jobs in 2004 because his brother could no longer care for Emma by himself.
¶ 51 On this record, substantial evidence supports the trial court's conclusion that Emma was a vulnerable adult in 2004 under the AVA when she sold the property to the Gabeleins.
¶ 52 Emma, the Sauls, and the Gabeleins also challenge the trial court's conclusion that the Sauls and the Gabeleins exploited Emma by exerting undue influence over her by inducing her to sell her property to them in 2004 at a price far below the market value. They argue that Emma was not exploited because she met with an attorney about the 2004 purchase and sale agreement. *573 But the trial court's unchallenged finding that Emma had "absolutely no idea of property values" supports the court's conclusion that Emma was exploited despite meeting with an attorney. And the unchallenged finding that Emma did not understand the effect of selling her property on her ability to live independently in her home for the rest of her life also supports the conclusion that Emma was exploited, despite meeting with an attorney.
¶ 53 Next, Emma, the Sauls, and the Gabeleins contend the property sale was not a gift and the trial court erred in relying on White v. White, 33 Wash.App. 364, 655 P.2d 1173 (1982), to shift the burden to the Sauls and Gabeleins to prove lack of undue influence. The trial court ruled that Emma made a gift to the Sauls and the Gabeleins. "By selling her property as far below its market value as she has, Emma has, in essence, made gifts to the Sauls and the Gabeleins of substantial value, based on the difference between the sales price and the fair market value of each property. . . ."
¶ 54 As a general rule, the party seeking to set aside an inter vivos gift has the burden of showing the gift is invalid. Lewis v. Estate of Lewis, 45 Wash.App. 387, 388, 725 P.2d 644 (1986). But if the recipient has a confidential or fiduciary relationship with the donor, the burden shifts to the donee to prove "a gift was intended and not the product of undue influence." Lewis, 45 Wash.App. at 389, 725 P.2d 644; White, 33 Wash.App. at 368, 655 P.2d 1173.[11] "[E]vidence to sustain the gift between such persons must show that the gift was made freely, voluntarily, and with a full understanding of the facts . . . If the judicial mind is left in doubt or uncertainty as to exactly what the status of the transaction was, the donee must be deemed to have failed in the discharge of his burden and the claim of gift must be rejected." McCutcheon v. Brownfield, 2 Wash.App. 348, 356, 467 P.2d 868 (1970). The donee's burden of proof is clear, cogent, and convincing evidence. Pedersen v. Bibioff, 64 Wash.App. 710, 720, 828 P.2d 1113 (1992). Whether a legal fiduciary relationship exists is a question of law, which we review de novo. S.H.C. v. Lu, 113 Wash. App. 511, 524, 54 P.3d 174 (2002). Whether a confidential relationship exists is a question of fact. McCutcheon v. Brownfield, 2 Wash. App. 348, 356-57, 467 P.2d 868 (1970).
The Sauls and the Gabeleins dispute the trial court's conclusion that Samantha and Linda had a confidential or fiduciary relationship with Emma. "A confidential or fiduciary relationship between two persons may exist either [in law] because of the nature of the relationship between the parties . . . or the confidential relationship between persons involved may exist in fact." McCutcheon, 2 Wash.App. at 356-57, 467 P.2d 868. A confidential relationship exists when one person has gained the confidence' of the other and "purports to act or advise with the other's interest in mind." McCutcheon, 2 Wash.App. at 357, 467 P.2d 868.
¶ 56 The power of attorney Emma executed in June 2003 that gives Samantha "all of the powers of an absolute owner over [Emma's] assets and liabilities," including the authority to "[l]ease, sell, release, convey, exchange, mortgage, and release any mortgage on land, and any interest therein," establishes Samantha had a legal fiduciary relationship with Emma. While Emma, the Sauls, and the Gabeleins argue that Samantha's fiduciary role is irrelevant because she did not purchase the property in. 2004, the trial court's finding that her role was critical to the sale is unchallenged"[t]he Gabelein transaction would not have occurred without the Sauls' participation in a boundary line adjustment."
¶ 57 Substantial evidence also supports the court's findings that both Samantha and. Linda had a confidential or fiduciary relationship with Emma and exerted undue influence over her. It is undisputed that Samantha was involved in all three real estate transactions and, for each transaction, "Emma thought the property was worth a substantial amount *574 less than it was." Samantha gained Emma's confidence and purported to act in Emma's best interest as her friend, giving advice based on her superior knowledge. For example, Samantha testified that in the 2002 sale, she rejected Emma's proposed price of $52,000 as "too low," then showed Emma "comparable" property sales records demonstrating that $80,000 was a fair market value.[12] But the trial court found $80,000 was a "bargain" price and below fair market value.[13]
¶ 58 Linda also gained Emma's confidence and purported to advise Emma as her friend and act with Emma's best interests in mind, using her superior knowledge. In the 2004 property transaction, Linda rejected Emma's price as "too low" but told Emma that comparable sales data showed $150,000 was "in the ballpark" of a reasonable price. Yet on appeal, there is no dispute that the property is "some of the best view property on Whidbey Island" and was worth $324,000 in June 2004 and $427,000 when the sale closed in May 2005.[14] It is also undisputed that Linda was the listing agent for a house on a small lot in the same neighborhood that sold for only $150,000 around the same time. The trial court noted that this sale also showed that Linda's claim that $150,000 was "in the ballpark" was not credible.
¶ 59 Citing conclusions of law 10 and 17, the Sauls and the Gabeleins also claim the court erred by imposing a fiduciary duty on Samantha and Linda contrary to the laws governing real estate agents.[15] Conclusion of law 10 states:
Given Emma's age, her lack of sophistication in financial matters, and her almost childlike trust in Samantha and Linda, each of them should have insisted upon getting appraisals and paying fair market value in purchasing property from Emma.
¶ 60 Conclusion of law 17 states:
Samantha had an obligation to advise Emma about the fair market value of the property that Samantha purchased from her before the purchase. Linda had an obligation to advise Emma about the fair market value of the property that Linda purchased from her before the purchase.
¶ 61 It is undisputed that neither Linda nor Samantha acted as Emma's real estate agent for the 2004 real estate transaction. In context, it is clear that the crux of conclusions of law 10 and 17 is not the role Samantha and Linda played as real estate agents but rather their responsibility, because of their close relationship with Emma and Emma's unequivocal trust in and reliance on them, to use their superior knowledge in Emma's best interest.
¶ 62 Because the trial court correctly concluded that Samantha and Linda had a confidential relationship with Emma, as a matter of law they have the burden to prove a gift was not a result of undue influence. In a number of cases, Washington courts have held that below-market sales are gifts. In the Matter of the Estate of .McLeod, 105 Wash.2d 809, 814, 719 P.2d 88 (1986) (in the context of the inheritance tax, "the excess of the fair market value above the [amount paid] was . . . a gift"); Glorfield v. Glorfield, 27 Wash.App. 358, 359, 617 P.2d 1051 (1980) (for community property purposes in a dissolution, "sales which were substantially below fair market value" were characterized as gifts). Emma, the Sauls, and the Gabeleins cite no case to the contrary.
¶ 63 The only authority Emma, the Sauls, and the Gabeleins cite to support their argument *575 that the 2004 transaction was not a gift is the introduction to the Washington Administrative Code (WAC) provision regulating taxation of real property transfers. WAC 458-61A-201(1) provides:
Generally, a gift of real property is not a sale, and is not subject to the real estate excise tax. A gift of real property is a transfer for which there is no consideration given in return for granting an interest in the property. If consideration is given in return for the interest granted, then the transfer is not a gift, but a sale, and it is subject to the real estate excise tax to the extent of the consideration received.
But a later example in WAC 458-61201(6)(b) explains that the value transferred in excess of the consideration received is a gift:
(ii) Keith and Jean, as joint owners, convey their residence valued at $200,000 to Jean as her sole property. There is no underlying debt on the property. In exchange for Keith's one-half interest in the property, Jean gives Keith $10,000. Keith has made a gift of $90,000 in equity, and received consideration of $10,000. Real estate excise tax is due on the $10,000.
¶ 64 We conclude the trial court did not err in concluding that Emma's sale for well below market value was a gift and in shifting the burden to the Sauls and the Gabeleins to prove undue influence.[16]
¶ 65 According to one of the court's unchallenged findings of fact, "Emma did not have any' idea of the value of the property that she sold to the Gabeleins and still does not." Emma's lack of expertise in real estate and financial matters is also undisputed. Because Emma never had a full understanding of the facts, the claim of gift must be rejected.
¶ 66 Even if the Sauls and Gabeleins did not have the burden to prove undue influence, substantial evidence supports the court's conclusion that clear, cogent, and convincing evidence establishes "Emma . . . has been exploited by the Sauls and the Gabeleins." Undue influence can exist "when highly unreasonable consideration is coupled with other inequitable incidents." Lewis v. Estate of Lewis, 45 Wash.App. 387, 391, 725 P.2d 644 (1986). "Even though no directly false statements are made, if there appears to be a studied effort to produce a false impression upon the mind of the party from whom land is being purchased, this, together with inadequacy of price, will be sufficient to authorize relief." Downing v. State, 9 Wash.2d 685, 689-90, 115 P.2d 972 (1941).
¶ 67 Here, Samantha and Linda convinced Emma that they were looking out for her best interests by telling Emma her price was "too low," then suggesting prices that were still egregiously low. Emma was also given misleading "comparable" property sales to lead her to believe that the bargain sale prices were reasonably close to market value.
¶ 68 After the first sale to the Thompsons, the Sauls asked Emma to sell them property.[17] While Emma offered to sell the property to the Sauls for $52,000, they agreed to buy it for $80,000. Before trial, Samantha took the position that Don or Emma suggested $80,000 as the purchase price. But at trial, Samantha admitted that she proposed $80,000. However, she claimed that $80,000 was "in the range of what was reasonable" for five acres with a marine-mountain view, despite the undisputed evidence that the property was assessed at $195,524 the previous year. And when the Sauls applied for a loan two years later, the bank appraisal valued the property at $400,000.
¶ 69 A few months after the sale to the Sauls, Linda Gabelein testified that she approached *576 Emma about buying another fiveacre parcel. During the transaction, Linda also purported to act in Emma's best interest by insisting on paying more than Emma initially offered but then agreeing to a price that was still far below market value. Sometime after the 2004 purchase and sale agreement, an addendum was executed. Linda brought the boundary line adjustment paperwork to Emma to sign. Emma signed at least two versions, including one that lacked a legal description or a map. In the boundary line adjustment that was finally approved, all of the less-desirable marsh and swampland was excluded from the five acres the Gabeleins purchased. The Sauls and the Gabeleins also took steps to ensure Ron and Don did not learn about the 2004 real estate transaction until after closing. Linda Gabelein told a fellow real estate agent that the sale was "hush-hush" and "a really good deal."
¶ 70 There was also testimony that both the Sauls and the Gabeleins told others they were able to influence Emma. According to one unchallenged finding, Samantha told Ray Lotto that "she was working on Emma, by being nice to her and taking her on trips to Costco, so that she could get a listing on Emma's property that Lotto wanted to buy." Ray Lotto testified that Samantha thought "given enough time [she would] be able to get this property for" him. Emma's daughter-in-law Sandy Fisher testified that Vernon Gabelein told her that he "could talk Emma into giving Bob Fisher and Earl Fisher . . . her remaining five-acre parcel of property. . . ."[18] And according to the GAL, Linda and Samantha could "get Ms. Endicott to change her mind. . . ." The unchallenged findings also show that Samantha's influence over Emma extended beyond real estate. For instance, when Ron and Don questioned "the prudence of Emma's purchase of a 30-year annuity in 2002, she would not believe that their questions were valid until she had Samantha Saul check out the situation." And it is undisputed that during Emma's testimony, she "volunteered, `[i]f Sam told you that, that's the truth.' . . . As Emma said, if Samantha, Saul says it, that's the truth for Emma."
¶ 71 Substantial evidence also supports the trial court's, finding that the undue influence of the Sauls and the Gabeleins over Emma caused her "to act in a way that is inconsistent with relevant past behavior."[19] Many witnesses testified that Emma was extremely frugal. Emma used to dig through trash to find can labels she could turn in for fifty cents or a dollar. Emma has always worn secondhand clothes she got for free. She did not replace her 50-year-old broken dentures because she did not want to spend the money. Before Shorty's death, the couple had never conveyed any property except when Emma gave her favorite sister Annie the one-third interest she inherited in their parent's home.[20]
¶ 72 On this record, we conclude the trial court did not err in ruling Emma is a vulnerable adult under the AVA and issuing a protective order preventing the Sauls and the Gabeleins from transferring or encumbering the property she sold to them in 2004.
CONCLUSION
¶ 73 We affirm the trial court's decision establishing a limited guardianship for Emma and issuing an order of protection for her as a vulnerable adult under the AVA. Substantial evidence supports finding that Emma is incapacitated as to her person and as to her estate, and that the Sauls and the Gabeleins unduly influenced and exploited *577 Emma. As the prevailing parties on appeal, upon compliance with RAP 18.1, Ron and Don are entitled to attorney fees on appeal under RCW 11.96A.150 and RCW 74.34,130.[21]
WE CONCUR: APPELWICK, C.J., and BECKER, J.
NOTES
[1] There was an understanding in the family that Earl and Bob would inherit Emma's five acres.
[2] The court later entered an order of protection against Don because of an unrelated incident a year earlier.
[3] The court selected Earl Fisher because he would act in his mother's best interest, he was impartial, and he was not interested in obtaining Emma's money or property.
[4] "The court does not attribute Emma's behavior during trial solely to the urinary tract infection. The court observed Emma's behavior for three full days in December of 2005 and two full days in January of 2006, and her behavior was as described above. There is no suggestion that Emma was suffering from a urinary tract infection then. Even if she was suffering from a urinary tract infection, the antibiotics prescribed for her on February 8, 2006, would have been completed on February 13 or 14. Emma's disorientation cleared up with 24 hours when she was at the hospital in June of 2005 for the same condition. The difference between June of 2005 and February of 2006 is that Emma was no longer living with anyone who monitors whether she was taking her medication. Samantha, who took her to the hospital on February 8, testified that she did not know if Emma had finished her medication. Because Emma was diagnosed with two urinary tract infections in such a short period of time, the court questions whether she took all of her antibiotics as prescribed."
[5] And because substantial evidence supports finding Emma incapacitated, any error is harmless.
[6] At some point Emma inadvertently let her homeowners' insurance lapse and apparently she often paid bills even when the statements showed a credit balance.
[7] In this opinion, the statutory citations to the AVA refer to the version in effect in 2004 and 2005. Effective July 22, 2007, some sections of the AVA were amended in ways that do'not affect this appeal.
[8] Ron and Don contend the Sauls and the Gabeleins argue for the first time on appeal that the court erred in not addressing whether. Emma was a vulnerable adult at the time of the Purchase and Sale Agreement in 2004. But below the Sauls and the Gabeleins took the position that the AVA required proof that Emma was vulnerable when she was allegedly exploited in 2004.
[9] Emma, the Sauls, and the Gabeleins assert the relevant time period was when the purchase agreement for the third sale was signed on June 15, 2004. Ron and Don assert the last exploitation occurred at the closing on May 16, 2005. Because substantial evidence supports finding Emma incapacitated before June 2004, we need not resolve the parties' disagreement about the relevant time period.
[10] The court expressly found the psychologist's report of Emma's statement credible.
[11] Emma, the Sauls, and the Gabeleins also contend that only the donor may challenge the transaction and that White only applies to a rescission action. But the holding in White is not limited to actions by donors to rescind. See Matter of Estate of Eubank, 50 Wash.App. 611, 619-20, 749 P.2d 691 (1988); Lewis, 45 Wash.App. at 388-89, 725 P.2d 644.
[12] Samantha's testimony also supports the challenged finding that Samantha knew Emma did not know the value of the property.
[13] This challenged finding is supported by substantial evidence. The property was assessed at $195,524 in 2001, and an appraisal showed the land alone was worth at least $300,000 two years after the Sauls bought it.
[14] The court's finding that the appraisal Ron and Don submitted was more credible is unchallenged. According to that appraisal, the five acres was worth $324,000 in June 2004.
[15] Because the findings, conclusions, and protective order only relate to the 2004 real estate transaction, we need not address challenges to the findings and conclusions related to the first sale to Dina Thompson and her spouse, who are not parties to this action nor subject to the protective order.
[16] The White court also distinguished inter vivos gifts from will contests. In will contests, the initial burden is on the party challenging the testamentary gift. By contrast, with an inter vivos gift the' donor "strips himself of that which he can still enjoy and of which he may have need during his life. . . ." White, 33 Wash.App. at 371, 655 P.2d 1173 (quoting Whalen v. Lanier, 29 Wash.2d 299, 312, 186 P.2d 919 (1947)).
[17] The court rejected the testimony that. Emma approached the Sauls. The trial court relied on Emma's statement to the psychologist that the Sauls asked her to sell them property and "she agreed. . . ." And in the protection order hearing, Emma again stated that the Sauls "c[a]me and asked" about buying the property.
[18] Because the trial court found Sandy Fisher's testimony about the sale in 2004 noncredible, Emma, the Sauls, and the Gabeleins assert substantial evidence does not support the trial court's finding that the conversation occurred. But while the court rejected Sandy Fisher's testimony that Emma was not exploited in the 2004 sale as not credible, the court expressly found her testimony about the conversation with Vernon was credible.
[19] Former RCW 74.34.020(2)(d).
[20] Emma, the Sauls, and the Gabeleins argue that because Shorty always controlled the finances, Emma never had a chance to sell anything or give expensive gifts before he died. But for at least the first three years after Shorty died, Emma continued to live very frugally and did not sell any property. The largest gift Ron remembered Emma ever giving was $75 to her sister Annie on her 75th birthday in 2000.
[21] Because we affirm, we also conclude the trial court did not abuse its discretion in awarding Ron and Don attorney fees under RCW 11.96A.150 and RCW 74.34.130. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2633704/ | 176 P.3d 510 (2008)
Joseph KWIATKOWSKI, Appellant,
v.
Ralph DREWS, James Frost, Seattle First National Bank (Bank of America), Puget Sound National Bank (Key Trust Company), and U.S. Bank Department, Respondents.
In the Matter of the Guardianship of Joseph Kwiatkowski, An incapacitated person.
Nos. 31738-9-II, 31741-9-II.
Court of Appeals of Washington, Division 2.
January 8, 2008.
*513 Robin H. Balsam, Balsam McNallen LLP, Tacoma, WA, for Appellant.
Matthew Bryan Edwards, Owens Davies PS, Olympia, WA, for Defendant.
Lisa Ann Liekhus, Law Offices of Steven L. Abel, Bothell, WA, Mary C. Eklund, Eklund Rockey Stratton PS, Catherine Wright Smith, Edwards Sieh Smith & Goodfriend PS, Michael Edward Kipling, Kipling Law Group PLLC, Matthew Turetsky, Averil Budge Rothrock, Christopher Holm Howard, Schwabe Williamson & Wyatt, P.C., Greg Montgomery, Miller Nash LLP, Seattle, for Respondents.
BRIDGEWATER, P.J.
¶ 1 Joseph Kwiatkowski appeals: (1) the trial court's order granting the three defendant banks' motion to enforce a settlement agreement; (2) the trial court's summary judgment dismissal of his damages claims against the three banks that served as successive guardians/limited guardians of his estate during his 15-year period of incapacity and against the two "special administrators" of his business interests, one who also, acted as a limited guardian of his estate; (3) the trial court's denial of his motions to set aside the guardianship court's orders related to the discharge of the various guardians/limited guardians of the estate and for accountings; and (4) the trial court's denial of his motion to amend his complaint and add parties brought after the trial court granted summary judgment to all defendants. He also. challenges various attorney fees and cost awards on numerous grounds. We affirm.
FACTS
¶ 2 Kwiatkowski appeals several trial court orders and summary judgment dismissals in his damages action against several parties who, at various times, served as guardians or limited guardians of his estate and/or "special administrators" of his business during a term of incapacity from 1986 to 2001. He also appeals the denial of his motions to set aside various orders entered in the underlying guardianship case. Because of our disposition, it is unnecessary to set out all the facts, other than the procedural facts that we address below.
¶ 3 In 1986, while vacationing in New Zealand, Kwiatkowski suffered a head injury in a car accident; later, he was determined to be incapacitated. His wife, Jana Kwiatkowski, died in the accident. That same year, the guardianship court appointed Bank of America (BOA), formerly Seattle First National Bank, as "guardian" of Kwiatkowski's estate. At the same time, the guardianship court appointed a guardian ad litem (GAL) for Kwiatkowski,
¶ 4 In 1990, the guardianship court appointed Ralph Drews and James Frost as "special administrators" of Kwiatkowski's company, the. Great American Herb Company (GAHC), while ensuring that BOA did not have any ability to manage the company.[1] Specifically, the guardianship court ordered that BOA was a limited guardian and that it was "exonerated from any and all liability in connection with the operations of the company." CP at 22. Kwiatkowski's GAL approved this order.
¶ 5 In 1991, Kwiatkowski's GAL petitioned for a change of guardianship in the estate. The guardianship court: granted this petition; discharged BOA; and later appointed Puget sound National Bank (PSNB), which later became Key Trust Company (Key Bank), as limited guardian. The guardianship court eventually discharged Key Bank and then appointed U.S. Bank as limited guardian.
¶ 6 In 1997, the guardianship court discharged U.S. Bank and appointed Drews as limited guardian of Kwiatkowski's estate. After finding that Kwiatkowski was capable of managing his company, the guardianship court discharged Drews and Frost as "special administrators" of GAHC and discharged Kwiatkowski's GAL. Nevertheless, Drews remained as limited guardian of Kwiatkowski's *514 estate, to oversee Kwiatkowski in his business relationships. In 2001, the guardianship court terminated this limited guardianship because Kwiatkowski had regained full capacity. And in 2002, Drews filed his final report as limited guardian of the estate.
¶ 7 In 2004, Kwiatkowski filed a claim for damages against. Drews, Frost, and the Banks,[2] alleging three categories of claims: (1) breach of fiduciary duty, against all defendants; (2) negligence, against all defendants; and (3) conflict of interest, against only Drews and Frost. Each claim included several allegations regarding the defendants' actions pertaining to Jana Kwiatkowski's estate and Kwiatkowski's guardianship, as well as regarding the defendants' various capacities pertaining to GAHC. Among other things, Kwiatkowski alleged that he had suffered "financial and personal damages," including the loss of his company, and he claimed that the defendants were jointly and severally liable. CP at 221.
¶ 8 In April 2004, the trial court granted summary judgment for Drews and Frost, dismissing the claims against them. The trial court then denied Kwiatkowski's subsequent motion to set aside the 1997 order discharging the "special administrators," noting that it had already granted summary judgment to Drews and Frost in this action. Kwiatkowski subsequently filed in this court a timely motion for discretionary review/notice of appeal of: (1) the order granting summary judgment for Drews and Frost; and (2) the order denying the motion to set aside the prior order and for an accounting. We stayed the matter pending resolution of other issues in the case.
¶ 9 In June 2004, the trial court granted the Banks' motions for summary judgment, dismissing all the claims against the Banks with prejudice. In relation to the Banks, the trial court again denied Kwiatkowski's motion to set aside the prior orders and for an accounting.[3] Although the trial court initially denied the Banks' requests for attorney fees and costs, on reconsideration it granted attorney fees and costs to the Banks.
¶ 10 In January 2005, Kwiatkowski entered into a settlement agreement with the Banks, wherein he agreed to waive his right to appeal the summary judgment dismissals in favor of the Banks and the Banks agreed to waive their rights to seek attorney fees and costs.[4] After Kwiatkowski signed the settlement agreement, but before he filed the stipulated order of dismissal, one of his attorneys discovered what she believed was "new" information pertaining to the Banks' performance of their duties; and she asked the Banks to "hold further work" on the settlement agreement. CP at 937, 964-65, 978-79, 3000. The Banks responded by filing a motion to enforce the settlement agreement.
¶ 11 Following several hearings in which Kwiatkowski challenged the validity and enforceability of the settlement agreement on a variety of grounds, and several additional rounds of discovery, the trial court granted the Banks' motion to enforce the settlement agreement, filing its order in March 2006. Additionally, in May 2006, the trial court granted attorney fees and costs to BOA and Key Bank, in the amount of $65,823.98 and $32,198.08, respectively.
¶ 12 Meanwhile, in May 2006, Kwiatkowski filed a motion to amend his complaint and to add the following parties: (1) Arthur Davies[5] ; (2) the attorney for the estate; (3) some of the guardians; (4) Drews and Frost as special administrators; and (5) Davies's law firm. The trial court denied this motion in June 2006.
*515 ¶ 13 Kwiatkowski appealed. Thereafter, we lifted the stay on his prior notice of discretionary review/notice of appeal, and consolidated the two appeals.
ANALYSIS
I. Issues Related to the Banks
A. Order Enforcing Settlement Agreement and Summary Judgment Orders
1. Related Facts
¶ 14 The negotiated settlement agreement with the Banks included paragraph five, which provides:
5. Each party acknowledges that it has had the opportunity to conduct an investigation into the facts and evidence relating to the Released Claims and that it has made an independent decision to enter this AGREEMENT, without relying on representations of any other party. Each party assumes the risk that the facts or evidence may turn out to be different than it now understands them to be and agrees to be bound by this AGREEMENT notwithstanding the discovery of new or different facts or evidence.
CP at 942. According to this provision, the parties: (1) had the opportunity to conduct an investigation; (2) had made an independent decision to enter into the settlement agreement without relying on representations from any other party; (3) each assumed the risk that the facts and/or evidence could differ from what they understood at the time they entered into the settlement agreement; and (4) were bound by the settlement agreement, "notwithstanding the discovery of new or different facts or evidence." CP at 942.
¶ 15 After Kwiatkowski signed the settlement agreement, his attorney forwarded it to the Banks for their signatures. But before Kwiatkowski filed the stipulated order of dismissal, Robin Balsam, another attorney representing. Kwiatkowski in a different matter, discovered documents that she considered to be "new" evidence relevant to the damages claims. She also believed that the Banks had not disclosed this information to the guardianship court or to Kwiatkowski during the settlement agreement negotiations.
¶ 16 On April 12, 2005, apparently unaware that Kwiatkowski had already signed the settlement agreement, Balsam contacted Michael Schein, the attorney representing Kwiatkowski in this matter, and asked him to talk to her before proceeding with the settlement agreement negotiations. On April 13, 2005, the last of the Banks apparently signed the settlement agreement, Meanwhile, Balsam obtained copies of the recently discovered documents[6] on April 21, 2005, and sent them to Schein the same day. Kwiatkowski's attorneys later asserted that the only documents they examined during the settlement agreement negotiations were the documents in the guardianship court's files.
¶ 17 On May 2, 2005, the Banks' attorneys signed the stipulation and order required under the settlement agreement and forwarded it to Schein for his signature. Kwiatkowski did not file the stipulated order. Instead, on May 4, 2005, Balsam informed the Banks that she now represented Kwiatkowski in this matter and requested that the Banks "hold further work" on the settlement agreement to allow her time to investigate the "newly discovered" information.[7] CP at 937, 964-65, 978-79, 3000.
¶ 18 The Banks received Schein's notice of withdrawal the next day.[8] But the Banks did not directly respond to Balsam's request. Instead, on May 12, 2005, they filed a motion to enforce the settlement agreement.
¶ 19 Kwiatkowski responded that the Banks' motion to enforce was premature and that, under the terms of the settlement agreement, the Banks had brought the action to enforce the settlement agreement in the *516 wrong forum. He also asserted that even if the motion to enforce the settlement agreement was not premature and was filed in the proper forum, he was entitled to rely exclusively on the materials in the guardianship court files when moving for summary judgment and when negotiating the settlement agreement because, due to their continuing "special relationship" as guardian of his estate, the Banks were required to file these documents in the guardianship and/or disclose them during the settlement negotiations. Based on this premise, he argued that the settlement agreement was not enforceable because: (1) of fraud in the inducement to contract and/or innocent, negligent, or reckless misrepresentation; (2) the Banks had breached their fiduciary duties by failing to disclose all relevant documents when they acted as limited guardians of Kwiatkowski's estate; (3) the Banks had breached the implied duty of good faith and fair dealing present in all contracts by failing to disclose all relevant documents before the creation of the contract; and (4) the Banks had unclean hands.
¶ 20 The Banks replied, inter alia, that: (1) under paragraph five of the settlement agreement, Kwiatkowski accepted the risk that there was other evidence supporting his underlying claims; (2) the information that Kwiatkowski's attorney found was not "new" evidence; and (3) there was no evidence of fraud in the inducement.
¶ 21 In early June 2005, the trial court granted Kwiatkowski's requests: (1) to continue the hearing on the Banks' motion to enforce; and (2) to conduct additional discovery to determine whether the Banks had failed to disclose facts that would render the settlement agreement unenforceable. On September 15, 2005, after conducting this additional discovery, Kwiatkowski filed statements of "irregularities" with numerous attachments pertaining to each Bank, alleging that: (1) he had discovered additional documents demonstrating that the Banks failed to' properly execute their duties as guardians and/or limited guardians of his estate and failed to file numerous documents potentially relevant to their performance as guardians and/or limited guardians; (2) excessive fees were paid to the "special administrators"; and (3) the Banks failed to "monitor" his business. These documents all related to matters that occurred during Kwiatkowski's period of incompetence. None of these documents was directly relevant to the settlement agreement negotiations.
¶ 22 The Banks asserted that Kwiatkowski had failed to establish that the settlement agreement was not enforceable, arguing that: (1) nothing he presented in his statements of irregularities was unknown to his counsel or not present in the court files before negotiating the settlement agreement; (2) he was merely trying to reargue his summary judgment motions after failing to conduct an adequate discovery before summary judgment; (3) there was no special relationship or fiduciary duty between the Banks and Kwiatkowski when they negotiated the settlement agreement, and they were in fact in an adversarial relationship at that time; and (4) Kwiatkowski negotiated and signed the settlement agreement while competent and with the advice of counsel. In addition, the Banks argued that Kwiatkowski had failed to show fraud or misrepresentation in relation to the settlement agreement and that, in paragraph five of the agreement, he specifically assumed the risk that he would discover additional information. Finally, the Banks requested attorney fees and costs for responding to the motion for continuance, the motions for additional discovery and discovery requests, and Kwiatkowski's statements of irregularities.
¶ 23 Kwiatkowski replied by reasserting his previous arguments and claiming that Donna Holt, the attorney who represented him during the summary judgment phase of the proceedings, had been unable to conduct full discovery during this time because the trial court had granted summary judgment to one or more parties before discovery was complete. But, as the trial court noted, although the record showed that Holt did not receive some records due to a dispute over who would pay for copying the documents, there was nothing in the record showing that she requested additional time for discovery or that she asserted discovery was incomplete *517 during any of the summary judgment proceedings.
¶ 24 In an oral ruling, the trial court held that the settlement agreement was valid and enforceable. It noted that, when the parties negotiated the settlement agreement, Kwiatkowski was not incapacitated and was represented by counsel. The trial court also noted that Kwiatkowski had specifically waived his right to rely on information discovered after signing the agreement.
¶ 25 Kwiatkowski moved for reconsideration of the oral ruling under CR 59(a)(4) ("Newly discovered evidence, material for the party making the application, which he could not with reasonable diligence have discovered and produced at the trial"), CR 59(a)(8) ("Error in law occurring at the trial and objected to at the time by the party making the application"), and CR 59(a)(9) ("That substantial justice has not been done"). In effect, he reasserted his earlier arguments, claiming, once again, that he had reasonably relied exclusively on the guardianship court files. He also asserted that the Banks, or apparently their attorneys, had violated the rules of professional conduct (RPC) by failing to file complete and accurate information with the court. Kwiatkowski also requested an evidentiary hearing, apparently to evaluate whether the information he found during his additional discovery demonstrated that the Banks had withheld or misrepresented facts to the court during the guardianship proceedings. The Banks responded by reasserting their earlier arguments.
¶ 26 Although it arguably acknowledged that the settlement agreement was enforceable, the trial court stated that there appeared to be a factual dispute related to some of the alleged "irregularities" and granted Kwiatkowski's request for a "full blown evidentiary hearing." RP (Nov. 7, 2005) at 62. On March 20, 2006, the trial court heard argument on the "renewed" motion to enforce the settlement agreement. CP at 2460, 2463.
¶ 27 At this hearing, the Banks reasserted that Kwiatkowski had waived his right to rely on information discovered after he signed the settlement agreement and that Kwiatkowski had assumed the risk there was additional evidence of which he was unaware. The Banks also argued that his fraud claim had no merit because paragraph five stated that none of the parties had relied on any representations by the other parties. The Banks also argued that no evidentiary hearing was required because there were no disputed facts relating to the enforceability of the settlement agreement. Again, Kwiatkowski reasserted his earlier arguments, arguing that given the fiduciary relationship and the general duty of fair dealing, he reasonably relied on the guardianship court files. Finally, the trial court granted the Banks' motion to enforce the settlement agreement.
2. Discussion
¶ 28 Kwiatkowski now argues that the trial court erred when it found that the settlement agreement was not unenforceable for the following reasons: (1) he reasonably relied an the guardianship court files because the Banks were acting in a fiduciary capacity when they collected the undisclosed information and therefore had a duty to disclose this information to the guardianship court; (2) the Banks had a continuing fiduciary duty to him that required them to disclose the documents he later found during the settlement, agreement negotiations; (3) the Banks breached their contractual duty of good faith and fair dealings when negotiating the settlement agreement by not affirmatively disclosing all of the information his counsel later discovered; (4) the Banks engaged in fraud or misrepresentation by not disclosing all of the information his counsel later discovered; (5) equitable estoppel precluded the Banks from enforcing the settlement agreement because enforcement would allow them to benefit from their failure to comply with their fiduciary duties; and (6) the Banks' attorneys violated RPC 3.3 and RPC 4.1. None of these arguments has merit. In addition, he argues that the trial court erred when it did not conduct a full evidentiary hearing to resolve material facts related to the enforceability and validity of the settlement agreement or his "defenses" to enforcement of the agreement. This argument also lacks merit.
*518 ¶ 29 We review a trial court's order enforcing a settlement agreement de novo if "the evidence before the trial court consisted entirely of affidavits and the proceeding is similar to a summary judgment proceeding." Brinkerhoff v. Campbell, 99 Wash.App. 692, 696, 994 P.2d 911 (2000); see also Lavigne v. Green, 106 Wash.App. 12, 16, 23 P.3d 515 (2001). But if there are disputed facts, a trial court may abuse its discretion if it enforces the settlement agreement without first holding an evidentiary hearing to resolve any disputed issues of fact. Brinkerhoff 99 Wash.App. at 696, 994 P.2d 911.
¶ 30 Kwiatkowski's assertion that he reasonably relied solely on the guardianship court's file when negotiating the settlement agreement because the Banks had a fiduciary duty to file all material information with the guardianship court has no merit under these circumstances. When Kwiatkowski filed his 2004 damages claim, he placed the Banks' performance of their fiduciary duty, the very duty he now asserts required the Banks to file the materials he later discovered, at issue, and created an adversarial relationship between him and the Banks. As a matter of law, Kwiatkowski cannot assert that he reasonably relied on the Banks' performance of their fiduciary duties when whether the Banks breached their fiduciary duties was the very issue being resolved in the adversarial relationship. See Guarino v. Interactive Objects, Inc., 122 Wash.App. 95, 122, 86 P.3d 1175 (2004) (discussing and stating in dicta that it "[does] not disagree" with conclusion in Mergens v. Dreyfoos, 166 F.3d 1114, 1118 (11th Cir.), cert. denied, 528 U.S. 820, 120 S. Ct. 63, 145 L. Ed. 2d 55 (1999)), which held that in the context of a contentious adversarial relationship, reliance on misrepresentations or omissions is unreasonable as a matter of law between the parties negotiating a settlement agreement, review denied, 153 Wash.2d 1024, 110 P.3d 756 (2005).
¶ 31 Similarly, Kwiatkowski's argument that the Banks had a continuing fiduciary duty when negotiating the settlement agreement is also clearly without merit. Kwiatkowski, who had regained full competency and was represented by attorneys when he filed his damages claim and negotiated the settlement agreement, created an adversarial relationship with the Banks when he sued the Banks for damages. In addition, the parties were clearly in an adversarial relationship when they were negotiating a settlement agreement that would relieve Kwiatkowski from having to pay significant costs and fees and that would benefit the Banks by precluding Kwiatkowski from appealing the orders in their favor. These negotiations simply did not take place in a context suggesting that the Banks were in anyway still acting as guardians or any other type of fiduciary in respect to Kwiatkowski.
¶ 32 Nor does Kwiatkowski's assertion that the Banks breached the duty of good faith and fair dealing inherent in contracts have any merit. Every contract contains an implied duty of good faith and fair dealing, but this duty of good faith and fair dealing "obligates the parties to cooperate with each other so that each may obtain the full benefit of performance"; but performance of the agreement is not at issue here. Badgett v. Sec. State Bank, 116 Wash.2d 563, 569, 807 P.2d 356 (1991) (citing Metro. Park Dist. v. Griffith, 106 Wash.2d 425, 437, 723 P.2d 1093 (1986); Lonsdale v. Chesterfield, 99 Wash.2d 353, 357, 662 P.2d 385 (1983); Miller v. Othello Packers, Inc., 67 Wash.2d 842, 844, 410 P.2d 33 (1966)).
¶ 33 Furthermore, Kwiatkowski's reliance on Liebergesell v. Evans, 93 Wash.2d 881, 613 P.2d 1170 (1980), which he asserts demonstrates that the duty of good faith and fair dealing applies in contract negotiations where there is an existing fiduciary duty between the parties or where one of the parties has superior knowledge, does not alter this conclusion. In Liebergesell, the issue was whether one of the parties was estopped from asserting a usury defense and the contract negotiations at issue were the contract negotiations relevant to the issues on appeal. Here, in contrast, the negotiations at issue when the Banks moved to enforce the settlement agreement were distinct from the underlying substantive issues, and Kwiatkowski does not show that the Banks had an ongoing fiduciary duty to him during the settlement agreement negotiations.
*519 ¶ 34 Kwiatkowski's fraud, misrepresentation, and equitable estoppel arguments also have no merit. To establish intentional, negligent, or innocent misrepresentation; fraud; or estoppel, Kwiatkowski must show that he reasonably or justifiably relied on the truth of the Banks' representations, if any. Alejandre v. Bull, 159 Wash.2d 674, 690, 153 P.3d 864 (2007) (citing Williams v. Joslin, 65 Wash.2d 696, 697, 399 P.2d 308 (1965)); Sorenson v. Pyeatt, 158 Wash.2d 523, 538-39, 146 P.3d 1172 (2006); Van Dinter v. Orr, 157 Wash.2d 329, 333, 138 P.3d 608 (2006) (citing Lawyers Title Ins. Corp. v. Balk, 147 Wash.2d 536, 545, 55 P.3d 619 (2002)); W. Coast, Inc. v. Snohomish County, 112 Wash.App. 200, 206, 48 P.3d 997 (2002). But Kwiatkowski specifically agreed in paragraph five of the settlement agreement that he did not rely on any representations by any other party when negotiating the settlement agreement. Furthermore, as discussed above, any such reliance would have been unreasonable.
¶ 35 As to his assertion that the Banks' attorneys violated the RPCs by failing to file required documents, the RPCs do not purport to set the standard for civil liability. Hizey v. Carpenter, 119 Wash.2d 251, 258, 830 P.2d 646 (1992).
¶ 36 In summary, paragraph five of the settlement agreement specifically precluded Kwiatkowski from relying on newly disclosed or discovered information, and he presents nothing establishing that this clause of the agreement was invalid. Nor does he present any evidence establishing that the settlement agreement was otherwise invalid or unenforceable. Accordingly, Kwiatkowski does not show that the trial court erred when it found that the settlement agreement was valid and enforceable. Thus, according to the terms of the agreement, Kwiatkowski cannot challenge the summary judgments dismissing his claims against the Banks and we need not address the issues he raises in relation to those orders.
¶ 37 Finally, Kwiatkowski fails to show that there were any disputed facts, beyond those he claims were based on the new or newly discovered evidence, that related to the enforceability of the settlement agreement. Given there was no relevant factual dispute, the trial court did not abuse its discretion by enforcing the settlement agreement without first holding an evidentiary hearing. Brinkerhoff 99 Wash.App. at 696, 994 P.2d 911.
B. Denial of Motion to Set Aside Orders Discharging Banks
¶ 38 Kwiatkowski also challenges the trial court's order denying his motion to set aside the guardianship court's December 26, 1989; September 16, 1991; February 18, 1994; and April 25, 1997 orders discharging the Banks and his request for a full accounting. The settlement agreement precludes Kwiatkowski from raising this issue.
¶ 39 On May 21, 2004, Kwiatkowski moved to set aside the orders discharging the Banks and for a full accounting, asserting that the December 26, 1989; September 16, 1991; February 18, 1994; and April 25, 1997 orders were void due to a lack of notice and a failure to follow a variety of statutory procedures. On June 14, 2004, the trial court denied Kwiatkowski's motions to set aside the orders relating to the Banks.
¶ 40 The settlement agreement purported to apply to "all claims asserted in, or that could have been asserted in, the matter of Joseph Kwiatkowski v. Ralph Drews, et al., Thurston County Superior Court Cause No. 04-2000124-0 (`Litigation')." CP at 941. It also provided:
3. In further consideration of the promises of the parties set forth herein, each party hereto fully and completely releases and waives any and all claims it may have against any other party hereto, . . . (other than Defendants Drews and Frost) . . . relating to arising from the facts and circumstances alleged in the complaint filed in the Litigation and the role of any of the Defendant Banks in the Estate of Jana Kwiatkowski and the Estate of Joseph Kwiatkowski ("Released Claims").
4. With the exception of the July 7, 2004 Order referred to in paragraph 1 *520 above,[[9]] all court orders relating to the Defendant Banks entered in this Litigation or in the underlying guardianship/estate proceedings of Jana Kwiatkowski and Joseph Kwiatkowski shall remain in full force and effect including, but not limited to, those orders appointing the Defendant Banks limited guardians and those orders discharging them from this role in the Joseph Kwiatkowski proceedings.
CP at 941-42 (emphasis added).
¶ 41 Paragraph four of the settlement agreement clearly states that all orders relating to the Banks "in the underlying guardianship/estate proceedings" will remain in full force and effect. CP at 942. Thus, under the terms of the agreement, Kwiatkowski cannot challenge the prior orders discharging the Banks.
¶ 42 In summary, Kwiatkowski did not present any evidence establishing that paragraph five was not valid or that the settlement agreement, as a whole, was not otherwise enforceable. Accordingly, the trial court properly enforced the settlement agreement, and we need not address Kwiatkowski's challenges to the Banks' summary judgment orders.
II. Issues Related to Drews and Frost
¶ 43 Kwiatkowski also challenges: (1) the trial court's orders granting Drews and Frost summary judgment; and (2) trial court's order denying his motion to set aside the August 15, 1997 order discharging Drews and Frost as "special administrators" and for a full accounting.[10] He argues that the trial court erred when it found that his claims were barred by the guardianship statutes of limitations, asserting that there were no valid orders discharging Drews and Frost in their capacity as "special administrators" or Drews in his later capacity as limited guardian of the estate.
A. Standard of Review
¶ 44 On an appeal from summary judgment, we engage in the same inquiry as the trial court. Hisle v. Todd Pac. Shipyards Corp., 151 Wash.2d 853, 860-61, 93 P.3d 108 (2004) (citing Kruse v. Hemp, 121 Wash.2d 715, 722, 853 P.2d 1373 (1993)). The standard of review is de novo.
¶ 45 Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR 56(c). We construe all facts and reasonable inferences therefrom in the light most favorable to the nonmoving party. Vallandigham v. Clover Park Sch. Dist. No. 400, 154 Wash.2d 16, 26, 109 P.3d 805 (2005) (citing Atherton Condo. Apartment-Owners Ass'n Bd. of Dirs. v. Blume Dev. Co., 115 Wash.2d 506, 516, 799 P.2d 250 (1990)). But "bare assertions that a genuine material [factual] issue exists will not defeat a summary judgment motion in the absence of actual evidence." Trimble v. Wash. State Univ., 140 Wash.2d 88, 93, 993 P.2d 259 (2000). And we may sustain the trial court on any correct ground, even though that ground was not considered by the trial court. Nast v. Michels, 107 Wash.2d 300, 308, 730 P.2d 54 (1986); see also State v. Costich, 152 Wash.2d 463, 477, 98 P.3d 795 (2004).
B. "Special Administrators" vs. Limited Guardians
¶ 46 As a preliminary matter, Kwiatkowski argues that Drews and Frost were not actually appointed as "special administrators" but were, instead, acting as limited guardians of his business assets and, therefore, subject to the guardianship statutes. *521 Although this characterization of their roles may be correct,[11] it is irrelevant here.
¶ 47 RCW 11.96A.070(2) provides that any action for breach of fiduciary duty against a "personal representative," which includes those acting as "special administrators," guardians, or limited guardians, RCW 11.02.005(1), must be brought before the court discharges the personal representative.[12] Thus, whether Drews and Frost were acting as "special administrators" or limited guardians of Kwiatkowski's business assets, RCW 11.96A.070(2) applies.
C. RCW 11.96A.070(2), RCW 11.92.050, and RCW 11.92.053
¶ 48 As noted above, RCW 11.96A.070(2) (addressing statutes of limitations) provides that any action for breach of fiduciary duty against a "personal representative," which includes those acting as "special administrators," guardians, or limited guardians, RCW 11.02.005(1), must be brought before the court discharges the personal representative.
¶ 49 Additionally, RCW 11.92.050(1), which applies to intermediate orders approving accounts, provides:
Upon the filing of any intermediate guardianship or limited guardianship account required by statute, or of any intermediate account required by court rule or order, the guardian or limited guardian may petition the court for an order settling his or her account with regard to any receipts, expenditures, and investments made and acts done by the guardian or limited guardian to the date of the interim report. Upon such petition being filed, the court may in its discretion, where the size or condition of the estate warrants it, set a date for the hearing of the, petition and require the service of the petition and a notice of the hearing as provided in RCW 11.88.040 as now or hereafter amended; and, in the event a hearing is ordered, the court may also appoint a guardian ad litem, whose duty it shall be to investigate the report of the guardian or limited guardian of the estate and to advise the court thereon at the hearing, in writing. At the hearing on the report of the guardian *522 or limited guardian, if the court is satisfied that the actions of the guardian or limited guardian have been proper, and that the guardian or limited guardian has in all respects discharged his or her trust with relation to the, receipts, expenditures, investments, and acts, then, in such event, the court shall enter an order approving such account. If the court has appointed a guardian ad litem, the order shall be final and binding upon the incapacitated person, subject only to the right of appeal as upon a final order; provided that at the time of final account of said guardian or limited guardian or within one year after the incapacitated person attains his or her majority any such interim account may be challenged by the incapacitated person on the ground of fraud.
(Emphasis added).
And RCW 11.92.053 provides:
Within ninety days after the termination of a guardianship for any reason, the guardian or limited guardian of the estate shall petition the court for an order settling his or her account as filed in accordance with RCW 11.92.040(2) with regard to any receipts, expenditures, and investments made and acts done by the guardian to the date of the termination. Upon the filing of the petition, the court shall set a date for the hearing of the petition after notice has been given in accordance with RCW 11.88.040. Any person interested may file objections to the petition or may appear at the time and place fixed for the hearing thereof and present his or her objections thereto. The court may take such testimony as it deems proper or necessary to determine whether an order settling the account should be issued and the transactions of the guardian be approved, and the court may appoint a guardian ad litem to review the report.
At the hearing on the petition of the guardian or limited guardian, if the court is satisfied that the actions of the guardian or limited guardian have been proper, and that the guardian has in all respects discharged his or her trust with relation to the receipts, expenditures, investments, and acts, then, in such event, the court shall enter an order approving the account, and the order shall be final and binding upon the incapacitated person, subject only to the right of appeal as upon a final order. However, within one year after the incompetent attains his or her majority any such account may be challenged by the incapacitated person on the ground of fraud.
(Emphasis added).
¶ 50 These statutes limit a ward's ability to pursue litigation related to the administration of his estate once the guardianship court has discharged the guardian, limited guardian, or other "personal representative," or approved intermediate accountings. We hold that these statutes apply; Kwiatkowski clearly brought his 2004 breach of fiduciary duty claims against Drews and Frost as "special administrators" well outside these limits and, given the discharge of liability in the August 15, 1997 discharge order, his other claims against the "special administrators" are also barred. Thus, the real issue here is whether the August 15, 1997 discharge order is valid.
D. August 15, 1997 Discharge Order
¶ 51 The August 15, 1997 order approving the final report of the "special administrators" final report contained the following discharge statement:
IT IS HEREBY ORDERED that the Final Report of Special Administrators has been accepted by the Court and is approved in all respects and that James M. Frost and Ralph H. Drews are hereby discharged from the office of Special Administrator and from any and all liability in connection with their duties as Special Administrators.
CP at 394 (emphasis added). Thus, if the August 15, 1997 discharge order is valid and final, Kwiatkowski cannot pursue his claims against Drews and Frost as special administrators.
¶ 52 Kwiatkowski initially contends that Drews and Frost cannot assert that the August 15, 1997 order discharging them as "special administrators" relieved them of any liability in connection with their fiduciary *523 duties to him as "special administrators" because "[f]ailure to fully account in a manner as other fiduciary administrators or to obtain court approval for their fees renders the orders they received null and void." Br. of Appellant at 20. He further argues that: (1) the guardianship court gave Drews and Frost authority in excess of that authorized by RCW 11.32.030, which defines the powers and duties of a special administrator; (2) Drews and Frost were actually "de facto guardians," Br. of Appellant at 21; (3) Drews and Frost's accountings failed to comply with RCW 11.32.060[13] and RCW 11.92.040[14]; and (4) Drews and Frost failed to disclose financial data related to their fees to the guardianship court and/or the GAL. He also asserts that Drews and Frost "fail[ed] to fulfill their duties as fiduciaries," Br. of Appellant at 5, and failed to disclose material facts related to GAHC to Kwiatkowski, the guardianship court, and the GAL. These arguments all address Kwiatkowski's substantive claims; but they do not relate to whether the August 15, 1997 discharge order was valid, and we do not address them.
¶ 53 Kwiatkowski also contends, however, that: (1) the August 15, 1997 discharge order was void because Drews and Frost failed to give the required notice apparently referring to the notice requirements or RCW 11.88.040; (2) the order entered on their final accounting was void because they were ex parte orders; and (3) the order was invalid because the GAL waived his presence.
¶ 54 The notice provisions of RCW 11.88.040, which arguably apply to the discharge of guardians through RCW 11.92.050 or RCW 11.92.053, provides in part:
Before appointing a guardian or a limited guardian, notice of a hearing, to be held not less than ten days after service thereof, shall be served personally upon the alleged incapacitated person, if over fourteen years of age, and served upon the guardian ad litem.
Before appointing a guardian or a limited guardian, notice of a hearing, to be held not less than ten days after service there of, shall be given by registered or certified mail to the last known address requesting a return receipt signed by the addressee or an agent appointed by the addressee, or by personal service in the manner provided for services of summons, to the following:
(1) The alleged incapacitated person, or minor . . . ;
. . .
(3) Any other person who has been appointed as guardian or limited guardian, or the person with whom the alleged incapacitated person resides. No notice need be given to those persons named in subsection[] . . . (3) of this section if they . . . have waived notice of the hearing.
(4). . . .
The alleged incapacitated person shall be present in court at the final hearing on the petition: PROVIDED, That this requirement may be waived at the discretion of the court for good cause other than mere inconvenience shown in the report to be provided by the guardian ad litem pursuant to RCW 11.88.090 as now or hereafter amended, or if no guardian ad litem is required to be appointed pursuant to RCW 11.88.090, as now or hereafter amended, at the discretion of the court for good cause shown by a party. Alternatively, the court may remove itself to the place of residence of the alleged incapacitated person and conduct the final hearing in the presence of the alleged incapacitated person. Final hearings on the petition may be held in closed court without admittance of any person other than those necessary to the action or proceeding.
If presence of the alleged incapacitated person is waived and the court does not remove itself to the place of residence of such person, the guardian ad litem shall appear in person at the final hearing on the petition.
¶ 55 But Drews and Frost's August 15, 1997 final report as "special administrators" *524 was in response to Holts's July 29, 1997 motion to show cause, requesting that the guardianship court restore most of Kwiatkowski's rights to manage his estate, which Holt supported with affidavits from Kwiatkowski and Drews. Kwiatkowski, Holt, and Drews, who was then one of the "special administrators," clearly had actual notice of this proceeding.
¶ 56 Although Kwiatkowski's GAL was not present at the August 15, 1997 hearing, there is nothing in the record on appeal affirmatively showing that the GAL did not receive notice of this proceeding, other than Kwiatkowski's bare assertion that he did not, which is not sufficient to overcome summary judgment. Furthermore, under RCW 11.88.040, notice to the GAL is not required if the GAL waived notice of the hearing, which the GAL waived when he signed the order approving the final report of the "special administrators", "Approved as to form; notice of presentation waived." CP at 394. Kwiatkowski does not show how any notice in relation to the discharge of the "special administrators," or the order approving their final report was inadequate. Accordingly, Kwiatkowski does not show that the trial court erred when it denied his motion to set aside the August 15, 1997 order and for an accounting.
¶ 57 Kwiatkowski also appears to argue that the statutes of limitations did not bar his claims because the guardianship court never approved Drews's final accounting in his capacity as limited guardian of the estate, in other words, the final report required in the guardianship. Although we discuss below that this argument may have some merit in relation to the claims against Drews in his capacity as limited guardian of the estate, RCW 11.96A.070(2) still precludes Kwiatkowski from bringing a breach of fiduciary duty claim against the "special administrators" because he failed to do so before the court discharged the "special administrators."
¶ 58 Additionally, because the guardianship court appointed a GAL, the order approving the "special administrators" final report and August 15, 1997 discharge order were final and binding on Kwiatkowski, subject only to the right of appeal as on a final order and therefore not subject to any type of collateral attack. RCW 11.92.050(1) and the discharge clause clearly preclude any claims against them related to their performance of their duties as special administrators. Accordingly, the trial court properly granted summary judgment to Drews and Frost on the claims against them as "special administrators."
III. Drews as Limited Guardian of the Estate
¶ 59 Kwiatkowski also contends that the January 26, 2001 order terminating Drews as limited guardian of his estate was not a "discharge" and that the guardianship court never actually discharged Drews as limited guardian of the estate because there was no order approving, a final accounting and/or Drews did not comply with the conditions of the discharge.
¶ 60 A guardianship may terminate without a court order "[b]y an adjudication of capacity or an adjudication of termination of incapacity." RCW 11.88.140(1)(b). A guardianship also may terminate by court order "after such notice as the court may require if the guardianship or limited guardianship is no longer necessary." RCW 11.88.140(3). Within 30 days of the date of termination by court order, unless the court orders a different deadline, the guardian/limited guardian must prepare and file a "final verified account of administration." RCW 1L88.140(3). The termination, other than by death of the incapacitated person, terminates the guardian or limited guardian's powers except that he may make disbursements for claims allowed by the court, for liability already properly incurred, and for administration expenses. RCW 11.88.140(4).
¶ 61 As noted above, RCW 11.92.053 provides:
Within ninety days after the termination of a guardianship for any reason, the guardian or limited guardian of the estate shall petition the court for an order settling his or her account as filed in accordance with RCW 11.92.040(2)[15] with regard to any *525 receipts, expenditures, and investments made and acts done by the guardian to the date of the termination. Upon the filing of petition, the court shall set a date for the hearing of the petition after notice has given in accordance with RCW 11.88.040. Any person interested may file objections to the petition or may appear at time and place fixed for the hearing thereof and present his or her objections thereto. The court may take such testimony as it deems proper or necessary to determine whether an order settling the account should be issued and the transactions of the guardian be approved, and the court may appoint a guardian ad litem to review the report.
At the hearing on the petition of the guardian or limited guardian,' if the court is satisfied that the actions of the guardian or limited guardian have been proper, and that the guardian has in all respects discharged his or her trust with relation to the receipts, expenditures, investments, and acts, then, in such event, the court shall enter an order approving the account, and the order shall be final and binding upon the incapacitated person, subject only to the right of appeal as upon a final order. However, within one year after the incompetent attains his or her majority any such account may be challenged by the incapacitated person on the ground of fraud.
(Emphasis added). But, as Kwiatkowski notes, it does not appear that the guardianship court filed an order approving Drews's final report as limited guardian of the estate and discharging him from his duties or from any liability related to his performance of those duties. Thus, the trial court erred to the extent it found that the claims against Drews could not stand because the guardianship court had discharged any liability. Additionally, as to the breach of fiduciary duty claim, RCW 11.96A.070(2) also does not bar the action because there was no discharge. Furthermore, assuming the order terminating the guardianship was the earliest possible triggering event, traditional three-year statutes of limitations under RCW 11.96A.070 do not apply because Kwiatkowski filed the 2004 claim less than three years after the guardianship court filed that order. Accordingly, it appears that the trial court erred in granting summary judgment to Drews in his capacity as limited guardian of the estate on grounds related to any discharge or any statutes of limitations.[16]
¶ 62 Nevertheless, we affirm the summary judgment order dismissing the claims against Drews in his capacity as limited guardian of the estate on other grounds. The parties do not discuss, nor did the trial court appear to consider, that Drews's original authority over GAHC's activities as limited guardian of Kwiatkowski's estate was limited and, thus, any activity he engaged in relation to GAHC during that period clearly fell under his role as "special administrator" and the guardianship court subsequently discharged any liability related to Drews's performance in that capacity. Furthermore, when the guardianship court eventually discharged the "special administrators," it simultaneously changed the scope of Drews's duties as limited guardian and restored Kwiatkowski's capacity in relation to his ability to make decisions related to his business. These facts preclude any claim against Drews in relation to GAHC when he was acting in his capacity as limited guardian of the estate because, in that capacity, he had no duties related to the operations of GAHC. Because there was no duty, we affirm summary judgment on the claims against Drews in his capacity as limited guardian of Kwiatkowski's estate on this alternative ground.
*526 IV. Tolling
¶ 63 Kwiatkowski also appears to argue that any statutes of limitations were tolled because he was incapacitated. Citing RCW 11.96A.070(4), Drews and Frost argue that this assertion has no merit because Kwiatkowski was represented by a GAL. Drews and Frost are correct.
¶ 64 RCW 4.16.190 now provides[17]:
(1) Unless otherwise provided in this section, if a person entitled to bring an action mentioned in this chapter, except for "a penalty or forfeiture, or against a sheriff or other officer, for an escape, be at the time the cause of action accrued either under the age of eighteen years, or incompetent or disabled to such a degree that he or she cannot understand the nature of the proceedings, such incompetency or disability as determined according to chapter 11.88 RCW, or imprisoned on a criminal charge prior to sentencing, the time of such disability shall not be a part of the time limited for the commencement of action.
(2) Subsection (1) of this section with respect to a person under the age of eighteen years does not apply to the time limited for the commencement of an action under RCW 4.16.350.
¶ 65 But RCW 11.96A.070(4) provides:
(4) The tolling provisions of RCW 4.16.190 apply to this chapter except that the running of a statute of limitations under subsection (1) or (2) of this section, or any other applicable statute of limitations for any matter that is the subject of dispute under this chapter, is not tolled as to an individual who had a guardian ad litem, limited or general guardian of the estate, or a special representative to represent the person during the probate or dispute resolution proceeding.
Kwiatkowski was represented by a GAL; thus RCW 11.96A.070(4) clearly establishes that tolling does not apply. Furthermore, although the guardianship court removed the initial GAL on August 15, 1997, that court also found that Kwiatkowski had the capacity to manage most of his financial affairs and, to the extent he did not have capacity, Kwiatkowski was still represented by Drews, a limited guardian of the estate. Accordingly, Kwiatkowski cannot claim tolling.
V. Motion to Amend and Add Parties
¶ 66 Kwiatkowski also challenges the trial court's denial of his motion to amend his complaint and add Davies as a party. This argument has no merit.
¶ 67 We review a trial court's denial of a motion to amend pleadings for abuse of discretion. Del Guzzi Constr. Co. v. Global Nw. Ltd., 105 Wash.2d 878, 888, 719 P.2d 120 (1986). CR 15 provides that a party may amend his pleading by leave of the court and leave shall be freely given when justice so requires. See Caruso v. Local Union No. 690 of Int'l Bhd. of Teamsters, 100 Wash.2d 343, 349, 670 P.2d 240 (1983) (leave to amend should be freely given "`except where prejudice to the opposing party would result'") (quoting United States v. Hougham, 364 U.S. 310, 316, 81 S. Ct. 13, 5 L. Ed. 2d 8 (1960)). The trial court may consider such factors as delay, where delay causes unfair surprise. Caruso, 100 Wash.2d at 349, 670 P.2d 240.
¶ 68 In his motion to amend and add Davies and his law firm, filed nearly two years after the trial court dismissed the last defendants on summary judgment, Kwiatkowski asked to amend his complaint based on the additional documents his counsel discovered that were apparently not in the guardianship court file. He contended that he was entitled to add these claims and parties under the "discovery doctrine," apparently referring to either the "discovery rule," which would arguably change the statutes of limitations related to Kwiatkowski's claims, or asserting a claim of newly discovered evidence. CP at 2150.
¶ 69 Regardless of which "doctrine" or "rule" he is asserting, and assuming either applies here, both the discovery rule and a claim of newly discovered evidence would require Kwiatkowski to show that he could not have obtained this information if he had *527 exercised due diligence. See C.J.C. v. Corp. of the Catholic Bishop, 138 Wash.2d 699, 749, 985 P.2d 262 (1999) (discovery rule, which can toll the statutes of limitations, applies only when the "plaintiff lacked the means to ascertain that a wrong had been committed," and operates only if the plaintiff would not have known of the claim even if he or she had exercised due diligence); Ino Ino, Inc. v. City of Bellevue, 132 Wash.2d 103, 140-41, 937 P.2d 154, 943 P.2d 1358 (1997) ("Newly discovered evidence must be that which the moving party `could not with reasonable diligence have discovered and produced at the trial.' CR 59(a)(4)."), cert. denied, 522 U.S. 1077, 118 S. Ct. 856, 139 L. Ed. 2d 755 (1998); Alpine Indus., Inc. v. Gohl, 101 Wash.2d 252, 254-55, 676 P.2d 488 (1984) (to obtain a new trial based on newly discovered evidence under CR 59, the plaintiff must show that he or she could not have discovered the new evidence had he or she exercised due diligence). At most, however, Kwiatkowski asserted that he was entitled to rely on the guardianship file; he never contended, and the record does not show, that he would not have found this information much earlier had he exercised due diligence before the trial court considered the summary judgment motions. As discussed above, relying exclusively on the guardianship file was unreasonable once Kwiatkowski asserted that he had been damaged by the parties' failures to comply with their duties under the guardianship.
¶ 70 Kwiatkowski brought his motion to amend and add parties after the trial court had already granted summary judgment as to all parties and dismissed the claims against them with prejudice. Additionally, he does not establish that his "new" legal arguments could not have been raised earlier had he exercised due diligence before the trial court considered the summary judgment motions. In effect, he is essentially trying to present additional evidence to support his claims, which he could well have discovered if he had conducted virtually any discovery before bringing his damages claim. Furthermore, as to the Banks, any additional claims arising from the same set of facts is barred by the settlement agreement.
VI. Attorney Fees and Costs Below
A. The Banks
¶ 71 To the extent Kwiatkowski is challenging the trial court's 2004 award of attorney fees and costs to the Banks related to their summary judgment motions or Kwiatkowski's motions to set aside the guardianship court's orders related to the Banks, the settlement agreement provides that the stipulated order dismissing the claims against the Banks with prejudice is "without fees and costs to any party." CP at 942; see also CP at 948.[18] Because we affirm the order granting the Banks' motion to enforce the settlement agreement, we need not examine any arguments related to these 2004 attorney fees and costs.
¶ 72 As to the attorney fees and costs related to the Banks' motion to enforce the settlement agreement, Kwiatkowski appears to contend that it was inequitable to award the. Banks fees because the "newly discovered evidence" demonstrated that the Banks breached their fiduciary duties by failing to properly report or disclose evidence to the guardianship court. Br. of Appellant at 93. But Kwiatkowski fails to note that the court below granted the Banks' motion to enforce the settlement agreement and that the additional discovery Kwiatkowski conducted related solely to the alleged breaches of fiduciary duty and not to whether the settlement agreement itself was valid and enforceable. Given that the settlement agreement specifically precluded Kwiatkowski from relying on evidence or information he discovered after he signed the settlement agreement, and that this is exactly what Kwiatkowski was trying to do, the trial court did not err when it awarded attorney fees and costs related to the Banks' motions to enforce the settlement agreement and related to Kwiatkowski's additional discovery.
¶ 73 Regardless, the settlement agreement itself provides for fees and costs to the prevailing party in any action to enforce the settlement agreement. Although this provision *528 also contains a forum selection clause requiring the parties to bring actions to enforce the settlement agreement in King County, Kwiatkowski does not argue on appeal that the Banks' decision to file its enforcement action in Thurston County rather than King County makes the settlement agreement unenforceable or prevents the Banks from receiving fees and costs under the terms of the agreement.
¶ 74 Kwiatkowski also attempts to challenge the reasonableness of the fee rates that the trial court applied when calculating BOA's and U.S. Bank's fees, asserting that these fees were not "commensurate with what is charged in the legal community for either Pierce or Thurston Counties." Br. of Appellant at 95. Rather than brief this issue, however, his counsel inserts the following footnote: "Due to the page limitation, appellant refers the court to the following clerk's papers for briefing on this issue," citing to CP at 2202-24, 2364-70. Br. of Appellant at 95. In effect, Kwiatkowski's counsel is moving to incorporate over two dozen pages of briefing into her already 100-page brief. But our courts have consistently rejected attempts by litigants to incorporate by reference arguments contained in trial court briefs, holding that such arguments are waived. See U.S. West Commc'ns, Inc. v. Wash. Utils. & Transp. Comm'n, 134 Wash.2d 74, 111-12, 949 P.2d 1337 (1997); State v. Kalakosky, 121 Wash.2d 525, 540 n, 18, 852 P.2d 1064 (1993).[19] Thus, we do not consider the additional briefing and, because Kwiatkowski submits no additional argument, authority, or citation to the record related to this issue, we refuse to address this issue.
¶ 75 Kwiatkowski also appears to argue that the fees were excessive because the Banks' own failures made the work necessary. Specifically, he argues that "[h]ad the Banks followed statutory procedure as clearly outlined in the guardianship statute, it would not have been necessary to expend the time to defend their actions as guardians." Br. of Appellant at 95. This argument appears to relate solely to the summary judgment issues; accordingly, as discussed above, we do not reach this issue.
B. Drews and Frost
¶ 76 Although Kwiatkowski briefly mentions Drews and Frost in his attorney fees and cost section, nothing in the record on appeal shows that the court below awarded attorney fees and costs to Drews and Frost. Furthermore, even if it did make such an award, Kwiatkowski's one brief mention of Drews and Frost in his attorney fees and cost section is not sufficient to justify our review of that award.
VII. Fees and Costs on Appeal
¶ 77 All of the parties request attorney fees and costs on appeal under RAP 18.1 and former RCW 11.96A.150 (2006). The Banks also request fees and costs under the terms of the settlement agreement.
¶ 78 The Banks are clearly entitled to fees and costs under the settlement agreement. Drews and Frost are entitled to fees and costs under former RCW 11.96A.150.
¶ 79 Former RCW 11.96A.150 provides:
(1) Either the superior court or the court on appeal may, in its discretion, order costs, including reasonable attorneys' fees, to be awarded to any party: (a) From any party to the proceedings; (b) from the assets of the estate or trust involved in the proceedings; or (c) from any nonprobate asset that is the subject of the proceedings. The court may order the costs to be paid in such amount and in such manner as the court determines to be equitable.
(2) This section applies to all proceedings governed by this title, including but not limited to proceedings involving trusts, decedent's estates and properties, and guardianship matters. This section *529 shall not be construed as being limited by any other specific statutory provision providing for the payment of costs, including RCW 11.68.070 and 11.24.050, unless such statute specifically provides otherwise. This statute [section] shall apply to matters involving guardians and guardians ad litem and shall not be limited or controlled by the provisions of []RCW 11.88.090(9).
(Emphasis added).
¶ 80 The parties do not dispute that former RCW 11.96A.150 applies. Because the case involves the defendants' actions while subject to title 11 RCW, this case is a "proceeding[] involving trusts, decedent's estates and properties, and guardianship matters."
¶ 81 The Banks, Drews, and Frost are entitled to reasonable attorney fees and costs upon compliance with RAP 18.1,
¶ 82 Affirmed.
We concur: QUINN-BRINTNALL and PENOYAR, JJ.
NOTES
[1] In 1986, before the Kwiatkowskis left for their trip to New Zealand, they made Drews and Frost attorneys-in-fact with durable power of attorney over GAHC's business accounts.
[2] We use the term, "the Banks," to collectively refer to BOA, Key Bank, and U.S. Bank.
[3] Notably, at a June 2004 hearing, Kwiatkowski's counsel conceded that Kwiatkowski's assertion that the Banks had failed to meet the conditions of discharge, because they did not file the proper receipts, was moot because the record showed that the Banks filed the proper receipts.
[4] Kwiatkowski was initially represented by Paul Doumit during the negotiations with the Banks, but Doumit died in August 2004. At that point, Donna Holt stepped in to help Kwiatkowski obtain records related to the settlement agreement and to help him obtain new counsel. Michael Schein took over the case in December 2004.
[5] Davies represented the Kwiatkowskis in various matters. At various times, Davies was a member of GAHC's board of directors.
[6] In her declaration, Balsam asserts that these documents included "Minutes of Special Meeting of Shareholder of Sirius Enterprises, Inc.," regarding a December 21, 1986 meeting, and a copy of the certificate of incorporation for "Sirius Development Corporation," dated January 10, 1994. CP at 972, 975-77.
[7] The record suggests that Schein was not aware of the documents that Balsam found until she shared them with him on April 21, 2005.
[8] Thereafter, on May 9, 2005, Holt also filed a notice of withdrawal and substitution of counsel effective May 11, 2005.
[9] This order granted U.S. Bank's motion to reconsider the oral ruling denying its motion for attorney fees and costs, awarding, the Banks legal attorney fees and costs "in amounts to be determined in a subsequent hearing." CP at 786.
[10] Although Kwiatkowski arguably presented claims not related to the various defendants' roles as guardians, limited guardians, or "special administrators," such as a claim against Drews for breach of duty in his capacity as a member of the GAHC board of directors, he does not argue that summary judgment was improper on any claims unrelated to their guardianship duties.
[11] Despite the guardianship court's use of the phrase "special administrator," it appears that Drews and Frost were not acting in that capacity. A special administrator is defined as a "personal representative of the estate of a decedent appointed for limited purposes and the term may be used in lieu of `personal representative' wherever required by context." RCW 11.02.005(13). Chapter 11.32 RCW addresses special administrators. It provides that courts may appoint special administrators:
When, by reason of an action concerning the proof of a will, or from any other cause, there shall be a delay in granting letters testamentary or of administration, the judge may, in his discretion, appoint a special administrator (other than one of the parties) to collect and preserve the effects of the deceased; and in case of an appeal from the decree appointing such special administrator, he shall, nevertheless, proceed in the execution of his trust until he shall be otherwise ordered by the appellate court.
RCW 11.32.010.
RCW 11.32.030 defines a special administrator's powers and duties and clearly indicates that a special administrator's appointment is temporary and ceases when the court appoints a personal representative in the matter:
Such special administrator shall collect all the goods, chattels, money, effects, and debts of the deceased, and preserve the same for the personal representative who shall thereafter be appointed; and for that purpose may commence and maintain suits as an administrator, and may also sell such perishable and other goods as the court shall order sold, and make family allowances under the order of the court. The appointment may be for a specified time, to perform duties respecting specific property, or to perform particular acts, as stated in the order of appointment.
But RCW 11.32.040 further provides that "[u]pon granting letters testamentary or of administration the power of the special administrator shall cease."
Thus, to the extent Drews and Frost were not still acting under the power of attorney that they had when the Kwiatkowskis left for their New Zealand vacation, they were clearly not acting merely as "special administrators" but, rather, as limited guardians of Kwiatkowski's business, assets.
[12] Although RCW 11,96A.070(1)(a), which addresses the statute of limitations for bringing a breach of fiduciary duty against a trustee of an express trust, considers when the possible breach of fiduciary duty was discovered or should have reasonably been discovered, there are no similar discovery provisions in RCW 11.96A.070(2). Thus, to the extent Kwiatkowski is arguing that the discovery doctrine precludes application of RCW 11.96A.070(2), that argument has no merit.
[13] RCW 11.32.060 provides: "The special administrator shall also render an account, under oath, of his proceedings, in like manner as other administrators are required to do."
[14] RCW 11.92.040 sets out the various duties of guardians and limited guardians of an estate, including a variety of reporting and accounting requirements.
[15] RCW 11.92.040(2) lists the information the guardian's report must contain.
[16] To the extent Kwiatkowski is also arguing that Drews was not discharged because the GAL did not receive proper notice of either the termination, Drews's final report as limited guardian of the estate, or Drews's discharge, that argument has no merit because as of August 15, 1997, the GAL was no longer Kwiatkowski's GAL. Kwiatkowski also appears to argue that the GAL's performance was inadequate and that this somehow prevented the statutes of limitations from applying to his claims against Frost and Drews, as "special administrators," and Drews, as limited guardian. How this argument relates to the statutes of limitations argument, the only argument that is arguably relevant on appeal, is confusing at best. Additionally, to the extent he is arguing that the GAL himself breached any duty, the GAL was not a party to the 2004 action.
[17] In 2006, the legislature added subsection (2) and the proviso in subsection (1), neither of which applies here, to the statute. Laws of 2006. ch. 8, § 303.
[18] The proposed stipulated order provided that the claims be dismissed "with prejudice and without an award of costs or fees to any undersigned party." CP at 948.
[19] See also. Guerrero v. Tarrant County Mortician Servs. Co., 977 S.W.2d 829, 832-33 (1998) (addressing a similar attempt to incorporate prior briefing and refusing to consider arguments not presented in the appellate brief, the court stated, "Were we to approve of this tactic, appellate briefs would be reduced to a simple appellate record reference to a party's trial court arguments. Additionally, this would be an open door for parties to circumvent the appellate brief page limitations." (Citations omitted)). | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2633706/ | 176 P.3d 545 (2008)
Steven and Juanita JACHETTA, and Billy Jachetta, Appellants,
v.
WARDEN JOINT CONSOLIDATED SCHOOL DISTRICT, a Washington municipal corporation, Respondent.
No. 26117-4-III.
Court of Appeals of Washington, Division 3.
January 24, 2008.
*546 Steven Craig Lacy, Attorney at Law, East Wenatchee, WA, for Appellants.
Jennifer D. Homer, Jerry Moberg & Associates, Ephrata, WA, for Respondent.
SWEENEY, C.J.
¶ 1 Plaintiffs in a negligence action must show breach of a duty of care; Here, the plaintiff parents claim that a school district acted inappropriately or failed to react appropriately to a death threat aimed at their son. The school district suspended the student who made the threat and required a clearance by a psychiatrist before readmitting the student. The parents argue this was not enough and offer other responses they say the district could have and should have followed. We are unable to conclude that the district breached its duty of care given its response and the legislative mandates set out in the statutes. We therefore affirm the summary dismissal of the complaint.
FACTS
¶ 2 A school bus driver found a backpack left behind on the bus. He looked through the backpack to find the owner's name. He found a handwritten list of names with the words "2 kill list" at the top. Clerk's Papers (CP) at 16. The bus driver gave the backpack and list to the school principal.
¶ 3 The principal interviewed the student, K.S., who had written the list. She admitted writing the list while on the phone with her friend, S.M. She said that neither she nor S.M. intended to harm anyone on the list. She said that they created the list because they were bored.
*547 ¶ 4 The principal and Warden police chief interviewed the other student, S.M., that, same afternoon. S.M. admitted that he compiled the list with K.S. over the phone. He said that the list was a joke and they did not actually intend to harm anyone. The list contained 128 names that included classmates, staff at the Warden Joint Consolidated School District (School District), and famous figures such as "Shania twain," "big bird," "goerge bush," "bill clinton," "al gore,". "Martha Stewart," "opra," and "garth brooks." CP at 33-35. The first name on the list was "billy." at 33.
¶ 5 The police chief did not believe that S.M. was a threat. The School District nevertheless expelled S.M. for three days on an emergency basis. It then converted the emergency expulsion to a long-term suspension (45 days) the same day.
¶ 6 The School District gave notice to all parents and staff that a threatening reference had been made. The notice informed that the students involved had been suspended and that the School District had a zero tolerance policy for threats made on school grounds. The School District sent the notice five days after finding the list.
¶ 7 The School District required S.M. to complete "a full scale Mental Health. Assessment that determines that he is not a risk to himself or those around him" as a condition of returning to school. CP at 322. This assessment had to be done by a master level psychologist or someone with a higher degree.
¶ 8 A psychiatrist, Dr. Benjamin Marte, evaluated S.M. He concluded that "Where currently does not appear to be any reason for [S.M.] to not be in school and I would recommend his return" and so advised the School District, CP at 41.
¶ 9 The School District concluded that the school environment was safe for Billy Jachetta, despite S.M.'s presence at the same school. Steven and. Juanita Jachetta wanted S.M. to be suspended for the remainder of the school year. The School District admitted S.M. back into school. It did not notify the Jachettas. The Jachettas refused to allow their son Billy to return to school as long as S.M. was there.
¶ 10 The Jachettas met with representatives of the School District. And the District worked with the Jachettas to provide an alternative educational plan for Billy. The Jachettas helped create the plan and signed it. The alternative educational plan allowed Billy to do his studies at home. The Jachettas wanted a full-time tutor assigned to Billy. The School District refused. The School District offered Billy counseling. A counselor retained by the Jachettas later diagnosed Billy with post-traumatic stress disorder (PTSD).
¶ 11 The Jachettas sued the School District for negligence. The District moved for summary judgment. And the trial court dismissed the Jachettas' complaint.
DISCUSSION
¶ 12 The Jachettas take issue with the way the School District handled the situation and argue that in doing so they have raised a genuine issue of material fact. And, they contend, the trial judge then erred in summarily dismissing their suit. Specifically, the Jachettas argue that the School District breached its duty because it (1) gave the Jachettas late notice of the "2 kill list," (2) did not expel or suspend S.M. for the rest of the year, (3) accepted Dr. Marte's opinion, and (4) failed to notify the Jachettas' that it was allowing S.M. to return to school. The Jachettas contend that these breaches caused Billy's PTSD.
¶ 13 The School District responds that it did not owe any duty to Mr. and Ms. Jachetta. It agrees it did owe a duty to Billy but denies that it breached that duty. The School District argues that the Jachettas do not create a genuine issue of material fact by simply saying that the District could have done something other than what it did. And moreover, the District argues, there is no proximal relationship between anything it did, or did not do, and Billy's PTSD.
¶ 14 The court here dismissed the Jachettas' complaint on a motion for summary judgment. Our review is then de novo. And we view the facts in a light most favorable to the *548 Jachettas. Herring v. Texaco, Inc., 161 Wash.2d 189, 194, 165 P.3d 4 (2007). Summary judgment is appropriate when there is no genuine issue of material fact. CR 56(c).
¶ 15 A school district must protect students in its custody from reasonably anticipated dangers. J.N. v. Bellingham Sch. Dist. No. 501, 74 Wash.App. 49, 56-57, 871 P.2d 1106 (1994). The duty imposed is reasonable care: "[T]he district is required to exercise such care as a reasonably prudent person would exercise under the same or similar circumstances." Id. at 57, 871 P.2d 1106 (citing Briscoe v. Sch. Dist. No. 123, 32 Wash.2d 353, 362, 201 P.2d 697 (1949); McLeod v. Grant County Sch. Dist. No. 128, 42 Wash.2d 316, 319-20, 255 P.2d 360 (1953)). The district's duty "to use reasonable care only extends to such risks of harm as are foreseeable." J.N., 74 Wash.App. at 57, 871 P.2d 1106. And that is generally a jury question. Id.
¶ 16 The School District admits its duty to protect Billy but denies any similar duty to Mr. and Ms. Jachetta. And the only authority cited by Mr. and Ms. Jachetta supports only the notion that the duty is owed to students. Id. at 56-58, 871 P.2d 1106. "It is undisputed that the District had a duty to protect the pupils in its custody from dangers reasonably to be anticipated." Id. at 56-57, 871 P.2d 1106. Mr. and Ms. Jachetta are not students. And the School District therefore has no duty to protect Mr. and Ms. Jachetta. Id. at 56-58, 62, 871 P.2d 1106; Peck v. Siau, 65 Wash.App. 285, 293, 827 P.2d 1108 (1992).
¶ 17 The Jachettas wanted S.M. to be expelled for the remaining part of the school year even after the psychiatrist's evaluation. They contended that S.M.'s presence at school would negatively impact their son, Billy. But there is no showing that this was necessary to protect their son. And the School District had legal obligations to consider the educational needs of S.M. as well as Billy. RCW 28A.600.410.
¶ 18 Here is what the School District did, thought, or acted upon:
the School District emergency expelled S.M. for three days under former WAC 180-40-295 (1997)[1] (CP at 36);
the School District suspended S.M. for 45 days under former WAC 180-40-260 (1997)[2] (CP at 39);
the School District notified all parents and staff associated with the District on March 29, 2004, that a threatening reference had been made (CP at 5, 9);
the notice to parents and staff explained that the students involved had been placed on suspension (CP at 5, 9);
the School District ordered a full mental health assessment of S.M. before readmitting him back into school (CP at 322);
the School District determined on May 3, 2004, that S.M. should be readmitted following a psychiatrist's evaluation that S.M. was not a threat to anyone (CP at 5, 9, 41);
the School District believed the school environment was safe for Billy, despite S.M.'s presence at the same school (CP at 6, 10);
the School District worked with the Jachettas to formulate an alternative educational plan for Billy to finish the rest of the school year (CP at 248-52, 273-74, 302);
the Jachettas signed off on the alternative educational plan (CP at 310).
¶ 19 It was not foreseeable that the School District's actions (listed above) would result in Billy's PTSD. The School District's "duty to use reasonable care only extends to such, risks of harm as are foreseeable." J.N., 74 Wash.App. at 57, 871 P.2d 1106.
¶ 20 The School District had the authority to expel S.M. after the list was found. "A student who commits an offense under [chapter 9A.46 RCW[3]], when directed toward another *549 student, may . . . be expelled or suspended." RCW 28A.600.460(3). Yet "[s]chool districts are encouraged to find alternatives to suspension including reducing the length of a student's suspension conditioned by the commencement of counseling or other treatment services." RCW 28A.600.410.
¶ 21 The School District acted well within its authority when it expelled S.M. on an emergency basis and then suspended him. RCW 28A.600.460(3); ROW 28A.600.410. The School District acted in accordance with legislative mandates when it later reduced the length of S.M.'s suspension after the psychiatrist assessed S.M., found him to be no threat, and reported that, to the District. RCW 28A.600.460(3); ROW 28A.600.410. The psychiatrist concluded that "[t]here currently does not appear to be any reason for [S.M.] to not be in school and I would recommend his return." CP at 41.
¶ 22. The School District was not under an obligation to keep S.M. out of school for the remainder of the year just to accommodate the Jachettas. RCW 28A.600.410. It reasonably acted in accord with the law and its policies when it relied on the assessment of a mental health care professional who examined S.M. and the professional's recommendation to allow S.M. back to school. ROW 28A.600.460(3); RCW 28A.600.410.
¶ 23 In response to the summary judgment motion, the Jachettas offer no professional or lay opinion that the School District's handling of the situation here was below the standard of care. The best that can be said is that the Jachettas say the District could have done more. That does not create a genuine issue of material fact. The School District is liable only if "`the wrongful activities are foreseeable, and the activities will be foreseeable only if the district knew or in the exercise of reasonable care should have known of the risk that resulted in their occurrence.'" J.N., 74 Wash.App. at 58, 871 P.2d 1106 (emphasis omitted) (quoting Peck, 65 Wash.App. at 293, 827 P.2d 1108), Billy's PTSD, in light of the School District's response, was not foreseeable.
¶ 24 The trial court correctly dismissed the case as a matter of law. Wilson v. Steinbach, 98 Wash.2d 434, 437, 656 P.2d 1030 (1982); N.J., 74 Wash.App. at 293, 827 P.2d 1108; RCW 28A.600.460(3); RCW 28A.600.410.
¶ 25 We affirm.
WE CONCUR: BROWN, J., and STEPHENS, J., Pro Tern.
NOTES
[1] Recodified as WAC 392-400-295. Laws of 2006, ch. 263.
[2] Recodified as WAC 392-400-260. Laws of 2006, ch. 263,
[3] A person is guilty of harassment under chapter 9A.46 RCW if he or she knowingly threatens, by words or conduct, to cause bodily injury to another immediately or in the future, RCW 9A.46.020(1)(a), (b). | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2637132/ | 171 P.3d 474 (2007)
2007 UT App 336
Daniel HARMON, Petitioner,
v.
OGDEN CITY CIVIL SERVICE COMMISSION, Ogden City Corporation, Ogden City Fire Department, and Fire Chief Mike Mathieu, Respondents.
No. 20060434-CA.
Court of Appeals of Utah.
October 18, 2007.
*475 D. Bruce Oliver, Salt Lake City, for Petitioner.
Douglas J. Holmes, Ogden, for Respondent Ogden City Civil Service Commission.
Stanley J. Preston, Camille N. Johnson, and Judith D. Wolferts, Salt Lake City, for Respondents Ogden City Corporation, Ogden City Fire Department, and Fire Chief Mike Mathieu.
Before Judges DAVIS, ORME, and THORNE.
OPINION
DAVIS, Judge:
¶ 1 Plaintiff Daniel Harmon appeals the decision of the Ogden Civil Service Commission (the Commission), affirming the decision of Chief Mathieu (the Chief) of the Ogden City Fire Department (the Fire Department) to terminate Harmon. Harmon asserts that termination was a disproportionate sanction here and that his civil rights were violated through the disciplinary procedures taken. We affirm.
BACKGROUND
¶ 2 On September 8, 2000, the Fire Department received a complaint alleging that Harmon, a captain, had sexually harassed a subordinate female employee two years prior. The Fire Department initiated an investigation into the matter, which investigation revealed several incidents over Harmon's twenty-one year career wherein he had acted inappropriately, including: (1) failing to attend multiple mandatory training meetings; (2) allowing female entertainers to pose topless with Fire Department employees while he was acting as an official of the Fire Fighter's Union at a fundraiser for the Muscular Dystrophy Association (the MDA Incident); (3) filling an empty bottle of weedkiller, which he knew was intended for his former supervisor, with his urine (the Weedkiller Incident); (4) publicly urinating into a drafting pit during a training session (the Drafting Pit Incident); (5) urinating into a shower stall that was occupied by one of his colleagues (the Shower Stall Incident); (6) allowing a female firefighter to make lewd references to a zucchini, and countering her remarks with his own (the Zucchini Incident); and (7) allowing and participating in activities where clothed male employees would imitate sexual intercourse with each *476 other (the Horseplay Incidents).[1] Two hearings were held within the Fire Department regarding Harmon's actions, which hearings resulted in his termination. Harmon appealed the Fire Department's decision to the Commission pursuant to Utah Code section 10-3-1012(2). See Utah Code Ann. § 10-3-1012(2) (2003).[2]
¶ 3 In examining the Fire Department's termination of Harmon, the Commission considered only Harmon's failure to appear at training meetings, the MDA Incident, the Weedkiller Incident, and the Drafting Pit Incident. The Commission did not consider the remaining incidents because they were too remote or were understood by the other involved employees as a joke. Based on the incidents considered, the Commission found that termination was an inappropriately harsh punishment and reversed Harmon's termination.
¶ 4 Ogden City (the City) then appealed the Commission's decision to this court. See Ogden City Corp. v. Harmon, 2005 UT App 274, 116 P.3d 973. The City argued that all of the incidents involving Harmon's misbehavior were relevant and should have been considered by the Commission. See id. ¶ 11. Additionally, the City asserted that the Commission erred in failing to consider evidence regarding Harmon's untruthfulness during one of his termination hearings when he was questioned about his involvement in the Weedkiller Incident.[3]See id. ¶ 13. We agreed with the City on both counts, reversed the Commission's order, and remanded to the Commission for further consideration. See id. ¶ 15. We instructed the Commission to explore on remand Harmon's alleged misrepresentations and dishonest remarks, and to consider all of Harmon's inappropriate behavior in arriving at its conclusion. See id.
¶ 5 On April 13, 2006, the Commission entered its Findings of Fact, Conclusions of Law and Order (Remand Order). The Remand Order provided that Harmon's termination was appropriate in light of the totality of the incidents and his general work performance. The Remand Order also noted that there was sufficient evidence to show that Harmon had been deceitful in conjunction with the Weedkiller Incident. Harmon now appeals the Remand Order.
ISSUES AND STANDARDS OF REVIEW
¶ 6 Harmon argues that the Commission erred in finding that termination was a proportionate and proper sanction for his actions. In order for this court to overturn the Commission's decision as to the propriety of Harmon's termination, Harmon must show either (1) that the facts do not support the action taken by the Fire Department or (2) that the charges do not warrant the sanction imposed. See Kelly v. Salt Lake City Civil Serv. Comm'n, 2000 UT App 235, ¶ 16, 8 P.3d 1048. We instructed the Commission to consider all of the incidents on remand. See Harmon, 2005 UT App 274, ¶ 15, 116 P.3d 973. Thus, we do not now consider whether the charges against Harmon are supported but instead address only whether those charges warrant termination. In doing so, we review the Commission's decision to determine "if the [C]ommission has abused its discretion or exceeded its authority." Utah Code Ann. § 10-3-1012.5 (2003). The Commission is required to give deference to the Chief, as he is best able to "balance the competing concerns in pursuing a particular disciplinary action." Harmon, 2005 UT App 274, ¶ 17, 116 P.3d 973. Therefore, the Commission's affirmance of the Chief's termination of Harmon will be upheld unless it "`exceeds the bounds of reasonableness and rationality.'" McKesson Corp. v. Labor *477 Comm'n, 2002 UT App 10, ¶ 11, 41 P.3d 468 (quoting Ae Clevite, Inc. v. Labor Comm'n, 2000 UT App 35, ¶ 7, 996 P.2d 1072); see also Tolman v. Salt Lake County Attorney, 818 P.2d 23, 26-27 (Utah Ct.App.1991).
¶ 7 Harmon also argues that the Commission violated his constitutional due process rights and that he should be compensated for these violations. We afford the Commission no deference here, as constitutional challenges constitute questions of general law. See Questar Pipeline Co. v. Utah State Tax Comm'n, 817 P.2d 316, 317-18 (Utah 1991); Savage Indus., Inc. v. Utah State Tax Comm'n, 811 P.2d 664, 670 (Utah 1991). Thus, we review the Commission's procedures and resulting actions for correctness. See Questar, 817 P.2d at 317.
ANALYSIS
I. Appropriateness of the Sanction
¶ 8 "In determining whether the sanction of dismissal is warranted in this case, the Commission must affirm the sanction if it is (1) appropriate to the offense and (2) consistent with previous sanctions imposed by the department." Ogden City Corp. v. Harmon, 2005 UT App 274, ¶ 16, 116 P.3d 973 (citing Kelly, 2000 UT App 235, ¶ 16, 8 P.3d 1048). Here, the focus is on the first part of the test because "[t]he Commission has already determined that Harmon offered no evidence of inconsistency, and therefore, the question of severity is of primary importance in this case." Id.
¶ 9 Regarding the severity question, we previously noted that exemplary performance by an employee may serve as evidence against termination, while job violations and continued misbehavior could weigh in favor of dismissal. See id. ¶ 18 (citing Kelly, 2000 UT App 235, ¶ 25, 8 P.3d 1048; Lucas v. Murray City Civil Serv. Comm'n, 949 P.2d 746, 762 (Utah Ct.App.1997)). Speaking directly to this standard, the Commission noted that Harmon's failure to attend scheduled meetings and his sub-par evaluations were not indicative of an "`exemplary service record.'" The Commission also analyzed in depth the specific incidents of misconduct at issue and concluded that "Harmon's conduct repeatedly violated [the Fire Department's] and the City's policies to such a degree that termination was fully justified."
¶ 10 Additionally, in our prior decision we listed four factors for the Commission to consider on remand in weighing the propriety of Harmon's termination against his offenses:
(a) whether the violation is directly related to the employee's official duties and significantly impedes his or her ability to carry out those duties; (b) whether the offense was a type that adversely affects the public confidence in the department; (c) whether the offense undermines the morale and effectiveness of the department; or (d) whether the offense was committed willfully or knowingly, rather than negligently or inadvertently.
Id. We believe that the Commission correctly applied these standards. First, the Commission determined that "the six incidents, as well as Harmon's evaluations and disciplines, [were] directly related to his duties as a captain and took place in the workplace, thus impeding his ability to legitimately carry out his duties and to serve as an example." Second, the Commission concluded that "Harmon's conduct is also of the type that would adversely affect the public's confidence and respect for the City as well as its confidence in [the Fire Department's] abilities to carry out its duties." The Commission specifically noted that "the training facility where the Drafting Pit Incident occurred sits back onto 12th Street in Ogden and can be seen from public view through a chain link fence." Third, the Commission devoted a large part of its discussion of the suitability of Harmon's termination to an explanation of how the inappropriateness of Harmon's actions could affect employee morale. Specifically, the Commission described six incidents as "revolv[ing] around conduct having sexual overtones," and found both that "[Harmon] had attended annual training sessions dealing with establishing and maintaining a workplace sensitive to and aware of inappropriate activities of a sexual nature" and that "it was Harmon's duty as a [Fire Department] officer to set a good example and be a leader to *478 his subordinates in improving the workplace so that there was decreased risk of offending individuals with inappropriate sexual conduct." The Commission further noted that "when the Shower [I]ncident is combined with the Drafting Pit and Weedkiller Incidents, a pattern of behavior by Harmon emerges where public urination is the centerpiece. This conduct is totally inappropriate and bizarre for anyone in the workplace, let alone a captain who should be an example to subordinates." Fourth, addressing the final factor, the Commission concluded that "[i]t is also significant that Harmon's conduct obviously was knowing and willing, and not simply negligent or inadvertent." Accordingly, we affirm the Commission's reasonable and rational determination that termination was an appropriate sanction here.
II. Alleged Constitutional Violations[4]
¶ 11 Harmon argues that his constitutional rights were violated during the termination hearing process and seeks redress pursuant to 42 U.S.C. § 1983.[5] He first asserts that the Commission failed to address allegations regarding his dishonesty in connection with the Weedkiller Incident (as we had previously instructed), and that this oversight has caused harm to his reputation and to his ability to gain future employment. Harmon contends that he held a property interest in his past job as a firefighter and in positions that he may apply for in the future, and that these interests evoke certain due process rights of which he was deprived. In conjunction with these claims, Harmon also asserts that his due process rights were violated because the Commission failed to consider the facts of the honesty issue in light of Garrity v. New Jersey, 385 U.S. 493, 87 S. Ct. 616, 17 L. Ed. 2d 562 (1967). We find Harmon's arguments to be without merit.
¶ 12 The Commission adequately acknowledged and addressed issues involving Harmon's dishonesty. This court previously stated:
We reach no conclusion in regard to whether [Harmon's untruthfulness in relation to the Weedkiller Incident] does or does not support the charges against Harmon, but we agree with the City that the Commission is under an obligation to address each of the grounds for termination stated by the department head. . . . An allegation of dishonesty, if proven, would violate Fire Department regulations and could possibly add further support to the charges against Harmon. As such, it must be considered.
Harmon, 2005 UT App 274, ¶ 14, 116 P.3d 973 (footnote omitted). Speaking to this issue, Commissioner John R. Lemke stated in his concurring opinion:
I . . . believe that Harmon's actions in the Second Predetermination Hearing are misconduct and can be considered in determining the appropriate punishment. His actions show that he lacked the judgment to appraise the situation. He knew that he was about to be punished and that the punishment was likely to be at least demotion, but yet he continued to play games with the Chief and he could not bring himself to acknowledge what he had done. This is much less than is expected from a Captain with twenty years of service and it raises serious concerns about Harmon's trustworthiness. It was a legitimate factor in the Chief's termination decision and, I believe, sufficiently serious that when added to the other misconduct can support *479 termination. Therefore, I join the majority in finding that Harmon's misconduct justified termination.
The dishonesty issue was addressed by Commissioner Lemke in depth. He also commented that
Harmon, rather than truthfully answering the question asked and admitting his misconduct, decided that he would continue with his "game" and do nothing to clarify the Chief's misunderstanding. His written response may not have been dishonest, but his oral response to the Chief's question was a clear evasion and it was insubordinate and disrespectful conduct toward a superior and also inconsistent with the trust a Chief must have in his Captains.
In his review of the honesty issue, Commissioner Lemke asserted that the issue was "considered by the Chief in making his termination decision."
¶ 13 In response to Commissioner Lemke's analysis, the majority of the Commission recognized Harmon's dishonesty and addressed the matter in the Remand Order.
Commissioners Greenwood's and Taylor's opinion here is based on their opinion that the seven incidents alone are sufficient to justify Harmon's termination. However, they also agree that the evidence shows that Harmon displayed an intent to deceive Chief Mathieu about the Weedkiller Incident, and that this dishonesty issue would justify dismissal with or without combining it with the other seven incidents.
These statements illustrate that the dishonesty issue was not "avoided" as Harmon asserts but, instead, that the Commission fully addressed all of the grounds for Harmon's termination in keeping with his procedural due process rights.
¶ 14 Next, we agree with Harmon that he holds a property interest in continued and future public employment, see Utah Code Ann. § 10-3-1012; Board of Regents of State Colls. v. Roth, 408 U.S. 564, 573, 92 S. Ct. 2701, 33 L. Ed. 2d 548 (1972) (stating that a due process opportunity to be heard is required when "a person's good name, reputation, honor, or integrity is at stake" (internal quotation marks omitted)); Lucas v. Murray City Civil Serv. Comm'n, 949 P.2d 746, 753 (Utah Ct.App.1997), and that these rights are accompanied by certain procedural constitutional guarantees. We have previously held that for nonexempt civil service employees, these guarantees include "oral or written notice of the charges, an explanation of the employer's evidence, and an opportunity for the employee to present his or her side of the story in `something less than a full evidentiary hearing.'" Lucas, 949 P.2d at 753 (quoting Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 545, 105 S. Ct. 1487, 84 L. Ed. 2d 494 (1985)); see also Durfey v. Board of Educ., 604 P.2d 480, 484 (Utah 1979). Here, Harmon was notified of the charges against him, had predetermination hearings during which he could refute those charges, and was given a full hearing with the opportunity to call witnesses on his behalf and to cross-examine those witnesses called by the City. On remand, Harmon was also allowed to submit an additional brief[6] and was given the opportunity to present further oral argument.[7] Therefore, Harmon was not deprived of any property interest without due process.
¶ 15 Finally, Harmon argues that his failure to respond to specific inquiries by the hearing panel was an invocation of Garrity v. New Jersey, 385 U.S. 493, 87 S. Ct. 616, 17 L. Ed. 2d 562 (1967), and that the Commission failed to recognize or address his right to invoke his privilege to remain silent. Instead, he asserts, the Commission wrongly considered his actions to be indicative of his dishonesty. However, Harmon misinterprets Garrity, which has no bearing on this matter.
¶ 16 Garrity involved New Jersey police officers accused of fixing traffic tickets who *480 were apprised of their right to remain silent when questioned regarding the tickets. See id. at 494, 87 S. Ct. 616. The officers were told that any information they did provide could be used against them in a criminal prosecution. See id. But the warning also provided that if the officers refused to answer, they would be subject to removal from office. See id. The United States Supreme Court was asked to decide whether a state can threaten termination in order to obtain incriminating information from an employee. See id. at 499, 87 S. Ct. 616. The Court answered, "[w]e now hold the protection of the individual under the Fourteenth Amendment against coerced statements prohibits use in subsequent criminal proceedings of statements obtained under threat of removal from office, and that it extends to all, whether they are policemen or other members of our body politic." Id. at 500, 87 S. Ct. 616 (emphasis added).
¶ 17 Thus, Garrity stands for the proposition that statements made by a public employee under threat of removal cannot be used subsequently in a criminal proceeding. See id.; Kelly v. Salt Lake City Civil Serv. Comm'n, 2000 UT App 235, ¶ 32 n. 9, 8 P.3d 1048. But Garrity does not protect public employees from having to answer questions concerning their conduct at their own termination hearings in a noncriminal investigation. Therefore, the Commission was not required to address Garrity in the context of Harmon's actions, and no procedural due process violation occurred.
CONCLUSION
¶ 18 The Commission's decision to uphold the Chief's termination decision was neither unreasonable nor irrational in light of Harmon's actions and dishonest conduct. The Commission also correctly proceeded with the termination process and adequately protected Harmon's constitutional due process rights throughout the investigation, as it examined all pertinent issues. We therefore affirm the Commission's disposition of the case given its findings.
¶ 19 WE CONCUR: GREGORY K. ORME and WILLIAM A. THORNE JR., Judges.
NOTES
[1] For a more complete explanation of these incidents, see Ogden City Corp. v. Harmon, 2005 UT App 274, ¶¶ 3-6, 116 P.3d 973.
[2] We use the 2003 version of the statute, as it is largely identical to the version in effect in 2000. Compare Utah Code Ann. § 10-3-1012 (2003), with id. § 10-3-1012 (1999) (amended 2001).
[3] At the December 11, 2000 hearing, Harmon was asked about his involvement in the Weedkiller Incident. Harmon replied only by referencing a letter in which he denied participation. However, several of Harmon's coworkers had witnessed the event, and thus, the Chief concluded that Harmon was misleading the hearing panel. In addition, Harmon later testified before the Commission that he had participated in the incident.
[4] The City argues that this court does not have original jurisdiction over Harmon's U.S.C. § 1983 claim, a position which Harmon disputes. Because we find that Harmon's constitutional claim is without merit and is unsupported by the evidence, we do not reach the jurisdiction issue.
[5] This section provides:
Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress, except that in any action brought against a judicial officer for an act or omission taken in such officer's judicial capacity, injunctive relief shall not be granted unless a declaratory decree was violated or declaratory relief was unavailable.
42 U.S.C. § 1983 (2000).
[6] The Commission gave the parties an opportunity to submit simultaneous briefs by January 3, 2006. Although the City timely filed its brief, Harmon filed his brief on January 24, 2006. Harmon's brief improperly responded to the arguments set forth in the City's brief, but was nevertheless considered by the Commission.
[7] Harmon did not take advantage of the opportunity to present oral argument because his counsel was unavailable. Thus, neither Harmon nor the City presented oral argument at the hearing. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2637136/ | 171 P.3d 393 (2007)
216 Or. App. 112
In the Matter of the Compensation of Terri L. Hardenbrook-Hardy, Claimant.
ROSEBURG FOREST PRODUCTS, Petitioner,
v.
Terri L. HARDENBROOK-HARDY, Respondent.
0503351; A131857.
Court of Appeals of Oregon.
Argued and Submitted April 5, 2007.
Decided November 7, 2007.
*394 Benjamin M. Bloom, Medford, argued the cause for petitioner. With him on the briefs was Hornecker, Cowling, Hassen & Heysell, L.L.P.
Dale C. Johnson, Springfield, argued the cause and filed the brief for respondent.
Before WOLLHEIM, Presiding Judge, and LANDAU and SERCOMBE, Judges.
WOLLHEIM, P.J.
Roseburg Forest Products petitions for judicial review of a Workers' Compensation Board order that affirmed an order on reconsideration. The order on reconsideration awarded claimant 15 percent scheduled permanent partial disability for claimant's left leg. Roseburg argues that the appellate review unit, which issued the order on reconsideration, was legally precluded from determining the extent of claimant's permanent disability. We review for errors of law, 183.482(8) and ORS 656.298(7), and affirm for the reasons that follow.
The material facts in this case are procedural and are not in dispute. In 2002, claimant sustained a compensable injury to her left leg. In 2004, Roseburg issued a notice of closure that (1) determined when claimant was medically stationary; (2) awarded claimant temporary disability; and (3) awarded three percent unscheduled permanent partial disability for claimant's leg. Consistently with the Workers' Compensation Law and the applicable administrative rules, the notice informed claimant that she had 60 days to appeal the notice by requesting reconsideration. Fewer than 60 days after the notice issued, and before claimant requested reconsideration, Roseburg issued a correcting notice of closure. The correcting notice included the same medically stationary and aggravation dates and did not include any award of temporary disability. Significantly, the correcting notice stated that the notice "was incorrect and is hereby corrected by the following statement: The total scheduled permanent partial disability award to date is as follows: 3 percent * * * for your left leg." (Emphasis added.)
Claimant filed a request for reconsideration of both the notice of closure and the correcting notice of closure, seeking, among other things, an increase in the amount of permanent disability. The appellate review unit denied the request for reconsideration of the notice of closure because it was not filed within 60 days after that notice. That order became final and is not at issue in this petition for judicial review.
The reconsideration of the correcting notice proceeded. Roseburg argued that the sole issue on reconsideration was whether the award of permanent disability should be scheduled or unscheduled and that the appellate review unit could not consider the extent of claimant's permanent disability. An order on reconsideration of the correcting notice of closure issued, expressly rejecting Roseburg's argument. The order increased the award of scheduled permanent partial disability for claimant's left leg from three percent to 15 percent.
Roseburg requested a hearing on the order on reconsideration. The administrative law judge affirmed the order on reconsideration. Roseburg appealed to the board. On appeal, the board, with one member dissenting, affirmed. Roseburg then filed this petition for judicial review.
In its petition for judicial review, Roseburg contends that the board erred when it determined that the appellate review unit could determine the extent of claimant's permanent disability. Specifically, Roseburg argues that the only change in the correcting notice was from unscheduled to scheduled disability, and, therefore, that was the only issue before the appellate review unit. Because *395 the percentage of permanent disability was the same amount, three percent, in both the notice and the correcting notice, Roseburg argues, claimant was prevented from raising the issue of the extent of her permanent disability on reconsideration of the correcting notice of closure. In response, claimant contends that her timely request for reconsideration of the correcting notice properly raised the issue of the extent of her permanent disability, because the correcting notice restated the award of permanent disability.
To determine whether the extent of claimant's permanent disability was within the scope of reconsideration, we must interpret the applicable administrative rule, OAR XXX-XXX-XXXX. Our goal in doing so is to determine the agency's intent in adopting the rule. We apply the same framework to the interpretation of an administrative rule that we apply to the interpretation of a statute. Thomas Creek Lumber v. Board of Forestry, 188 Or.App. 10, 22, 69 P.3d 1238 (2003). See also PGE v. Bureau of Labor and Industries, 317 Or. 606, 612 n. 4, 859 P.2d 1143 (1993) (method for statutory construction applies to construction of administrative rules). We first examine the text of the rule in context. If the meaning of the rule is clear from its text and context, our analysis is complete. At this first level of analysis, we give the words of the rule their ordinary meanings, unless those words are otherwise defined in the rule.
We begin with the text of OAR XXX-XXX-XXXX:
"(1) An insurer may rescind or correct its Notice of Closure prior to the expiration of the appeal period for that Notice * * *.
"* * * * *
"(8) Correcting Notices of Closure * * * are used to correct errors or omissions and do not change the closure status or the action taken by the Notice of Closure being corrected. Correcting Notices of Closure must not be used to grant permanent disability in claims where the Notice of Closure being corrected did not include an award of permanent disability. Examples of appropriate uses of Correcting Notices of Closure include, but are not limited to:
"(a) Permanent disability award computation errors (dollars, degrees, percentages);
"* * * * *
"(9) A Correcting Notice of Closure must:
"(a) Be issued when the director has instructed the insurer to do so because the Notice of Closure did not contain the information required by OAR XXX-XXX-XXXX(4);
"(b) Not be used to add a new condition to the claim closure, rate a new condition not considered in the Notice of Closure being corrected, or rescind a Notice of Closure;
"(c) State in the body of the correcting notice only the information being corrected on the Notice of Closure and the basis for the correction;
"(d) Not change the appeal period for the Notice of Closure being corrected; and
"(e) Initiate a new 60-day appeal period during which any request for reconsideration must be received, but only for those items being corrected."
The key subsection is OAR XXX-XXX-XXXX(8). That subsection explains that correcting notices are to be used to correct either errors or omissions, but not to change the status of the claim, i.e., the claim remains in closed status. Correcting notices also cannot award permanent disability where the prior notice did not include an award of permanent disability. Subsection (8) gives a nonexclusive list of examples of appropriate uses of a correcting notice, including correcting computation errors in permanent disability awards, e.g., "dollars, degrees, percentages." That example indicates that a correcting notice is proper when there is an inconsistency concerning the award of permanent disability. Hypothetically, if the notice awarded the injured worker 1,000 percent permanent partial disability, the employer could issue a correcting notice stating that the correct award was 10 percent permanent partial disability.
OAR XXX-XXX-XXXX(9) describes when an employer must issue a correcting notice and *396 when an employer cannot issue a correcting notice. That subsection also describes what must be included in a correcting notice and, by inference, what should not be included in a correcting notice. A correcting notice must issue when it is required by the Workers' Compensation Division, OAR XXX-XXX-XXXX(9)(a), and must not issue when the correcting notice adds or rates a new condition not contained in the notice, OAR XXX-XXX-XXXX(9)(b). A correcting notice must "state in the body of the correcting notice only the information being corrected and the basis for the correction." OAR XXX-XXX-XXXX(9)(c). Using the 1,000 percent permanent partial disability hypothetical discussed above as an example, a correcting notice would state "in the body" that the correct percent of permanent partial disability was 10 percent and the "basis for the correction" was a typographical error.
The last relevant subsection to be considered is OAR XXX-XXX-XXXX(9)(e), which provides that the time to request reconsideration of a correcting notice is 60 days, but "only for those items being corrected." For example, if a correcting notice changed the award of temporary disability but did not change the award of permanent disability, the injured worker would have 60 days to request reconsideration of the correcting notice's award of temporary disability, but would not have 60 days from the correcting notice to request reconsideration of the award of permanent disability.
The issue here reduces to what Roseburg was required to include in its correcting notice and what Roseburg actually included in its correcting notice. To resolve that issue, we summarize the contents of both the notice of closure and the correcting notice. The notice contained all the required information: (1) when claimant was medically stationary; (2) the dates claimant was awarded temporary disability; (3) when claimant's aggravation rights ended; and (4) the award of permanent partial disability for the injury to claimant's leg, as stated in percentage, degrees, and dollar value. The notice also stated that the disability was unscheduled. The body of the correcting notice provided:
"On December 8, 2004, a Notice of Closure was issued on your claim. That Notice of Closure was incorrect and is hereby corrected by the following statement:
"The total scheduled permanent partial disability award to date is as follows:
"3 percent equal to 4.05 degrees for your Left Leg (L515)."
Thus, the body of the correcting notice included three items. First, it stated the basis for the correction. Second, it stated that the award of permanent partial disability was scheduled rather than unscheduled. Third, and finally, the correcting notice stated that the extent of claimant's permanent partial disability was three percent.
OAR XXX-XXX-XXXX(8) and (9) required the correcting notice to include the basis for the correction and the matter being corrected, but did not require Roseburg to restate the extent of claimant's permanent partial disability. To the contrary, OAR XXX-XXX-XXXX(9)(c) required employer to limit the correcting notice to "only the information being corrected." By including the extent of claimant's permanent partial disability in the body of the correcting notice, Roseburg, perhaps unintentionally, "corrected" the extent of claimant's permanent partial disability for purposes of the rule. Pursuant to OAR XXX-XXX-XXXX(9)(e), claimant had 60 days from the correcting notice to request reconsideration of the extent of her permanent partial disability, because the extent of her permanent partial disability was an item included in the correcting notice and, therefore, deemed "corrected" for the purposes of reconsideration. Accordingly, the appellate review unit had authority to consider the extent of claimant's permanent disability when it considered claimant's request for reconsideration of the correcting notice of closure.
Affirmed. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1552385/ | 239 B.R. 443 (1999)
In re COUNTRYSIDE MANOR, INC., Debtor.
Barbara L. Hankin, Trustee, Plaintiff,
v.
Mersey Mold & Model Co., Defendant.
Bankruptcy No. 94-24049. Adversary No. 98-2019.
United States Bankruptcy Court, D. Connecticut.
September 15, 1999.
*444 Barbara L. Hankin, Westport, CT, for trustee-plaintiff.
James V. Sabatini, Tara K. Lyons, Sabatini & Associates, Newington, CT, for defendant.
RULING ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
ROBERT L. KRECHEVSKY, Bankruptcy Judge.
I.
Barbara L. Hankin, Esq., the then trustee of the Chapter 11 estate of Countryside Manor, Inc. ("the plaintiff"), on February 9, 1998, filed a complaint against Mersey Mold & Model Co. ("the defendant"), seeking to recover two post-petition transfers to the defendant totaling $8,500 as unauthorized transfers of estate property. See 11 U.S.C. §§ 549(a)[1] and 550(a).[2] After *445 the defendant appeared and filed its answer, the plaintiff[3], on August 12, 1999, moved for summary judgment, with appropriate supporting papers, asserting that there are no genuine issues of material facts in dispute, and the plaintiff was entitled to judgment as a matter of law. The defendant, on September 2, 1999, filed an objection to the plaintiff's motion,[4] contending that genuine issues of material fact exist.
II.
There is no meaningful dispute as to the following factual background. Countryside Manor, Inc. ("the debtor") filed a voluntary Chapter 11 petition on November 18, 1994, as an operator of a 90-bed skilled nursing home and facility in Bristol, Connecticut. The debtor remained in control of the nursing operation as a debtor in possession until July 3, 1996, when Barbara L. Hankin, Esq. became the operating trustee of the debtor's estate. During the period that the debtor was in control of its operation, the debtor's manager was Barry Hultman ("Hultman"), a licensed nursing home administrator.
Hultman during this period also owned and operated a business entity known as Infustek International Limited ("Infustek"). Infustek was in the business of developing and marketing an ambulatory infusion pump.
The defendant is in the business of building molds and molding plastic parts. In February and March 1996, the defendant submitted a "quotation" to Infustek to produce certain parts for the pump. Hultman, on behalf of Infustek, on or about March 10, 1996, signed a purchase order, on Infustek stationery, for these parts.
The defendant, on June 14, 1996, sent Infustek an invoice for the produced parts in the amount of $9,500. The invoice showed that the defendant, on March 9, 1996 and June 13, 1996, received two checks in the separate amounts of $4,750 and $3,750 on account, with a remaining balance due of $1,000. The two checks, signed by Hultman, were made payable to the defendant, and on their face showed that they were drawn on the checking account of "Countryside Manor, Inc. Debtor In Possession Account." The court records do not indicate that the debtor was authorized to issue checks to the defendant for the parts delivered to Infustek.
The plaintiff contends these facts establish that the plaintiff is entitled to summary judgment to avoid the two check transfers and to recover the sum of $8,500 from the defendant. The defendant objects to the motion and lists the following material facts as to which it states there is a genuine issue to be tried:
"1. Whether the transfers from the Debtor to the Defendant occurred in the ordinary course of business pursuant to 11 U.S.C. § 363(c)(1).
2. Whether the cash collateral expenditures authorized by the Court included the expenditures for the products and services purchased from the Defendant.
3. Whether Barry Hultman was acting as an agent servant or employee of the Debtor in purchasing goods and services from the Defendant.
*446 4. Whether the goods and services purchased by the Defendant benefitted (sic) the bankruptcy estate.
5. The value of the molds manufactured by the Defendant."
Defendant's Local Rule 9(c)(2) Statement at 2.
The defendant submitted the single affidavit of Timothy Brown ("Brown"), its vice-president, in support of its argument that there are genuine issues to be tried. In the affidavit, Brown averred that he had no knowledge of what Infustek did except what Hultman told him; that Hultman identified his company as Infustek, which operated a nursing home; that Hultman told the affiant that the parts Hultman ordered from the defendant were to be used in an individual patient medicine delivery system that Hultman had designed or invented; that the parts the defendant produced were delivered to Hultman and have never been returned; that the defendant retains the molds from which the parts were generated; that Brown had no knowledge of the existence of the debtor or the pendency of the bankruptcy proceeding from February, 1996 to June, 1996; and that he personally did not see the checks which identified the debtor as a debtor in possession. The additional materials the defendant attached to its objection are of no significance to the issue before the court.
III.
Fed.R.Civ.P. 56(c), made applicable in bankruptcy proceedings by Fed. R.Bankr.P. 7056, provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The court in deciding a summary judgment motion "`cannot try issues of fact, but can only determine whether there are issues of fact to be tried.'" R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 77 (2d Cir.1984) (quoting Empire Electronics Co. v. United States, 311 F.2d 175, 179 (2d Cir.1962)) (emphasis in original). Facts asserted in affidavits by the party opposing the motion are taken as true. First Nat'l Bank of Cincinnati v. Pepper, 454 F.2d 626, 629 (2d Cir.1972). The moving party has the burden of proving that no material facts are in dispute, and in considering such a motion, the court "must `resolve all ambiguities and draw all reasonable inferences in favor' of the nonmoving party. . . ." Mikinberg v. Baltic S.S. Co., 988 F.2d 327, 330 (2d Cir.1993) (quoting Heyman v. Commerce and Indus. Ins. Co., 524 F.2d 1317, 1320 (2d Cir.1975)). A dispute concerning a material fact is considered genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986).
IV.
The court finds that there is no genuine issue as to the material facts sufficient to establish the elements of an avoidance action under § 549 that there was an unauthorized post-petition transfer of property of the estate. The defendant concedes that it received the checks at issue, that they are drawn on the account of the debtor-in-possession, that they were received after the bankruptcy petition was filed, and that purchase of the parts made by the defendant are not referred to in the court's cash collateral orders.
The burden of proving that the transfer at issue was valid, therefore, shifts to the defendant. Fed.R.Bankr.P. 6001 ("Any entity asserting the validity of a transfer under § 549 of the Code shall have the burden of proof."). The defendant argues that Hultman's involvement with both Infustek and the debtor raises the possibility that the parts produced by the defendant for Infustek were actually for the use and benefit of the debtor, and *447 that, if so, the transfer may have occurred in the "ordinary course of business", or that it may have been a purchase of "supplies" authorized under the court's cash collateral orders. The defendant, however, provides no evidence sufficient to raise a genuine issue of fact with regard to these conjectures. "Speculation by itself is not enough to defeat a motion for summary judgment." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 15 (2nd Cir.1986). Fed. R.Civ.P. 56(e) provides, "When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial."
With the decisional law regarding Rule 56(c) in mind, and accepting as true the factual allegations in Brown's affidavit, the court finds that the defendant has failed to provide any evidence in support of its theories as to the existence of genuine issues of fact. The circumstances that the defendant, as the initial transferee of the two checks, received the checks for value, in good faith and without knowledge of the voidability of the transfers, do not represent a defense to the plaintiff's action. Congress has specifically provided that those defenses have meaning only under the provisions of § 550(b)[5] as to parties other than other than initial transferees. These defenses do not apply to avoided transfers under § 550(a). The plaintiff is entitled to a judgment as a matter of law.
The defendant argues in its brief that should the court find the defendant liable, the court, on equitable grounds, "should limit [the defendant's] liability to a transfer of the molds to the bankruptcy estate." (Defendant's Brief at 14.) The authorities which the defendant cites to support this argument are inapposite. See, e.g., Gropper v. Unitrac, (In re Fabric Buys of Jericho, Inc.), 33 B.R. 334 (Bankr.S.D.N.Y. 1983) (use of attorney's escrow account as conduit did not make attorney an initial transferee). No issue of the defendant being a "conduit" is presented in this proceeding.
V.
The complaint requests costs and interest be awarded the plaintiff, if the plaintiff prevails, with interest computed from the date of demand. The materials the plaintiff submitted do not include any information as to the date of demand. The court will use the date of the filing of the complaint (February 9, 1998) as the date of demand and, in its discretion, will award interest from that date. See Hirsch v. Steinberg (In re Colonial Realty Co.), 226 B.R. 513, 526 (Bankr.D.Conn.1998) (prejudgment interest warranted to compensate for the value over time of the amount recovered unless such recovery unfair or inequitable interest rate established by 28 U.S.C. § 1961 is appropriate interest rate.)
VI.
CONCLUSION
The plaintiff's motion for summary judgment is granted, and a judgment will enter that the defendant is liable to the plaintiff for the sum of $8,500, plus interest from February 9, 1998, and costs. It is
SO ORDERED.
NOTES
[1] Section 549(a), in pertinent part, provides:
(a) . . . the trustee may avoid a transfer of property of the estate
(1) made after the commencement of the case; and
. . .
(2)(B) that is not authorized under this title or by the court.
[2] Section 550(a), in pertinent part, provides:
(a) . . . to the extent that a transfer is avoided under section . . . 549 . . . the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from (1) the initial transferee of such transfer. . . .
[3] The court, on August 26, 1999, converted the debtor's Chapter 11 case to one under Chapter 7, and Barbara L. Hankin, Esq. became the Chapter 7 trustee.
[4] Papers filed by the defendant included copies of all court orders specifying the authorized use of cash collateral. The estate contains no nonliened assets.
[5] Section 550(b) provides:
. . .
(b) The trustee may not recover under subsection (a)(2)of this section from
(1) a [subsequent] transferee that takes for value, including satisfaction or securing of present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided; or
(2) any immediate or mediate good faith transferee of such transferee. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1299133/ | 315 N.W.2d 215 (1982)
Edward JOHNSON, Respondent (51913), Appellant (51964),
v.
Edward J. DIRKSWAGER, Jr., as Commissioner of the Minnesota Department of Public Welfare, et al., Appellants (51913), Respondents (51964).
Nos. 51913, 51964.
Supreme Court of Minnesota.
January 15, 1982.
*217 Warren Spannaus, Atty. Gen., and David McKenna, Sp. Asst. Atty. Gen., St. Paul, Marshall & Savage and Joseph B. Marshall, Circle Pines, for appellants.
Collins, Buckley, Sauntry & Haugh and Theodore J. Collins, St. Paul, for respondents.
Thomas W. Foley, County Atty., and Stephen F. Befort, Asst. County Atty., St. Paul, for amicus curiae Ramsey County.
Tanick & Heins and Marshall H. Tanick, Minneapolis, for amicus curiae MCLU.
Patricia Hirl, St. Paul, for amicus curiae Newspaper Ass'n.
Norton Armour, Minneapolis, for amicus curiae Mpls. Star & Tribune.
David Donnelly, St. Paul, for amicus curiae Northwest Publications, Inc.
Robert J. Alfton, City Atty., Minneapolis, for amicus curiae City of Minneapolis.
Edward P. Starr, City Atty., David W. Nord and Beryl A. Nord, Asst. City Atty., St. Paul, for amicus curiae City of St. Paul.
Heard, considered and decided by the court en banc.
OPINION
SIMONETT, Justice.
A jury found that defendant State of Minnesota and its Commissioner of Public Welfare had defamed plaintiff, one of its employees, and awarded damages of $150,000. Defendants appeal from a denial of their motion for judgment notwithstanding the verdict or a new trial. Plaintiff cross-appeals the order reducing his damages to $100,000 by virtue of Minn.Stat. § 3.736 (1980) and finding the commissioner liable only in his official capacity. Finding the defamation was privileged, we reverse and order judgment entered in favor of defendants.
On May 16, 1978, defendant Edward J. Dirkswager, Jr., Commissioner of Public Welfare, had a telephone interview with Eric Black, a reporter with the Minneapolis Tribune. The commissioner told the reporter that plaintiff Edward Johnson had been terminated that day from his position as an assistant group supervisor at the Willmar State Hospital and that the termination was for "sexual improprieties." The next day an article appeared in the Minneapolis Tribune, written by Black, reporting that Johnson and a fellow employee had been fired the day before, that the commissioner had said the firing was for "sexual improprieties" occurring in 1970, but had declined to be more specific; that Johnson denied the allegations; and that Johnson's attorney would request a civil service hearing to refute the charges. The article quoted a state legislator as saying Johnson would not be charged criminally because the statute of limitations had expired.
Johnson did contest his termination. Five months later, after a hearing, Johnson was cleared of all charges and reinstated to his job. This result was affirmed by the state Department of Personnel and the district court and summarily affirmed by this court on January 21, 1981.
Johnson started this lawsuit in December 1978, alleging counts of breach of contract, negligence, defamation and a civil rights action under 42 U.S.C. § 1983 (1981). By special verdict the jury found liability for defamation. It also found, however, that defendants had not acted outside the limits of their lawful authority under Minn.Stat. § 43.24 (1980), so the civil rights claim failed.[1]
On appeal, defendants raise a multitude of issues and defenses: (1) the commissioner, as a cabinet-level official, had an absolute *218 common-law privilege to make a defamatory statement in connection with informing the public of his official actions; (2) the privilege is absolute not only because of the commissioner's high level position but because the facts of termination were public data which the commissioner, under the Data Privacy Act, was required to make available to the public; (3) in any event, the commissioner had a qualified privilege, that plaintiff Johnson was a "public figure" embroiled in a matter of public interest, so that the requirement of "constitutional malice" the statement being made with knowledge of its falsity or with reckless disregard of the truth was not proven; or (4) if the commissioner was not a "public figure," there was no proof of common-law actual malice as a matter of law; and, finally, (5) plaintiff's claim is barred by the state Tort Claims Act, since defendants were engaged in a discretionary function and in exercising due care in the execution of a valid statute, the Data Privacy Act.
We need not discuss all of these issues and their many ramifications. It is enough to dispose of this case that we discuss only the truthfulness of the defamatory statement and the existence of an absolute privilege, particularly in the context of the Data Privacy Act and the Tort Claims Act.
I.
Plaintiff's entire case for defamation hinges on Commissioner Dirkswager's statement to newspaper reporter Black that Edward Johnson had been "terminated for sexual improprieties." For this communication to be actionable, it must both defame and be untrue. "[T]rue statements, however disparaging, are not actionable." Stuempges v. Parke, Davis & Co., 297 N.W.2d 252, 255 (Minn.1980). Plainly, the communication defames, but is it untrue? We find this threshold question, though not raised by appellants, to be troublesome.
The jury found the communication was not substantially true. It is apparent from the record, however, that notwithstanding the wording of the special verdict question,[2] the jury understood it was deciding whether, in fact, Johnson had engaged in the alleged sexual improprieties and not whether, in fact, the reason for termination was sexual improprieties a fact, of course, which was admitted.[3] Both parties called witnesses on the issue of whether or not the sexual misconduct had occurred. Thus the defamation trial became, to some extent, a retrial of the termination proceedings, with the jury knowing that Johnson had been exonerated previously but being told they were not to consider this fact.
There seems to be little authority as to whether truth as a defense goes to the verbal accuracy of the statement (Johnson is terminated for sexual improprieties) or must go to the underlying implication of *219 the statement (Johnson engaged in sexual improprieties; therefore, he is terminated). An English case observes, "The announcement that A is charged with murder cannot per se mean that he is guilty of murder. A fortiori the announcement that the police are making inquiries about him in connection with a murder cannot per se mean that he is guilty of murder." Lewis v. Daily Telegraph Ltd., 1 Q.B. 340, 374 (1963), Holroyd, Pearce, L.J. (C.A.).
Although the truth defense is a threshold issue which we believe should be noted, we decline to base our decision on this issue.[4] The issue has not been raised by appellants nor briefed. We choose, instead, to rest our decision on absolute privilege, the next issue to be discussed.
II.
Considering Dirkswager's communication to be false as well as defaming, defendants first argue that the commissioner is entitled to an absolute privilege to make the communication. Whether an absolute privilege should be extended to public executive officials is a matter of first impression in this state. We conclude an absolute privilege does exist here.[5]
To discuss this issue properly, we first need to elaborate on the facts. Throughout 1977, as a result of an inquiry by a state legislator, an investigation was being conducted by agents of the Minnesota Bureau of Criminal Apprehension into allegations of patient abuse by staff employees at the Willmar State Hospital. Several employees were involved. As part of the investigation, Johnson was implicated in connection with events that were claimed to have occurred 7 years earlier, in 1970. Indeed, it was learned that those same allegations about Johnson had been the subject of an in-house investigation by hospital officials in 1974. There being no supporting evidence for the allegations, the matter was simply left open, with Johnson to be kept under observation.
The BCA agents interviewed four hospital employees and eleven persons who had been patients at the time of the alleged incidents. Summaries of those interviews were submitted to the county attorney for Kandiyohi County, who concluded that there was sufficient evidence to provide probable cause for criminal charges, but that the statute of limitations had run. The investigation report was forwarded to attorney Barbara Gill of the Attorney General's office, who read the report and then presented it to Commissioner Dirkswager. Dirkswager read the report, discussed it with the Willmar State Hospital administrator, attorney Barbara Gill and others, and also asked his deputy commissioner, James Hiniker, to read it. Hiniker sent a state tort claims officer to talk to the BCA investigators, who reported that the BCA agents considered the former patients making the accusation to be credible. Hiniker recommended to the commissioner that Johnson be terminated.
On the basis of these developments, and after he "worried a lot," Dirkswager decided Johnson should be fired. Although he considered the 1974 in-house investigation which had cleared Johnson, he had misgivings about it, particularly in view of the ineffective manner in which, in Dirkswager's *220 opinion, the hospital administration had handled similar matters in the past. Dirkswager testified that his decision was made because of his concern for the welfare of the patients.
Johnson was first given an opportunity to resign, which he refused. On May 16, 1978, Johnson was given his termination letter.[6] Dirkswager, knowing that he would be receiving inquiries from the newspaper reporter, asked attorney Barbara Gill if, under the Data Privacy Act, he had a duty to answer the reporter's questions about the dismissal once Johnson had received the termination letter. Gill advised him that the letter could be classified as a public document once Johnson had received it and that, therefore, the information contained within it was public.
It was in this setting, then, that Dirkswager talked by telephone with newspaper reporter Black later in the day on May 16 and gave him the information which gives rise to this lawsuit. It is in this setting that defendants claim an absolute privilege.
1. We have held that participants in judicial and legislative proceedings are entitled to an absolute privilege, a grant of total immunity for false and defamatory statements regardless of the nature or intent of the speaker. See, e.g., Matthis v. Kennedy, 243 Minn. 219, 67 N.W.2d 413 (1954); Minn.Const. art. 4, § 10. We have not, however, considered the applicability of an absolute privilege to executive officials, and Johnson, citing our caveat in Matthis that the privilege should be "confined within narrow limits," urges us not to extend the privilege to apply here.
We also said in Matthis that the absolute privilege should be confined to situations where the public service or the administration of justice requires it, keeping in mind that the purpose of the privilege is not so much to protect public officials but to promote the public good, i.e., to keep the public informed of the public's business. Thus Restatement (Second) of Torts § 591 (1977), says:
An absolute privilege to publish defamatory matter concerning another in communications made in the performance of his official duties exists for
* * * * * *
(b) a governor or other superior executive officers of a state.
Comment c to this section says, "All of the state courts that have considered the question have agreed that the absolute privilege stated in Clause (b) protects the superior officers of the state governments, including at least the governor, the attorney-general or the heads of state departments whose rank is the equivalent of cabinet rank in the Federal Government."[7]
2. The Commissioner of the Minnesota Department of Public Welfare clearly, it seems to us, holds a high level, cabinet-equivalent position in state government. The commissioner helps formulate policy and has ultimate administrative responsibility for the state's hospitals and welfare programs, with an annual budget exceeding a billion dollars. He or she is Minnesota's counterpart of the Secretary of the United States Department of Health and Human Services. This case is like Barr v. Matteo, 360 U.S. 564, 79 S. Ct. 1335, 3 L. Ed. 2d 1434 (1959), in which the United States Supreme *221 Court held that the Acting Director of the Office of Rent Stabilization had an absolute privilege to communicate to the public through a press release the defamatory reasons for the suspension of his deputy director.
3. Johnson argues, however, that the defamation arises out of an employer-employee relationship where no more than a qualified privilege is appropriate, where, then, malice defeats the privilege and allows imposition of liability. See McBride v. Sears, Roebuck & Co., 306 Minn. 93, 235 N.W.2d 371 (1975). Also argues Johnson, the proliferation of government in today's society is a policy reason to restrict, not expand, the immunity of government officials.
We view the question differently. Here the employer is the body politic, the state. More than an individual's employment concerns are involved. Also involved is the administration of the state hospital system, the use of public funds, the execution of public health care policies, and the welfare of adolescent patients in the state hospitals. The public has more than an idle interest in this public business. One way to hold public officials accountable for their actions is to subject them to lawsuits. But in instances like this one, it would seem government can best be held accountable by assuring that its top-level representatives have no excuse not to speak out in the performance of their duties. If they speak out falsely and from ill motives, it is expected that their remarks will be exposed for what they are worth. It seems to us that the same policy considerations that warrant an absolute privilege for those in the legislative and judicial branches of government apply to the executive branch.
We do not have before us the nature or extent of any privilege for inferior governmental officers. We are dealing, it must be remembered, only with top-level, cabinet-equivalent executives and, as to them, the observations of the United States Supreme Court in Barr v. Matteo are pertinent:
It has been thought important that officials of government should be free to exercise their duties unembarrassed by the fear of damage suits in respect of acts done in the course of their duties suits which would consume time and energies which would otherwise be devoted to governmental service and the threat of which might appreciably inhibit the fearless, vigorous, and effective administration of policies of government.
360 U.S. 564, 571, 79 S. Ct. 1335, 1339, 3 L. Ed. 2d 1434.
What is involved here, of course, is the difficult and sensitive task of balancing the public's right to know with a defamed individual's right to redress. In this instance, we conclude the balance is to be struck in favor of the public's right to know.
4. Even if an absolute privilege exists, Johnson then contends it must be denied here because the communication was not one of the commissioner's duties; that the commissioner usurped the duties of the Chief Executive Officer of the Willmar State Hospital, who was the proper person to deal with Johnson and with the press about Johnson. We think not. The interest in the controversy about the Willmar State Hospital was statewide, the ability of the local administrator to handle it was in doubt, and the commissioner was within the ambit of his duties to act as he did.
5. We find in the Data Privacy Act confirmation of our conclusion that an absolute privilege exists. Minn.Stat. §§ 15.162-.1671 (1978), amended and renamed in 1979 as the Minnesota Government Data Practices Act, Minn.Stat. §§ 15.1611-.1698 (1980), and amended again by 1981 Minn. Laws, ch. 311. This case, of course, arose under the Act as it was in 1978. The commissioner argues that once the termination letter was delivered and was "public," he had no choice but to release the contents of that letter. We agree. In this instance, the legislature, too, in balancing the public's right to know with the individual's right to privacy, has struck the balance in favor of the public.
Under the Data Privacy/Practices Act, all government data is public unless classified otherwise, that is, classified as not public *222 or, in the case of individuals, either private or confidential. Section 15.162, subds. 3, 5, 5a (1978). All public records must be accessible for inspection and copying at reasonable times by any person. Section 15.17, subd. 4 (1978). For violation of the Act, the responsible authority, such as the commissioner, could be liable for both civil and criminal penalties, as well as loss of his or her job. Sections 15.166, 15.167 (1978).
When Commissioner Dirkswager spoke to the newspaper reporter in May 1978, he had three kinds of data before him: the records of the Willmar State Hospital concerning the complaining patients and the personnel information on employee Johnson; the investigation reports of the Bureau of Criminal Apprehension; and any records of his own department, including the letter of termination to Johnson. The sole question before us is whether the commissioner was required to disclose the contents of the termination to the newspaper reporter.[8]
6. Johnson concedes the letter of termination itself became public data upon its issuance to him.[9] We agree. Johnson also concedes the commissioner could then have given a copy of the letter to the newspaper reporter. Johnson argues, however, that "data," when referred to in the Act, means only information that is in some kind of "physical form," information capable of "storage." Section 15.162, subd. 3 (1978). In other words, as we understand Johnson's argument, only physical data, such as the letter itself, could be made public, but what the commissioner might have in his mind or what the commissioner might say about what was in the letter could not be made public.
We think this distinction is artificial. If the letter is public, so are its contents. While it may be true, as Johnson argues, that nothing in the Data Privacy Act requires the commissioner to speak to a reporter, certainly the commissioner might do so and is often expected to do so, and if he does, it is no violation of the Act to tell the reporter about the contents of a public document.[10] We so hold.
7. So here, where the defamatory statement appears in the context of the *223 mandate of the Data Privacy Act, further support is afforded for an absolute privilege, since "one who is required by law to publish defamatory matter is absolutely privileged to publish it." Restatement (Second) of Torts § 592A (1977). We note, too, that the Minnesota Tort Claims Act declares "that the state and its employees are not liable for the following losses: (a) Any loss caused by an act or omission of a state employee exercising due care in the execution of a valid or invalid statute or regulation * * *." Minn.Stat. § 3.736, subd. 3 (1980). We conclude that this protection against liability applies to defendant Dirkswager since it appears, as a matter of law, that in disclosing the contents of the termination letter he exercised due care in the execution of the Data Privacy Act. This being so, the statutory language as above quoted also protects the defendant State of Minnesota from liability.
To sum up, we hold as a matter of law that the Commissioner of Public Welfare, as a top-level cabinet-type official in the executive branch of state government, has an absolute privilege, in the performance of his official duties, to communicate defamatory material. In this case, where the defamatory material appears in a letter terminating an employee, we hold also that the absolute privilege prevails because the government's representative was required by law (the Data Privacy Act) to disclose the defamatory material and because, by exercising due care in the execution of that law, the state and its representative are further excluded from liability under the Minnesota Tort Claims Act. We do not reach the many other issues raised by both parties.
One might debate the wisdom of the commissioner's decision to terminate based on the information he then had available, but that is not the issue here. We think it bears repeating that Johnson has been exonerated of all charges against him by not just one but two triers of fact. This is his vindication. He has been reinstated to his position with back pay. In yielding his right to recover something more by way of defamation damages, he yields to the needs of a free, democratic society to be apprised of the conduct of the public business by its public officials.
Reversed with directions to enter judgment for defendants.
KELLEY, J., not having been a member of this court at the time of the argument and submission, took no part in the consideration or decision of this case.
NOTES
[1] Minn.Stat. § 43.24 (1980) sets out the procedure for removal of a permanent employee in the state's classified service.
[2] The jury was asked:
1] Was the communication by Edward J. Dirkswager, Jr., to Eric Black, advising Black that Edward Johnson had been terminated for "sexual improprieties", defamatory on its face? [Yes or No] Yes
2] Did Edward J. Dirkswager, Jr., negligently communicate to Eric Black the statement recited in Question No. 1? [Yes or No] No
3] Was the communication recited in Question No. 1 substantially true? [Yes or No] No
The trial court answered the first question "yes," holding as a matter of law that the communication was defamatory on its face. The jury then answered Question No. 3 "no." The verdict form then went on:
4] Did Edward J. Dirkswager, Jr., have a qualified privilege to communicate to Eric Black the statement recited in Question No. 1? [Yes or No] No
5] Was the communication from Edward J. Dirkswager, Jr., to Eric Black, recited in Question No. 1, actuated by actual malice? [Yes or No] Yes
In subsequent questions the jury awarded $150,000 compensatory damages but no punitive damages. As stated, on the civil rights claim it found, in answering a further question, that defendants did not act outside their lawful authority.
[3] The court file shows the jurors were also puzzled, since during their deliberations they submitted this question: "Question 3. What does this refer to: a) Is the communication true or b) Are the allegations true."
[4] In his brief plaintiff Johnson considers it significant that the commissioner did not preface his phrase "sexual improprieties" with the word "alleged," but we fail to see any significance in this. It is clear from a reading of the Minneapolis Tribune article, as well as from reporter Black's testimony, that Black understood that the commissioner was stating only allegations of misconduct. The newspaper article, in its second paragraph, says the commissioner declined to be more specific "about the allegations," and later in the article it is said, "Ed Johnson was fired Tuesday for alleged sexual impropriety in a 1970 incident." Indeed, at oral argument, plaintiff's counsel conceded that the failure of Dirkswager to have qualified his statement with the word "alleged" was not essential, since it was plaintiff's position that even if the commissioner had said "alleged sexual improprieties" the communication would still have been defamatory.
[5] The trial court was doubtful that an absolute privilege existed and properly decided, in order to avoid a retrial in the event there was no absolute privilege, to submit the issue of a qualified privilege to the jury.
[6] This letter was given pursuant to Minn.Stat. § 43.24 (1980), which provides that before discharge is taken for "just cause," the employee shall be furnished with a written statement "setting forth the reasons for the disciplinary action." The letter stated that the suspension and dismissal were for inappropriate sexual behavior with adolescent patients, cited an incident in January 1970, another in March 1973, and a course of conduct since 1970, specifying kinds of specific conduct. The letter explained that a reply could be made in 5 days to the hospital's chief executive officer and that a hearing could be requested to appeal the action.
[7] An absolute privilege was afforded in the following cases: Ryan v. Wilson, 231 Iowa 33, 300 N.W. 707 (1941) (governor); Blair v. Walker, 64 Ill. 2d 1, 349 N.E.2d 385 (1976) (governor); Hackworth v. Larson, 83 S.D. 674, 165 N.W.2d 705 (1969) (secretary of state); Gold Seal Chinchillas, Inc. v. State of Washington, 69 Wash.2d 828, 420 P.2d 698 (1966) (attorney general); Matson v. Margiotti, 371 Pa. 188, 88 A.2d 892 (1952) (attorney general).
[8] The letter of termination, in referring to instances of misconduct with minor residents, mentioned no names of patients. As to two incidents, the patient was referred to simply as "resident O."
[9] Minn.Stat. § 15.162, subd. 2a (1978), provided that data on an individual was confidential if "collected by a civil or criminal investigative agency as part of an active investigation undertaken for the purpose of the commencement of a legal action." One might argue, as apparently the state does, that the letter of termination might be confidential since based on data collected in the investigation but it lost its confidentiality when the investigation, or at least that part of it on which the decision to terminate was made, ceased to be "active," which was when the commissioner decided to terminate. Johnson does not contend otherwise.
In 1979 the legislature amended the Act to provide that certain "personnel data" is public, and included in such public personnel data is "the status of any complaints or charges against the employee, whether or not the complaint or charge resulted in a disciplinary action." Minn.Stat. § 15.1692, subd. 2 (1980). Clearly, under this amendment the letter of termination would have been public.
[10] Of course, if an oral summary of the contents of the letter is given, it must be accurate. Such was the case here. It is evident the commissioner chose to summarize the contents of the letter for the newspaper reporter to lessen the damaging publicity for Johnson. Rather than give the four specific instances of misconduct, the commissioner simply referred to them as "sexual improprieties." It is worth noting that the amended Act itself seems to have in mind more than data in physical form, since it not only permits public data to be inspected and copied, but also, "if the person requests, he shall be informed of the data's meaning." Section 15.1621, subd. 3 (1980).
Johnson says that the commissioner "misconveyed" the contents of the termination letter to Black, but this is not so. Johnson argues that the commissioner did not make clear that the allegations arose from "an incomplete investigation, consisting of unsworn-to accusations unsubstantiated by witnesses, or physical evidence involving an alleged action which had occurred some eight years earlier * * *." But none of this was in the termination letter, except that the main accusation arose out of conduct in 1970 and Black was told this. Johnson is not arguing the accuracy of the termination letter and the portrayal of its contents but whether there was probable cause to issue the letter in the first place a different question. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2637157/ | 171 P.3d 599 (2007)
KAMAN AEROSPACE CORPORATION, a Delaware corporation, Plaintiff/Counterdefendant/Appellee/Cross-Appellant,
v.
The ARIZONA BOARD OF REGENTS, University of Arizona, a political subdivision of the State of Arizona, Defendant/Counterclaimant/Appellant/Cross-Appellee.
No. 2 CA-CV 2006-0177.
Court of Appeals of Arizona, Division 2, Department A.
August 23, 2007.
Opinion Denying Reconsideration November 8, 2007.
*600 Fennemore Craig, P.C. by George O. Krauja and Erwin D. Kratz, Tucson, Attorneys for Plaintiff/Counterdefendant/Appellee/Cross-Appellant.
Lewis and Roca LLP by Brian J. Pollock, Lawrence A. Kasten, and Dale A. Danneman, *601 Phoenix, Attorneys for Defendant/Counter-claimant/Appellant/Cross-Appellee.
OPINION
BRAMMER, Judge.
¶ 1 The Arizona Board of Regents (ABOR)[1] appeals from a judgment entered after a jury rendered its verdict in favor of Kaman Aerospace Corporation (Kaman) on ABOR's counterclaim for breach of contract and Kaman's breach of contract claim, awarding Kaman $0. ABOR asserts the trial court erred when it denied ABOR's motions for judgment as a matter of law on Kaman's claim because there was no written agreement obligating it to compensate Kaman for additional work and because Kaman had failed to prove an authorized signatory had executed contract modifications on ABOR's behalf. ABOR contends that Kaman failed to prove the damages element of its claim and failed to establish that ABOR's breach was material. ABOR also argues Kaman's breach of contract claim was untimely and that the trial court erred in denying ABOR's motions for a new trial on that claim and on the jury's verdict in Kaman's favor on ABOR's counterclaim for damages. Kaman cross-appeals, asserting the court erred by not awarding it attorney fees as the prevailing party at trial.
Factual and Procedural Background
¶ 2 We view "the evidence in a light most favorable to upholding the jury verdict[s]." Hutcherson v. City of Phoenix, 192 Ariz. 51, ¶ 13, 961 P.2d 449, 451 (1998). ABOR is the governing body of the University of Arizona; the astronomy department of the University "has a research wing called Steward Observatory." The observatory has a mirror laboratory, "a unique facility in the world," that makes large mirrors with "unique properties" to exacting specifications. In March 2003, ABOR entered into a fixed price contract with Lockheed Martin, effective September 2001, for ABOR to "[d]esign, develop, fabricate, assemble, test, deliver, and support integration of a 6.5 [meter] class Collimator" for approximately $32 million. A collimator was described at trial as "a telescope operating in reverse"; it would be used to test the accuracy of space telescopes while they were still on earth.
¶ 3 The mirror laboratory's manager testified "the scope of the project was larger than the observatory could handle alone during the time that Lockheed . . . wanted delivery." Accordingly, ABOR decided to partner with Kaman. ABOR was to provide the mirrors, and Kaman would be responsible for providing support and control components of the collimator.
¶ 4 Kaman and ABOR entered into a written contract on December 20, 2001. It listed a "Firm Fixed Price" of $9,083,269 for the components Kaman was to provide. The contract contained a statement of work (SOW)[2], which described various tasks Kaman was expected to perform, and identified certain "billing milestones" when Kaman was to be compensated for completing various tasks from March 2002 to May 2006. The SOW listed three documents that provided its basis.
¶ 5 Paragraph four of the contract stated the "proposal reflects a fixed price for the effort proposed. In the event that there is a modification to the work scope, a modified level of effort will be indicated in a revised scope of work to be agreed upon by the parties at the time of modification." Part of paragraph two of the "terms and conditions of sale" attached to the contract stated, "[a]fter acceptance by [Kaman] any change of specification/drawings manufacturing process delivery schedule and/or quantity may be made only with [Kaman's] written consent and at a charge which [Kaman] shall determine reasonably sufficient to cover its additional costs."
¶ 6 Eleven modifications were entered into by the parties. Relevant here are modifications two and four. Modification two, dated *602 May 31, 2002, provided a new SOW, now based on six documents, including the original three and "design guidelines" from the University.
¶ 7 Modification number four, dated August 16, 2002, increased the total value of the contract to $12,800,000. This modification included a new "terms and conditions of sale," with a revised paragraph two, that stated in part, "After acceptance by [Kaman] any change of specification/drawings manufacturing process delivery schedule and/or quantity may be made only with both parties' written agreement and at a charge which [Kaman] and [ABOR] shall determine reasonably sufficient to cover any additional costs."
¶ 8 Mark Yokley, the program manager for Kaman, testified that when the parties agreed to the May 2002 SOW, there were ten design guidelines in existence that formed the basis of 222 requirements. Nearly two years later, when Kaman presented its claim to ABOR, Yokley stated there had been forty-six revisions or additions to the design guidelines leading to a total of seventeen design guidelines and 472 requirements, although only sixty-three of the requirements were "really new." Yokley testified twenty-three of the requirements were more difficult to perform.
¶ 9 On December 18, 2003, Kaman gave ABOR a "very preliminary, rough" estimate of what it claimed were additional costs in its "new scope and new/changed requirements list." This proposal listed twenty-eight "new requirement description[s]" and an explanation for each charge, with a "total estimated price impact" of $3,821,400. In January 2004, ABOR wrote a letter to Kaman, rejecting most of Kaman's claims and stating that "most derive from a failure by Kaman to perform to the statement of work and teaming agreement." Twenty-five of the twenty-eight claims were rejected with supporting rationale, two were accepted "pending a full cost proposal," and one was accepted and a new contract was formed with respect to this item, a "dual-use collimator support structure study."
¶ 10 Kaman then assembled a claim, presenting it to ABOR on April 5, 2004. This claim listed twenty-nine separate items at a cost totalling approximately $6.25 million. Three of the claims were accepted by ABOR "pending cost evaluation" with a fourth, the support structure study, having already been accepted. The rest of the claims were rejected by ABOR. In July 2004, Kaman filed a notice of claim through counsel pursuant to A.R.S. § 12-821.01 as to ABOR, stating its "claim can be settled for $6,250,110."
¶ 11 Kaman stopped work on September 17, 2004, and sued ABOR, alleging that "[a]fter the parties agreed to the SOW, [ABOR] changed, increased and added new work scope and work effort requirements," and failed to compensate Kaman for the increased work. Kaman's complaint included counts of breach of contract, negligent misrepresentation, unjust enrichment, and quantum meruit.[3] ABOR filed a counterclaim in which it alleged Kaman had breached the subcontract by failing to fulfill its obligations and by abandoning performance. At the time Kaman sued, ABOR had paid Kaman approximately $9.3 million of the $12.8 million contract.
¶ 12 ABOR also filed a request for a provisional remedy of partial specific performance or for replevin simultaneously with filing its counterclaim. The court granted the request for replevin upon ABOR's posting of a $4 million bond. ABOR also gave Kaman an additional $1.1 million for parts and materials not covered by the replevin order.
¶ 13 ABOR filed a motion for summary judgment in October 2005, arguing the contract between the parties required a written modification and none had been made; any purported oral modification of the contract was impermissible under its terms; and, the ABOR employees that Kaman argued had modified the contract lacked the authority to enter into contracts on behalf of ABOR. Kaman responded that the changes to the design *603 guidelines changed the work it was required to perform, and that the contract between the parties required ABOR to compensate Kaman for this additional work. The court denied ABOR's motion, stating, "a jury could find that since the SOW is based partly on the design guidelines, a significant change to the design guidelines changes Kaman's level of effort, thus triggering either Paragraph 2 of the revised Terms and Conditions or Paragraph 4 of the contract, which calls for modification of Scope of Work." It also found that whether the design guidelines were specifications was a factual issue for the jury.
¶ 14 ABOR filed a second motion for summary judgment in December 2005, arguing that, during the negotiations as to modification two, "Kaman agreed to drop its demand that it could be paid extra for changes to Applicable Documents. . . . [and therefore] Kaman cannot now claim that a modification to [the design guidelines that are a part of the] Applicable Documents could entitle it to extra payments." The court rejected this argument as well, stating that even with this new information, a jury could conclude that "although the University chose to enact changes by characterizing them as revisions to the Design Guidelines, it did not mean that . . . they did not cause significant changes to Kaman's work as specifications."
¶ 15 At the close of Kaman's case, ABOR again moved for judgment, which the trial court denied. After the verdict, ABOR renewed its motion and moved for a new trial, both of which the court denied. This appeal followed.
Discussion
Denial of Judgment as a Matter of Law Kaman's Breach of Contract Claim
¶ 16 ABOR contends the trial court erred in denying its motions for judgment as a matter of law and by allowing the jury to interpret the contract. We review de novo a trial court's ruling on a motion for judgment as a matter of law. Monaco v. HealthPartners of S. Ariz., 196 Ariz. 299, ¶ 6, 995 P.2d 735, 738 (App.1999). Such a "motion should be granted if the facts produced in support of the claim or defense have so little probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim or defense." Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990).
¶ 17 ABOR asserts Kaman's breach of contract claim must fail because "only a designated contracting officer of the State can bind the University." It states, "Kaman has never alleged (and cannot allege) that any officially designated contracting officer ever assented to any agreement, written or otherwise, to pay Kaman more than the fixed price." ABOR contends that, even if changes to the design guidelines could constitute a written agreement, ABOR need not pay for those changes, reasoning that "[n]o University contracting officer was ever involved in (let alone signed) the Design Guidelines [as they] were promulgated by the Steward engineers on the job site."
¶ 18 As stated above, the trial court denied several motions ABOR made for judgment as a matter of law on this issue. At trial during closing arguments, Kaman's counsel stated:
Kaman is not saying that when these program people agreed on technical requirements, technical changes, that a price increase was automatically agreed to, automatically created. But we are saying that when technical changes were made [it] beg[a]n a process that should have resulted in a contracts person ultimately agreeing on a contract modification.
The trial court instructed the jury that, "[o]nly personnel with authority to enter into contracts on behalf of the University of Arizona can bind the University to contractual promises. That is, the University of Arizona cannot be held liable for breaching any contractual promise agreed to by unauthorized personnel."
¶ 19 ABOR Policy Number 3-103(A) states that "University officers designated by the president of the university, as certified to the Executive Director, are authorized to execute contracts and other written instruments on behalf of the Board." Pursuant to this policy, a July 2001 designation by the University's *604 president certified nine officers "as authorized signatories to execute contracts and other written instruments on behalf of The University of Arizona and [ABOR]." Two officers so designated were the Director and Sponsored Contract Officer of the Office of Research and Contract Analysis, positions that were held by Richard Haney and Lee Anne Peters, respectively. The contract between Kaman and ABOR was signed by Peters on behalf of ABOR, and all eleven modifications were signed by either her or Haney. The changes to the design guidelines were not signed by any University official with contracting authority.[4]
¶ 20 ABOR contends that the state "can never be bound by unauthorized acts of its employees," a statement that Kaman does not dispute. ABOR is a state agency. City of Tempe v. Ariz. Bd. of Regents, 11 Ariz. App. 24, 25, 461 P.2d 503, 504 (1969). Arizona law is clear that "persons dealing with public officers are bound, at their peril, to know the extent and limits of their power and that no right can be acquired except that predicated upon authorized acts of such officers." Pinal County v. Pomeroy, 60 Ariz. 448, 455, 139 P.2d 451, 454-55 (1943); Bigler v. Graham County, 128 Ariz. 474, 477, 626 P.2d 1106, 1109 (App.1981) (same). Other jurisdictions have reached similar conclusions. See, e.g., Kondos v. W. Va. Bd. of Regents, 318 F. Supp. 394, 397 (S.D.W.Va. 1970) ("[I]t has long been firmly established in West Virginia that the state may not be held liable for illegal or unauthorized acts of its officers."); People ex rel. Dunbar v. Dist. Court In and For Chaffee County, 127 Colo. 280, 255 P.2d 743, 748 (1953) ("`The state can act only by its agents, duly authorized by law; and since public officers cannot bind the government they represent by acts outside their express authority, even though within their apparent powers, it is only where officers of the state perform their acts agreeably to the authority delegated them that the state is bound.'"), quoting State ex rel. Caton v. Indus. Comm'n, 76 Ohio App. 249, 61 N.E.2d 806, 807 (1945). And the United States Supreme Court has stated, "Whatever the form in which the Government functions, anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority." Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384, 68 S. Ct. 1, 3, 92 L. Ed. 10 (1947).[5]
¶ 21 Kaman responds that
[t]he parties' conduct throughout the course of performing the contract shows neither side contemplated changes to the written Design Guidelines would require a written contract modification, or would need to be signed by someone in the University contract administration office such Design Guidelines changes were left to . . . the technical program personnel.
However, Kaman sought an additional six million dollars for work it thought it had performed or would need to perform outside of the SOW. If it wanted to be compensated for the work, it needed to have had someone with authority to bind ABOR sign a new contract or modification. For example, when the parties entered into modification number four, which increased the value of the contract by nearly $4 million dollars, Peters signed the agreement, binding ABOR.
¶ 22 Kaman relies on a single case in its response to ABOR's argument, Godbey v. Roosevelt School Dist. No. 66 of Maricopa County, 131 Ariz. 13, 21, 638 P.2d 235, 243 (App.1981), for the proposition that "the acts of the parties under the contract, before disputes arise, are the best evidence of the meaning of doubtful contractual terms." It also argues "[t]he University's conduct proves the parties['] intent when they made the contract."[6]
*605 ¶ 23 But conduct of the parties is not relevant if no authorized official bound ABOR to pay for the work. In a similar factual circumstance in the context of sovereign immunity, the Maryland Court of Special Appeals rejected an argument that a governmental entity's course of conduct had modified a written contract and had bound the state, even if that course of conduct was identical to the parties' intent at the time of entering into the contract. Dep't of Pub. Safety & Corr. Servs. v. ARA Health Servs., Inc. (ARA I), 107 Md.App. 445, 668 A.2d 960 (1995). The Maryland Court of Appeals affirmed. ARA Health Servs., Inc. v. Dep't of Pub. Safety & Corr. Servs. (ARA II), 344 Md. 85, 685 A.2d 435 (1996).[7] There, ARA, a provider of health care services to prison inmates, sought reimbursement from the Department for the cost of Acquired Immune Deficiency Syndrome (AIDS) medication. ARA I, 668 A.2d at 962. ARA had entered into a contract with the Department, which had been approved as required by the Board of Public Works, to provide health care services to Maryland inmates. Id. at 963-64; see also ARA II, 685 A.2d at 436-37. The contract also provided ARA was to receive additional compensation for AIDS medication delivered to all inmates who were hospitalized, but was not to get this excess compensation for medication dispensed in correctional facilities. ARA I, 668 A.2d at 963-64. A subsequent and retroactive modification approved by the Board, however, provided that the Department would reimburse ARA for all costs of AIDS medication no matter where the prisoners were located, but failed to account for an eighteen-month period starting from the beginning of the initial contract and ending on the effective date of the modification. Id. at 964; see also ARA II, 685 A.2d at 437. Regardless, ARA had already been paid roughly $135,000 by the Department in compensation for the eighteen-month period. ARA I, 668 A.2d at 964.
¶ 24 State auditors objected to the payment and later withheld money in that amount, and an administrative agency rejected ARA's claim for reimbursement. Id. The trial court reversed, finding that although the contract was unambiguous on its face and would not entitle ARA to reimbursement for the eighteen-month period, by their course of conduct the parties had modified the contract. Id. at 964-65. The court relied on the Department's payments to ARA for the eighteen-month period and its attempt to defend its policy to the auditors, even going so far as to state that it "had contemplated from the beginning that [it] would reimburse [ARA] for its expenses in providing AIDS medication . . . [and] that the $135,446.00 in disputed payments were in accord with the intent of the parties." Id.
¶ 25 On appeal, ARA contended that the parties had modified the contract by their conduct. Id. at 965. The Department argued, however, that ARA's claim was "barred by sovereign immunity because its officials who engaged in the conduct that allegedly modified its Contract . . . had no authority to do so."[8]Id. at 967. The appellate court looked at a number of Maryland statutes and regulations and found the Department lacked the authority to create the modification because the contract had not been subjected to the required approval procedures. Id. at 968. The court held that, "[i]n the absence of actual authority, the State may avoid the contract, regardless of the reasonableness of the beliefs of the other party." Id. at 969. As noted above, the Maryland Court of Appeals affirmed, stating, "The purported modification was not approved by the Board of Public Works, and thus exceeded the scope of the [Department's] authority. Furthermore, as between [ARA] and the public generally, [ARA] bears the risk of injury posed by the unauthorized conduct of a public agent." ARA II, 685 A.2d at 440.
*606 ¶ 26 ARA I is relevant for several reasons. Initially, it demonstrates that a course of conduct by unauthorized state officials cannot bind the state. This result obtains despite the evidence of the Department's unambiguous intent to compensate ARA for medication it provided during the eighteen-month period; indeed, the Department argued this intent to the state auditors. This case also shows that, absent approval by an authorized official, the state simply could not be required to compensate ARA, regardless of what the parties had intended. Similarly here, the Steward engineers could not bind ABOR in contract, even if, when they changed the design guidelines, they had intended ABOR would be bound to pay additional costs to Kaman.
¶ 27 Nothing in paragraph two of the terms and conditions changes this result. This paragraph provides: "After acceptance by [Kaman] any change of specification/drawings manufacturing process delivery schedule and/or quantity may be made only with both parties' written agreement and at a charge which [Kaman] and [ABOR] shall determine reasonably sufficient to cover any additional costs." Kaman argues this language bound ABOR to a process by which a Steward engineer would agree to a change to design guidelines, and at some later time an ABOR officer with contracting authority would evaluate and accept Kaman's claim for the work. Thus, under Kaman's interpretation, a design guideline change agreed to by engineers for the respective parties would bind ABOR to negotiate and agree on a reasonable price for the change.
¶ 28 However, Kaman's interpretation cannot overcome the fact that, until an ABOR officer with contracting authority executed a document embodying both the change and its cost, ABOR was not bound. Furthermore, although an ABOR official with contracting authority agreed to the language in paragraph two, we cannot conclude such a contractual provision could further delegate contracting authority to the engineers at the observatory. Any such delegation would be contrary to ABOR Policy Number 3-103(A), which only provides for the president to "delegate his/her authority to execute contracts . . . without certification to the Executive Director," and even the president can only delegate this authority for obligations under $10,000 and when it "does not unduly expose the Board or the university to financial loss." See Clay v. Ariz. Interscholastic Ass'n, Inc., 161 Ariz. 474, 476, 779 P.2d 349, 351 (1989) ("[A]n [administrative] agency must follow its own rules and regulations; to do otherwise is unlawful."); Porta House, Inc. v. Scottsdale Auto Lease, Inc., 120 Ariz. 115, 119, 584 P.2d 579, 583 (App.1978) (persons dealing with public entity "charged with notice" of extent and limits of its power); Sch. Dist. No. One of Pima County v. Lohr, 17 Ariz.App. 438, 439, 498 P.2d 512, 513 (App.1972) (same); see also Schaefer v. Anne Arundel County, Md., 17 F.3d 711, 713 (4th Cir.1994) (governmental entity's authorized purchasing agent had no power to delegate authority to others to sign contracts); Peck v. Board of Ed. of Yuma Union High Sch. Dist., 126 Ariz. 113, 115, 612 P.2d 1076, 1078 (App.1980) (school board cannot delegate functions to superintendent when it "would circumvent the language of the statute").
¶ 29 "The same principles of construction that apply to statutes also apply to administrative rules and regulations," Kimble v. City of Page, 199 Ariz. 562, ¶ 19, 20 P.3d 605, 608 (App.2001), and a public entity's regulations, if consistent with its statutory scheme, "are entitled to be given the force and effect of law," Civil Service Commission of City of Tucson v. Foley, 75 Ariz. 364, 368-69, 257 P.2d 384, 387 (1953). Therefore, ABOR officials with contracting authority could not delegate contract-modification authority to the Steward engineers, regardless of the language of paragraph two. Moreover, even if a contracting officer could delegate his or her authority, nothing in the contract clearly does so here. See Dunbar, 255 P.2d at 748 ("`Public officers cannot bind the government they represent by acts outside their express authority.'"), quoting Caton, 61 N.E.2d at 807; Lutzken v. City of Rochester, 7 A.D.2d 498, 501, 184 N.Y.S.2d 483, 487 (1959) ("[W]here there is a lack of authority on the part of agents of a [governmental entity] to create a liability, except by compliance with well-established regulations, *607 no liability can result unless the prescribed procedure is complied with and followed.").
¶ 30 Because the Steward engineers were not authorized by ABOR to bind it in contract, Kaman's breach of contract claim must fail as a matter of law. See Pomeroy, 60 Ariz. at 455, 139 P.2d at 454-55; Bigler, 128 Ariz. at 477, 626 P.2d at 1109. The trial court therefore erred in denying ABOR's motions for judgment as a matter of law on this issue. In light of this conclusion, we need not address ABOR's argument that the court erred in allowing Kaman's breach of contract claim to be decided by a jury in the absence of a written agreement. Nor need we consider ABOR's contention that the jury's award of $0 to Kaman "negated an essential element of Kaman's breach of contract claim and compelled entry of judgment" for ABOR, or that this finding mandated a new trial because it was inconsistent with its determination that ABOR had breached the contract. Neither do we address ABOR's assertion that the trial court "erroneously admitted evidence regarding a supposed oral agreement between [ABOR] and Kaman" because this claim solely concerns Kaman's breach of contract claim. Finally, we need not consider ABOR's arguments that Kaman's breach of contract claim was untimely under the notice of claim statute and the statute of limitations, or that Kaman's evidence was insufficient to establish breach of contract damages, or that any breach by ABOR was not material.
Judgment as a Matter of Law ABOR's Counterclaim
¶ 31 ABOR contends that, if this court "finds that judgment was improperly entered for Kaman on Kaman's breach of contract claim, [we] should direct the trial court to enter judgment for the University on its breach of contract counterclaim." In its underdeveloped argument, ABOR asserts "Kaman's sole defense to [ABOR's breach of contract] claim has always been that its performance under the Subcontract was excused because of the University's alleged material breach," and, if ABOR did not breach the contract, ABOR must be successful as a matter of law on its counterclaim.[9] We note ABOR has not asked us to remand its counterclaim for a new trial.
¶ 32 Before the jury announced its verdict, ABOR asked the trial court to give special interrogatories to the jury, a request the court declined. After the jury found in Kaman's favor on ABOR's breach of contract counterclaim, but failed to provide a verdict on Kaman's claim against ABOR, ABOR again sought special interrogatories. The court simply sent the jury back to deliberate all claims after having provided it with additional instructions. The jury then returned two general verdicts, both in favor of Kaman, on its own breach of contract claim and on ABOR's counterclaim. "A general verdict implies a finding by the jury on every essential fact in favor of the prevailing party." Lohmeier v. Hammer, 214 Ariz. 57, ¶ 14, 148 P.3d 101, 106 (App.2006).
¶ 33 Because it was a general verdict, we cannot know the basis of the verdict in favor of Kaman on ABOR's counterclaim. Our legal conclusion that a duly authorized contracting officer did not bind the state does not necessarily preclude the jury's factual finding on a separate cause of action that Kaman did not breach the contract.[10] ABOR fails to cite any authority supporting its position, and we decline to agree with it.[11]
*608 ¶ 34 Moreover, the jury was instructed that "[t]o succeed on a breach of contract claim, the party bringing the claim has the burden of proving the existence of a contract, the other side's breach of the contract, and that it has incurred damages as a result of the other side's breach." And, it was told that "[i]n order to recover damages for breach of contract, a party must prove the amount of those damages with reasonable certainty." Throughout the trial, Kaman extensively cross-examined the witnesses ABOR had used to prove its damages, including questioning the need for various expenditures, the hours ABOR had billed in its efforts to complete Kaman's work, the accuracy of ABOR's estimates of projected damages, and whether some of the supplies ABOR had ordered could otherwise be reused by it. And, during closing arguments, Kaman disputed the damages claimed by ABOR, calling ABOR's estimates "inherently unreliable," and generally disputed ABOR's damage calculations. Whether ABOR had proven its damages with reasonable certainty was a materially disputed fact. For us to enter judgment as a matter of law in favor of ABOR on its counterclaim, we would be required to resolve these disputed facts. See Silva v. De Mund, 81 Ariz. 47, 53, 299 P.2d 638, 642 (1956) ("If the facts are undisputed, [appellate court] will direct the rendition of the correct judgment."); Henderson v. Las Cruces Prod. Credit Ass'n, 6 Ariz.App. 549, 553, 435 P.2d 56, 60 (1967) ("When a record is presented to an appellate court which leaves no question of fact to be determined and only a question of law to be determined, this Court may direct the entry of the judgment which should have been entered in the trial court."). Because the jury could have concluded ABOR had not proved Kaman had breached the contract, had itself breached the contract, or had not been persuaded by ABOR's damages evidence, either alternatively or collectively, we therefore affirm the trial court's denial of ABOR's motion for a new trial solely as to damages on its counterclaim.
Cross-Appeal
¶ 35 On cross-appeal, Kaman contends the trial court erred in not awarding it, as the prevailing party, attorney fees pursuant to A.R.S § 12-341.01. Section 12-341.01 provides, in relevant part as follows: "In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees." "The decision as to who is the successful party for purposes of awarding attorneys' fees is within the sole discretion of the trial court, and will not be disturbed on appeal if any reasonable basis exists for it." Sanborn v. Brooker & Wake Prop. Mgmt., Inc., 178 Ariz. 425, 430, 874 P.2d 982, 987 (App.1994).
¶ 36 Kaman argues that it was the prevailing party because it prevailed on its claim and on ABOR's counterclaim. The trial court rejected Kaman's request for attorney fees and costs, "declin[ing] to find [it] the successful party after it sought in excess of Six Million Dollars and it obtained zero. While it is true that [it] successfully defended the University's claim, the evidence [and] work was intertwined. Accordingly, [t]he Court believes this matter essentially ended in a draw."[12] In light of our reversal of the award in favor of Kaman on its breach of contract claim, it is no longer the prevailing party on its claim, so this issue is moot.
*609 ¶ 37 Because we reverse the jury's verdict in favor of Kaman on its claim, neither party has prevailed on their respective claims. In similar factual situations where neither party prevailed on its claim at trial, appellate courts have found a trial court's refusal to award attorney fees proper. Gen. Cable Corp. v. Citizens Utilities Co., 27 Ariz.App. 381, 385, 555 P.2d 350, 354 (1976) ("Under the facts of this case, where a complaint seeks greater damages than the counterclaim and the trial court has denied relief to both parties, we find that neither party is the `successful party' under the provisions of § 12-341."); see also Coldwell Banker Commercial Group, Inc. v. Camelback Office Park, 156 Ariz. 214, 223-24, 751 P.2d 530, 539-40 (App.1987) (finding it possible to have no successful party when one party prevails on complaint and other party prevails on counterclaim), vacated in part on other grounds, 156 Ariz. 226, 751 P.2d 542 (1988). The trial court did not abuse its discretion in declining to award attorney fees to Kaman. See Sanborn, 178 Ariz. at 430, 874 P.2d at 987.
Disposition
¶ 38 We reverse the judgment in favor of Kaman on its breach of contract claim but affirm the judgment in its favor on ABOR's breach of contract counterclaim. We affirm the trial court's decision to deny Kaman's request for attorney fees. Both sides have sought attorney fees on appeal pursuant to § 12-341.01 and Rule 21(c), Ariz. R. Civ.App. P., 17B A.R.S. In our discretion, we deny the parties' requests for an award of attorney fees.
CONCURRING: JOSEPH W. HOWARD, Presiding Judge, and JOHN PELANDER, Chief Judge.
SUPPLEMENTAL OPINION
ON MOTION FOR RECONSIDERATION
BRAMMER, Judge.
¶ 1 Appellant Arizona Board of Regents (ABOR) has filed a motion for reconsideration, arguing we erred by affirming the jury's verdict against it on its breach of contract counterclaim against appellee Kaman Aerospace Corporation (Kaman). ABOR argues that, because the jury was permitted to consider an improper legal theory-Kaman's breach of contract claim against ABOR-and because we cannot determine whether the jury's general verdict on the counterclaim was based on the improper theory, this court "should reverse the judgment in Kaman's favor on the counterclaim and should remand to the trial court for new proceedings on damages."
¶ 2 "Where several issues of fact are tried, and any one of them is erroneously submitted to the jury over the objection of a defendant, and a general verdict is rendered against him, he is entitled to have the verdict set aside and to have a new trial." Bruce Church, Inc. v. United Farm Workers of Am., 169 Ariz. 22, 34, 816 P.2d 919, 931 (App.1991). ABOR admits, however, that the above rule does not apply when the defendant did not request special interrogatories or object to the form of verdict given the jury. See Mullin v. Brown, 210 Ariz. 545, ¶¶ 25-26, 115 P.3d 139, 145-46 (App.2005). ABOR did not specifically object to the general verdict forms. Although it did request special interrogatories, they would not have required the jury to specify the basis for its rejection of ABOR's counterclaim. Accordingly, we do not address this issue further.
¶ 3 We recognize, however, the error in ¶ 31 of the opinion, in which we stated ABOR had "not asked us to remand its counterclaim for a new trial." In fact, both below and on appeal, ABOR requested a new trial solely on the issue of damages on its counterclaim, arguing Kaman's liability on that claim could be determined as a matter of law.
¶ 4 Except as specifically noted otherwise herein, ABOR's motion for reconsideration is denied.
CONCURRING: JOSEPH W. HOWARD, Presiding Judge, and JOHN PELANDER, Chief Judge.
NOTES
[1] At trial and on appeal, the parties and the trial court use the term "the University" interchangeably with "ABOR."
[2] ABOR asserts, and Kaman does not dispute, that the "Statement of Work" describes the "work scope," a term that is used in other parts of the contract.
[3] In December 2004, the trial court granted ABOR's motions to dismiss Kaman's quantum meruit and unjust enrichment claims, and it granted ABOR's motion for summary judgment on Kaman's negligent misrepresentation claim in February 2006. Kaman does not challenge these rulings.
[4] Most were not signed at all, although some included Steward engineers' typewritten names and some were dated.
[5] Kaman does not argue that these principles were altered because ABOR may have been acting in a proprietary, rather than governmental, capacity. Consequently, we do not consider this issue.
[6] Because Kaman does not argue that ABOR, by later accepting claim twenty-seven and entering into a new contract, somehow ratified the conduct of the ABOR engineers, we do not address the issue.
[7] In that case, the Maryland Court of Appeals affirmed the Maryland Court of Special Appeals on the same basis and for the same reasons the lower court used to reach its conclusion. We have primarily relied on the intermediate appellate court's opinion because of the slightly more detailed factual summary it provides.
[8] As the court in ARA I noted, Maryland law "provides that, in order to avoid the bar of sovereign immunity, a contract claim against the State must be based on a written contract executed by a State employee `within the scope of [his or her] authority.'" ARA I, 668 A.2d at 967, quoting Md.Code Ann., State Gov't § 12-201.
[9] Kaman did not respond directly to this argument, but rather confined itself to explaining how the jury could have both found for Kaman but awarded it no damages. Although we may regard this failure to specifically respond as a confession of error as to any debatable issue, we are not required to do so. See Ariz. Minority Coal. for Fair Redistricting v. Ariz. Indep. Redistricting Comm'n, 211 Ariz. 337, n. 28, 121 P.3d 843, 869 n. 28 (App.2005).
[10] Indeed, the jury could possibly have concluded that ABOR was not entitled to prevail on its breach of contract claim because it had anticipatorily breached the contract by requesting additional work for which it had no intention of paying, even if the jury was unable to find as a matter of law on Kaman's theory of the case that ABOR had breached the original contract by agreeing to changes in the design guidelines, thus binding ABOR to pay Kaman additional compensation.
[11] In its citation of supplemental authority, ABOR lists several cases in which an appellate court overturned a general verdict and remanded the case for a new trial because of trial error and because it was impossible for the court to tell whether the jury erroneously found for the party. See Wiggs v. City of Phoenix, 198 Ariz. 367, ¶ 17, 10 P.3d 625, 629-30 (2000); S. Cas. Co. v. Hughes, 33 Ariz. 206, 218-19, 263 P. 584, 588-89 (1928); Bruce Church, Inc. v. United Farm Workers of Am., 169 Ariz. 22, 34-35, 816 P.2d 919, 931-32 (App.1991); Lewin v. Miller Wagner & Co., 151 Ariz. 29, 34-35, 725 P.2d 736, 741-42 (App.1986). These cases are inapposite, however, for in none did the appellate court enter judgment on a counterclaim because of the reversal of the verdict on the principal claim. Only Lewin involved a counterclaim, which went unchallenged on appeal, although the defendants were successful in their attempt to reverse and remand for new trial a general verdict against them in the plaintiffs' malpractice claim. 151 Ariz. at 37, 725 P.2d at 744.
[12] Kaman's complaint alleged specific damages of approximately $5.9 million as well as damages to be determined at trial. Kaman asked the jury for approximately $2.9 million in "[t]otal damages" during closing arguments. ABOR asserts it asked the jury for approximately $10.8 million during closing arguments. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2640271/ | 190 P.3d 1237 (2008)
345 Or. 175
DONAHUE
v.
BLACKETTER.
No. (S056022).
Supreme Court of Oregon.
August 6, 2008.
Petition for review denied. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2640089/ | 190 P.3d 495 (2008)
221 Or. App. 384
STATE
v.
HUFF.
No. 051255245, A132175.
Court of Appeals of Oregon.
July 16, 2008.
Affirmed without opinion. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1483105/ | 641 F. Supp. 2d 1234 (2008)
Ashley SPARKS, et al., Plaintiffs,
v.
PHILLIPS & COHEN ASSOCIATES, LTD., Defendant.
Civil Action No. 07-0477-WS-C.
United States District Court, S.D. Alabama, Northern Division.
June 20, 2008.
*1237 David G. Poston, Gary W. Stout, Walter Allen Blakeney, Enterprise, AL, for Plaintiffs.
Laura C. Nettles, Christopher Dale Cobb, Dustin J. Kittle, Lloyd, Gray & Whitehead, P.C., Birmingham, AL, for Defendant.
ORDER
WILLIAM H. STEELE, District Judge.
This matter comes before the Court on Defendant's Motion for Summary Judgment to Dismiss Plaintiff Ashley Sparks' Claims (doc. 20), Defendant's Motion for Summary Judgment to Dismiss Madora Peoples' Claims (doc. 22), and Defendant's Motion for Summary Judgment to Dismiss Kyra Sparks' Claims (doc. 24). All three Motions have been exhaustively briefed and are now ripe for disposition.
I. Background.[1]
Notwithstanding the parties' submission of 99 pages of summary judgment briefing (excluding the 86 pages that were stricken as redundant), their piling on of layers of overlapping claims and repetitive arguments, their digressions into tangentially relevant matters, their obfuscation of stronger arguments amidst a sea of weaker ones, and the approximately 600 pages of exhibits they have dumped into the record, this is a very straightforward case, or at least it should be.[2]
*1238 Defendant Phillips & Cohen Associates, Ltd. ("Phillips & Cohen") is a New Jersey-based company in the debt collection business. When Phillips & Cohen's client (i.e., the creditor) sends it a file on a deceased debtor, Phillips & Cohen refers the file to its probate division, consisting of employees who are specially trained to handle debt collection issues in circumstances where the debtor is deceased. (Obringer Dep., at 27-28; Strine Dep., at 16-17.) The objective of the probate division is "to find the estate and make a claim against the estate." (Obringer Dep., at 50.)
In November and December 2006, three creditors (Chase Bank USA, Collect America, and Portfolio Recovery Associates, LLC, none of which are parties herein) retained Phillips & Cohen concerning certain credit card debts owed by a Daisy Glover of Selma, Alabama. (Obringer Dep., at Exhs. 1-3.)[3] Glover had passed away in September 2006. (Peoples Dep., at 76.) These three accounts were assigned to Patricia Strine, a collection specialist in Phillips & Cohen's probate division who worked exclusively on estate matters. (Strine Dep., at 15-16, 23-24; Obringer Dep., at 40.) Strine's actions with respect to the Glover accounts, and in particular her dealings with the three plaintiffs in this case, lie at the heart of this dispute.
The specific details of what Strine did are a matter of some disagreement between the parties, mostly concerning collateral details that are immaterial to the Motions for Summary Judgment. In the light most favorable to plaintiffs, however, the record reflects that Strine made inquiries concerning who was handling Glover's final affairs and whether there was a representative of the estate. (Obringer Dep., at 51-52; Strine Dep., at 23-24, 31.) Such inquiries led Strine to plaintiff Madora Peoples, who is Glover's daughter. (Peoples Dep., at 17.) Peoples was, in fact, handling Glover's affairs during the time period in question, although she was not named as the estate's executrix in Glover's will. (Id. at 77, 97-99.) A family member who answered the telephone at Glover's former residence advised Strine that Peoples was the point of contact for matters relating to Glover's affairs. That same family member informed Strine that Peoples could be reached at the office of attorney Kyra Sparks, who is also a plaintiff in this action. (Strine Dep., at 33-34.)[4]
*1239 Peoples has been employed by Sparks as a secretary since September 2006, less than three months before the events giving rise to this lawsuit. (Peoples Dep., at 27.) In the light most favorable to plaintiffs, the evidence is that Peoples received a single telephone call from Strine during business hours at Sparks' office on or about November 30, 2006. (Id. at 56.) According to Peoples, Strine indicated that she was calling pertaining to a debt owed by Glover, to which Peoples replied that Glover was deceased. (Id.) Peoples testified that Strine then asked whether Glover had a will, to which Peoples responded affirmatively but stated that it was not probated. (Id.) Peoples maintains that Strine then stated that "she can force us to sell the house through the probate office," eliciting a response from Peoples that Strine should do what she had to do. (Id.)[5] Peoples never received any other telephone calls from Phillips & Cohen, nor did she ever personally receive any correspondence from defendant. (Id. at 63.) By Peoples' own admission, then, that one call commenced and concluded her direct dealings with defendant.
Some time later, Sparks' office received in the mail a document from Phillips & Cohen captioned "Statement and Proof of Claim" and relating to the Glover matter. (Plaintiffs' Exh. 1A.) This document was addressed to "Estate of Daisy D Glover, Kyra L. Sparks, Atty," implying that Sparks was representing or otherwise involved with Glover's estate. (Id.)[6] The Statement and Proof of Claim referenced the three delinquent accounts, with a total amount owed of $7,593.47. (Id.) In the ordinary course of her clerical duties for Sparks, Glover opened the Statement and Proof of Claim concerning the Glover debts. (Peoples Dep., at 64.) Upon opening the envelope, Peoples "was embarrassed. . . [b]ecause they had [Sparks] down as the attorney handling the estate case." (Id.) Despite her embarrassment, Peoples gave the document to Sparks. (Id. at 65.) Sparks' reaction was to exclaim, "I don't do probate work; what is this?" (Sparks Dep., at 61.) She proceeded to draft a letter (which Peoples typed and mailed) to Phillips & Cohen dated December 15, 2006 verifying her receipt of the Statement and Proof of Claim in the Glover matter, but expressly stating, "I am not the attorney handling this matter and I have no knowledge of this case." (Plaintiffs' Exh. 1B; Peoples Dep., at 66.)[7] Sparks' office received no further documents or correspondence from Phillips & Cohen concerning the Glover matter. (Peoples Dep., at 69.)
Several weeks later, on or about January 24, 2007, Sparks' then 15-year old daughter, plaintiff Ashley Sparks ("Ashley"), came into contact with Phillips & *1240 Cohen concerning the Glover debt. That afternoon, Strine called Sparks' unpublished home telephone number.[8] Ashley, who resided with her mother, answered. (A. Sparks Dep., at 14.) The caller never identified herself. (A. Sparks Aff., ¶ 3.) Instead, the caller, who was later identified as Strine, immediately began talking about the Glover estate. Ashley described these events as follows: "I couldn't get a word in edgewise to tell her, you need to talk to my mom. . . . Any ways, after a little bit she stopped, I said you need to call my mom's office, it's 872-5896." (A. Sparks Dep., at 14.) But Strine pressed onward, telling Ashley that Peoples must be intercepting Strine's calls. (Id. at 15.) Then Strine "just kept talking about an estate. . . . She started talking down to me, like I was in trouble. . . . And my grandmother told me to hang up, and I told her bye and hung up." (Id.) This was the only contact that Ashley ever had with Phillips & Cohen. (Id. at 28, 37-38.) Ashley testified that she did not know how long the telephone call lasted, but that she would not dispute defendant's logs timing that call at 96 seconds. (Id. at 31; Defendants' Exh. H.) Ashley testified that she cried and was "really, really upset" by Strine's call because she "didn't know if something had happened in the office where [Sparks] was in trouble or something." (Id. at 32.) Ashley also said she had a headache, and went to bed early that day. (Id. at 33-34.)
Sparks came home from work shortly after Strine's telephone call, at which time Ashley rushed to tell her what had happened. (Id. at 33.) Sparks observed her daughter to be crying, to have a red face, and to be talking quickly. (Sparks Aff., ¶ 6.) By her own reckoning, Sparks became "very angry and upset," to the point where she was short of breath and could feel her heart pounding in her head. (Id., ¶ 7.) Because Ashley was unable to identify the caller, Sparks dialed *69 to track the call. (Sparks Dep., at 65.) Through that mechanism, Sparks reached Phillips & Cohen, but without more specific information they were unable to connect her to the person who had called Sparks' residence. (Id. at 66.) Less than 10 minutes later, Sparks called Phillips & Cohen a second time thinking that identifying the previous call as relating to an estate matter might help to direct her to the actual caller. (Id. at 66-67.) This technique was successful, as Sparks was transferred to Strine. (Id. at 70.) In the ensuing conversation, Sparks demanded to know how Strine had obtained her unpublished home number, but Strine declined to answer. (Id. at 71.) Sparks complained that Ashley was "upset" and "crying," and said that it was "inappropriate" for Strine to have called her residence and discussed the matter with Ashley. (Id. at 72.) In reply, Strine told Sparks that Ashley had pretended to be Sparks. (Id.)[9] Sparks asked whether Strine had received Sparks' letter confirming *1241 her non-involvement in the Glover estate matter, and Strine answered affirmatively. (Id. at 72, 74; Sparks Aff., ¶ 8.)[10] Strine then cryptically told Sparks, "we've investigated you already." (Sparks Dep., at 74.) Shocked, Sparks asked, "for what?" but apparently never got an answer. Strine then explained, "I'm calling you because you need to know what kind of employee you have working for you," and accused Peoples of intercepting defendant's calls intended for Sparks. (Id. at 72.) Strine specifically advised Sparks that defendant was "owed money under Daisy Glover's estate." (Id.) Throughout the call, Strine was "very obnoxious and rude" towards Sparks. (Id. at 74.)
The next day, January 25, 2007, Sparks placed a call to Strine's supervisor to complain about Strine's "wrong and very inappropriate" conduct. (Id.) Phillips & Cohen assured Sparks that she would receive no further calls concerning the Glover matter. (Id. at 75.) To the best of her knowledge, Sparks received no more communications from Phillips & Cohen after that. (Id.) In fact, between November 30, 2006 and January 30, 2007, Sparks had no other contact with Phillips & Cohen of any form. (Sparks Aff., ¶ 5.) In none of Sparks' dealings with Phillips & Cohen did they utilize foul language, call her any names, or threaten her. (Sparks Dep., at 84.) As an attorney, Sparks was generally aware that Phillips & Cohen could not do anything to her or her daughter. (Id.)
That was the end of the matter, or at least it would have been, but for this lawsuit. On July 5, 2007, Sparks, Peoples and Ashley filed a Complaint (doc. 1) against Phillips & Cohen in this District Court based on the foregoing events. The Complaint clearly identified each of Sparks, Peoples and Ashley as plaintiffs in the case, and specified that Ashley was a minor who was proceeding by and through her next friend. (Doc. 1, ¶¶ 4-6.) The Complaint alleged the following causes of action: (1) violation of the federal Fair Debt Collection Practices Act ("FDCPA"), including specifically 15 U.S.C. §§ 1692d, e, f, and/or g; (2) a state-law claim for invasion of privacy; (3) a state-law claim for intentional infliction of emotional distress; and (4) a state-law claim for negligent supervision/training. At the close of discovery, Phillips & Cohen moved for summary judgment on all claims by all plaintiffs.
II. Summary Judgment Standard.
Summary judgment should be granted only if "there is no 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(c). The party seeking summary judgment bears "the initial burden to show the district court, by reference to materials on file, that there are no genuine issues of material fact that should be decided at trial." Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir.1991). Once the moving party has satisfied its responsibility, the burden shifts to the nonmovant to show the existence of a genuine issue of material fact. Id. "If the nonmoving party fails to make `a sufficient showing on an essential element of her case with respect to which she has the burden of proof,' the moving party is entitled to summary judgment." Id. (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 106 *1242 S.Ct. 2548, 91 L. Ed. 2d 265 (1986)) (footnote omitted). "In reviewing whether the nonmoving party has met its burden, the court must stop short of weighing the evidence and making credibility determinations of the truth of the matter. Instead, the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Tipton v. Bergrohr GMBH-Siegen, 965 F.2d 994, 999 (11th Cir.1992) (internal citations and quotations omitted). "Summary judgment is justified only for those cases devoid of any need for factual determinations." Offshore Aviation v. Transcon Lines, Inc., 831 F.2d 1013, 1016 (11th Cir.1987) (citation omitted).
III. Analysis.
As mentioned, the Complaint asserts causes of action against defendant for violation of the FDCPA, invasion of privacy, intentional infliction of emotional distress, and negligent supervision. The parties' summary judgment arguments with respect to each of those claims will be considered in turn.[11]
A. The FDCPA Claim.
In the Complaint, plaintiffs purport to be resting their FDCPA claims on four distinct sections of that statute, including § 1692d (harassing, oppressive or abusive conduct), § 1692e (false or misleading representations), § 1692f (unfair practices), and § 1692g (validation of debts). Each of these claims will be considered separately.[12]
*1243 The law in this Circuit is clear that the appropriate standard for determining whether § 1692e of the FDCPA has been violated is whether the "least sophisticated consumer" (rather than a reasonable consumer) would have been deceived or misled by the conduct at issue. Jeter v. Credit Bureau, Inc., 760 F.2d 1168, 1172-75 (11th Cir.1985).[13]Jeter imposed a similar standard in the § 1692d context, holding that claims under that section "should be viewed from the perspective of a consumer whose circumstances make[ ] him relatively more susceptible to harassment, oppression, or abuse." Jeter, 760 F.2d at 1179. The Court will apply this "least sophisticated consumer" standard in evaluating the viability of plaintiffs' FDCPA claims.[14]*1244 Additionally, it is important to bear in mind that "[t]he FDCPA is a strict liability statute," and that a single violation is sufficient to establish civil liability. In re Cambron, 379 B.R. 371, 374 (M.D.Ala. 2007); see also O'Connor v. Check Rite, Ltd., 973 F. Supp. 1010, 1020 (D.Colo.1997).
1. Did Defendant Act in Connection with Collection of a Debt?
Before reaching the specific statutory sections at issue, the Court must address defendant's threshold challenge to Sparks' and Ashley's FDCPA claims, namely, that Strine's communications with them were not made in connection with the collection of a debt. All of the statutory sections in play in this case forbid debt collectors from engaging in certain conduct "in connection with the collection of a debt." 15 U.S.C. §§ 1692d, 1692e, 1692f. Thus, Phillips & Cohen's conduct at issue in this case could not violate the FDCPA unless it occurred in connection with the collection of a debt.
Defendant's position is that neither Strine's telephone call to Ashley nor her communication with Sparks were "in connection with the collection of a debt." In that regard, defendant points to Ashley's testimony that Strine mentioned an estate, without saying anything about the collection of a debt owed by the estate. Defendant also relies on Sparks' testimony that when Sparks called defendant's offices to complain, Strine told her that she had called Sparks' residence to inform her that Peoples had been intercepting her calls at the office.
In the undersigned's view, a reasonable jury could readily find that Strine's contacts with these plaintiffs were in connection with the collection of a debt. Defendant's argument conveniently ignores Sparks' testimony that Strine told her "they were owed money under Daisy Glover's estate." More generally, and regardless of plaintiffs' testimony, the fact of the matter is that Phillips & Cohen was retained by its clients to collect a debt owed by Glover's estate. Phillips & Cohen assigned Strine to this project for the purpose of having her collect a debt. The raison d'etre of Strine's communications with plaintiffs was to secure payment of Glover's debts owed to defendant's clients. Defendant suggests that Strine told Sparks she had called Sparks' home to tell her that Peoples was intercepting her calls. But accepting that testimony as true, why would Strine have wanted to tell Sparks that? Because Strine had some altruistic interest in advising Sparks how she might operate her law office in a more efficient and orderly fashion? Highly improbable. Because Strine had some personal axe to grind with Peoples, unrelated to the collection of the Glover debt? Possibly, but not likely. Applying reason and common sense to draw reasonable inferences from this evidence, a jury could infer that Strine badmouthed Peoples to her boss and harassed her boss at home as a means of applying pressure on Peoples to "play ball" with Phillips & Cohen and pay off her mother's debts. If Peoples wanted Phillips & Cohen to leave her alone, a reasonable jury could find, Strine's message conveyed through her call to the Sparks home was that she'd best pay the Glover debt. Again, the whole purpose of Strine's interactions with plaintiffs was to collect that debt. See Piper v. Portnoff Law Associates, Ltd., 396 F.3d 227, 233 (3rd Cir.2005) (conduct deemed in connection with collection of debt where "the *1245 whole purpose of these communications was to secure the payment of money in satisfaction of this debt").[15]
In this regard, the Court finds Horkey v. J.V.D.B. & Associates, Inc., 333 F.3d 769 (7th Cir.2003), to be instructive. In Horkey, a debt collector called the plaintiff at work and demanded payment of a debt. When the plaintiff told the debt collector she could not talk to him at work and hung up on him, the debt collector called back and spoke to the plaintiff's co-worker, who stated that the plaintiff was away from the office. When the co-worker asked if the debt collector wished to leave a message, the latter responded that the co-worker should tell the plaintiff "to quit being such a [expletive] bitch." The Horkey court deemed it "obvious" that the message from the debt collector was made "in connection with the collection of a debt" because the collector's sole purpose in calling that number was to collect a debt, and so held as a matter of law. See id. at 774. Much as the Horkey debt collector's act of cursing the plaintiff to her co-worker was in connection with collecting a debt, so too could a reasonable jury find that Phillips & Cohen's communications with Sparks and Ashley were in connection with collecting the Glover debt.[16] Defendant's request for summary judgment on this basis is denied.
2. The § 1692d Claim.
Under § 1692d, "[a] debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt." 15 U.S.C. § 1692d. Importantly, this section "does not preclude debt collectors from making non-abusive statements designed to encourage voluntary payment." Beattie v. D.M. Collections, Inc., 754 F. Supp. 383, 394 (D.Del. 1991). Thus, the critical question for purposes of plaintiffs' § 1692d claim is whether defendant's conduct was harassing, oppressive or abusive. "Ordinarily, whether conduct harasses, oppresses, or abuses will be a question for the jury." Jeter, 760 F.2d at 1179. But there are limits to that principle. In Jeter, the appellate court affirmed the district court's grant of summary judgment for the debt collector on the § 1692d claim where the defendant's challenged conduct consisted merely of a threat to institute legal proceedings against the plaintiff, and the caution that such proceedings might cause her embarrassment, inconvenience and expense. See also Harvey v. Great Seneca Financial Corp., 453 F.3d 324, 330 (6th Cir.2006) (recognizing that courts have dismissed § 1692d claims as a matter of law if the facts as alleged do not have natural consequence *1246 of harassing or abusing a person in connection with the collection of a debt).
Each plaintiff purports to be stating a claim under § 1692d. Sparks does not invoke any particular subsection of this provision,[17] but maintains that defendant harassed, oppressed or abused her because she came home to a "distraught" daughter on January 24, 2007 and, after she called defendant to complain, Strine did not apologize, but made statements that Ashley had purported to be her mother, that defendant had investigated Sparks, that Peoples was screening calls at Sparks' office, and that Sparks needed to know what kind of employee Peoples was. (Doc. 37, at 16.) Meanwhile, Ashley's § 1692d claim is predicated specifically on § 1692d(6), which makes it a FDCPA violation for a debt collector to place "telephone calls without meaningful disclosure of the caller's identity." 15 U.S.C. § 1692d(6). Ashley contends that Strine did not identify herself when she called Sparks' residence on January 24, 2007. And Peoples' § 1692d claim rests on the theory that all of Strine's acts were "a systematic campaign aimed specifically at" Peoples and that "the Defendant was harassing or abusing Peoples by attempting to put indirect pressure on her through her boss (Sparks)." (Doc. 37, at 19-20.)[18]
With respect to Sparks' § 1692d claim, defendant argues that the mere fact that Strine may have been "rude and obnoxious" to Sparks does not satisfy this section's harassing, oppressive or abusive standard, as a matter of law. But Sparks' claim, and the facts supporting it, goes much further than that. Viewed in the light most favorable to plaintiffs, the record shows that Strine had direct personal knowledge that Sparks had no involvement with the Glover estate, yet Strine called Sparks at home anyway to discuss the matter. Moreover, when Sparks called Phillips & Cohen to complain about its shabby treatment of her minor child, she was met with a barrage of hostility from Strine, including accusations that Ashley had impersonated Sparks, accusations that Sparks' employee (Peoples) was diverting phone messages, and a cryptic statement (a veiled threat?) that Phillips & Cohen had already investigated Sparks. This testimony, if believed by the jury, could reasonably support a conclusion that the natural consequence of defendant's communications with Sparks, when viewed through the eyes of the least sophisticated consumer, would have been to harass, oppress or abuse that person in connection with the collection of a debt. Again, plaintiffs' theory is that Strine hounded Sparks as a means of applying pressure on Peoples *1247 to pay up. A reasonable jury could so conclude.
As noted supra, Ashley's § 1692d claim proceeds under subsection (6)'s prohibition on the placement of telephone calls by a debt collector in connection with the collection of a debt without meaningful disclosure of the caller's identity. Pursuant to the plain language of § 1692d(6), a debt collector's failure to identify herself as such in communications relating to the collection of a debt has been held to be a per se violation of the FDCPA. See Masciarelli v. Richard J. Boudreau & Associates, LLC, 529 F. Supp. 2d 183, 185 (D.Mass. 2007) (defendant's failure to identify himself as a debt collector in voice-mail message to debtor violates the FDCPA as a matter of law). Ashley has unequivocally averred that, with reference to the January 24, 2007 call, "[t]he female never identified herself." (A. Sparks Aff., ¶ 3.) This testimony, if believed by a jury, would establish a violation of § 1692d(6). Defendant's Rule 56 Motion is therefore denied as to this claim.[19]
With respect to Peoples, there is clearly sufficient record evidence from which a reasonable finder of fact could determine that defendant's conduct toward her would have been perceived as harassing, oppressive or abusive by the least sophisticated consumer. While merely contacting Peoples about Glover's debts does not implicate § 1692d, Strine's statement to Peoples that defendant "can force [Glover's family] to sell the house through the probate office" appeared calculated to prey on any emotional attachment Peoples might have to her mother's house. Further, Strine's subsequent conduct of calling Peoples' employer at home for the stated purpose of telling her "what type of employee [Sparks had] working for [her]," and specifically complaining to Sparks that Peoples was intercepting her calls could unquestionably be viewed as having a natural tendency to harass, oppress or abuse Peoples by trying to pressure her into paying the Glover debt.[20] Summary judgment is unwarranted as to this claim.[21]
*1248 3. The § 1692e Claim.
Plaintiffs also seek to travel under § 1692e, which proscribes debt collectors from the use of "any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. § 1692e. The gist of § 1692e is that "where some aspect of a debt collector's communication-whether explicit or implied-has the purpose or effect of making a debtor more likely to respond, the FDCPA requires that it be true." Campuzano-Burgos v. Midland Credit Management, 497 F. Supp. 2d 660, 665 (E.D.Pa. 2007). For purposes of a § 1692e claim, "[t]he question is not whether [plaintiff] was deceived, but whether the `least sophisticated consumer' would have been deceived." Jeter, 760 F.2d at 1177 n. 11. "A debt collection practice may violate the FDCPA even if it does not fall within any of the enumerated circumstances set forth in Section 1692e." Larsen v. JBC Legal Group, P.C., 533 F. Supp. 2d 290, 299 (E.D.N.Y.2008). Plaintiffs contend that defendant violated § 1692e in three specific respects.
First, Sparks asserts a claim under § 1692e(10), which enumerates as conduct violative of this section "[t]he use of any false representation or deceptive means to collect or attempt to collect any debt." Under § 1692e(10), "mere deception, intentional or unintentional, to collect or attempt to collect any debt ... is sufficient to constitute a violation." Cambron, 379 B.R. at 379 (citation omitted). Sparks contends that defendant violated § 1692e(10) when Strine told her that "we've investigated you already," that Ashley "pretended to be" Sparks, and that Peoples was screening defendant's calls. (Plaintiffs' Brief, at 15-16.)[22] Clearly, there are jury questions as to the veracity of these statements. Defendant's sole basis for seeking summary judgment on this claim is that plaintiffs have no evidence that Strine's allegedly false representations to Sparks were made in connection with the collection of a debt. The Court having already *1249 found to the contrary in Section III.A. 1., supra, there is no need to re-plow this ground here. Defendant's Motions for Summary Judgment are denied as to Sparks' FDCPA claims under § 1692e(10).
Second, Peoples brings a claim under § 1692e(10) and § 1692e(2),[23] predicated on Strine's alleged statement to her concerning the potential sale of Glover's home to pay the debt. Plaintiffs' brief frames the evidence as being that Strine told Peoples, "we are going to sell your mother's home to pay the debt," which plaintiffs contend is a false representation of the status of the debt, and a threat on which defendant never actually intended to act. (Doc. 37, at 21-22.) The problem is that plaintiffs exaggerate and misstate Peoples' testimony. In her deposition, Peoples described the conversation as follows: "She said she can force us to sell the house through the probate office. I told her to do what she had to do." (Peoples Dep., at 56.) There is a considerable, material difference between a statement that "we are going to sell your mother's house" and a statement that "she can force us to sell the house." The former may well qualify as a deceptive or false threat actionable under § 1692e(2) and (10). The latter does not. Defendant points out that Ala.Code § 43-2-370 provides that, in general, all of a decedent's property may be sold to pay her debts. Plaintiffs do not argue that § 43-2-370 does not apply or that defendant lacked the legal right to compel a sale of the house under that section. Instead, they characterize that statement as a threat or a false representation. It is neither.
Merely advising the debtor of the agency's options with which to pursue the debt is the sort of truism that is legally insufficient to violate § 1692e. See Taylor v. Cavalry Inv., L.L.C., 365 F.3d 572, 575 (7th Cir.2004) (rejecting as frivolous § 1692e claim that statement that account may have interest added was false because no interest was actually added, where the letter said only that interest might be added, not that it would be); Larsen, 533 F.Supp.2d at 302; Riveria v. MAB Collections, Inc., 682 F. Supp. 174 (W.D.N.Y. 1988) (no violation of § 1692e(5) where debt collector told plaintiff that it would "advise" creditor that "legal action may be necessary in order to collect"); Blackwell v. Professional Business Services of Georgia, Inc., 526 F. Supp. 535, 537-38 (N.D.Ga. 1981) (debt collector's statement that account "may" be referred to attorney, "may" cause debtor to be liable for additional costs, and "can" lead to garnishment or attachment held not to violate § 1692e, as a matter of law). Under plaintiffs' version of the facts, Strine never told Peoples that defendant would force a sale of the house, that it intended to do so, or the like. Instead, Strine merely stated that Phillips & Cohen could force a sale of the house. That innocuous statement is not violative of § 1692e(2) or § 1692e(10) because it is not false but is a statement of defendant's legal rights under Alabama law.[24] Entry of summary judgment in defendant's favor is therefore warranted as to Peoples' FDCPA claims under those subsections.
Third, Peoples advances a claim under § 1692e(5), which provides that debt collectors cannot make a "threat to take any action that cannot legally be taken or that is not intended to be taken." 15 U.S.C. § 1692e(5). Under § 1692e(5), "simply threatening an unintended action *1250 is sufficient." Cambron, 379 B.R. at 379. This claim is not actionable for the same reason that Peoples' claims under § 1692e(2) and (10) are not actionable. See generally Gervais v. Riddle & Associates, P.C., 479 F. Supp. 2d 270, 276 (D.Conn. 2007) (recognizing that analyses under § 1692e(5) and § 1692e(10) are "somewhat duplicative"). Even under the least sophisticated consumer standard, the mere statement by Strine that defendant can compel the sale of the Glover house cannot reasonably be construed as a threat that it will do so, much less a threat that defendant never intended to pursue. Rather, that statement simply placed Peoples on notice of Phillips & Cohen's options. Plaintiffs do not dispute that one such option was in fact to pursue the sale of Glover's home; therefore, this statement is not properly characterized as a threat for purposes of § 1692e(5) liability. Defendant is entitled to summary judgment on Peoples' § 1692e(5) cause of action.
4. The § 1692f Claim.
Plaintiffs further contend that defendant's conduct is actionable under § 1692f, which prohibits the use of "unfair or unconscionable means to collect or attempt to collect any debt." 15 U.S.C. § 1692f. Although this section enumerates certain specific unfair or unconscionable acts, that listing is illustrative not exhaustive, and "§ 1692f allows the court to sanction improper conduct that the FDCPA fails to address specifically." Adams v. Law Offices of Stuckert & Yates, 926 F. Supp. 521, 528 (E.D.Pa.1996); see also McGrady v. Nissan Motor Acceptance Corp., 40 F. Supp. 2d 1323, 1337 (M.D.Ala.1998) ("Section 1692f provides a nonexhaustive list of types of conduct which violate § 1692f.").
All three plaintiffs purport to be stating claims under § 1692f that largely rehash their claims under other FDCPA sections. Peoples argues that defendant's purported threat to sell Glover's house to pay the debt is an unfair or unconscionable practice violative of § 1692f. (Doc. 37, at 22.) As stated supra, however, the Court finds that the statement that Phillips & Cohen can force the sale of the house would not be perceived by the least sophisticated consumer as a false representation or threat to take action not intended to be taken. That finding likewise compels a conclusion that there was nothing "unfair or unconscionable" (as that term is utilized in § 1692f) about defendant's advice to Peoples of its available remedies under Alabama law. Inasmuch as Peoples identifies no other grounds for her § 1692f cause of action, that claim is properly dismissed at this time.
Sparks and Ashley's § 1692f claims are rooted in their contention that Strine's acts of calling Sparks' home telephone number and berating Ashley "exceed[ ] the bounds of fairness" and constituted "a means to extract payment from" Peoples. (Doc. 37, at 23.) Defendant's only summary judgment argument addressing these claims is a mere conclusory statement that the challenged conduct was not unconscionable "[f]or the reasons cited in the preceding sections." (Doc. 39, at 14.) But the Court has already rejected Phillips & Cohen's summary judgment arguments "in the preceding sections" relating to the claims against Sparks and Ashley. Defendant having identified no independent basis on which Sparks and Ashley's § 1692f claims do not pass legal muster, this Court will not unilaterally endeavor to promulgate one. The Motions for Summary Judgment are denied as to the § 1692f claims interposed by Sparks and Ashley.
5. The § 1692g Claim.
In connection with the summary judgment briefing, plaintiffs concede that they are not proper parties to assert a claim under 15 U.S.C. § 1692g. (Plaintiffs' Brief (doc. 37), at 23.) Therefore, defendant's *1251 Motions for Summary Judgment are granted as to the § 1692g aspect of Count One for all plaintiffs.
6. The Bona Fide Error Defense.
As a last-ditch effort to defeat plaintiffs' surviving FDCPA causes of action, Phillips & Cohen argues that it is entitled to dismissal of all such claims pursuant to the "bona fide error" defense. This affirmative defense is codified at 15 U.S.C. § 1692k(c), which provides that a debt collector may not be held liable under the FDCPA "if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." Id. As a general rule, "an FDCPA defendant seeking the protection of the bona fide error defense carries the burden of proving that the violation was 1) unintentional, 2) a bona fide error, and 3) made despite the maintenance of procedures reasonably adapted to avoid the error." Johnson v. Riddle, 443 F.3d 723, 727-28 (10th Cir. 2006). The Johnson court explained that "the intent prong of the bona fide error defense is a subjective test" turning on the defendant's subjective intent to violate the FDCPA. Id. at 728. The "bona fide" requirement "serves to impose an objective standard of reasonableness upon the asserted unintentional violation." Id.
The Court finds that there are genuine issues of fact as to, at a minimum, the first two prongs of the bona fide error defense. Phillips & Cohen directs the Court to no evidence or testimony from Strine that she did not intend to violate the FDCPA; to the contrary, they tout her many years of experience and expertise in compliance with that statute. If that is true, and if plaintiffs' version of the facts is accepted as true, a reasonable jury could find that Strine must have subjectively known that her acts of calling Sparks' home despite knowledge that Sparks was not involved with the Glover matter, refusing to identify herself when calling Sparks' home telephone number, berating Ashley even after Ashley told her to call her mother, casting aspersions on Ashley and Peoples in her communications with Sparks, browbeating Sparks with a statement that defendant had already investigated her, and going out of her way to denigrate and calumniate Peoples to her boss were all outside the scope of permissible activity under the FDCPA. Even if Strine were not well-versed in the FDCPA, an intent to violate the Act could reasonably be inferred by reference to the numerous inconsistencies between Strine's course of conduct and that prescribed by Phillips & Cohen in its training manuals for collection specialists. Moreover, on this evidence, a reasonable finder of fact could readily determine that the aforementioned conduct was not objectively reasonable, even if Strine's violations of the FDCPA were unintentional. In short, there are obvious jury questions presented with respect to the bona fide error defense that render judgment in Phillips & Cohen's favor as a matter of law on that defense inappropriate.[25]
*1252 B. The Invasion of Privacy Claim.
Next, Phillips & Cohen moves for summary judgment on the state-law invasion of privacy claims interposed by all three plaintiffs. Where, as here, there has been no public or commercial use or publication, Alabama courts recognize the tort of invasion of privacy only where "there has been an intrusion upon the plaintiff's physical solitude or seclusion, or a wrongful intrusion into one's private activities in such manner so as to outrage or to cause mental suffering, shame or humiliation to a person of ordinary sensibilities." I.C.U. Investigations, Inc. v. Jones, 780 So. 2d 685, 689 (Ala.2000) (citations and internal quotations omitted). To constitute a "wrongful intrusion," the defendant's conduct must amount to "intentional interference with another's interest in solitude or seclusion, either as to his person or to his private affairs or concerns." Myrick v. Barron, 820 So. 2d 81, 85 (Ala.2001) (citation omitted). Examples would include "physical intrusion into a place where the plaintiff has secluded himself, ... discovering the plaintiff's private affairs through wiretapping or eavesdropping, or ... opening private mail or examining a private bank account." Id. at 86 (citation omitted). Moreover, invasion of privacy is not established under Alabama law unless the wrongdoer's conduct is "such that would cause mental suffering, shame, or humiliation to a person of ordinary sensibilities." Sphere Drake Ins., P.L.C. v. Shoney's, Inc., 923 F. Supp. 1481, 1490 (M.D.Ala.1996) (quoting Logan v. Sears, Roebuck & Co., 466 So. 2d 121, 124 (Ala. 1985)); see also Butler v. Town of Argo, 871 So. 2d 1, 12 (Ala.2003) (same). In the context of debtor-creditor relations, the Alabama Supreme Court has declared that "a creditor has a right to take reasonable action to pursue his debtor and persuade payment, although the steps taken may result to a certain degree in the invasion of the debtor's right to privacy, but that the debtor has a cause of action for injurious conduct on the part of the creditor which exceeds the bounds of reasonableness." Windsor v. General Motors Acceptance Corp., 295 Ala. 80, 323 So. 2d 350, 351 (1975) (citation omitted).
Last year, the Eleventh Circuit explained that "a plaintiff in Alabama must show that the defendant's conduct was so outrageous that it caused the plaintiff mental suffering, shame, or humiliation (for invasion of privacy) ...." Baldwin v. Blue Cross/Blue Shield of Alabama, 480 F.3d 1287, 1308 (11th Cir.2007). In Baldwin, the plaintiff presented evidence that her supervisor had routinely used sexually laced profanity in the office; that he had propositioned her to spend the night in his hotel room; that he often called her "babe"; that on one occasion he closed the door to his office and asked her to perform oral sex on him; that he would walk up behind her and breathe on her neck; and that he unzipped his fly in her presence, all of which the plaintiff found offensive and all of which caused her discomfort. Notwithstanding this egregious misconduct, the Baldwin panel found no genuine issue of material fact as to the Alabama invasion of privacy cause of action. As that court explained, "[a]ssuming that [the supervisor] did everything that [the plaintiff] said he did, his harassment of [the plaintiff] was not sufficiently outrageous as a matter of Alabama law" to sustain an invasion of privacy claim. Id.
Similarly, in Windsor, the creditor contacted the debtor, either in person or by telephone, approximately 15-20 times concerning her delinquent payments. The creditor spoke to the debtor's mother (with whom the debtor lived) several times, and would come to the house even after the mother informed the creditor that the *1253 plaintiff was not home. The creditor was condescending to the debtor's mother, to the point where after he called she "just went crazy," and on one occasion she even "went to the hospital and stayed there." 323 So.2d at 352. The Windsor court found no error in the trial court's granting of a directed verdict in the defendant's favor as to the mother's invasion of privacy claim.
The intrusion of which plaintiffs in this case is far milder than that deemed legally insufficient to constitute an invasion of privacy in Windsor and Baldwin. Indeed, the sum total of Strine's interactions with plaintiffs consisted of calling Sparks' unlisted home telephone number on one occasion, conducting one 96-second telephone conversation with Ashley that made Ashley and Sparks upset, having one heated telephone conversation with Sparks (that Sparks initiated), having a single telephone conversation with Peoples about the Glover estate, mailing a statement of claim form to Sparks' office, telling Sparks that defendant had investigated her in some unspecified manner,[26] and making accusations to Sparks that Peoples was intercepting phone messages and that Ashley had impersonated her mother. Such slights may well have been impolite, ill-advised and inappropriate, but they plainly do not rise to the level of an intentional interference with any plaintiff's solitude and seclusion. Even if they did, and even if plaintiffs are correct that Strine had no valid reason to call Sparks' home telephone number in the first place, the Court finds as a matter of law that Strine's actions were not so outrageous as to cause mental suffering, shame, or humiliation to a person of ordinary sensibilities.
In short, plaintiffs' invasion of privacy claims endeavor to stretch the boundaries of that tort far wider than the Alabama Supreme Court has ever done. Having an unlisted home number because one does not wish to be bothered by professional matters while at home is not a guarantee that one will never receive an unwanted business-related call at home. Being 15 years old is not a guarantee that one will never receive an unpleasant or confusing telephone call intended for one's mother. And being a secretary in a law office is not a guarantee that no member of the public will ever call one's boss to voice even unwarranted criticism of one's job performance. Such minor irritations and intrusions are, at most, the sort of inconvenience and nuisance with which every participant in modern-day society must deal on a routine basis. The narrow, circumscribed reach of the tort of invasion of privacy having never been expanded by Alabama courts to embrace such run-of-the-mill slights, this Court will not so dilute it here. Therefore, Defendant's Motions for Summary Judgment are granted as to plaintiffs' state-law claims for invasion of privacy.[27]
*1254 C. The Intentional Infliction of Emotional Distress Claim.
Plaintiffs have prudently consented to the dismissal of their state-law causes of action for intentional infliction of emotional distress. (See doc. 37, at 40.) Therefore, defendants' Motions for Summary Judgment are granted as to these claims.
D. The Negligent Supervision/Training Claim.
Lastly, Phillips & Cohen seeks summary judgment on plaintiffs' claim of negligent supervision and training. As set forth in the Complaint, plaintiffs' theory on this cause of action is that Phillips & Cohen "had notice or knowledge, either actual or presumed, of their servants' incompetency or unfitness. Further, the specific acts of incompetency were of such nature, character, and frequency that Defendant in the exercise of due care must have had notice of such action." (Complaint, ¶ 38.)
Under Alabama law, "[i]n the master and servant relationship, the master is held responsible for his servant's incompetency when notice or knowledge, either actual or presumed, of such unfitness has been brought to him." Voyager Ins. Companies v. Whitson, 867 So. 2d 1065, 1073 (Ala.2003) (citation omitted); see also Corbitt v. Home Depot USA, Inc., 2008 WL 616057, *19 (S.D.Ala. Mar. 3, 2008) (employer may be liable for negligent supervision or training under Alabama law if plaintiff "can show by affirmative proof that the alleged incompetence of the employee was discoverable by the employer if it had exercised care and proper diligence") (citations omitted). "Liability depends upon its being established by affirmative proof that such incompetency was actually known by the master or that, had he exercised due and proper diligence, he would have learned that which would charge him in the law with such knowledge." Armstrong Business Services, Inc. v. AmSouth Bank, 817 So. 2d 665, 682 (Ala. 2001) (citation omitted). "It is not sufficient merely to allege, or to show, that the employee acted incompetently." Id. at 683. Thus, a plaintiff bringing a claim of negligent supervision/training must show that the defendant either had actual knowledge of its employee's wrongful acts and did nothing about it, or that it would have known about the employee's wrongful acts had it exercised due and proper diligence. See Baldwin, 480 F.3d at 1309.
Plaintiffs' evidence, if believed by a jury, would show that Strine, defendant's employee, engaged in wrongful conduct toward plaintiffs that violated the FDCPA in certain respects. But that is not enough to establish a claim of negligent supervision or training. Plaintiffs argue that Strine engaged in technical violations of Phillips & Cohen's written policies by failing to call the Probate Court of Dallas County, Alabama, to see if Glover had an estate; by failing to document events in her notes sufficiently; and the like. Again, such violations do not automatically give rise to a viable claim of negligent supervision or training. Plaintiffs do not argue (and present no evidence) that Strine was not adequately trained by Phillips & Cohen in its procedures and practices. *1255 Plaintiffs do not argue (and present no evidence) that Phillips & Cohen had actual knowledge of Strine's wrongful conduct with respect to the Glover matter, or any previous matters. Instead, it appears that plaintiffs are predicating this claim on the theory that defendant should have known that Strine was acting in a manner that violated the FDCPA because her supervisor sits 10 feet away from her, and "[m]anagement knew there was a good possibility that Strine fabricated notes," but never disciplined her for it. (Doc. 37, at 39-40.)[28] But plaintiffs have submitted no evidence that Strine's supervisor actually heard her make allegedly FDCPA-violative statements at any time, or that anyone had ever complained to defendant of similar misconduct by Strine. Plaintiffs cite no evidence to support their conclusory statement that Phillips & Cohen knew or should have known that she was fabricating notes. Even if they had, the tortious acts plaintiffs ascribe to Strine are not inaccurate statements in her claims notes, but rather harassing, abusive, oppressive, false and unfair statements to them in telephone communications. That Strine may have recorded those events inaccurately in her notes is not relevant to the negligent supervision/training claim, because plaintiffs cannot credibly allege that they were harmed by any inaccuracies in Strine's notes.
Likewise unavailing is plaintiffs' conclusory statement that "[a] jury could find from the Defendant's Manual that the debt collectors are negligently trained to invade a person's privacy." (Doc. 37, at 40.) The Court having already determined as a matter of law that Strine did not commit the Alabama tort of invasion of privacy with respect to plaintiffs, any inadequacies in training in that regard cannot sustain a negligent training cause of action. See Voyager, 867 So.2d at 1073 ("A party alleging negligent or wanton supervision or hiring must also prove the underlying wrongful conduct of employees.").
Simply put, plaintiffs have come forward with no evidence that Phillips & Cohen knew or should have known that Strine was an incompetent employee. They point to no evidence that defendant was aware or should have been aware that she engaged in harassing or oppressive tactics to collect debts, or that she made false accusations about deceased debtors' family *1256 members to their employers to intensify the pressure on the family members to pay up. The record evidence does not reflect that Strine was a problem employee or habitual offender; to the contrary, her disciplinary record was virtually spotless. Thus, plaintiffs would have this Court allow them to present a negligent supervision/training theory to the jury even though they have proffered no evidence that Phillips & Cohen knew or had reason to know that Strine was using improper methods to collect debts in estate cases. This attempt fails, and defendant is entitled to summary judgment.
IV. Conclusion.
If plaintiffs' evidence is believed by the jury, then Phillips & Cohen employed a rogue collection specialist who sought to bully Peoples into cooperation by making threats, badgering her boss at home, concealing her identity, falsifying accusations about Peoples' work performance, and even intimidating her boss's daughter. Of course, there's another side to the story. Defendant's evidence (based largely on Strine's contemporaneous notes, which are business records of defendant) will portray plaintiffs as having fabricated these alleged threats and statements by defendant's employee, perhaps suggesting that Peoples lied to defendant's representatives, then sought to cover up her misconduct through further lies to her employer and others that culminated in this lawsuit. Defendant's evidence will show that Strine had valid reasons to call Sparks at home based on misleading or false information given her by Peoples. It will be for the jury to decide who is telling the truth with respect to plaintiffs' FDCPA causes of action.
For all of the foregoing reasons, it is ordered that Defendant's Motion for Summary Judgment to Dismiss Plaintiff Ashley Sparks' Claims (doc. 20), Defendant's Motion for Summary Judgment to Dismiss Madora Peoples' Claims (doc. 22), and Defendant's Motion for Summary Judgment to Dismiss Kyra Sparks' Claims (doc. 24) are granted in part, and denied in part. The Motions are granted with respect to the following causes of action: (a) plaintiff Peoples' FDCPA claims under 15 U.S.C. §§ 1692e and 1692f; (b) all plaintiffs' FDCPA claims under 15 U.S.C. § 1692g; (c) all plaintiffs' claims for invasion of privacy; (d) all plaintiffs' claims for intentional infliction of emotional distress; and (e) all plaintiffs' claims for negligent training/supervision. Those enumerated claims are dismissed with prejudice. With respect to all remaining claims, the Motions for Summary Judgment are denied.
NOTES
[1] The Court is mindful of its obligation under Rule 56 to construe the record, including all evidence and factual inferences, in the light most favorable to the nonmoving party. See Skop v. City of Atlanta, GA, 485 F.3d 1130, 1136 (11th Cir.2007). Thus, plaintiffs' evidence is taken as true and all justifiable inferences are drawn in their favor.
[2] The Court's review of the record has been complicated by two factors. First, plaintiffs have failed to comply with the requirement in the Rule 16(b) Scheduling Order (doc. 11) that "[i]f a party's exhibits in support of or in opposition to a motion exceed 50 pages in the aggregate, then that party must deliver a courtesy hard copy of those exhibits to Judge Steele's Chambers by mail or hand delivery." (Doc. 11, ¶ 13(c).) Second, and more importantly, both parties have submitted voluminous record materials which they do not cite in their briefs. In addition to running afoul of Local Rule 5.5(c)'s requirement that only relevant excerpts of discovery materials be submitted, this practice is not a permissible means of shifting the parties' burdens to the Court. "There is no burden upon the district court to distill every potential argument that could be made based upon the materials before it on summary judgment." Resolution Trust Corp. v. Dunmar Corp., 43 F.3d 587, 599 (11th Cir.1995). Thus, this Court will not scour uncited portions of the parties' evidentiary submissions for any scrap of evidence that may advance their positions. See Preis v. Lexington Ins. Co., 508 F. Supp. 2d 1061, 1068 (S.D.Ala.2007) ("Parties may not, by the simple expedient of dumping a mass of evidentiary material into the record, shift to the Court the burden of identifying evidence supporting their respective positions."); Witbeck v. Embry Riddle Aeronautical University, Inc., 219 F.R.D. 540, 547 (M.D.Fla.2004) ("That judges have no duty to scour the file in search of evidence is an obvious corollary to the requirement that parties specifically identify the portions of the case file which support their assertions regarding whether genuine issues remain for trial."); Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 672 (10th Cir.1998) (federal courts "are wary of becoming advocates who comb the record of previously available evidence and make a party's case for it"). Instead, review of the parties' submissions is restricted to the portions of the record they have cited, and the legal arguments they have expressly articulated.
[3] Phillips & Cohen records reflect that Glover was indebted to Collect America in the amount of $4,307.00; to Portfolio Recovery in the amount of $1,318.98; and to Chase Bank in the amount of $1,967.49. (Id.) Thus, the total debt that these three clients retained defendant to collect from Glover's estate totaled $7,593.47.
[4] Strine testified that she had no independent recollection of these events, given that she makes more than 30,000 telephone calls per year performing her duties for Phillips & Cohen. (Strine Dep., at 11.) For that reason, Strine's testimony consisted largely of her interpretation of her contemporaneous notes taken in connection with her efforts to secure payment on the Glover accounts. Plaintiffs object generally to this evidence and any other evidence drawn from Strine's notes, on the grounds that certain of her notations are inaccurate or incomplete. These notes may be compelling evidence at trial, but will not be credited on summary judgment to the extent that they conflict with plaintiffs' evidence. Be that as it may, plaintiffs have identified no evidentiary basis to question the manner in which Strine came to contact Peoples at Sparks' office, so Strine's explanation will be accepted for summary judgment purposes. If anything, plaintiffs' evidence corroborates Strine's account on this point, inasmuch as Peoples testified that her nephew gave her name and contact information at work to defendant's representatives because "he knew [Peoples] was handling [her] mother's affairs for her." (Peoples Dep., at 74-76.) Despite plaintiffs' attempt to create one, then, there is no genuine, material dispute of fact as to this issue.
[5] Strine's notes reflect no such statement, but they do state that Peoples told her in that conversation that Sparks was the attorney of record for Glover's estate, and that Strine should mail a copy of the claim to that office. (Strine Dep., at 36-37, 39.) For her part, Peoples denies having made those statements. (Peoples Aff., ¶ 5.) For summary judgment purposes, Peoples' version of the facts on this point will be credited. However, the circumstances surrounding the mailing of the claim are of no more than ancillary importance to plaintiffs' causes of action.
[6] Phillips & Cohen instructs its personnel that, after being notified that an attorney represents an estate or party, contact is only to be made with the attorney unless, after a reasonable period of time, the attorney fails to return calls, at which time the allegedly represented party may be contacted directly. (Obringer Dep., at 67.)
[7] Despite being vexed that Phillips & Cohen contacted her regarding an estate manner concerning Peoples' mother, Sparks did not reprimand Peoples because she did not know how defendant had received her name. (Sparks Dep., at 64.)
[8] The record is clear that Sparks' home number is unpublished and unlisted. (Sparks Dep., at 26.) Sparks maintains an unlisted telephone number to prevent her work from intruding on her home life. (Sparks Dep., at 26; A. Sparks Dep., at 24; Sparks Aff., ¶¶ 2-3.) That said, Sparks did give her home telephone number to Peoples. (Peoples Dep., at 40; Sparks Dep., at 28.)
[9] Ashley denies impersonating her mother, but her own account of the incident suggests that Strine may have been laboring under the impression she was talking to Sparks, and not Sparks' daughter, during the initial call. According to Ashley, the call began with Strine asking, "is this Ms. Sparks' residence." (A. Sparks Dep., at 28.) Ashley testified, "[A]fter that I said, yes, it is. Can I help you with anything." (Id.) So while Ashley may not have been "impersonating" her mother, Ashley's own narrative suggests that it may have been a reasonable mistake for Strine to believe that she was speaking to Kyra Sparks at that moment. That determination is for the jury.
[10] Phillips & Cohen attempts to rebut this testimony by presenting evidence that it has no record of ever receiving the December 15 letter. (Obringer Aff., at 2.) This effort is for naught. As defendant knows, the Court must credit plaintiffs' evidence for Rule 56 purposes, including specifically Sparks' contention that defendant's agent admitted receipt and knowledge of the December 15 letter.
[11] In addition to the claim-specific arguments, Phillips & Cohen proffers a pair of general contentions that it contends defeat all or most of plaintiffs' claims. First, defendant asserts that plaintiffs are estopped from rebutting defendant's evidentiary submission because plaintiffs did not respond to Defendant's Requests for Admissions within the timeframe specified by Rule 36(a), Fed.R.Civ.P., but instead provided unsigned responses that would have been timely had they been signed. In particular, defendant points to requests asking plaintiffs to admit that they have no evidence to support their allegations of violations of the FDCPA or the state-law claims. (Defendant's Exh. N.) This argument is negated by Magistrate Judge Cassady's Order (doc. 38) entered on May 7, 2008, wherein he authorized plaintiffs to withdraw their deemed admissions and to amend their admissions to the extent that they had done so in their untimely signed responses. Judge Cassady correctly rejected as "patently unfair" defendant's attempt to rid itself of all liability by what amounts to, at most, an instance of excusable neglect by plaintiffs' counsel, particularly when defendant received unsigned responses within the period prescribed by Rule 36 and received signed responses a scant four days after the deadline. As a result, there are no longer any deemed admissions in this case that would entitle defendant to judgment as a matter of law. Second, defendant asserts that Sparks' and Peoples' claims should be summarily dismissed because the Complaint reflects that these plaintiffs are participating in this action solely in their capacity as Ashley's "next friend," such that they cannot be pursuing individual claims. Such a distorted interpretation of the Complaint is inconsistent with any reasonable reading of that document, which plainly identifies Sparks and Peoples as distinct plaintiffs. Moreover, defendant has consistently conducted itself throughout these proceedings on the understanding that there were three individual plaintiffs asserting individual claims. As such, defendant cannot now reasonably purport to have been confused or misled by the Complaint into thinking that Sparks and Peoples were not advancing individual claims herein, but were instead acting solely as Ashley's "next friend." Defendant's current position is particularly far-fetched with respect to Peoples, who defendant well knows has no familial or legal connection to Ashley whatsoever, but is simply a secretary employed at Ashley's mother's place of business. Such an argument serves only to confuse the issues and to squander judicial resources.
[12] Defendant argues that it should be granted summary judgment on the FDCPA causes of action because "based on her collection experience and knowledge of the FDCPA and collection regulations, Ms. Strine testified the collection efforts in the instant matter did not violate the FDCPA or Alabama law." (Doc. 30, at 18.) Defendant appears to be characterizing Strine as an expert witness. (Id. at 18 n. 6.) Whatever expertise Strine may have in federal and state law concerning debt collection practices, her self-serving, conclusory opinion that she did not violate the FDCPA is unhelpful at the summary judgment stage. Besides, the subject testimony was predicated exclusively on Strine's review of her notes, since she testified that she had no independent recollection of the underlying events. (Strine Dep., at 56.) The record in the light most favorable to plaintiffs contains many pertinent facts that are not memorialized in Strine's notes. Of course, those facts must be accepted for summary judgment purposes, yet Strine's opinion takes none of them into account.
[13] See also Jacobson v. Healthcare Financial Services, Inc., 516 F.3d 85, 90 (2nd Cir.2008) (explaining that question of whether a communication complies with the FDCPA is decided from perspective of "least sophisticated consumer"); United States v. National Financial Services, Inc., 98 F.3d 131, 136 (4th Cir. 1996) ("The basic purpose of the least-sophisticated-consumer standard is to ensure that the FDCPA protects all consumers, the gullible as well as the shrewd.") (citation omitted); Sanchez v. Client Services, Inc., 520 F. Supp. 2d 1149, 1156 (N.D.Cal.2007) (applying "least sophisticated debtor" standard to plaintiffs' FDCPA claims).
[14] This "least sophisticated consumer" standard is fatal to defendant's near-frivolous assertion that the FDCPA somehow exempts Sparks because she is a lawyer and therefore a sophisticated party. According to defendant, Sparks' status as an attorney precludes her from being an "unsophisticated consumer" that the Act was designed to protect, so she cannot bring a claim. (Doc. 30, at 22.) Under the standard articulated in Jeter and the like, however, a plaintiff's actual degree of sophistication is not relevant. See, e.g., Guerrero v. RJM Acquisitions LLC, 499 F.3d 926, 934 (9th Cir.2007) ("If the least sophisticated debtor would likely be misled by a communication from a debt collector, the debt collector has violated the Act.") (citation omitted); see also David v. FMS Services, 475 F. Supp. 2d 447, 449 (S.D.N.Y.2007) (characterizing "least sophisticated consumer" test as an objective standard). Any superficial appeal that defendant's argument might have is extinguished by the observation that "sections 1692d, e, or f... do not designate any class of persons, such as lawyers, who can be abused, misled, etc., by debt collectors with impunity." Evory v. RJM Acquisitions Funding L.L.C., 505 F.3d 769, 773 (7th Cir.2007). Defendant might (or might not) have a valid argument if Sparks were acting in the capacity of a consumer's attorney in this case, but here she was not. The mere fortuity that Sparks is a lawyer does not strip her of the protections of the FDCPA in her private life, and defendant's argument to the contrary is meritless. See generally Guerrero, 499 F.3d at 936 n. 4 ("A debt collector is not insulated from liability under the Act merely because a debtor also happens to be an attorney."). And defendant's back-up argument that Sparks is not a "consumer" for FDCPA purposes is equally devoid of merit. Sections 1692d, 1692e, and 1692f speak in terms of unfair debt collection practices directed at "any person," not just a consumer. Section 1692k creates a private right of action where "any debt collector ... fails to comply with any provision of this subchapter with respect to any person." 15 U.S.C. § 1692k (emphasis added). This Court must assume that Congress's word choice was intentional, and that it meant what it said. Thus, whether or not Sparks is a "consumer" is irrelevant to her right to maintain a cause of action against Phillips & Cohen under these sections of the FDCPA. See, e.g., Beck v. Maximus, Inc., 457 F.3d 291, 294 (3rd Cir.2006) (FDCPA "is intended to protect both debtors and non-debtors from misleading and abusive debt-collection practices"); Cole v. Toll, 2007 WL 4105382, *7 (E.D.Pa. Nov. 16, 2007) ("The right to bring a cause of action to enforce the FDCPA is not limited to `consumers' as that term is defined."); Eley v. Evans, 476 F. Supp. 2d 531, 533 (E.D.Va.2007) (construing FDCPA as meaning that "any aggrieved party may bring an action" under §§ 1692e or 1692f, even if that aggrieved party is not a debtor).
[15] Implicit in defendant's position is that Strine's failure to utter certain key words or catch phrases in speaking with Sparks and Ashley renders those communications insufficient to meet this threshold requirement. The Court is aware of no case law, and defendant cites none, standing for the proposition that there can be no FDCPA liability if a defendant fails to mention the talismanic phrase "collection of a debt," or if it does not specifically state that the purpose of its call is to collect a debt. The FDCPA cannot reasonably be read so narrowly.
[16] Unlike in Horkey, however, the Court does not definitively conclude that Strine's communications with Sparks and Ashley were in connection with the collection of a debt, as a matter of law. A reasonable jury could ascribe other purposes to those communications (i.e., personal animus harbored by Strine against Peoples, an attempt by Strine to deflect Sparks' angry accusations in a call that Strine did not even initiate, etc.). On the specific facts presented here, a jury question is presented as to whether these communications were or were not "in connection with the collection of a debt," as opposed to some other purpose unrelated to debt collection. Both sides will be permitted to argue this point at trial.
[17] Nor is she required to do so in order to sustain a § 1692d cause of action. See 15 U.S.C. § 1692d (enumerating six specific forms of conduct that violate the section, but stating that such a listing does not limit the general prohibition on harassing, oppressive, or abusive conduct); Jeter, 760 F.2d at 1178 (opining that "§ 1692d is explicitly not limited to the conduct proscribed by subsections (1)-(6)").
[18] In analyzing the § 1692d claims, plaintiffs urge the Court to consider the subjective circumstances of Sparks and Ashley in determining whether defendant's conduct was harassing, offensive, or abusive. Plaintiffs ask the Court to view Sparks' claims from the perspective of a mother trying to protect her child, and Ashley's claims from the perspective of a 15-year old child. (Plaintiffs' Brief, at 17-18.) However, plaintiffs misapply Jeter, which plainly imposes an objective standard for determining whether the harassing, oppressive, and abusive criteria are satisfied. See note 14, supra. The Court therefore rejects plaintiffs' suggestion that the standard by which defendant's communications are evaluated is tailored to each plaintiff's individual-specific traits and circumstances, and will instead apply the "least sophisticated consumer" test in assessing these claims.
[19] In attempting to evade liability under § 1692d(6), defendant makes a strained argument that, given Ashley's third party status vis a vis the debt, for Strine to have provided "meaningful disclosure" would have been to expose Phillips & Cohen to liability under § 1692c. This contention is disingenuous to the point of frivolity. Section 1692d(6) does not require a debt collector to furnish to a third party the details of the debt being collected. What it does require, and what Strine is accused of not doing here, is that the debt collector in communications with any person in connection with the collection of a debt must provide "meaningful disclosure of the caller's identity." § 1692d(6). It is Strine's failure to tell Ashley who she was, not her failure to disclose specific details of the Glover debt, that forms the basis for liability under that section.
[20] In a footnote, defendant protests that there is no evidence that Strine ever said to Peoples that Peoples was responsible for the debt, was required to remit payment on the debt, or the like. (Doc. 39, at 12 n. 14.) Thus, defendant simply rehashes its previous failed argument that plaintiffs have not shown that the conduct in question was "in connection with the collection of a debt," as required for FDCPA liability to attach. This argument is rejected for the reasons stated previously.
[21] Defendant's arguments to the contrary are unavailing. First, defendant contends that the statement to Peoples about its ability to force the family to sell Glover's house was true and correct as a matter of Alabama law. But § 1692d liability does not hinge on the falsity of a statement. Even true statements may be harassing or abusive. Besides, it was Strine's communications as a whole (and not her one phone conversation with Peoples) that gives rise to defendant's possible § 1692d liability. Second, defendant asserts that Peoples' attempt to predicate § 1692d liability on communications directed to Sparks and Ashley is improper under the FDCPA. In support of this proposition, defendant cites a 1999 unpublished district court opinion from Illinois. There is ample precedent to the contrary. See, e.g., Sayyed v. Wolpoff & Abramson, 485 F.3d 226, 232 (4th Cir.2007) (noting that FDCPA defines communication as conveying information regarding a debt directly or indirectly to any person, such that communication to debtor's counsel "plainly qualifies as an indirect communication to the debtor"); Horkey, 333 F.3d at 774 n. 1 (suggesting, without deciding, that communication routed through intermediary rather than being spoken directly to consumer can support § 1692d claim for consumer, inasmuch as it is "worse" for a third person to receive and relay the message to the debtor than for the debt collector simply to leave a voice-mail message, which itself would be actionable). This view is bolstered by the plain language of the statute itself. For example, § 1692d prohibits a debt collector from engaging "in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt." Id. Nothing in the statute says the communication must be specifically directed at the person aggrieved. If the natural consequence of a debt collector's statements to person A is that person B would be harassed, oppressed or abused, then person B has a FDCPA right of action against the debt collector. The statute cannot reasonably be read otherwise, nor should it be. After all, a debt collector cannot circumvent liability by accomplishing indirectly that which it cannot do directly. Therefore, Phillips & Cohen cannot take refuge in the fact that some of Strine's allegedly harassing, oppressive and abusive conduct aimed at forcing Peoples to pay the Glover debt actually took the form of communications with Peoples' boss and boss's daughter.
[22] In a heading in their brief, plaintiffs refer to "Kyra Sparks, Ashley Sparks, and Madora Peoples' § 1692e(10) Claim," but the body of that section is confined to claims of Sparks. (Doc. 37, at 15-16.) This Court cannot guess at what plaintiffs' theory might be, or fill in the gaps for plaintiffs; therefore, the Rule 56 motion is evaluated on the basis of arguments the parties have actually articulated, rather than hypothetical contentions that remained unspoken.
[23] That section forbids debt collectors from making false representations as to "the character, amount, or legal status of any debt." 15 U.S.C. § 1692e(2)(A).
[24] Plaintiffs having never challenged, much less rebutted, defendant's representations of its legal rights under Alabama law as to Glover's home, the Court will not endeavor to formulate counterarguments for them.
[25] In footnotes buried in both its principal and reply briefs, defendant urges the Court to determine whether plaintiffs would be entitled to recovery of attorney's fees and costs at trial in the event that the jury finds a "technical" violation of the FDCPA. (Doc. 30, at 26 n. 14; doc. 39, at 14 n. 16.) This argument is premature. As there has been no finding of liability against Phillips & Cohen in this case, it would be conjectural and highly inefficient for the Court to render an opinion now as to whether plaintiffs can recover their attorney's fees and costs if they ultimately prevail at trial. This issue is far more efficiently and appropriately handled via post-trial motion practice, in the event that the contingency of a plaintiffs' verdict materializes at trial; therefore, the Court declines to offer an advisory opinion in the context of this Rule 56 motion.
[26] With regard to the "investigation" comment, plaintiffs have adduced no evidence that Phillips & Cohen actually performed any investigation concerning Sparks. Not all investigations of attorneys constitute invasions of privacy. For example, one may investigate an attorney in a matter of seconds by checking the Martindale-Hubbell database to ascertain her education, practice areas, and peer review ratings. Or one may investigate an attorney by calling the state bar to inquire as to whether any disciplinary proceedings have been initiated as to that attorney. Plaintiffs could not seriously contend that such an "investigation" would constitute an unlawful invasion of privacy. Thus, Strine's mere statement to Sparks that "we've already investigated you" cannot support an invasion of privacy claim in the absence of evidence (which plaintiffs have not submitted) that an investigation was actually performed and that such investigation in some way touched or intruded upon Sparks' private affairs or concerns.
[27] The Alabama Supreme Court's decision in Jacksonville State Bank v. Barnwell, 481 So. 2d 863 (Ala. 1985) is illustrative of the type of conduct that must be proven in order to prevail on an invasion of privacy theory under Alabama law. In Barnwell, the court affirmed the trial court's denial of defendant's motion for directed verdict on invasion of privacy claims where the creditor made 28 to 35 telephone calls to the debtor's home and place of employment; utilized coarse, inflammatory, malicious and threatening language; and fraudulently altered terms of a security instrument to collect the debt. See id. at 866. By comparison, the conduct of which plaintiffs accuse Strine in this case is positively benign.
[28] Plaintiffs' argument on this point is difficult to follow because it is obscured by pages of irrelevant and/or unhelpful assertions. For example, plaintiffs protest that defendant has not produced certain evidence in discovery, that Strine is not really an FDCPA expert, that defendant's 30(b)(6) deponent lacked familiarity with certain details of company procedures, and that the probate court should have been called. (Doc. 37, at 35-40.) This kind of scattered, stream-of-consciousness argument clouds the issues and hampers the Court's efforts to understand how and why plaintiffs believe they are entitled to reach a jury on a negligent supervision/training theory. If plaintiffs believed that defendant withheld requested discovery, their remedy was not to complain about it in Rule 56 briefing, but to file a timely motion to compel, which they evidently did not do. Whether or not Strine is qualified as an FDCPA expert is irrelevant to whether defendant met its duty of care in training and supervising her. The record does not appear to support plaintiffs' accusation that Phillips & Cohen's 30(b)(6) deponent lacked knowledge of particular collection specialist procedures and, even if it did, that fact does not appear probative of the negligent supervision/training claims. And whether or not the Dallas County Probate Court should or should not have been called is of no consequence because the wrongful acts plaintiffs ascribe to Strine are not her failure to call the court, but are instead her telephone contacts with plaintiffs. See generally Zielke v. AmSouth Bank, N.A., 703 So. 2d 354, 360 (Ala.Civ.App.1996) (trial court correctly excluded defendant's training manual from evidence in negligent training case where plaintiff did not claim that he had suffered harm as a result of guidelines in manual that were inconsistent with the law). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1514846/ | 431 Pa. 370 (1968)
Revere Press, Inc.
v.
Blumberg et al., Appellants.
Supreme Court of Pennsylvania.
Argued April 25, 1968.
October 3, 1968.
*371 *372 Before BELL, C.J., MUSMANNO, JONES, COHEN, EAGEN, O'BRIEN and ROBERTS, JJ.
Herald Price Fahringer, of the New York Bar, with him Charles L. Ford, for appellants.
Frank E. Hahn, Jr., with him Herbert A. Fogel, Robert M. Crooks, and Obermayer, Rebmann, Maxwell & Hippel, for appellee.
OPINION BY MR. JUSTICE EAGEN, October 3, 1968:
Revere Press, the plaintiff in this assumpsit action, seeks to recover $7,520 for the printing of dental hygiene literature which was distributed during August of 1964 at the Democratic National Convention held in Atlantic City, New Jersey. The defendants are H.R.B., Inc., a nonprofit Pennsylvania corporation organized to raise funds to provide free dental care for the handicapped, and Mrs. Helen R. Blumberg, the president of H.R.B., Inc. After a trial without a jury, *373 the trial judge entered a verdict for $5,500 in favor of the plaintiff and against both defendants. Defendants' exceptions were dismissed and a judgment was entered on the verdict. On appeal, the judgment was affirmed by the Superior Court without opinion. An appeal to this Court was then allowed.
The major issue on this appeal is whether or not the judgment against Helen Blumberg is supportable. Our review of the record persuades us that the judgment against Mrs. Blumberg cannot stand.
The parties and the trial court have focused their attention on the question of whether Mrs. Blumberg, by her conduct in arranging for the printing, did or did not incur personal liability under the well established agency law that an authorized agent for a disclosed principal is not liable on a contract between the principal and a third party unless the agent agrees with the third party to be liable,[1] while an agent who enters into a contract without authority or without disclosing either that she is acting for a principal or the identity of the principal is personally liable.[2]
Mrs. Blumberg cannot be held personally liable on any theory which depends upon a finding that she had no authority to contract for this printing on behalf of H.R.B., Inc. In fact, plaintiff never has questioned Mrs. Blumberg's authority to act in this matter for H.R.B., Inc. Plaintiff's efforts to establish H.R.B., Inc.'s liability impliedly accepts Mrs. Blumberg's authority to bind the corporation, for on no other theory could the corporation be held liable. Even if plaintiff did question Mrs. Blumberg's authority, the trial *374 court's finding that the corporation is liable confirms that Mrs. Blumberg had authority and that finding is amply supported by the evidence.
Mrs. Blumberg cannot be held personally liable because she dealt with plaintiff as an agent without disclosing that she was acting as an agent or without identifying H.R.B., Inc. as her principal. The printing for which plaintiff seeks to recover was ordered from plaintiff by Mr. Herbert Pasker, who had been contacted by Mrs. Blumberg at the suggestion of a printer who previously had handled work for H.R.B., Inc., but who could not prepare the convention literature in the short time available. Plaintiff's officials testified that after the second of thirteen job orders that make up plaintiff's claim, they asked Mr. Pasker whom to bill and, after asking Mrs. Blumberg, he told them to bill H.R.B., Inc. Mr. Pasker's testimony and plaintiff's records corroborate this. Thus it certainly was disclosed to plaintiff that H.R.B., Inc. was the principal for whom Mr. Pasker ordered the last eleven of the thirteen jobs.[3] With respect to the first two job orders, Mrs. Blumberg also cannot be held personally liable. It appears to us that the major reason for holding personally liable an agent who does not disclose either the principal's identity or existence is that, under such circumstances, the party dealing with the *375 agent must rely on the agent personally. In this case, it is clear that if plaintiff was relying on any agent, it was Mr. Pasker. Mrs. Blumberg did not deal with plaintiff at all. Thus, if any agent was acting for an undisclosed or partially disclosed principal, it was Mr. Pasker, not Mrs. Blumberg.
Mrs. Blumberg cannot be held personally liable on the theory, adopted by the trial court, that she voluntarily agreed with plaintiff to be personally liable. Although officers of plaintiff testified that they were looking to Mrs. Blumberg for payment, this is less than a complete agreement. Mrs. Blumberg also in some way must have offered to be personally liable or must have accepted personal liability. There is no evidence that she did so.
During the transactions giving rise to the debt, Mrs. Blumberg and plaintiff communicated only through Herbert Pasker. Since Mrs. Blumberg did not deal at all with plaintiff, she could not herself have indicated to plaintiff that she agreed to be personally liable. Assuming that Mr. Pasker represented to plaintiff that Mrs. Blumberg would be personally liable, he did not have authority to make such a representation.
There is no evidence to support a finding that Mr. Pasker had apparent authority to bind Mrs. Blumberg. Apparent authority is power to bind a principal which the principal has not actually granted but which he leads persons with whom his agent deals to believe that he has granted. Persons with whom the agent deals can reasonably believe that the agent has power to bind his principal if, for instance, the principal knowingly permits the agent to exercise such power or if the principal holds the agent out as possessing such power. Jennings v. Pitts. Mercantile Co., 414 Pa. 641, 202 A.2d 51 (1964); Restatement 2d, Agency, §§ 8, 27 (1958). On the first two printing orders, it *376 appears that Mrs. Blumberg was not even a disclosed principal. Thus, Mr. Pasker could not have had any apparent authority on those transactions. Jennings v. Pittsburgh Mercantile Co., supra, 414 Pa. at pp. 644-45, 202 A. 2d at p. 54. On the last eleven printing orders, it does not appear that Mrs. Blumberg in any way manifested to plaintiff or to anyone else that Mr. Pasker could bind her personally. There is no evidence that she knew that Mr. Pasker was purporting to bind her to pay for the printing which she directed him to have billed to the corporation. Nor is there any evidence of other conduct on the part of Mrs. Blumberg from which the plaintiff could reasonably believe that she consented to Mr. Pasker, a special agent, exercising the unusual authority to bind her personally on this corporate contract. Thus, on this record, a finding that Mr. Pasker had apparent authority to bind Mrs. Blumberg personally is completely unsupportable.
There is no evidence to support a finding that Mr. Pasker had actual authority, express or implied, to bind Mrs. Blumberg. The record discloses nothing said or done by Mrs. Blumberg from which Mr. Pasker reasonably could have believed that she consented to his exercising the power to bind her personally. Moreover, it would not have been reasonable, especially after having been told to bill H.R.B., Inc., to think that he could bind Mrs. Blumberg as an agent personally without some definite indication to that effect. The record is devoid of such evidence.
It is argued that, even if the judgment against Mrs. Blumberg is not supportable on an agency theory, it is proper to "pierce the corporate veil." We do not agree.
In the past this Court has said that it is proper to disregard the corporate entity when "justice or public *377 policy demand it and when the rights of innocent parties are not prejudiced thereby nor the theory of corporate entity made useless." Tucker v. Binenstock, 310 Pa. 254, 263, 165 A. 247, 250 (1933). In this case the reasons advanced for the position that justice and public policy would be served by "piercing the corporate veil" are not persuasive.
The appellee attaches great significance to the testimony that the stock of H.R.B., Inc. was never issued. In determining whether the corporate entity should be disregarded, this factor may be considered, but it is seldom sufficient. Annot., 8 A.L.R. 3d 1122 (1966). Additional reasons are necessary if justice and public policy are to demand that the corporate veil be pierced. In this case, the additional reasons are not weighty. Although Mrs. Blumberg had a "personal interest" in the corporation's charitable activities, this is true of many, if not most, stockholders and functionaries of charitable corporations and yet the legislature has conferred limited liability. The Act of May 5, 1933, P.L. 289, §§ 509, 610, 15 P.S. §§ 7509, 7610. If this personal interest were considered, the corporate entity envisioned by the legislature would truly be "useless."
H.R.B., Inc. has not been used as a device to defraud plaintiff. There has been no trickery or deception. The plaintiff should have known from the nature of the material printed that it was for a charitable corporation. Any loss it may incur is as much attributable to its failure to inquire into the corporation's desires as to the corporation's lack of resources.
The second question raised by the appellants is whether or not Mr. Pasker was authorized to contract for printing at a cost of more than $3000.
The record contains sufficient evidence to support a finding that Mr. Pasker's authority was not limited *378 as appellants contend. Mr. Pasker testified that he did not remember a conversation in which, as Mrs. Blumberg recalls, he told her that the printing would cost no more than $3000. Assuming that such a conversation occurred, Mr. Pasker's estimate of what the printing would cost did not necessarily become a limitation on his authority. The question of whether he could have reasonably believed that his authority was not limited by any dollar figure is a factual question and we cannot say that the lower court erred in resolving it against appellants.
The Order of the Superior Court affirming the Judgment entered against Helen Blumberg is reversed. The Order affirming the Judgment entered against H.R.B., Inc. is affirmed.
NOTES
[1] E.g., Geyer v. Huntingdon Co. Agr'l Assn., 362 Pa. 74, 66 A.2d 249 (1949); Yentis v. Mills, 299 Pa. 25, 148 A. 909 (1930); Restatement 2d, Agency, § 320 (1958).
[2] E.g., Penna. Co. v. Clark, 340 Pa. 433, 447-48, 18 A.2d 807 (1941); Aber v. Pa. Co. for Ins. on Lives, 269 Pa. 384, 112 A. 444 (1921); Restatement 2d, Agency, §§ 321, 322 (1958).
[3] The sound rule is that a principal's status as disclosed, undisclosed or partially disclosed is determined at the time of contracting. Restatement 2d, Agency, § 4, comment c (1958). Thus, it would be incorrect to conclude that the disclosure to plaintiff after two job orders was sufficient to make H.R.B., Inc. a disclosed principal throughout the entire printing, including the first two orders. In our judgment it also would be incorrect to link the thirteen orders, treat them as a single contract, and hold H.R.B., Inc. undisclosed on the basis of its status during the first order. As plaintiff's own officials testified, the thirteen orders were separate transactions. Basically, they are separate contracts. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1570168/ | 151 F. Supp. 726 (1957)
PETER KIEWIT SONS' CO., a Corporation, and Morrison-Knudsen Company, Inc., a Corporation, Acting as Joint Contractors and Co-Venturers
v.
The UNITED STATES.
No. 283-52.
United States Court of Claims.
June 5, 1957.
*727 Ward E. Lattin, Washington, D. C., and W. C. Fraser, Omaha, Neb., for plaintiffs. Gardner, Morrison & Rogers, Washington, D. C., and Fraser, Crofoot, Wenstrand, Stryker & Marshall, Omaha, Neb., were on the briefs.
Francis X. Daly, Washington, D. C., with whom was Asst. Atty. Gen. George Cochran Doub, for defendant.
Before JONES, Chief Judge, and LITTLETON, WHITAKER, MADDEN and LARAMORE, Judges.
MADDEN, Judge.
*728 The plaintiffs, Peter Kiewit Sons' Co. and Morrison-Knudsen Company, Inc., were partners in a joint venture to perform a construction contract made with the United States. The plaintiffs sue for damages alleged to have been suffered by reason of the increased costs of performance of the contract which were due to delays claimed to have been caused by the Government's breach of the contract.
On or about the 28th of March 1947, the plaintiffs and the Government, acting through the Bureau of Reclamation, Department of the Interior, entered into a standard form Government contract. Under this contract the plaintiffs were to construct earthwork and structures for the Estes and Marys Lake power plants, the parking area adjacent thereto, the gatehouse, spillways, and penstock connected to the power plants. The Estes and Marys Lake power plants were part of a much larger project known as the Colorado-Big Thompson Project, which is an extensive hydroelectric and irrigation project located on the east and west slopes of the Continental Divide in the state of Colorado. Other parts of the overall Colorado-Big Thompson Project were constructed by different contractors under separate contracts with the Government.
The work to be performed by the plaintiffs was covered in Schedules I, II, and III of the specifications accompanying the contract. Schedule I covered the Estes power plant, switchyard, and parking area; Schedule II the Marys Lake power plant with its switchyard and parking area; and Schedule III the spillway for Marys Lake, the penstock gate structure and penstock for both Estes and Marys Lake. Plaintiffs submitted separate bids for Schedules I, II, and III, but stated on the last page of the bids that if the Government accepted and awarded them contracts for all three of the schedules, then they could deduct from the total contract price the sum of $238,000. The Government accepted plaintiffs' bid on the combined three schedules for the total contract price of $2,176,708, which took account of the $238,000 reduction from the separate bids by the plaintiffs on the three schedules. This amount, together with additional sums for extras and changes not here in issue, has been paid to the plaintiffs.
The contract provided that the work should be completed within 900 calendar days after the Government gave notice to proceed. This notice was given to the plaintiffs on May 3, 1947, and called for completion of the contract by October 19, 1949. Under the terms of the contract the plaintiffs were to supply all labor and equipment and some of the material, and the Government was to furnish the steel penstock for both plants, steel and iron pipes and fittings, electrical conduits, metal sash windows, and plumbing fixtures. The contract was extended several times by the Government. Completion dates as finally fixed by the Government, and met by the plaintiffs, were:
Schedule I. October 18, 1950
Schedule II. September 18, 1950
Schedule III. September 30, 1950
The plaintiffs sue for $261,792.72 which they allege is the increased cost resulting from delays in the performance of the contract, which delays are claimed to have been occasioned by breaches of contract by the Government. Plaintiffs' claim is broken down into two separate categories: Penstock and General and Concrete.
Penstock
Under Schedule III of plaintiffs' contract, they were to construct a gatehouse at the lower terminal of the Rams Horn Tunnel. Rams Horn Tunnel carried water to the eastern slope of the Continental Divide and was to provide the necessary water for the Marys Lake power plant. From the gatehouse, which regulated the flow of water from the Rams Horn Tunnel, a single 96-inch diameter penstock was to be installed to carry the water to the Marys Lake power plant, a distance of 482 feet. Penstock is a tubular steel conduit. The schedule also provided for the construction of a gatehouse at the lower terminal of another tunnel, Prospect *729 Mountain, to regulate the flow of water into the Estes power plant. Three parallel lines of penstock, each 78 inches in diameter, were provided to carry the water a distance of 3,941 feet from the gatehouse to the Estes power plant. The penstock was delivered to the sites in various lengths to fit specified areas of installation. The Marys Lake penstock consisted of 18 sections, and the Estes penstock 432 sections which were to be installed in three lines of 144 sections each.
The plaintiffs' original plan of construction provided for the installation of the penstock during the period from approximately May 1, 1948 to October 31, 1948. A revised schedule for the installation of the penstock was prepared and submitted to the defendant about March 18, 1948, and called for completion of the penstock installation by December 1, 1948. However, actual delivery by the Government of penstock to the sites did not start until May 26, 1948, and the final delivery was not received until August 20, 1949. Installation was started by the plaintiffs August 1, 1948, and was completed about September 17, 1949. The plaintiffs claim damages for this delay.
In anticipation of its needs in supplying the penstock for the Marys Lake and Estes power plant projects, the defendant solicited bids for the fabrication of the required penstock. The bids called for opening on June 24, 1946, which was some nine months before the plaintiffs' contract was entered into. The bid of the Darby Corporation of Kansas City, Kansas, hereinafter called Darby, was low. Darby notified the Bureau of Reclamation that delivery of the required penstock could be made within 450 days from the time that notice to proceed was given. An inspector of the defendant reported that Darby could meet the requirements for the supply of the needed penstock and could arrange for its deliveries to agree with the schedule of the general contractor. On October 25, 1946, the defendant wrote to Darby notifying it of the award of the contract to it and stating that the performance period would commence with the receipt of the award. Darby received the notice October 28, 1946. The Darby contract provided for the completion of the 96-inch penstock section for the Marys Lake power plant within 360 days from the receipt of the award and the completion of the 78-inch penstock sections for the Estes project within 720 days. Thus the completion dates for the fabrication of the penstock were October 23, 1947 for Marys Lake, and October 17, 1948 for Estes. Darby completed the Marys Lake penstock by June 30, 1948, and delivered it to the site in July of that year. It completed the Estes penstock about August 13, 1949, with final delivery to the site by August 20, 1949. Much of the delay in the delivery of the penstock was caused by the shortage of steel and the difficulty that Darby was having in finding and maintaining a source of supply of the plate steel needed for the manufacture of the penstock. This difficulty began sometime before the award of the plaintiffs' contract in March 1947.
Recognizing the difficulty that Darby was encountering, the Government attempted to secure priorities assistance for Darby so that manufacture of the penstock could begin on schedule. The contracting officer for the Darby contract determined that the delay in completing the 96-inch penstock for the Marys Lake power plant resulted from causes within the control of Darby, since it had received the steel for this penstock in August and September of 1947, but had used it in fabricating penstock under another contract with the Government which was left after the Marys Lake and Estes contract, but called for an earlier delivery date. He also found that 34 percent of the steel required for the Estes penstock was available in March 1948, but that commencement of its manufacture was delayed until April due to the other penstock contract with the Government. The contracting officer further found that production of penstock was delayed a total of 205 days between the period April 1948 and April 1949, due *730 to excusable delays caused by the shortage of steel.
The plaintiffs were not advised of the delays in the manufacture of penstock as soon as the Government knew of them and not until November 1948 were they advised that their revised installation schedule could not be met.
The Government kept an inspector on duty at the Darby plant to see that the penstock for the Marys Lake and Estes projects conformed to specifications and to speed up operations wherever possible. As Darby fell behind, the Government attempted to assist it in obtaining the necessary steel and on February 16, 1949, the Secretary of the Interior requested the Secretary of Commerce to assist in getting the approval of an allocation of steel for the Bureau of Reclamation's projects which included the Marys Lake and Estes power plants. At this time P.L. 395, 80th Congress, 1st Session, 61 Stat. 945, 50 U.S.C.A.Appendix, § 1911 et seq., was in effect. It was a law whereby a voluntary allocation plan was set up by industries dealing with scarce commodities, steel among others. The Steel Products Advisory Committee was established under this law and allotted quantities of steel for distribution to users when, in the judgment of the Committee, it would tend to stabilize the national economy in areas of production where there was a critical shortage as an aftermath of World War II. This law was passed on December 30, 1947, but in the early period of its existence applications were not made to the Steel Products Advisory Committee by the Government on an agency basis. It was not until the Department of the Interior made its application for steel for the Bureau of Reclamation projects in 1949 that an agency of the Government had applied for an allocation on such a basis. It is not shown that had such an application been made before this time it would have been accepted and acted upon favorably by the Advisory Committee. As a result of the application in 1949, steel was made available to Darby for use in fabrication of the penstock needed by the plaintiffs.
On February 1, 1950, the contracting officer for the plaintiffs' contract issued his findings of fact with respect to the delays caused by the penstock and other items of work. He determined that the plaintiffs were prepared to install penstock by May 1, 1948, as planned, and except for the rate and order of delivery, the plaintiffs would have completed installation by January 31, 1949. He granted an extension of time of 226 days under Schedule III of the contract. This extension was granted on the ground that another contractor had not completed construction of the Prospect Mountain Tunnel, and therefore the plaintiffs could not construct the Estes gatehouse until the tunnel was completed. Since the construction of the gatehouse and the penstock all came under Schedule III, the contracting officer did not allow any extension of time specifically for delay in the delivery of penstock, because the installation of the penstock could be performed concurrently with and independently of the gatehouse structures. The plaintiffs did not object to these findings since the time extension under all of Schedule III was sufficient for them to install the penstock without having liquidated damages assessed against them for late completion. We have found that the plaintiffs were delayed approximately eight months in the installation of penstock at an increased cost to the plaintiffs of $21,560.50.
The plaintiffs claim that the failure of the Government to deliver the penstock as needed by them for the orderly and economical prosecution of their work was a breach of contract. In support of this contention, the plaintiffs point out that the Government knew at the time it entered into its contract with the plaintiffs that the supplier of the penstock was having trouble in obtaining plate steel, and that after entering into its contract with the plaintiffs, the Government contracted with the same supplier of penstock, Darby, for other penstock, which contract called for an earlier delivery date. The plaintiffs also say that the *731 Government did not fulfil its contractual obligations by doing everything that was possible to supply the required penstock, since it was not until a year and a half after the passage of P.L. 395 that it requested an allocation of steel for the reclamation projects.
Generally the Government is not liable for delays in making the work or material available to a contractor, United States v. Rice, 317 U.S. 61, 63 S. Ct. 120, 87 L. Ed. 53; United States v. Howard P. Foley Co., 329 U.S. 64, 67 S. Ct. 154, 91 L. Ed. 44. However, where the Government or its authorized representatives are guilty of some act of negligence or willful misconduct which delays the contractor's performance, the Government is liable for the resulting damages, Chalender v. United States, 119 F. Supp. 186, 127 Ct. Cl. 557. This is so because there is in every Government contract, as in all contracts, an implied obligation on the part of the Government not to willfully or negligently interfere with the contractor in the performance of his contract, Chalender, supra; George A. Fuller Co. v. United States, 69 F. Supp. 409, 108 Ct. Cl. 70. When the contract does not specify particular dates upon which delivery of the material is to be made, the implied obligation just referred to is an obligation not to willfully or negligently fail to furnish the materials in time to be installed in the ordinary and economical course of the performance of the contract, Walsh v. United States, 102 F. Supp. 589, 121 Ct. Cl. 546; Thompson v. United States, 124 F. Supp. 645, 130 Ct. Cl. 1; Chalender, supra. If the Government exerts every effort to supply the contractor with the necessary materials on time, it cannot be held that it has willfully or negligently interfered with performance, Otis Williams & Co. v. United States, 120 Ct. Cl. 249; W. E. Barling v. United States, 111 F. Supp. 878, 126 Ct. Cl. 34.
We think that the Government acted without proper and adequate consideration for the interests of the plaintiffs in regard to the penstock. When it gave the plaintiffs notice to proceed, which is a notice to get the equipment and the men on the job for the efficient performance of the work, it knew that Darby was having difficulties getting the necessary raw materials, and it had no right to surmise, at the plaintiffs' expense, that the situation would improve in time for Darby to meet its schedule of deliveries. The Government's further conduct, in placing another contract for penstock with Darby, and giving it priority in delivery over the contract on which the plaintiffs depended, was inexcusable. It could be justified only upon the assumption that the Government may, with impunity, do whatever is good for its own interests, regardless of the harm which may result to individuals. The Government breached the implied obligation described above, and the plaintiffs were damaged thereby in the amount of $21,560.50. They are entitled to that sum on the penstock claim.
General and Concrete
The plaintiffs claim $220,126.79 as increased costs in overhead and general expense and the increased costs of pouring concrete, caused by the delays of the Government in delivering materials, other than penstock, and drawings necessary for the performance of the contract.
Under the contract the defendant was required to furnish all materials intended to be installed in concrete structures, other than reinforcing bars. This consisted primarily of iron and steel pipes, pipe fittings, electrical conduits and metal sealing strips. The placement of the concrete could not be done until this material, together with drawings showing exactly where the material was to be placed, were furnished the plaintiffs. The defendant's contracting officer found that the plaintiffs were delayed 214 days on the Marys Lake power plant and 184 days on the Estes switchyard, in addition to 60 days allowed for changes ordered by the contracting officer. The time thus allowed, plus 86 days for an ironworkers' strike and 34 days for a strike by laborers, was adequate to avoid the assessment of liquidated damages against the plaintiff.
*732 The plaintiffs claim that the delays, other than those caused by the strikes and authorized changes, were caused by the defendant and amount to a breach of its contract for which plaintiffs have the legal right to recover damages in the amount of the excess cost caused by the delays. The Government on the other hand contends that its delays in furnishing materials and drawings were not, in the circumstances, breaches of contract, and that the plaintiffs were entitled only to extensions of time because of the delays.
In April of 1947, the plaintiffs submitted their proposed construction schedule with respect to the work to be performed under Schedules I, II, and III of the contract. Schedules I and II included the work for which the plaintiffs claim the additional costs for general overhead and concrete. Under the construction program for Schedules I and II, it was proposed that the period needed for completion of the Estes power plant, switchyard and parking area would be from May 1, 1947 to August 15, 1949, and for Marys Lake from September 1, 1947 to July 1, 1949. Plaintiffs' letter transmitting the above construction program stated in part:
"* * * In order to comply with the above schedule, the building and reinforcing details will be required at an early date, this would also require an early delivery of items to be installed in, or below these structures, such as, drainage pipes, electrical conduits and other miscellaneous embedded materials."
Plaintiffs' proposed construction program was acknowledged by the construction engineer for the Government by a letter of June 20, 1947, which stated that it "appears in general to be possible of accomplishment". Thereafter the plaintiffs submitted five separate revised construction programs calling for later completion dates.
It was not customary in the Bureau of Reclamation to order materials, other than those requiring special design, such as penstock, turbines and generators, in advance of the award of a contract such as the one with the plaintiffs. Therefore, no efforts were made to obtain the necessary materials for the plaintiffs' contract until about April 1947. However, at the time that the award was made to the plaintiffs, materials of the type here involved were in short supply and hard to obtain, and the Government experienced great difficulty in getting the needed material under its normal procurement methods, and it was obliged to resort to other means. Awards were made to higher bidders because of better delivery dates. Local warehouses were checked for available materials that could be used as substitutes, and some substitutions were made necessitating changes in drawings. In some instances duplicate orders were placed with different suppliers, and the first delivered was accepted and used.
The other item contributing to the overall delay in plaintiffs' performance was the failure to receive detail drawings as they were needed in order to proceed with concrete pourings. The defendant's contracting officer did not consider delays due to the late delivery of drawings, when he allowed extensions of time for the performance of this contract. However, we have found that at least fifty percent of the delays herein involved were caused by the failure to receive the drawings and that this disrupted plaintiffs' plan of construction and the normal sequence of installing embedded materials and the placing of concrete. We have found that plaintiffs' increased costs attributable to delays on the part of the Government for its General and Concrete claim amount to $116,059.50. The question, therefore, is whether or not the Government's failure to deliver the items called for under the contract at the time they were needed was a breach of contract.
In order to determine this question we must look, as in the case of the penstock claim, to the acts of the Government and its agents. We do not think that the Government's failure to supply the plaintiffs with the materials needed *733 for embedding is, under the facts in this case, a breach of the contract. The Government did everything possible to supply the plaintiffs with the materials in light of the short supply available on the market. We do not think there was negligence by the Government in failing to procure the materials in advance of the notice to proceed, because under its normal procurement system such materials would have been available in time for the contractor to proceed with the orderly and timely performance called for under the contract. By this, we do not mean to imply that there would never be circumstances amounting to a breach of contract where the Government followed what it terms as its "normal" procurement methods, but only that under the facts as presented herein no such breach is shown.
The claim involving the embedded materials is quite distinguishable from the penstock claim. As previously pointed out, the Government was well aware that penstock would not be available at the time it ordered the plaintiffs to proceed and actually committed acts which increased the delay in the delivery of penstock. No such acts are shown with respect to the embedded materials. The claim insofar as it concerns the embedded materials falls within our decision in the Barling case, supra, and plaintiffs cannot recover for delays attributable thereto.
In regard to the delays caused by the Government's failure to supply the plaintiffs with detail drawings as needed, we think that the failure was an act of omission which was a breach of contract for which plaintiffs may recover their damages. There is nothing in the record to show why these drawings should not have been prepared and delivered on time. It is true that some 2500 detail drawings were involved, but when plaintiffs were given notice to proceed by the Government, they had every right to expect timely delivery of the drawings in order to enable them to perform as required, and the Government's failure is a breach for damages can be awarded. The mere volume of work involved is not an adequate reason for excusing the Government from liability for its failure.
It is impossible to determine exactly the amount of delays directly attributable to the Government's failure to supply these drawings, but we have found that at least fifty percent of all delays included in the General and Concrete claims were caused by the delay in furnishing the drawings. The inability to directly assign an item of cost or extra expense to a breach is no bar to recovery, Chalender, supra, and we will allow plaintiffs to recover fifty percent of the amount of damages found to be attributable to the Government's delays involved in the General and Concrete claims. Plaintiffs are therefore entitled to recover on account of late delivery of drawings the sum of $58,029.75.
Judgment will be entered for the plaintiffs in the total amount of $79,590.25.
It is so ordered.
JONES, Chief Judge, and LARAMORE, WHITAKER and LITTLETON, Judges, concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1593776/ | 954 So. 2d 415 (2007)
Sarenthia CHANNEL; Peggy Crist; Theresa Edwards; Patricia Guthrie; Jane Hamilton; Helen Heard; Alice McCraven; Bertha Mixon; Jennie Parker; James Reed, Jr.; Glenda Rivers; Molly Robinson; Pamela Robinson; Karen Thornton; Virginia Townsend; Vera Wells; Mary Whittington; Linda Williams; and Peggy Winters
v.
Paul Kelly LOYACONO and E. Scott Verhine.
No. 2005-CA-01395-SCT.
Supreme Court of Mississippi.
April 19, 2007.
*417 Ronald W. Lewis, David G. Hill, David Minyard, Oxford, attorneys for appellants.
Glenn Gates Taylor, Christy Michelle Sparks, Ridgeland, attorneys for appellees.
Before COBB, P.J., EASLEY and GRAVES, JJ.
*418 COBB, Presiding Justice, for the Court.
¶ 1. The Hinds County Circuit Court, First Judicial District, dismissed with prejudice the plaintiffs'[1] claims of legal malpractice against defendant attorneys Paul Kelly Loyacono and E. Scott Verhine. In granting the defendants' Motion to Dismiss, or Alternatively, for Summary Judgment the circuit court found that the plaintiffs' claims were barred by: (1) the statute of limitations, (2) res judicata and collateral estoppel, (3) waiver and estoppel, (4) accord and satisfaction, and (5) settlement and release. We affirm in part and reverse and remand in part.
FACTS
¶ 2. In February and March 2000, Loyacono and Verhine, attorneys in Vicksburg, contracted with approximately fifty individuals to represent them against American Home Products (AHP) for alleged injuries resulting from the use of certain diet drugs produced by AHP, including "Fenphen," Pondimin, and Redux. These contracts authorized Loyacono and Verhine to hire additional counsel to litigate the claims. Loyacono and Verhine associated the law firm of Varas and Morgan to assist with the AHP claims in May 2000. In this at-will association, Loyacono and Verhine never transferred to Varas and Morgan any of the representation contracts, and Varas and Morgan never entered into representation contracts with the clients.
¶ 3. Varas and Morgan filed lawsuits against AHP on behalf of numerous plaintiffs, including the clients of Loyacono and Verhine.[2] Loyacono and Verhine became dissatisfied with the way Varas and Morgan were handling the claims. In November 2000, Loyacono and Verhine decided to disassociate from Varas and Morgan and deal directly with AHP. Varas and Morgan were given written notice of the termination of the association on January 4, 2001.[3]
¶ 4. In late November and early December 2000, Loyacono and Verhine began settlement discussions with AHP. At that time, Loyacono and Verhine obtained settlement offers from AHP and began meeting with each client to discuss the settlement offers. Loyacono and Verhine explained to each client that the client had the option of accepting the offer or rejecting the settlement offer and holding out for more money and possibly a trial. The clients were advised of the risks and benefits of refusing the settlement offer, including the possibility that the offer would not be made again, that their claims could take months or even years to be resolved, and that representatives for AHP had mentioned the possibility of bankruptcy. Loyacono and Verhine also made clear that they would continue to *419 pursue the claims of the clients who chose not to settle.
¶ 5. Some clients chose not to accept the settlement offer, and Loyacono and Verhine went back to AHP demanding higher settlements. Loyacono and Verhine were able to get higher offers which some of these clients found acceptable. Some of the clients refused the new offer and rejected settlement altogether. Ultimately, all of the plaintiffs in this action ("the clients") settled. Each of the clients received their funds on January 26, 2001.
¶ 6. Varas and Morgan contacted the settling clients of Loyacono and Verhine. In late December 2000, Varas and Morgan began their effort to get the clients to fire Loyacono and Verhine and allow Varas and Morgan to represent them. Varas and Morgan also wanted to find out how much money had been offered to each of the clients by AHP and tried to persuade the clients to reject the settlement offers.
¶ 7. In late January 2001, Varas and Morgan filed motions in two of the prior actions, Green and Williams, see n. 2 supra, challenging Loyacono and Verhine's right to represent the clients and the validity of the settlement agreements negotiated by Loyacono and Verhine. An identical motion was filed in the third of the prior actions, Harried, in December of 2003.[4] The motions accused Loyacono and Verhine of acting dishonestly, negligently, and fraudulently in negotiating the settlements.
¶ 8. A hearing was held in the circuit court on January 18, 2002, regarding the motions in Green and Williams. The hearing in Harried was held in March of 2004. Most of the clients attended these hearings and challenged the validity of the settlement agreements. Many of the clients actually testified at the hearings.[5] While all of the clients testified that Loyacono and Verhine had acted dishonestly, negligently, and fraudulently in negotiating their settlements, each of them testified that they had signed their settlement agreements, received the proceeds, and considered their cases settled. None of the clients offered to return or refund any of the proceeds. The signed settlement agreements, receipt of settlement funds agreements, and representation agreements with Loyacono and Verhine were entered into evidence.
¶ 9. The circuit court ruled on the motions in Green and Williams in March 2004. It held that Loyacono and Verhine were the clients' attorneys; that Loyacono and Verhine negotiated the settlement agreements; and that the clients knowingly and voluntarily agreed to and signed the settlement agreements, received the monies that were under the settlement agreements, and considered their respective claims settled. The same ruling was made on the Harried motion in April 2004. Pursuant to Rule 54(b), final judgment was entered on each of the motions. The clients did not appeal.
¶ 10. The legal malpractice action presently before this Court was filed in Hinds County on January 5, 2004. The clients asserted claims against Loyacono and Verhine for legal malpractice, negligence, and conspiracy in connection with the settlement agreements. On June 15, 2004, Loyacono and Verhine filed their Motion to Dismiss, or, Alternatively, for Summary *420 Judgment on the grounds that, both as a matter of law and undisputed fact, that the clients' claims were barred by the statute of limitations, res judicata, collateral estoppel, waiver and estoppel, accord and satisfaction, and settlement and release.
¶ 11. The Circuit Court of the First Judicial District of Hinds County held that any alleged malpractice, fraud, or negligence by Loyacono and Verhine would have occurred in November and December 2000 when Loyacono and Verhine negotiated and obtained settlement offers and presented them to the clients for acceptance or rejection; the clients presented no evidence to show that Loyacono and Verhine committed any negligent or fraudulent acts or omissions after the conclusion of the settlement negotiations and presentations in December 2000; and that the clients' claims were without merit and were barred by the defenses raised by Loyacono and Verhine. The clients appeal from the judgment of the circuit court.
STANDARD OF REVIEW
¶ 12. It is well settled that this Court applies a de novo standard of review to the grant or denial of summary judgment by a trial court. Leffler v. Sharp, 891 So. 2d 152, 156 (Miss.2004). When the evidence is considered in the light most favorable to the nonmoving party, there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law, summary judgment is appropriate. Miss. R. Civ. P. 56(c); Russell v. Orr, 700 So. 2d 619, 622 (Miss.1997).
ANALYSIS
I. Statute of Limitations
¶ 13. It is undisputed that § 15-1-49 of the Mississippi Code applies to this action. "All actions for which no other period of limitation is prescribed shall be commenced within three (3) years next after the cause of such action accrued, and not after." Miss.Code Ann. § 15-1-49(1) (Rev. 2003). What is disputed in this case is when exactly the three-year statute of limitations began to run. In other words, when did the cause of action in this case "accrue?"
¶ 14. The plaintiffs set forth several different arguments contending that the action filed January 5, 2004, was within the statute of limitations. We address each in turn.
A. The "continuous representation rule"
¶ 15. The plaintiffs argue that in Mississippi, the rule for an attorney malpractice case is that the statute of limitations does not begin to run against the clients' claims until the representation regarding the transaction at issue is complete. To back up this argument, they cite Stevens v. Lake, 615 So. 2d 1177, 1182 (Miss.1993), stating that "the premise of `the continuous representation rule' is that `the cause of action in an attorney malpractice case should not accrue until the attorney's representation concerning a particular transaction is terminated.'" Applying this rule, the plaintiffs contend that the representation concerning the AHP settlements would not have been complete until the clients received the settlement funds on January 26, 2001, thus bringing the action filed January 5, 2004 within the three-year statute of limitations.
¶ 16. While the plaintiffs' argument does make sense, this Court has never given any real indication that it follows the "continuous representation rule." It is true that Stevens does discuss the rule, but the discussion consisted of no more than an explanation of what the rule is and why it could not apply to the facts presented in *421 that case.[6] No Mississippi authority was cited regarding the rule, and the Court drew its explanation of the rule from a treatise.[7] This rule was also cited in Champluvier v. Beck, 909 So. 2d 1061, 1063 (Miss.2004). However, just as Stevens did, Champluvier merely pointed out that the rule could not apply to the set of facts in that case without giving any indication that the rule has ever been applied in Mississippi.
¶ 17. A review of the cases reveals that Mississippi does not follow the "continuous representation rule." While the Court has briefly discussed the rule when the argument has been presented, it is clear that this Court follows the discovery rule.
B. The discovery rule
¶ 18. The plaintiffs also point out that this Court has recognized the discovery rule in legal malpractice cases. According to plaintiffs, if the Court applies the discovery rule in this case, the statute of limitations would not have started running until January 26, 2001, when they received their settlement proceeds.
¶ 19. In Smith v. Sneed, 638 So. 2d 1252, 1253 (Miss.1994), this Court held that "the statute of limitations in a legal malpractice action properly begins to run on the date the client learns or through the exercise of reasonable diligence should learn of the negligence of his lawyer." This Court has said that the discovery rule is to be applied when "the plaintiff will be precluded from discovering harm or injury because of the secretive or inherently undiscoverable nature of the wrongdoing in question," or it may be applied "when it is unrealistic to expect a layman to perceive the injury at the time of the wrongful act." McCain v. Memphis Hardwood Flooring Co., 725 So. 2d 788, 794 (Miss.1998) (citing Sneed, 638 So.2d at 1257; Staheli v. Smith, 548 So. 2d 1299, 1303 (Miss.1989)). Given this precedent, it must be determined whether the alleged injury in this case was secretive or inherently undiscoverable, or in the alternative, whether the plaintiffs, as laymen, could not have reasonably been expected to perceive the injury at the time of the alleged wrongful act.
¶ 20. The "secretive or inherently undiscoverable" standard is applicable where there is some piece of physical evidence that is the subject of the test. See Staheli, 548 So.2d at 1303. There is no allegation in this case that there was any physical evidence that was undiscoverable. Therefore, we will focus on the layman standard.
¶ 21. In Sneed, this Court explained that the discovery rule was the proper test for deciding when the statute of limitations for a legal malpractice action begins to run. This Court explained:
An attorney is obligated to use skill, prudence, and diligence commonly exercised by practitioners of his profession. The California Supreme Court has recognized that a "corollary to this expertise is the inability of the layman to detect its misapplication; the client may not recognize the negligence of the professional when he sees it." Neel v. Magana, Olney, Cathcart & Gelfand, 6 Cal. 3d 176, 188, 491 P.2d 421, 428, 98 Cal. Rptr. 837, 844 (1971). A Texas commentator *422 states: "It is unrealistic to expect a layman to perceive an injury at the time of the negligent act or omission of his attorney." Ward, Legal Malpractice in Texas, 19 S. TexL.J. 587, 613 (1978).
Sneed, 638 So.2d at 1257 (quoting Willis v. Maverick, 760 S.W.2d 642, 645-46 (Tex. 1988)). In Sneed we went on to say that if the discovery rule were not followed, "the client could protect himself fully only by ascertaining malpractice at the moment of its incidence. To do so, he would have to hire a second attorney to observe the work of the first. This costly and impractical solution would but serve to undermine the confidential relationship between attorney and client." Id. at 1257-58.
¶ 22. The plaintiffs claim that they relied on the judgment, loyalty, integrity, truthfulness, and competence of Loyacono and Verhine in handling the claims against AHP and that because Loyacono and Verhine misled them, they had insufficient information to know of the alleged wrongdoing at the time Loyacono and Verhine supposedly committed malpractice. However, they contradict themselves by stating that on December 27 and 28, 2000, worried that they had been misled by Loyacono and Verhine concerning the AHP settlements, several of the plaintiffs contacted Keith Morgan. This shows that some of the plaintiffs not only had sufficient information to know of an alleged wrongdoing, but that they actually suspected wrongdoing and sought the advice of another lawyer. The circuit court stated in its findings of fact that in late December 2000, Varas and Morgan actually contacted several of the plaintiffs, tried to get them to fire Loyacono and Verhine and retain the services of Varas and Morgan, tried to find out how much money AHP had offered the plaintiffs, and tried to persuade the clients to reject the settlement offers.
¶ 23. Given these facts, some of the plaintiffs, as laymen, not only suspected wrongdoing by Loyacono and Verhine in December 2000, but they had strong enough feelings about it to contact another attorney. If this was not enough to be considered notice of wrongdoing, then the actions taken by Varas and Morgan in contacting the plaintiffs and trying to convince them to leave Loyacono and Verhine should have been enough to put those plaintiffs on notice. For these plaintiffs, any alleged wrongdoing by Loyacono and Verhine was "discovered" for the purposes of the discovery rule in December 2000, and those claims would be barred by the statute of limitations.
¶ 24. However, this may not be the case with all of the plaintiffs. The record points out that "Varas and Morgan attempted to contact many of . . . [the] clients" and that "several plaintiffs called attorney Keith Morgan." There is never any mention of which of the plaintiffs contacted Keith Morgan or were contacted by Varas and Morgan. Therefore, the record does not establish that all of the plaintiffs had notice of any of the alleged wrongdoing prior to January 1, 2001. The Hinds County Circuit Court was closed from January 1, 2004, through January 4, 2004. If there are any plaintiffs who did not have notice of the alleged wrongdoing of Loyacono and Verhine prior to January 1, 2001, then the claims of those plaintiffs would not be barred by the statute of limitations.
¶ 25. The testimony that took place on January 18, 2002, does show that two specific plaintiffs had notice of alleged wrongdoing by Loyacono and Verhine for the purposes of the discovery rule. Sarenthia Channel and Molly Robinson both testified that before signing their settlement agreements, they suspected Loyacono and Verhine *423 of wrongdoing.[8] Sarenthia Channel even testified that she contacted Keith Morgan and that he advised her not to sign the settlement agreement which had been negotiated by Loyacono and Verhine. She further testified that she told Loyacono "to his face" that she did not trust him. Molly Robinson made it clear that she felt that she was being misrepresented before she signed her settlement agreement as well. Because plaintiffs Channel and Robinson believed Loyacono and Verhine were guilty of wrongdoing in December of 2000, the statute of limitations began to run as to their legal malpractice claims at that time, and their claims are barred.
¶ 26. While other plaintiffs who testified at this hearing made clear that they felt as though they had been misled by Loyacono and Verhine, there was no specific reference to the time at which the knowledge of alleged wrongdoing was acquired. Therefore, this Court cannot say whether these plaintiffs had notice of any alleged wrongdoing by Loyacono and Verhine before January 1, 2001. This issue must be tried on remand.
C. Fraudulent concealment
¶ 27. Finally, the plaintiffs claim that the statute of limitations was tolled in this case because Loyacono and Verhine fraudulently concealed their negligence. Restating the discovery standard from Smith v. Sneed, supra, the plaintiffs state that because of Loyacono and Verhine's fraudulent concealment, they were unable to learn of the alleged malpractice before January 2001.
¶ 28. "[F]raudulent concealment of a cause of action tolls its statute of limitations." Robinson v. Cobb, 763 So. 2d 883, 887 (Miss.2000) (quoting Myers v. Guardian Life Ins. Co. of America, Inc., 5 F. Supp. 2d 423, 431 (N.D.Miss.1998)). This Court went on to say that "[t]he fraudulent concealment doctrine `applies to any cause of action.'" Id. This Court recently addressed the fraudulent concealment doctrine in Stephens v. Equitable Life Assurance Society of U.S., 850 So. 2d 78, 83-85 (Miss.2003).
¶ 29. In Stephens, this Court cited Miss.Code Ann. § 15-1-67(Rev. 2003), stating: "If a person liable to any personal action shall fraudulently conceal the cause of action from the knowledge of the person entitled thereto, the cause of action shall be deemed to have first accrued at, and not before, the time at which such fraud shall be, or with reasonable diligence might have been, first known or discovered." Id. at 83. The Court then laid out a two-part test for determining whether there has been fraudulent concealment: the party purporting that there was fraudulent concealment must show that "(1) some affirmative act or conduct was done and prevented discovery of a claim, and (2) and due diligence was performed on their part to discover it." Id. at 84. The affirmative act must in fact be designed to prevent the discovery of the claim. Robinson, 763 So.2d at 887 (quoting Reich v. Jesco, Inc., 526 So. 2d 550, 552 (Miss.1988)).
¶ 30. The plaintiffs' claim of fraudulent concealment is hollow. In its conclusions of law, the circuit court found that they had presented no evidence to satisfy the test for fraudulent concealment. On appeal, the plaintiffs merely state that Loyacono and Verhine fraudulently concealed their alleged negligence. The plaintiffs offer no evidence to back up this bare assertion. While they do make allegations of fraudulent and negligent acts committed *424 by Loyacono and Verhine, the plaintiffs make no offering of any affirmative act designed to conceal a cause of action. Even if there had been an allegation of an affirmative act designed to conceal the cause of action, it would make no difference because the question would still be whether the alleged negligence was "discovered" for the purposes of the discovery rule. The plaintiffs' claim of fraudulent concealment to toll the statute of limitations is without merit.
II. Res Judicata and Collateral Estoppel
A. Res judicata
¶ 31. The trial court held that the plaintiffs' claims against Loyacono and Verhine were barred by res judicata. Res judicata "reflects the refusal of the law to tolerate a multiplicity of litigation." Little v. V & G Welding Supply, Inc., 704 So. 2d 1336, 1337 (Miss.1997). "For the bar of res judicata to apply in Mississippi, there are four identities which must be present: (1) identity of the subject matter of the action; (2) identity of the cause of action; (3) identity of the parties to the cause of action; and (4) identity of the quality or character of a person against whom a claim is made." Harrison v. Chandler-Sampson Ins., Inc., 891 So. 2d 224, 232 (Miss.2005) (citing Quinn v. Estate of Jones, 818 So. 2d 1148, 1151 (Miss.2002) and Dunaway v. W.H. Hopper & Assocs., Inc., 422 So. 2d 749, 751 (Miss.1982)). The absence of any one of these four identities "is fatal to the defense of res judicata." Harrison, 891 So.2d at 232 (citing Estate of Anderson v. Deposit Guar. Nat'l Bank, 674 So. 2d 1254, 1256 (Miss.1996)). We need only address the identity of the cause of action.
Identity of the cause of action
¶ 32. One of the main concerns with this identity is the prevention of "claim-splitting." Pointing out the relationship of this identity with the doctrine of claim preclusion, this Court has stated:
Where a judgment is rendered, whether in favor of the plaintiff or the defendant, which precludes the plaintiff from thereafter maintaining an action upon the original cause of action, he cannot maintain an action upon any part of the original cause of action, although that part of the cause of action was not litigated in the original action, except . . . (c) where the defendant consented to the splitting of the plaintiff's cause of action.
Harrison, 891 So.2d at 233-34 (quoting Alexander v. Elzie, 621 So. 2d 909, 910 (Miss.1992)). The Court went on to say "`this principle prohibiting [re-litigation] requires that the plaintiff bring in the first forum every point which properly belongs to the subject of litigation, and which the parties, by exercising reasonable diligence, might have brought forward at the time.'" Harrison, 891 So.2d at 234 (quoting Hayes v. Solomon, 597 F.2d 958, 982 (5th Cir. 1979)). "`[I]n accordance with public policy, partially to conserve the courts' time but probably in the main to prevent the hardship upon [a] defendant of unnecessary piecemeal litigation, a single cause of action cannot be split so as to be properly made the subject of different actions. . . .'" Id.
¶ 33. While this cause of action did arise out of the same body of operative fact as the motions filed in the previous cases,[9] a finding that the identity of the cause of action is met in this case for the *425 purposes of res judicata would not be in keeping with the purpose for the res judicata doctrine. In filing the malpractice action against Loyacono and Verhine, the plaintiffs did not split a claim. Rather, the malpractice action was separate and distinct from the original claims against AHP. If the plaintiffs had filed a case against Loyacono and Verhine alleging negligence, and, after the conclusion of that case, filed a second action against Loyacono and Verhine alleging fraud, the second action could be properly barred by the doctrine of res judicata or claim preclusion. However, this is an original action alleging legal malpractice, and further, there was no specific ruling made in the previous cases as to any negligence or fraud allegedly committed by Loyacono and Verhine. The only ruling was that the settlement agreements were valid and enforceable. To allow this suit would not subject Loyacono and Verhine, who were not defendants in the previous cases, to repetitious or unnecessary litigation; and therefore, the requirement of identity of the cause of action is not met. Because the absence of one identity is dispositive of the defense of res judicata, this Court need not address the remaining identities.
B. Collateral estoppel
¶ 34. Collateral estoppel is very similar to res judicata. However, "under the doctrine of collateral estoppel, `[an] appellant is precluded from relitigating in the present suit specific questions actually litigated and determined by and essential to the judgment in the prior suit, even though a different cause of action is the subject of the present suit,'" and "`collateral estoppel, unlike the broader question of res judicata, applies only to questions actually litigated in a prior suit, and not to questions which might have been litigated.'" Mayor and Bd. of Aldermen v. Homebuilders Ass'n of Miss., Inc., 932 So. 2d 44, 59 (Miss.2006) (quoting Lyle Cashion Co. v. McKendrick, 227 Miss. 894, 87 So. 2d 289, 293 (1956); Dunaway, 422 So.2d at 751).
¶ 35. In support of their assertion that the plaintiffs' claims are barred by collateral estoppel, Loyacono and Verhine rely on the motions made in the previous cases. Loyacono and Verhine claim that "the crux of [Appellants'] claimsthat Loyacono and Verhine acted wrongfully in negotiating the settlement agreements was decided against them by the court in the Prior Actions on the rulings on the motions regarding the validity of the settlement agreements." However, there is nothing to back up this assertion. In the orders denying the motions in the previous cases, the trial court made no finding regarding negligence or fraud by Loyacono and Verhine. Rather, the court merely stated in each order that a "meeting of the minds" had taken place in each settlement negotiation, that each plaintiff had signed their agreement, and that the agreements were valid and binding. The relief sought in the present action is not the setting aside of the settlement agreements but compensatory damages for the alleged malpractice of Loyacono and Verhine. Therefore, this is a distinct action, not previously litigated to a final determination, and the claims of the plaintiffs are not barred by collateral estoppel.
III. Waiver and Estoppel
¶ 36. The trial court found that the plaintiffs' claims were barred by doctrines of waiver and estoppel. "Waiver is voluntary surrender or relinquishment of some known right, benefit or advantage; estoppel is the inhibition to assert it." Sentinel Indus. Contracting Corp. v. Kimmins Indus. Serv. Corp., 743 So. 2d 954, 964 (Miss.1999) (quoting Black's Law Dictionary 538 (6th ed. 1990)). In order to establish that a claim is barred by estoppel, *426 three essential elements must be proven: "(1) a representation that later proves to be untrue, (2) an action by the person seeking to invoke the doctrine, such action being taken in reliance on the representation, and (3) a resulting detriment to that person arising from his action." Miss. Dep't of Pub. Safety v. Carver, 809 So. 2d 713, 718 (Miss. Ct. App.2001) (citing Town of Florence v. Sea Lands, Ltd., 759 So. 2d 1221, 1229 (Miss.2000)).
¶ 37. Neither the trial court's judgment, nor the defendants' identical brief explain how these elements are met in this case. However, some facts are stated that could possibly apply. Loyacono and Verhine state that they were induced to "consummate the settlement agreements with AHP and to disperse the settlement proceeds to Plaintiffs." So, taking these facts as they are stated, one could conclude that the plaintiffs represented to Loyacono and Verhine that they wanted to settle and that Loyacono and Verhine took action relying on that representation to negotiate a settlement agreement with AHP. This would satisfy the first two requirements for estoppel to apply. However, there are no facts stated to show, and there are no specific allegations asserting that Loyacono and Verhine suffered any detriment by negotiating the settlement agreements with AHP on behalf of the plaintiffs. On the contrary, Loyacono and Verhine were paid a fee and actually prospered from the negotiations and settlements. Therefore, the third requirement not being met, the plaintiffs' claims were not barred by estoppel.
¶ 38. Nor does this Court accept the proposition that, simply because the plaintiffs accepted the settlement funds, that they waived any right to sue for malpractice. As discussed earlier, the discovery rule applies to legal malpractice claims and a layman may not discover the wrongful conduct of an attorney until after a case has been settled or otherwise concluded. Therefore, clients maintain their right to sue for malpractice even after accepting settlement funds.
IV. Accord and Satisfaction and Settlement and Release
¶ 39. Finally, the trial court found that the plaintiffs' claims were barred by accord and satisfaction and settlement and release. Under Mississippi law, there are four elements of accord and satisfaction: "(1) something of value offered in full satisfaction of a demand; (2) accompanied by acts and declarations as amount to a condition that if the thing is accepted, it is accepted in satisfaction; (3) the party offered the thing of value is bound to understand that if he takes it, he takes subject to such conditions; and (4) the party actually does accept the item." Medlin v. Hazlehurst Emergency Physicians, 889 So. 2d 496, 498 (Miss.2004) (citing Royer Homes of Miss., Inc. v. Chandeleur Homes, Inc., 857 So. 2d 748, 754 (Miss.2003); Wallace v. United Miss. Bank, 726 So. 2d 578, 589 (Miss.1998); Alexander v. Tri-County Co-op., 609 So. 2d 401, 404-05 (Miss.1992)).
¶ 40. In the present case, the plaintiffs were offered settlements of various amounts in satisfaction of the demands that were made against AHP. They signed settlement agreements releasing AHP and agreeing that the settlements were in full satisfaction of those demands. The settlements were accepted by the plaintiffs. Loyacono and Verhine contend that this set of circumstances meets the criteria for accord and satisfaction. However, Loyacono and Verhine's logic is flawed.
¶ 41. The plaintiffs did not demand anything of Loyacono and Verhine except reasonable care in legal service. The settlements released AHP, not Loyacono and Verhine, from liability and future claims. Furthermore, Loyacono and Verhine provided *427 nothing of value to the plaintiffs. Therefore, accord and satisfaction does not bar the plaintiffs' claims.
¶ 42. The trial court also cited Mississippi's "strong and abiding policy favoring settlement" and stated that "permitting [plaintiffs] to bring a second action would undercut Mississippi's clear policy of favoring and enforcing settlement agreements by allowing a release to be nullified at the whim of the party that agreed to the release of any future claims." This concern is echoed by Loyacono and Verhine. Again, Loyacono and Verhine try to put themselves in the position of AHP, and again, we reject their argument. The releases signed by the plaintiffs in the previous cases list a number of "Released Parties" who are immune from liability in future actions based on the subject matter of the previous actions. None of the categories of released parties include Loyacono and Verhine. The settlement was not made with Loyacono and Verhine, but with AHP. Therefore, no policy favoring settlement would be undermined by allowing the plaintiffs to go forward with their suit against Loyacono and Verhine. Thus, neither accord and satisfaction nor settlement and release bar the plaintiffs claims against Loyacono and Verhine.
CONCLUSION
¶ 43. The record does not establish that plaintiffs' claims are all barred by the statute of limitations. If a plaintiff knew or should have known of the alleged wrongdoing of Loyacono and Verhine prior to January 1, 2001, that plaintiff's claim is barred. However, if a plaintiff had no notice, or did not have notice until January 1, 2001 or later, then that claim is not barred. Thus the claims of Sarenthia Channel and Molly Robinson are barred by the statute of limitations. Therefore, the circuit court's judgment is affirmed to the extent that it granted summary judgment against Sarenthia Channel and Molly Robinson. In all other respects, the circuit court's judgment is reversed and remanded for trial consistent with this opinion.
¶ 44. AFFIRMED IN PART AND REVERSED AND REMANDED IN PART.
SMITH, C.J., WALLER, P.J., DIAZ, EASLEY, CARLSON, GRAVES, DICKINSON AND RANDOLPH, JJ., CONCUR.
NOTES
[1] All were plaintiffs in a mass tort claim against American Home Products, now Wyeth Pharmaceuticals. They are Sarenthia Channel, Peggy Crist, Theresa Edwards, Patricia Guthrie, Jane Hamilton, Helen Heard, Alice McRaven, Bertha Mixon, Jennie Parker, James Reed, Jr., Glenda Rivers, Molly Robinson, Pamela Robinson, Karen Thornton, Virginia Townsend, Vera Wells, Mary Whittington, Linda Williams and Peggy Winters. Alice McRaven's name is spelled "McCraven" periodically throughout the record. However, she signed her settlement agreement "McRaven."
[2] Green, et al. v. AHP, Civil Action No.2000-143; Williams, et al. v. AHP, Civil Action No.2000-200; Harried, et al. v. AHP, Civil Action No.2000-109-(CM)(J). All of these suits were filed in the Circuit Court of Jefferson County.
[3] The termination letter implies that a conversation had taken place on December 29, 2000, and that Loyacono had informed Varas and Morgan that their association would be terminated.
[4] Only one of the plaintiffs, Pamela Robinson, was a party in Harried.
[5] Those that testified included Peggy Crist, Theresa Edwards, Sarenthia Channel, James Reed, Jr., Patricia Guthrie, Jane Hamilton, Helen Heard, Alice McRaven, Bertha Mixon, Glenda Rivers, Molly Robinson, Vera Wells, Mary Whittington, Linda Williams, Peggy Winters, and Pamela Robinson.
[6] In Stevens, the plaintiffs were suing their lawyers for malpractice. The plaintiffs argued the "continuous representation rule," and the Court simply clarified that, in order to meet the qualifications of "continuous representation" for the purposes of the rule, the continued representation must be in the same matter upon which the malpractice action is based.
[7] 2 Mallen and Smith, Legal Malpractice § 18.12, at 115 (3d ed.1989).
[8] Sarenthia Channel's settlement agreement was signed on December 28, 2000, and Molly Robinson's was signed on December 22, 2000.
[9] See Harrison, 891 So.2d at 234("In order for res judicata and the ban on claim-splitting to take effect, the litigation must involve the same claim premised upon the same body of operative fact as was previously adjudicated.") | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1894012/ | 429 Mich. 495 (1988)
418 N.W.2d 381
WILLIAMS
v.
CUNNINGHAM DRUG STORES, INC
Docket No. 77516, (Calendar No. 13).
Supreme Court of Michigan.
Argued March 4, 1987.
Decided January 19, 1988.
Rader & Eisenberg, P.C. (by Ronald B. Rader and Merrill H. Gordon); (David J. Franks, of counsel) for the plaintiffs.
Barbier, Petersmarck, Tolleson, Mead & Paige, P.C. (by Daniel C. Symonds and Christopher G. Manolis), for the defendant.
*497 CAVANAGH, J.
In this case of first impression we are asked to determine whether a store owner must provide armed, visible security guards to protect customers from the criminal acts of third parties.
I
On May 4, 1979, plaintiff Willie Williams was shopping in a Cunningham drug store located in a high crime area of the City of Detroit. A plainclothes security guard was employed by the store, but on the day in question he was sick. Store personnel called the main office to request a substitute, but one was not sent.[1]
While plaintiff was shopping, an armed robbery occurred. During the resulting confusion and panic, plaintiff ran out of the store, directly behind the fleeing robber. As the two men were outside, the robber turned and shot plaintiff.[2]
In May of 1980, plaintiff filed a complaint against defendant Cunningham Drug Stores, alleging that defendant had breached its duty to exercise reasonable care for the safety of its patrons. Specifically, plaintiff alleged that defendant had failed to provide armed, visible security guards and had failed to intercede after having noticed that an armed robbery was in progress. Plaintiff's *498 wife, Cleva Williams, brought a claim of loss of consortium.[3]
Upon the close of plaintiffs' proofs at trial, defendant moved for a directed verdict pursuant to GCR 1963, 515.1 (now MCR 2.515), on the basis that defendant did not have a duty to protect plaintiff from the unforeseeable acts of a third party. The trial court granted defendant's motion as a matter of law and directed a verdict of no cause of action.
Plaintiff appealed by right in the Court of Appeals, which affirmed, holding that as a matter of law defendant's duty of reasonable care did not extend to providing the degree of protection plaintiffs claimed was due. Williams v Cunningham Drug Stores, Inc, 146 Mich. App. 23; 379 NW2d 458 (1985).
We granted plaintiffs' application for leave to appeal, 425 Mich. 871 (1986), and now affirm.
II
In determining standards of conduct in the area of negligence, the courts have made a distinction between misfeasance, or active misconduct causing personal injury, and nonfeasance, which is passive inaction or the failure to actively protect others from harm. The common law has been slow in recognizing liability for nonfeasance because the courts are reluctant to force persons to help one another and because such conduct does not create a new risk of harm to a potential plaintiff.[4] Thus, *499 as a general rule, there is no duty that obligates one person to aid or protect another.[5]
Social policy, however, has led the courts to recognize an exception to this general rule where a special relationship exists between a plaintiff and a defendant.[6] Thus, a common carrier may be obligated to protect its passengers, an innkeeper his guests, and an employer his employees.[7] The rationale behind imposing a duty to protect in these special relationships is based on control. In each situation one person entrusts himself to the control and protection of another, with a consequent loss of control to protect himself.[8] The duty to protect is imposed upon the person in control because he is best able to provide a place of safety.
Owners and occupiers of land are in a special relationship with their invitees and comprise the largest group upon whom an affirmative duty to protect is imposed. The possessor of land has a duty to exercise reasonable care to protect invitees from an unreasonable risk of harm caused by a dangerous condition of the land.[9] Consequently, a landlord may be held liable for an unreasonable risk of harm caused by a dangerous condition in the areas of common use retained in his control such as lobbies, hallways, stairways, and elevators.[10] Likewise, a business invitor or merchant *500 may be held liable for injuries resulting from negligent maintenance of the premises or defects in the physical structure of the building.[11]
The duty a possessor of land owes his invitees is not absolute, however. It does not extend to conditions from which an unreasonable risk cannot be anticipated or to dangers so obvious and apparent that an invitee may be expected to discover them himself.[12] Furthermore, "the occupier is not an insurer of the safety of invitees, and his duty is only to exercise reasonable care for their protection."[13]
III
The question before us in this case is whether a merchant's duty to exercise reasonable care includes providing armed, visible security guards to protect invitees from the criminal acts of third parties. Plaintiffs contend that it does and that the trial court erred in granting defendant's motion for a directed verdict rather than allowing the jury to determine whether defendant's conduct met the standard of reasonable care.
In deciding this question, we note that the court and jury perform different functions in a negligence case. Among other things, the court decides the questions of duty and the general standard of care, and the jury determines what constitutes reasonable care under the circumstances. However, in cases in which overriding public policy *501 concerns arise, the court determines what constitutes reasonable care. See Moning v Alfono, 400 Mich. 425, 438; 254 NW2d 759 (1977), reh den 401 Mich. 951 (1977). Such public policy concerns exist in the present case, and therefore the question whether defendant's conduct constituted reasonable care is one the court should determine as a matter of law.
We agree with the Court of Appeals that a merchant's duty of reasonable care does not include providing armed, visible security guards to deter criminal acts of third parties.[14] We decline to extend defendant's duty that far in light of the degree of control in a merchant's relationship with invitees, the nature of the harm involved, and the public interest in imposing such a duty.[15]
The duty advanced by plaintiffs is essentially a duty to provide police protection. That duty, however, is vested in the government by constitution and statute.[16] We agree with the Court of Appeals *502 in this case that neither the Legislature nor the constitution has established a policy requiring that the responsibility to provide police protection be extended to commercial businesses.
Furthermore, although defendant can control the condition of its premises by correcting physical defects that may result in injuries to its invitees, it cannot control the incidence of crime in the community. Today a crime may be committed anywhere and at any time. To require defendant to provide armed, visible security guards to protect invitees from criminal acts in a place of business open to the general public would require defendant to provide a safer environment on its premises than its invitees would encounter in the community at large. Defendant simply does not have that degree of control and is not an insurer of the safety of its invitees.[17]
In addition, any duty we might impose on defendant to protect its invitees from the criminal acts of third parties would be inevitably vague, given the nature of the harm involved. Fairness requires that if a merchant could be held liable for the failure to provide security guards, he should be able *503 to ascertain in advance the extent of his duty and whether he has fulfilled it.[18] In this respect, we note the comments of the New Jersey Supreme Court in Goldberg v Newark Housing Authority, 38 NJ 578, 589-590; 186 A2d 291 (1962), a case in which that court held that the municipal housing authority did not have a duty to provide police protection for its tenants:
And if a prescient owner concludes the duty is his, what measures will discharge it? It is an easy matter to know whether a stairway is defective and what repairs will put it in order. Again, it is fairly simple to decide how many ushers or guards suffice at a skating rink or a railroad platform to deal with the crush of a crowd and the risks of unintentional injury which the nature of the business creates, but how can one know what measures will protect against the thug, the narcotic addict, the degenerate, the psychopath and the psychotic? Must the owner prevent all crime? We doubt that any police force in the friendliest community has achieved that end.
Even if a merchant were not required to prevent all crime, defining a reasonable standard of care short of that goal might well be impossible.
Finally, we note that imposing the duty advanced by plaintiffs is against the public interest. The inability of government and law enforcement officials to prevent criminal attacks does not justify transferring the responsibility to a business owner such as defendant. To shift the duty of police protection from the government to the private sector would amount to advocating that members *504 of the public resort to self-help. Such a proposition contravenes public policy.[19]
IV
We conclude as a matter of law that the duty of reasonable care a merchant owes his invitees does not extend to providing armed, visible security guards to protect customers from the criminal acts of third parties. The merchant is not an insurer of the safety of his invitees, and for reasons of public policy he does not have the responsibility for providing police protection on his premises. Accordingly, the decision of the Court of Appeals is affirmed.
RILEY, C.J., and LEVIN, BRICKLEY, BOYLE, and GRIFFIN, JJ., concurred with CAVANAGH, J.
ARCHER, J., concurred in the result.
NOTES
[1] At trial, defendant Cunningham's director of corporate security testified that the security personnel were employees of defendant and were purposely plainclothed and unarmed. Their primary purpose, in addition to protection of assets, was to summon medical assistance if an injury or illness occurred on the premises. These security personnel were specifically instructed not to intervene in the event of a robbery.
[2] The Court of Appeals correctly noted that the record does not establish whether Williams was on defendant's premises when shot. 146 Mich. App. 23, 25; 379 NW2d 458 (1985). However, counsel for defendant stated at oral argument that Williams was somewhere outside the store when the shooting occurred.
[3] Prior to trial, Willie Williams died of causes unrelated to the shooting. His widow Cleva now maintains his cause of action as the personal representative of his estate.
[4] See Prosser & Keeton, Torts (5th ed), § 56, p 373.
[5] 2 Restatement Torts, 2d, § 314, p 116.
[6] 2 Restatement Torts, 2d, § 314A, p 118.
[7] See, e.g., Frederick v Detroit, 370 Mich. 425; 121 NW2d 918 (1963) (common carrier-passenger); Keech v Clements, 303 Mich. 69; 5 NW2d 570 (1942) (innkeeper-guest); Bradley v Stevens, 329 Mich. 556; 46 NW2d 382 (1951) (employer-employee).
[8] Bazyler, The duty to provide adequate protection: Landowners' liability for failure to protect patrons from criminal attack, 21 Ariz L R 727, 736 (1979).
[9] 2 Restatement Torts, 2d, § 343, pp 215-216.
[10] 2 Restatement Torts, 2d, § 360, p 250; see Johnston v Harris, 387 Mich. 569; 198 NW2d 409 (1972). The landlord is not liable for injuries that occur within the boundaries of the leased premises. Williams v Detroit, 127 Mich. App. 464; 339 NW2d 215 (1983); Pagano v Mesirow, 147 Mich. App. 51; 383 NW2d 103 (1985), lv den 424 Mich. 895 (1986).
[11] See, generally, 3 Speiser, Krause & Gans, The American Law of Torts, §§ 14:14-14:47, pp 937-1187.
[12] 2 Restatement Torts, 2d, § 343A, p 218; Prosser & Keeton, Torts (5th ed), § 61, pp 425-427.
[13] Prosser & Keeton, Torts (5th ed), § 61, p 425; see also Kroll v Katz, 374 Mich. 364, 372-373; 132 NW2d 27 (1965).
[14] A merchant may voluntarily provide security guards in accordance with the Private Security Guard Act, MCL 338.1051 et seq.; MSA 18.185(1) et seq. We hold today only that he is under no duty to do so.
[15] We note that 2 Restatement Torts, 2d, § 344, pp 223-224, states that a business owner is subject to liability for physical harm caused by the intentional acts of third parties. However, given the public policy concerns underlying our decision in this case, we decline to apply that section to these facts. See Smith v Allendale Mutual Ins Co, 410 Mich. 685, 713; 303 NW2d 702 (1981), reh den 411 Mich. 1154 (1981).
We note, however, that some courts have recognized a defendant's duty to protect business invitees in situations similar to the facts of this case. For example, the Supreme Court of Colorado, in a four-to-three decision, has cited 2 Restatement Torts, 2d, § 344, pp 223-224, and, in the interest of "fairness," affirmed the imposition of liability upon a merchant for failing to take measures to protect invitees from the criminal acts of unknown third persons. See Taco Bell, Inc v Lannon, 744 P2d 43 (Colo, 1987).
[16] Under Const 1963, art 7, § 22, cities and villages have the power to form and adopt a local charter and to adopt resolutions and ordinances relating to municipal concerns. Various statutes allow municipalities to establish police forces. See MCL 41.181; MSA 5.45(1) (townships); MCL 42.12; MSA 5.46(12) (charter townships); MCL 67.44; MSA 5.1328 (villages); MCL 91.1, 92.4; MSA 5.1740, 5.1752 (fourth-class citizens); MCL 117.3(j); MSA 5.2073(j) (home rule cities).
[17] We find that a landlord has more control in his relationship with his tenants than does a merchant in his relationship with his invitees. Should a dangerous condition exist in the common areas of a building which tenants must necessarily use, the tenants can voice their complaints to the landlord. Thus, in Samson v Saginaw Professional Building, Inc, 393 Mich. 393, 408-411; 224 NW2d 843 (1975), we upheld a landlord's duty to investigate and take available preventive measures when informed by his tenants that a possible dangerous condition exists in the common areas of the building, noting that the landlord's duty may be slight. The relationship between a merchant and invitee, however, is distinguishable because the merchant does not have the same degree of control. When the dangerous condition to be guarded against is crime in the surrounding neighborhood, as it is in the present case, the merchant may be the target as often as his invitees. Therefore, there is little the merchant can do to remedy the situation, short of closing his business.
[18] As noted by Oliver Wendell Holmes in his lecture on the theory of negligence, "[A]ny legal standard must, in theory, be capable of being known. When a man has to pay damages, he is supposed to have broken the law, and he is further supposed to have known what the law was." Holmes, The Common Law, Lecture III (Boston: Little, Brown & Co, 1923), p 111.
[19] Furthermore, shifting the financial loss caused by crime from one innocent victim to another is improper. Davis v Allied Supermarkets, Inc, 547 P2d 963, 965 (Okla, 1976). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/8326576/ | Fabricant, Judith, J.
INTRODUCTION
Skyhook and Google compete with respect to software for positioning functions in mobile devices using the Android operating system. Skyhook claims that Google has improperly interfered with Skyhook’s contractual relations with original equipment manufacturers. Skyhook seeks a preliminary injunction to prevent further such conduct. After hearing and review of all materials submitted, the Court declines to issue an injunction at this time.
BACKGROUND
At the risk of oversimplification as to technical aspects of the dispute, and with intentional opacity to protect information the parties have designated as confidential, the Court summarizes the facts based on the materials submitted.1 Under contracts with Google, certain original equipment manufacturers, including Motorola and another entity that the parties have referred to as company X, produce and market Android-based mobile devices.2 Such devices include a set of popular Google applications, known as Google Mobile Services (GMS). Among those applications are Google’s positioning system, known as Google Location Service, or GLS. Android devices also have the capacity to download and use applications created by independent developers and obtained through the so-called “Android Market,” which Google operates. Google’s contracts with manufacturers require that the devices be “Android compatible,” meaning (at least for present purposes) that no other software on the *626device impairs the operation of GMS. Google reserves to itself the right to determine compatibility, and denies Android certification if it finds non-compliance. Google’s published standards of compatibility include both objective and subjective aspects. Denial of Android certification prevents the manufacturer from marketing the device under the Android name and including Google’s applications, and would prevent a user from obtaining access to applications through the Android Market. As a practical matter (and perhaps as a matter of contract between manufacturers and service carriers), such denial would render the devices unmarketable.
Skyhook makes a software product, known as XPS, which performs positioning functions using a combination of data from wireless network (“wi-fi”) access points, satellites, and cellular tower triangulation. By the combined use of those three sources, XPS is able to provide positioning data even when satellite data is unavailable. XPS thus functions in locations where satellite-based positioning systems do not and functions faster than those systems in some locations. Data obtained from wi-fi and cellular tower sources, however, tend to be less accurate than satellite-based data.
Both XPS and Google’s GLS collect location data from the device and transmit that data back to the software maker; each company incorporates that data into its database, on which the positioning software relies for its operation. Google also uses the data in connection with other applications in the GMS set. Inaccuracies in the data returned by the device affect the overall quality of the database, which affects operation of the other GMS applications as well as the positioning system.
In September of 2009, Skyhook entered into a contract with Motorola, under which Skyhook anticipated that Motorola would incorporate XPS into its devices. The contract provided that XPS would be the only software on the device that would collect and transmit positioning data back to the software maker. The contract also provided, however, that Motorola’s use of XPS would be subject to its pre-existing contractual obligations to third parties—that is, to Google, as well as service carriers.
Over a period of several months after execution of the contract, Skyhook and Motorola discussed questions of Android-compatibility. A focus of their discussion was whether XPS was incompatible because it would report data derived from wi-fi and cellular sources as if it derived solely from satellite sources. By April, Skyhook believed that the issue had been resolved, based on their mutual conclusion that that aspect of XPS would not render it incompatible. Neither had consulted Google on the question.
Skyhook publicly announced its contract with Motorola in April 2010. The following month, Google determined that XPS rendered the Motorola devices not Android-compatible, and so informed Motorola. In an e-mail to Motorola, dated May 27, 2010, a Google manager explained the problem. He commented that “we are definitely not asking you to remove Skyhook ... if we can do it in a compatible way, by all means let’s do it!” He emphasized, however, that Google would not accept “network-derived location data . . . that is advertised as GPS location data,” and that “we are not ok with you disabling Google’s Network Location Provider.” He suggested that “(y)ou should separate out the Skyhook implementation into a separate location provider.”
On June 4, 2010, Skyhook delivered to Motorola a revised version of XPS that Skyhook believed met compatibility requirements. Motorola, however, did not transmit the revised version to Google for testing. Neither did Skyhook. Instead, between June and August of 2010, Skyhook and Motorola exchanged communications about other issues in dispute between them. Among those other issues was the provision limiting data collection to Skyhook. Motorola asked Skyhook to waive that restriction, so as to enable Motorola to comply with its obligations to Google with respect to GMS. Skyhook refused to do so, proposing instead that Motorola disable the data collection functions of GMS on its devices, which Skyhook contended would not affect performance of other functions of GMS. Motorola responded that it could not proceed in that manner without violating its obligations to Google and its carriers, and that it was therefore absolved of its obligations under the Skyhook contract. In a letter dated August 17, 2010, Motorola informed Skyhook that “Motorola views the Agreement as terminated as a result of Skyhook’s material breaches.” It offered to continue negotiation in an effort to achieve “an amicable and productive resolution,” but “reserve(d) its right to enforce this termination in the event no mutually acceptable resolution is reached.”
A different series of events occurred with respect to company X, but the ultimate result was similar. Sky-hook and company X entered into a contract on April 1, 2010. The contract did not require company X to use XPS in its devices, but provided licensing arrangements for such use. By mid-June, communications had occurred between company X and Google, and then between company X and Skyhook, regarding the compatibility issue that had arisen with respect to the use of XPS on Motorola devices. Skyhook responded to company X by assuring it that XPS was compatible, and questioning Google’s motivation for raising issues of compatibility. Skyhook did not provide company X with the revised version of XPS that it had delivered to Motorola on June 4, 2010. After a series of further communications on the question of compatibility, the topic of discussions between Skyhook and company X shifted to company Xs concerns regarding Skyhook’s price. Ultimately, company X decided not to use XPS, explaining that decision, in an e-mail on July 10, 2010, as based on both performance and price.
*627Skyhook brought this action against Google on September 15, 2010. Its complaint asserts three counts: intentional interference with the Motorola contract (count I); intentional interference with advantageous business relations, specified as relationships with Motorola and company X, and “potential business relationships with others” (count II); and violation of G.L.c. 93A. In a series of hearings, the Court ordered expedited discovery and scheduled proceedings on Skyhook’s anticipated motion for preliminary injunction. Skyhook filed the present motion on November 10, 2010. It seeks an injunction, during the pendency of the action, to prevent Google from “issuing stop-ship orders or otherwise directing mobile device manufacturers ... to exclude from their devices Skyhook’s location technology known as XPS, or to otherwise disable or alter XPS”; “threatening to withhold or delay access to Android ... for failure to exclude, alter or disable XPS”; and “demanding that [manufacturers] make location data obtained by XPS available to defendant.”
DISCUSSION
Under the well-established test of Packaging Industries Group v. Cheney, 380 Mass. 609, 617 (1980), a preliminary injunction is warranted only when the moving party establishes both a likelihood of success on the merits of the claim, and a substantial risk of irreparable harm in the absence of an injunction. Although the moving party must show both elements, a strong showing on one may, in some circumstances, compensate for a relatively weak showing on the other. See id. (court evaluates moving party’s claim of injury and chance of success “in combination”); see also Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., 559 F.2d 841, 844 (D.C.Cir. 1877) (substantial possibility of success suffices if injunction is necessary to prevent irreparable harm and no substantial risk of harm to opposing party). Once these elements are established, the Court must balance the threatened harm against the harm that an injunction will inflict on the opposing party. Where relevant, the Court should also consider any impact the grant or denial of an injunction may have on the public interest. See T&D Video, Inc., v. City of Revere, 423 Mass. 577, 580 (1996).
Skyhooks contends that Google has interfered with its contract with Motorola, and with its relationship with company X, by the improper means of a pre-textual compatibility objection, and for the improper purpose of stifling competition. The same conduct, Skyhook alleges, violates G.L.c. 93A. Without an injunction, Skyhook argues, it will suffer irreparable harm, in that it will be prevented from all access to the market for Android devices; its revenues will suffer, as will its database from lack of access to data collected through such devices. The Court is not persuaded.
To prevail on a claim of tortious interference with contractual or advantageous business relations, a plaintiff must prove that it had a contract or advantageous business relationship with a third party; that the defendant knew of the contract or relationship; that the defendant interfered with the contract, inducing the third party to break the contract or terminate the relationship; and that the defendant did so by improper means or for an improper motive. See Draghetti v. Chmielewski, 416 Mass. 808, 812 (1994); United Truck Leasing Corp. v. Geltman, 406 Mass. 811, 816 (1990). Here, the first two of these elements appear to be undisputed, but the second and third are intensely disputed. As the record stands thus far, in the Court’s view, the plaintiffs showing is not strong.
As to interference with respect to Motorola, the record indicates that Google directed Motorola not to ship devices that Google determined to be incompatible, but did not close off the prospect that it would approve devices with a revised version of XPS. Google never had the opportunity to consider the revised version, since neither Motorola nor Skyhook ever submitted it. Nor does the record establish that Motorola breached or terminated its contract as a result of anything Google did; the record as presently presented leaves considerable uncertainty as to Motorola’s motivations, and as to who if anyone, as between Skyhook and Motorola, may have breached.
As to company X, the record is weaker. The evidence indicates that Google raised a question about compatibility, triggering discussions on the subject between Skyhook and company X. But no evidence indicates that Google ever made any directive to company X, or that it made any determination of incompatibility as to any device produced by company X. What appears, rather, is that company X decided not to use XPS, for reasons of performance and price, independently of any issue of compatibility.
Skyhook’s theory, with respect to both Motorola and company X, appears to be that Google’s market power is such that it could, and did, dissuade these manufacturers from using XPS merely by raising questions about compatibility. The theory is not entirely implausible. On the record presently presented, however, the Court cannot conclude that Skyhook is likely to prevail at trial on that theory.
The evidence is similarly lacking on the issue of impropriety. The record does not support Skyhook’s contention that Google’s compatibility concern was pretextual. To the contrary, the evidence indicates that Skyhook and Motorola identified the same issue months before Google did, and recognized the possibility of non-compliance.3 As to motive or purpose, although Google’s internal communications do reflect its desire to prevail in competition with Skyhook for the best performing positioning software,4 the evidence does not support Skyhook’s theory that Google applied its compatibility requirements as a tactic to stifle competition.
*628Skyhook makes much of Google’s insistence on retrieving positioning data through the devices. The Court perceives no impropriety in that5 Skyhook does exactly the same; indeed, it sought to go further with respect to Motorola devices, through a contractual prohibition on software that would return data to any other source. Google’s contracts with manufacturers condition the use of its trademarks and applications on full functioning of its application package, which includes data retrieval functions. Skyhook has identified no principle of law that renders such a condition unlawful or otherwise improper.6 See generally, Synergistics Technology, Inc. v. Putnam Investments, LLC, 74 Mass.App.Ct. 686, 690 (2009) (“Pursuit of a legitimate business interest, without more, fails to qualify as an improper means or motive in analyzing the elements necessary to support a claim for interference with contract”). Overall, the Court cannot conclude that Skyhook is likely to prevail on its claims of tortious interference or violation of G.L.c. 93A.
Nor does the record establish that Skyhook will suffer irreparable harm in the absence of an injunction. Motorola and company X had both terminated their relationships with Skyhook before this action was filed, expressing reasons unrelated to any action by Google. Nothing in the record suggests that an injunction of the sort Skyhook seeks in this action would change their minds. If Skyhook ultimately prevails on its claims of interference with its relationships with Motorola and company X, it will be entitled to monetary compensation for its resulting losses. That the amounts may be large in proportion to its revenues, as Skyhook contends, does not make the loss irreparable. As to potential relationships with other manufacturers, Skyhook provides only vague suggestions; nothing in the record identifies any imminent decision-making by anyone as to the use of XPS on any Android device.7 Overall, the Court concludes that the present record does not establish a basis for preliminary injunctive relief.
CONCLUSION AND ORDER
For the reasons stated, Plaintiff Skyhook’s Motion for Preliminary Injunction is DENIED.
The parties have engaged in expedited discovery based on a stipulated protective order, and each has designated many of the materials produced, as well as transcripts of deposition testimony, as confidential. The Court has allowed a series of motions to impound various materials filed.
“Android” is an open-source operating system for mobile devices, and a corresponding open-source project led by Google. The name is a trademark of Google; Google authorizes its use under contracts with manufacturers.
The Court has not ignored Skyhook’s contention that Google lied in communications to the manufacturers about the compatibility issue. The evidence, as the Court reads it, does not support that contention.
The competition is not for revenue from licensing the software; Google makes its software available to its licensees without charge.
Any privacy concerns of users are outside the scope of the present litigation.
Skyhook has not alleged any antitrust violation, and the Court expresses no view on any such issue.
The record does indicate that Apple and certain other non-Android devices use XPS, and that Skyhook derives substantial and growing revenues from contracts for such use. | 01-03-2023 | 10-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/2984848/ | February 4, 2014
JUDGMENT
The Fourteenth Court of Appeals
GRANT MACKAY DEMOLITION COMPANY, INC., GRANT MACKAY
COMPANY, INC., MACKAY DEMOLITION COMPANY AND GRANT
MACKAY, INDIVIDUALLY, Appellants
NO. 14-13-01140-CV V.
NANCY LAY, ASHLEY LAY SCHAFFER, MELANIE LAY PLATT,
BETHANY LAY AND RACHEL LAY, Appellees
________________________________
Today the Court heard appellant's motion to dismiss the appeal from the
judgment signed by the court below on December 19, 2013. Having considered the
motion and found it meritorious, we order the appeal DISMISSED.
We further order that all costs incurred by reason of this appeal be paid by
appellants, Grant Mackay Demolition Company, Inc., Grant Mackay Company,
Inc., Mackay Demolition Company and Grant Mackay, Individually.
We further order that mandate be issued immediately.
We further order this decision certified below for observance. | 01-03-2023 | 09-22-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1207965/ | 567 F.3d 800 (2009)
In re Nathan SIMONS, Petitioner.
No. 09-3109.
United States Court of Appeals, Sixth Circuit.
Decided and Filed: February 5, 2009.[*]
Russell Paul Butler, Upper Marlboro, MD, E. Joel Wesp, Columbus, OH, for Petitioner.
Before: MOORE, CLAY, and GIBBONS, Circuit Judges.
ORDER
The petitioner seeks a writ of mandamus under 18 U.S.C. § 3771(d)(3) to enforce his rights as a crime victim under the Crime Victims' Rights Act (the "CVRA"), the Mandatory Victims' Restitution Act, and the Constitution of the United States. The petition arises out of a criminal proceeding pending in the district court. The defendant in the underlying criminal action, the United States, and the district judge have responded to the petition. The petitioner moves for leave to file a reply memorandum in support of his petition. We permit the filing of the reply memorandum.
The district court sealed the criminal action on August 25, 2008. The petitioner, asserting that he is a victim under the CVRA, moved the district court to unseal the record on November 5, 2008. The statute directs the district court to "take up and decide any motion asserting a victim's right forthwith." 18 U.S.C. § 3771(d)(3). The district court has not *801 ruled on the motion to unseal. The CVRA provides that if a district court denies a motion for relief under the statute, the movant may petition the court of appeals for a writ of mandamus. The court of appeals "shall take up and decide" the petition within 72 hours. 18 U.S.C. § 3771(d)(3).
The petitioner seeks an order directing the district court to ensure that he is afforded his rights as a crime victim and to unseal the record. In response, the parties and the district judge assert that the petition for a writ of mandamus is premature because there has been no ruling by the district court on the petitioner's motion to unseal. They further assert that no substantive proceedings have taken place in the district court since the petitioner filed his motion to unseal. Thus, they argue, the petitioner has not been denied any rights under the CVRA.
The United States also argues that because the district court has not denied the petitioner's motion, the petition for a writ of mandamus is not properly brought under the CVRA, but should be considered as a petition filed under the All Writs Act, 28 U.S.C. § 1651. However, the failure of the district court to rule on the motion for a three-month period can be construed as an effective denial of rights under the CVRA. Although there may not have been any substantive proceedings in the criminal action during this three-month period, the sealing of the record prevented the petitioner from determining whether his rights under the statute were being violated. A crime victim has the right "to be treated with fairness and with respect for the victim's dignity...." 18 U.S.C. § 3771(a)(8).
We note a split of authority among the circuit courts as whether a petition for a writ of mandamus under the CVRA is reviewed under the traditional standard applied to petitions under the All Writs Act or a more lenient, appellate-review standard. Compare In re Dean, 527 F.3d 391, 394 (5th Cir.2008); In re Antrobus, 519 F.3d 1123, 1125 (10th Cir.2008); with In re W.R. Huff Asset Mgmt. Co., 409 F.3d 555, 562-63 (2d Cir.2005); In re Walsh, 229 Fed.Appx. 58 (3d Cir.2007) (unpublished); Kenna v. United States Dist. Ct. for the Central Dist. of Cal., 435 F.3d 1011, 1017 (9th Cir.2006). We need not resolve the question of the proper standard of review in this case because the petitioner is entitled to relief under the stricter, traditional mandamus standard of review.
A party seeking relief in mandamus generally must demonstrate a "clear and indisputable" right to that relief. Kerr v. United States Dist. Ct., 426 U.S. 394, 402, 96 S.Ct. 2119, 48 L.Ed.2d 725 (1976); In re Am. President Lines, Ltd., 929 F.2d 226, 227 (6th Cir.1991) (order). The CVRA requires the district court to rule upon a motion to enforce CVRA's rights "forthwith." The unexplained, three-month passage of time without a ruling by the district court does not comply with the statute. Therefore, the petitioner has demonstrated a clear and indisputable right to a prompt ruling on his motion to unseal so that he will be in a position to assert whatever rights he has under the CVRA.
The petitioner's motion for leave to file a reply memorandum is GRANTED. The petition for a writ of mandamus is GRANTED, and the district court is directed to rule on the petitioner's motion to unseal no later than two weeks from the entry of this order.
CLAY, Circuit Judge, Dissenting.
I would grant the petition for writ of mandamus but would revise the order to provide that the petitioner's motion to unseal is granted forthwith; I would not delay by remanding to the district court to *802 rule on the motion to unseal within two weeks as provided by the order. I would also have the order indicate that the petitioner shall be provided henceforth with notice of dates of the upcoming court proceedings in the district court. As far as the motion to unseal is concerned, it should be noted that none of the parties nor the district court have provided sufficient justification in their responses to this Court for sealing the court file in the first place. All we have is the defendant's unsubstantiated and unsupported representation that he fears retaliation from anonymous, unidentified individuals with whom he might be incarcerated in prison in the future if the file is not sealed. That vague contention is hardly enough to overcome the public interest in not sealing the file, particularly when the person making the representation is someone totally lacking in credibility who is known to identify himself by multiple names. Furthermore, in view of the passage of time without a ruling by the district court on the motion to unseal, I am completely baffled by the majority's order to permit up to an additional two weeks to expire before the district court is required to rule. The parties and the district court were afforded ample opportunity to provide any information bearing on this issue prior to this Court's ruling, and further delay in unsealing the file, which never should have been sealed in the first place, is entirely inappropriate and contrary to the purposes of Crime Victims' Rights Act and the Mandatory Victims' Restitution Act.
NOTES
[*] This order was originally issued as an "unpublished order" filed on February 5, 2009. On May 21, 2009, the court designated the order as one recommended for full text publication. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1236626/ | 424 S.E.2d 687 (1993)
STATE of North Carolina
v.
James Stewart McCLEES.
No. 912SC819.
Court of Appeals of North Carolina.
January 19, 1993.
*688 Atty. Gen. Lacy H. Thornburg, by Asst. Atty. Gen. David N. Kirkman, Raleigh, for the State.
Maynard A. Harrell, Jr., Plymouth, for defendant-appellant.
WYNN, Judge.
Defendant was indicted on 22 October 1990, pursuant to North Carolina General Statute § 14-202.1, for taking and attempting to take immoral, improper, or indecent liberties with N.B., a minor child.
The State's evidence tends to show that in April of 1984, some six years prior to the indictment, defendant was the headmaster of Pongo Christian Academy, located outside of Belhaven, North Carolina. Defendant asked N.B., a fifteen year old female student at the school, to try on some basketball uniforms so he could evaluate them and determine whether to purchase sets for the school team. Defendant placed the uniforms on a desk in his office then left the office while Ms. B. changed. Resting on a shelf in the office, pointed in the direction of the desk, was a video tape camera which was recording at the time. The camera recorded Ms. B. as she removed all of her clothing except her underwear and tried on the uniforms.
Ms. B. testified that she was not aware of the presence of the video camera nor of the tape it produced until 1990 when police showed her the tape. Other evidence submitted by the State will be discussed within the context of our opinion below.
Defendant presented no evidence. At the close of all of the evidence, the defendant moved to dismiss the charges in the indictment. The trial judge denied the motion. Upon the jury verdict of guilty and sentencing to three years imprisonment, defendant appeals.
I.
Defendant's sole assignment of error alleges that the trial court erred in denying his motion for a directed verdict. Defendant contends that the evidence was insufficient to find him guilty of taking indecent liberties with a minor under the North Carolina statute. As a preliminary matter, we note that the defendant did not in fact move for a directed verdict in this criminal action but did move for a dismissal at the close of the State's evidence and again at the close of all evidence.
The test of the sufficiency of the evidence in a criminal prosecution is the same whether the issue is raised by a motion to dismiss, directed verdict or nonsuit. State v. Moser, 74 N.C.App. 216, 219, 328 S.E.2d 315, 317 (1985) (citing State v. Powell, 299 N.C. 95, 261 S.E.2d 114 (1980)). The question before the court is whether, considering the evidence, both competent and incompetent, in the light most favorable to the state, there is substantial evidence of all material elements of the offense charged. Id. Substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." State v. Smith, 300 N.C. 71, 78, 265 S.E.2d 164, 169 (1980).
Defendant contends that the State presented insufficient evidence to prove a violation of N.C.G.S. § 14-202.1(a)(1), which *689 defines the crime of taking indecent liberties with a minor as follows:
(a) A person is guilty of taking indecent liberties with children if being 16 years of age or more and at least five years older than the child in question, he:
(1) Willfully takes or attempts to take any immoral, improper, or indecent liberties with any child of either sex under the age of 16 years for the purpose of arousing or gratifying sexual desire.
N.C.Gen.Stat. § 14-202.1 (1986). In order to obtain a conviction under this statute, the State must prove (1) the defendant was at least 16 years of age, and more than five years older than the victim, (2) the victim was under 16 years of age at the time the alleged act or attempted act occurred, and (3) the defendant willfully took or attempted to take an immoral, improper, or indecent liberty with the victim for the purpose of arousing or gratifying sexual desire. State v. Strickland, 77 N.C.App. 454, 456, 335 S.E.2d 74, 75 (1985).
The first two elements are clearly established by the evidence. With respect to the third element, defendant makes two arguments: (1) that the State failed to show that he took an indecent liberty "with" a minor; and (2) that the State failed to show that the taping of the minor in this case was "for the purpose of arousing or gratifying sexual desire." We address each of the defendant's contentions in turn below and conclude that the offensive acts in this case fall within the purview of the statute.
1. Was The Defendant "With" A Minor Within The Context Of N.C.G.S. § 14-202.1(a)(1)?
The defendant first contends that the statute and subsequent case law require either physical contact or that the victim and the alleged perpetrator be in one another's physical presence and further that the victim must be aware of the perpetrator's presence before an indecent liberty may be taken "with" a child.
This Court has firmly rejected the notion that the words "with any child" require that a defendant actually touch his victim to commit an immoral, improper, or indecent liberty under the statute. State v. Turman, 52 N.C.App. 376, 278 S.E.2d 574 (1981). Thus, activity found to fall within the purview of the statute includes the photographing of a naked child in a sexually suggestive pose, State v. Kistle, 59 N.C.App. 724, 297 S.E.2d 626 (1982), disc. rev. denied, 307 N.C. 471, 298 S.E.2d 694 (1983), masturbation within a child's sight, Turman, 52 N.C.App. 376, 278 S.E.2d 574, and a defendant's act of exposing his penis and placing his hand upon it while in close proximity to a child. State v. Hicks, 79 N.C.App. 599, 339 S.E.2d 806 (1986). Furthermore, this Court has refused to hold that the words "with any child" require a defendant to be "within a certain distance of, or in close proximity to the child." Strickland, 77 N.C.App. at 456, 335 S.E.2d at 75. In Strickland, the defendant was masturbating about 62 feet away from two boys and invited them to come over and imitate his activity. This Court held that where the distance was close enough for the children "to see what he was doing and to hear his invitation; and it was close enough for [the] defendant to see them and invite them to imitate his own activity," this was activity contemplated by the statute. Id. at 456, 335 S.E.2d at 76.
These decisions recognize the legislative policy inherent in the statute, to provide "children broader protection than available under other statutes proscribing sexual acts." State v. Etheridge, 319 N.C. 34, 49, 352 S.E.2d 673, 682 (1987) (citing State v. Harward, 264 N.C. 746, 142 S.E.2d 691 (1965)). Moreover, they demonstrate that a variety of acts may be considered indecent and may be performed at varied distances from the victim, yet still be considered "with" a child "for the purpose of arousing or gratifying sexual desire."
Both the North Carolina Supreme Court and the Court of Appeals have addressed the purpose and scope of the indecent liberties statute. The Supreme Court has stated that:
The evil the legislature sought to prevent in this context was the defendant's performance of any immoral, improper, or indecent act in the presence of a child *690 "for the purpose of arousing or gratifying sexual desire." Defendant's purpose for committing such an act is the gravamen of this offense; the particular act is immaterial. It is important to note that the statute does not contain any language requiring a showing of intent to commit an unnatural sexual act. Nor is there any requirement that the State prove that a touching occurred. Rather the State need only prove the taking of any of the described liberties for the purpose of arousing or gratifying sexual desire.
State v. Hartness, 326 N.C. 561, 567, 391 S.E.2d 177, 180-81 (1990) (citation omitted) (emphasis added). See also State v. Banks, 322 N.C. 753, 370 S.E.2d 398 (1988). In discussing the protection against sexual deviates the statute seeks to afford children and the reasons for it, this Court stated:
Undoubtedly [the statute's] breadth is in recognition of the significantly greater risk of psychological damage to an impressionable child from overt sexual acts. We also bear in mind the enhanced power and control that adults, even strangers, may exercise over children who are outside the protection of home or school.
Hicks, 79 N.C.App. at 603, 339 S.E.2d at 809. Applying these principles and considering the wording of the statute, it is clear that the legislature had in mind indecent liberties taken with children. "Indecent liberties" are defined as "such liberties as the common sense of society would regard as indecent and improper." Black's Law Dictionary, (6th ed.). The word "with" in the connection in which it is employed in the statute indicates "in the company of: as companion of," Webster's Third New International Dictionary (Unabridged 1968), or "denoting a relation of proximity, contiguity or association." Black's, supra. Thus, "indecent liberties with " a minor implies an inherent liberty committed in the presence of the minor. However, Black's Law Dictionary defines "presence" as:
[t]he existence of a person in a particular place at a given time particularly with reference to some act done there and then. Besides actual presence, the law recognizes constructive presence, which latter may be predicated of a person who, though not on the very spot, was near enough to be accounted present by the law, or who was actively cooperating with another who was actually present.
Id. (emphasis in original).
In the subject case, defendant took advantage of an authoritative position of trust by asking the victim to try on uniforms so that he could secretly film, and later observe her in a state of undress. Certainly defendant's behavior was such as the common sense of society would regard as indecent and improper. Although the defendant was not actually located in the room with his victim, he strategically placed a camera such that she was unaware of its presence, thereby secretly filming the child as she changed clothes several times at his direction. As a result, he essentially had the same capability of viewing her in a state of undress as he would have had, were he physically present in the room. Through the forces of modern electronic technology, namely the video camcorder, one can constructively place himself in the "presence" of another. Thus we find that defendant was "constructively present" and thereby took immoral, improper or indecent liberties "with" the minor victim.
2. Did The State Present Sufficient Evidence To Establish That The Acts Of The Defendant Were Done For The Purpose Of "Arousing Or Gratifying Sexual Desire"?
Defendant next argues that since no evidence was presented showing that he ever actually viewed the video tape which depicted N.B. changing clothes, there was no evidence proving that he acted "for the purpose of arousing or gratifying sexual desire." However, the video tape in question also contained a number of other scenes which were admitted into evidence over the defendant's objection. Among those, was a scene showing the defendant setting up the camera in a small bathroom in the school. It showed an unidentified young woman rushing in the bathroom and *691 using the toilet. The tape also contained two scenes showing the defendant masturbating, one of which showed him calling out the name "Donna" while viewing a video tape, and the other as he sat on the toilet in a school bathroom. Another scene showed a female student's buttocks as she used the telephone in defendant's office. Moreover, the State introduced evidence of pictures taken from a file in defendant's desk at the school. One picture showed a former student, D.B., sitting beside a river wearing a bathing suit. Some of the pictures were from pages of the lingerie section of an Avon products catalogue, with pictures of the faces of certain female students from the school taped over the faces of the lingerie models. One of the faces taped over the face of a model was D.B.'s, a 1985 graduate of Pongo Academy, who testified that the defendant often asked her to go into the coach's office or the headmaster's office for the purpose of trying on uniforms. The State elicited further testimony that the defendant had frequently asked other female students at the school to try on uniforms. One student testified that in the process of trying on a uniform she opened the door to ask the defendant a question and was stunned to find the defendant leaning over as if looking through the key-hole.
This evidence may be considered to determine whether the defendant acted for the purpose of arousing or gratifying sexual desire. "A defendant's purpose being a mental attitude, is seldom provable by direct evidence and must ordinarily be proved by inference." State v. Campbell, 51 N.C.App. 418, 421, 276 S.E.2d 726, 729 (1981). See Etheridge, 319 N.C. at 49, 352 S.E.2d at 682 (jury could properly infer that defendant did certain acts for the purpose of arousing or gratifying his sexual desire). Given all of the State's evidence introduced at trial, the jury could properly infer that defendant set up a video camera in his office, placed uniforms on his desk in front of the camera and asked the child to go into his office and try on uniforms to film her in a state of undress for the purpose of arousing or gratifying his sexual desire.
We conclude that the State's evidence, taken in the light most favorable to the State, fell within the purview of the statute and sufficed to show that defendant took or attempted to take an immoral, improper, or indecent liberty with a child for the purpose of arousing or gratifying sexual desire. Accordingly, the trial court properly denied defendant's motion to dismiss.
No error.
GREENE and WALKER, JJ., concur.
WALKER, J., concurred in this opinion prior to 8 January 1993. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1359040/ | 574 F.3d 29 (2009)
In re FLAG TELECOM HOLDINGS, LTD. SECURITIES LITIGATION
Peter T. Loftin, Norman H. Hunter, and Joseph Coughlin, individually and on behalf of all others similarly situated, Plaintiffs-Appellees,
v.
Andres Bande, Edward McCormack, Edward Mcquaid, Philip Seskin, Daniel Petri, Dr. Lim Lek Suan, Larry Bautista, and Citigroup Global Markets Inc., formerly known as Salomon Smith Barney Holdings Inc., Defendants-Appellants.
Docket Nos. 07-4017-cv (L), 07-4025-cv (CON).
United States Court of Appeals, Second Circuit.
Argued: April 23, 2009.
Decided: July 22, 2009.
*30 Arthur R. Miller, Milberg LLP, New York, NY, (Brad N. Friedman, Matthew A. Kupillas, and Arvind B. Khurana, on the brief) for Plaintiffs-Appellees.
Jerome S. Fortinsky, Sherman & Sterling LLP, New York, NY, (Daniel H.R. Laguardia and Jeffrey J. Resetarits, on *31 the brief) for Defendants-Appellants Andres Bande, Larry Bautista, Lim Lek Suan, Edward McCormack, Edward McQuaid, Daniel Petri, and Philip Seskin.
Douglas W. Henkin, Milbank Tweed Hadley & McCloy LLP, New York, NY, (James N. Benedict, C. Neil Gray, and Kevin M. Ashby, on the brief) for Defendant-Appellant Citigroup Global Markets, Inc.
Before: POOLER, HALL, Circuit Judges, and SWEET, District Judge.[*]
SWEET, District Judge:
Defendants Andres Bande, Larry Bautista, Dr. Lim Lek Suan, Edward McCormack, Edward McQuaid, Daniel Petri, and Philip Seskin (the "Individual Defendants") and Citigroup Global Markets Inc. ("Citigroup") (collectively, the "Defendants") appeal from an order of the United States District Court for the Southern District of New York (Conner, J.) certifying the proposed class and appointing Peter T. Loftin, Norman H. Hunter and Joseph Coughlin ("Plaintiffs") to serve as class representatives and Milberg Weiss LLP to serve as class counsel.
This appeal raises issues implicating both the substance of the often overlapping requirements of typicality and adequacy laid out in Rule 23(a) of the Federal Rules of Civil Procedure and the correct standard of proof to be applied by courts in this context. We conclude that while the district court did not abuse its discretion in granting certification of a class encompassing members who allege claims under both the Securities Act of 1933 (the "'33 Act") and the Securities Exchange Act of 1934 (the "'34 Act"), it did err in certifying as members of the class those individuals who sold their stock prior to the February 13, 2002 close of the class period.
BACKGROUND
In February 2000, Flag Telecom Holdings, Ltd. ("Flag" or the "Company"), a self-described telecommunications "carriers' carrier" whose business involved the sale of access to its telecommunications network, offered its shares to the public in an initial public offering ("IPO"). See In re Flag Telecom Holdings, Ltd. Sec. Litig. ("In re Flag"), 245 F.R.D. 147, 151-52 (S.D.N.Y.2007). In the prospectus, which was incorporated into the registration statement filed with the U.S. Securities and Exchange Commission in connection with the IPO, Flag stated that it had obtained $600 million in bank financing and presales of $750 million to construct the Flag Atlantic-1 cable system (the "FA-1 system"), a fiber-optic submarine cable connecting Paris and London to New York.
According to Plaintiffs, despite an over-supply of fiber optic capacity in the market generally, Defendants made various misstatements and omissions in the prospectus and during the two years following the IPO, assuring investors that demand for Flag's cable remained strong. On February 13, 2002, the Company disclosed, inter alia, that approximately 14% of the Company's GAAP revenues for the year ending December 31, 2001, were associated with so-called "reciprocal transactions." Described by the lower court as "swaps of telecommunications capacity between competitors," reciprocal sales
may be entered into for legitimate reasons, i.e. to acquire access on networks *32 in a market that a company wishes to enter in exchange for capacity that has yet to be sold and is not otherwise in use ("dark fiber") ... [or] can also be utilized by a company seeking to defraud investors or its creditors to create the impression that the company is selling capacity when it is merely unloading useless dark fiber on one of its networks in exchange for useless dark fiber on a competitor's network.
In re Flag Telecom Holdings, Ltd. Sec. Litig., 352 F.Supp.2d 429, 461 (S.D.N.Y. 2005). Following the announcement, Flag stock dropped 46% from its closing price on February 12, 2002, to $0.36 per share on February 13, 2002.
Shortly after, on April 1, 2002, Flag filed its 10-K report for fiscal year 2001, disclosing that the asset value of its FA-1 system was impaired and that it was forced to recognize an impairment charge of $359 million. On April 12, 2002, the Company filed its Chapter 11 bankruptcy petition. Before being canceled pursuant to Flag's court-approved Chapter 11 plan in September 2002, the Company's common stock was trading at $0.002 per share, having traded as low as $0.0001 per share during the bankruptcy.
The first of several securities class actions was filed against Defendants in connection with these events in April 2002. In October 2002, the Honorable William C. Conner consolidated several of the actions and appointed Loftin, who purchased approximately 1.7 million shares of Flag common stock between July 17, 2000, and September 22, 2000, Lead Plaintiff and Milberg Weiss Bershad Hynes & Lerach LLP Lead Counsel. Plaintiffs filed a Consolidated Amended Complaint on March 20, 2003, and a Second Consolidated Amended Complaint on December 1, 2003. Judge Conner dismissed the Second Consolidated Amended Complaint without prejudice, and a Third Consolidated Amended Complaint was filed on April 14, 2004, adding Hunter, who purchased 200 shares of Flag stock in the IPO, as a plaintiff.
Plaintiffs bring the instant action on behalf of those who purchased or otherwise acquired Flag common stock between February 11, 2000, and February 13, 2002 (the "Class Period") for violations of §§ 11, 12(a)(2), and 15 of the '33 Act (the "'33 Act Plaintiffs") and §§ 10(b) and 20(a) of the '34 Act and Rule 10b-5 promulgated thereunder (the "'34 Act Plaintiffs"). Plaintiffs allege that as a result of Defendants' materially false and misleading statements in the Company's registration statement, SEC filings, and press releases, the value of Flag stock was artificially inflated during the Class Period. Specifically, the '33 Act Plaintiffs allege that Defendants' statements in the prospectus regarding the FA-1 system and the $750 million in presales were misleading in that certain of the presales were entered into to ensure financing and did not accurately represent profit or demand.[1] The '34 Act Plaintiffs allege that the Individual Defendants made false and misleading statements regarding the Company's profitability, most notably by falsely reporting the types of reciprocal sales described above.
In an Amended Opinion and Order dated January 23, 2006, Judge Conner denied Defendants' motion to dismiss, holding that Defendants had not satisfied their burden to establish negative causation with respect to the '33 Act Plaintiffs' claims as required by 15 U.S.C. §§ 77k(e) and 77l(b). See In re Flag Telecom Holdings, Ltd. Sec. Litig., 411 F.Supp.2d 377, 383-84 *33 (S.D.N.Y.2006). The district court rejected Defendants' argument that since the '33 Act Plaintiffs did not learn of the allegedly misleading pre-sale until after the November 2003 filing of a complaint in a related state court action,[2] at which time Flag common stock had been cancelled and was already worthless, none of the decline in the stock's value could be attributed to those misstatements. The court found that Defendants had not "demonstrate[d] that the decline was not due, at least in part, to the alleged misrepresentations concerning pre-sales in Flag's Prospectus, which presumably inflated the price level attained in the IPO and thereby heightened the loss when the price fell virtually to zero." Id. at 384. With the court's approval, Plaintiffs filed a Fourth Consolidated Amended Complaint on October 15, 2007.
In September 2007, the district court granted Plaintiffs' motion for certification pursuant to Fed.R.Civ.P. 23 and appointed Loftin, Hunter, and Coughlin[3] class representatives and Milberg Weiss LLP class counsel. Judge Conner defined the certified class as follows:
All persons or entities who purchased common stock of Flag Telecom Holdings, Ltd. ("Flag" or the "Company") between March 6, 2000 and February 13, 2002, inclusive, as well as those who purchased Flag common stock pursuant to or traceable to the Company's initial public offering between February 11, 2000 and May 10, 2000, inclusive (collectively, the "Class Period"), but shall exclude: (1) defendants herein, members of each individual defendants' immediate family, any entity in which any defendant has a controlling interest, and the legal affiliates, representatives, heirs, controlling persons, successors and predecessors in interest or assigns of any such extended party; (2) Verizon Communications, Inc.; and (3) entities that had the right to appoint a director to Flag's Board of Directors and proceeded to make such an appointment (or, for reasons unique to them, chose not to exercise such right), such as Dallah Albaraka Holding Company, Telecom Asia Corporation Public Co. Ltd., Marubeni Corporation, the Asian Infrastructure Fund and Tyco International Ltd.
In re Flag, 245 F.R.D. at 174. In determining that Plaintiffs had established each of the Fed.R.Civ.P. Rule 23(a) and (b)(3) requirements, the lower court rejected several of Defendants' arguments now before us on appeal.
With respect to the typicality requirement of Rule 23(a)(3), Judge Conner concluded that "the typicality requirement is met because plaintiffs ... like the putative class members, will attempt to prove that they purchased Flag common stock during the Class Period and were injured by defendants' false and misleading representations made in the Registration Statement and throughout the Class Period in violation of the securities laws." Id. at 159. In so doing, the lower court rejected Defendants' argument that a "fundamental conflict" exists between the '33 Act and '34 Act Plaintiffs. Id. Recognizing that the '33 Act Plaintiffs are subject to a "negative causation" affirmative defense under 15 *34 U.S.C. §§ 77k(e) and 77l(b), which precludes recovery where defendants can show "that the decline in Flag's stock price was due to something other than the alleged misstatements concerning the pre-sales," while the '34 Act Plaintiffs are required to prove "loss causation," or "that the decline in Flag's stock price was due to, inter alia, the failure to appropriately disclose the reciprocal transactions that took place after the IPO," the district court concluded that "the two sets of claims are not antagonistic to each other because proof of one does not negate an essential element of the other." Id. at 160.
Judge Conner also rejected Defendants' several challenges to the adequacy of the class representatives. Of particular relevance to Defendants' appeal, the district court found that the class properly included those purchasers who sold their Flag shares before February 13, 2002, the last day of the Class Period and the date on which Plaintiffs allege Flag disclosed the truth behind the alleged misstatements to the public. According to Judge Conner, Plaintiffs sufficiently demonstrated that the truth regarding Flag's financial condition began leaking into the market prior to February 13, 2002. Based on various allegations and an event study submitted by Plaintiffs' expert, the district court held it "conceivable that in-and-out purchasers asserting claims under both the '33 and '34 Act may be able to overcome defendants' affirmative defense of negative causation and prove loss causation, respectively, notwithstanding that the February 13, 2002 announcement is the most critical corrective disclosure." Id. at 167.
On September 19, 2007, Defendants sought leave to appeal the district court's grant of Plaintiffs' motion for class certification pursuant to Fed.R.Civ.P. 23(f) and Fed. R.App. P. 5, which we granted on December 12, 2007.
DISCUSSION
In reviewing class certification under Rule 23, we apply an abuse-of-discretion standard to both the lower court's ultimate determination on certification, as well as to its rulings that the individual Rule 23 requirements have been met. In re Initial Pub. Offering Sec. Litig. ("In re IPO"), 471 F.3d 24, 31-32 (2d Cir.2006). The factual findings underlying the ruling are reviewed for clear error, and we review de novo whether the correct legal standard was applied. Id. at 40-41. Where, as here, the appeal challenges the lower court's grant of class certification, "we accord the district court noticeably more deference than when we review a denial of class certification." In re Salomon Analyst Metromedia Litig., 544 F.3d 474, 480 (2d Cir.2008) (citation omitted).
Rule 23(a) sets out the requirements for class certification:
(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.
Fed.R.Civ.P. 23(a). We recently set forth the standard of proof governing class certification as follows:
(1) a district judge may certify a class only after making determinations that each of the Rule 23 requirements has been met; (2) such determinations can be made only if the judge resolves factual disputes relevant to each Rule 23 requirement and finds that whatever underlying facts are relevant to a particular Rule 23 requirement have been established and is persuaded to rule, based on the relevant facts and the applicable *35 legal standard, that the requirement is met; (3) the obligation to make such determinations is not lessened by overlap between a Rule 23 requirement and a merits issue, even a merits issue that is identical with a Rule 23 requirement; (4) in making such determinations, a district judge should not assess any aspect of the merits unrelated to a Rule 23 requirement;. ...
In re IPO, 471 F.3d at 41. In a later clarification, we further described "the standard of proof applicable to evidence proffered to meet" the requirements of Rule 23 as a "preponderance of the evidence." Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc., 546 F.3d 196, 202 (2d Cir.2008).
To establish typicality under Rule 23(a)(3), the party seeking certification must show that "each class member's claim arises from the same course of events and each class member makes similar legal arguments to prove the defendant's liability." Robidoux v. Celani, 987 F.2d 931, 936 (2d Cir.1993). Adequacy "entails inquiry as to whether: 1) plaintiff's interests are antagonistic to the interest of other members of the class and 2) plaintiffs attorneys are qualified, experienced and able to conduct the litigation." Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., 222 F.3d 52, 60 (2d Cir.2000). The focus is on uncovering "conflicts of interest between named parties and the class they seek to represent." Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625, 117 S.Ct. 2231, 2250, 138 L.Ed.2d 689 (1997). In order to defeat a motion for certification, however, the conflict "must be fundamental." In re Visa Check/MasterMoney Antitrust Litig. ("In re Visa"), 280 F.3d 124, 145 (2d Cir.2001) (internal quotations and citation omitted), abrogated in part by In re IPO, 471 F.3d 24.
I. Disabling Intra-Class Conflict
On appeal, Defendants renew their argument that the class suffers from a fundamental conflict rendering it uncertifiable because "success for the '34 Act plaintiffs necessarily precludes recovery by the '33 Act plaintiffs and vice-versa." Citigroup Br. at 31. We do not find, however, that the district court abused its discretion in concluding that the typicality requirement is met in this case despite the conflict described by Defendants. Although Judge Conner did not directly address the conflict issue in connection with the adequacy requirement, we also find that the court did not abuse its discretion in determining that any antagonistic interests with respect to causation do not constitute the type of "fundamental" conflict that renders the class uncertifiable. See id.
It is well-established that plaintiffs alleging claims under Section 10(b) of the '34 Act must prove loss causation. See 15 U.S.C. § 78u-4(b)(4) ("[T]he 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."); Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 128 S.Ct. 761, 768, 169 L.Ed.2d 627 (2008) (describing six elements of typical 10(b) claim as "(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation"). To prove loss causation, a plaintiff must demonstrate "that the misstatement or omission concealed something from the market that, when disclosed, negatively affected the value of the security." Lentell v. Merrill Lynch & Co., 396 F.3d 161, 173 (2d Cir. 2005). By contrast, under the '33 Act, it is *36 the defendant who bears the burden of demonstrating that something other than the misstatement at issue caused plaintiff's loss. See 15 U.S.C. §§ 77k(e), 77l (b); Akerman v. Oryx Commc'ns, Inc., 810 F.2d 336, 340-42 (2d Cir.1987) (describing defendants' "heavy burden" of proving negative causation under § 11 of the '33 Act).
As the lower court recognized, we have repeatedly analogized the concept of loss causation to proximate cause. See, e.g., Lentell, 396 F.3d at 173 (stating that although "the tort analogy is imperfect," "a misstatement or omission is the `proximate cause' of an investment loss if the risk that caused the loss was within the zone of risk concealed by the misrepresentations and omissions alleged by a disappointed investor" (emphasis in original)); Emergent Capital Inv. Mgmt., LLC v. Stonepath Group, Inc., 343 F.3d 189, 197 (2d Cir.2003) ("We have often compared loss causation to the tort law concept of proximate cause, meaning that the damages suffered by plaintiff must be a foreseeable consequence of any misrepresentation or material omission." (internal quotations and citation omitted)). In relying on this familiar concept, Judge Conner found fault with Defendants' argument which, the court concluded, mistakenly "overlooks that the decline in value of Flag stock may have been caused by both the alleged fraud relating to the reciprocal transactions and the alleged misstatements relating to pre-sales found in the Registration Statement." In re Flag, 245 F.R.D. at 159-60 (emphasis in original).
Defendants take issue with the lower court's application of proximate cause to the facts here, namely, its conclusion that the decline in value of Flag stock "may have been caused by either or both of [the] alleged acts of deception." In re Flag, 245 F.R.D. at 160. They argue that under the Supreme Court's holding in Dura Pharmaceuticals., Inc. v. Broudo, 544 U.S. 336, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005), loss causation and negative causation add up to a "zero-sum game," and that by establishing loss causation, the '34 Act Plaintiffs will necessarily undermine the '33 Act Plaintiffs' ability to rebut Defendants' negative causation defense. Individual Defendants Br. at 20.
We agree with the lower court that the '34 Act Plaintiffs can establish "the causal link between the alleged misconduct and the economic harm ultimately suffered by the plaintiff," Emergent Capital Inv. Mgmt., 343 F.3d at 197, without threatening the interests of the '33 Act Plaintiffs to such a degree as to render the certified class representatives atypical or inadequate. Dura stands for the proposition that in fraud-on-the-market cases, "an inflated purchase price will not itself constitute or proximately cause the relevant economic loss." 544 U.S. at 342, 125 S.Ct. 1627, 161 L.Ed.2d 577. Rather, to establish loss causation, Dura requires plaintiffs to disaggregate those losses caused by "changed economic circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions, or other events," from disclosures of the truth behind the alleged misstatements. Id. at 342-43, 544 U.S. 336, 125 S.Ct. 1627, 161 L.Ed.2d 577; see Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147, 157-58 (2d Cir.2007) (finding plaintiffs failed to allege sufficient facts to show that defendant's misstatements were the proximate cause of plaintiffs' losses where non-party's misstatements could also have caused the loss and plaintiffs did not "allege[] facts that would allow a factfinder to ascribe some rough proportion of the whole loss to [defendant's] misstatements").
Although Defendants have contended to the contrary, it is not inconsistent with *37 Dura to permit both the '33 and '34 Act Plaintiffs to proceed as a single class in establishing that each of the misstatements alleged in the complaint was the proximate cause of some portion of Plaintiffs' losses. Securities class actions involving more than one misstatement are far from unusual, and both Plaintiffs and Defendants cite several post-Dura examples of district courts granting certification where plaintiffs alleged claims under both the '33 and '34 Acts. See, e.g., In re Vivendi Universal, S.A. Sec. Litig., 242 F.R.D. 76 (S.D.N.Y.2007); In re Initial Pub. Offering Sec. Litig., 243 F.R.D. 79 (S.D.N.Y. 2007); In re Tyco Int'l, Ltd., 236 F.R.D. 62 (D.N.H.2006). Defendants attempt to distinguish these cases from the instant case on the grounds that they "involved allegations of misstatements made in a single document or allegations of a series of misstatements regarding the same subject," while the allegations here involve unrelated misstatements. Individual Defendants Br. at 24-25 n. 19. While the relatedness of the alleged misstatements may be relevant to the typicality inquiry generally, see, e.g., Robidoux, 987 F.2d at 936-37, we fail to see how this distinction implicates Dura. Defendants point out that "disaggregation requires that a cause be assigned to each piece of a stock price decline and precludes assigning two different causes to the same quantum of loss." Individual Defendants Br. at 22. This is true; however, in every litigation of this type, the pool of money available for each individual class member's recovery is limited to the loss that the individual actually incurred. We see nothing in the record before us that indicates that in these circumstances, where certain plaintiffs are subject to a negative causation affirmative defense, such a requirement precludes the certification of a single class.
In affirming Judge Conner's order with respect to certification of a single class of '33 and '34 Act Plaintiffs, we do not suggest that the issue described by Defendants does not deserve the careful and continued attention of the district court, but merely that it does not inevitably lead at the present time to the decertification of the class. As the lower court recognized, if Plaintiffs are able to prove loss causation with respect to both the '33 and '34 Act claims, then it will be necessary for a jury "to determine the extent of harm caused by each [misstatement], and "it is here that the interests of class members could diverge." In re Flag, 245 F.R.D. at 160. We are confident in the lower court's wisdom and ability to utilize the available case management tools to see that all members of the class are protected, including but not limited to the authority to alter or amend the class certification order pursuant to Rule 23(c)(1)(C), to certify subclasses pursuant to Rule 23(c)(5), and the authority under Rule 23(d) to issue orders ensuring "the fair and efficient conduct of the action." Advisory Committee Note on Subdivision (d); see Marisol A. v. Giuliani, 126 F.3d 372, 379 (2d Cir.1997) (per curiam) (describing "ample tools" available to district court "to fulfill its responsibility" under Rule 23).
II. In-and-Out Traders
Defendants next argue that the lower court abused its discretion by including as members of the certified class those investors who sold their stock before the February 13, 2002 alleged corrective disclosures were made. Class Representative Hunter, who purchased 200 shares in the IPO and sold them in November 2001, several months before the February 13, 2002 disclosures, is one such purchaser. We consider Defendants' argument with respect to these so-called "in-and-out" traders as implicating the court's authority to define the class, pursuant to Fed.R.Civ.P. *38 23(c)(1)(B), and the typicality and adequacy of representation requirements of Rule 23(a).
Before addressing whether the lower court erred by certifying in-and-out traders in this case, we must first briefly address Plaintiffs' argument that this issue is not properly before us on Defendants' Rule 23(f) appeal. Rule 23(f) gives this court the authority to "permit an appeal from an order granting or denying class-action certification under this rule." Fed. R.Civ.P. 23(f). Plaintiffs contend that Defendants' argument with respect to the in-and-out traders goes solely to loss causation, a merits issue properly raised in an appeal of a motion to dismiss or summary judgment order, rather than an appeal of an order granting class certification. We do not agree that Defendants' arguments with respect to the in-and-out traders in this context can be so cleanly separated from class certification as to render the issue outside the scope of our Rule 23(f) review.
Given the district court's careful attention to the issue, the lower court clearly considered the in-and-out traders' ability to prove loss causation as relevant to Plaintiffs' certification motion. See In re Flag, 245 F.R.D. at 165-68. Under In re IPO, lower courts have an "obligation" to resolve factual disputes relevant to the Rule 23 requirements and to determine whether the requirements are met, an obligation "not lessened by overlap between a Rule 23 requirement and a merits issue, even a merits issue that is identical with a Rule 23 requirement." 471 F.3d at 41. To the extent the lower court was required to make factual findings or conclusions of law with respect to any of the Rule 23 requirements, including the definition of the class, those determinations are reviewable here.[4]Id. at 42 ("[W]e decline to follow the dictum in Heerwagen [v. Clear Channel Commc'n, 435 F.3d 219 (2d Cir.2006)], suggesting that a district judge may not weigh conflicting evidence and determine the existence of a Rule 23 requirement just because that requirement is identical to an issue on the merits.").
Defendants again rely on Dura to argue that any purchaser who sold his or her stock prior to Flag's February 13, 2002 announcement cannot prove loss causation, and is, at minimum, subject to unique defenses. Judge Conner concluded that since it was "conceivable" that in-and-out traders "may be able" to defeat Defendants' negative causation defense and prove loss causation "notwithstanding that the February 13, 2002 announcement is the most critical corrective disclosure," they were properly included in the certified class. In re Flag, 245 F.R.D. at 167.
Defendants argue, and we agree, that the district court's "conceivable" standard of proof does not satisfy the preponderance of the evidence standard set forth in In re IPO and its progeny. See Bombardier, *39 546 F.3d at 202 ("[T]he preponderance of the evidence standard applies to evidence proffered to establish Rule 23's requirements."). While applying a more rigorous standard to the other Rule 23 requirements, the district court quoted Roth v. Aon, 238 F.R.D. 603, 607-08 (N.D.Ill.2006), in support of the proposition that courts facing a challenge to the inclusion of in-and-out traders must only determine whether these traders "could conceivably satisfy the requirement of loss causation, and [should] therefore [be] included in the proposed class." In re Flag, 245 F.R.D. at 167 (quotations and citation omitted) (alterations in original).
While we do not disagree with the premise that it may be "premature for courts to attempt to determine whether in-and-out traders have suffered losses at the class certification stage of the game," Roth, 238 F.R.D. at 608, "In re IPO makes clear that courts may resolve contested factual issues where necessary to decide on class certification, and when a claim cannot succeed as a matter of law, the Court should not certify a class on that issue." McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 228 (2d Cir.2008) (quotations and citation omitted). To the extent that the district court relied on a lesser standard in drawing its conclusion that the in-and-out traders could prove loss causation as a matter of law, we find it abused its discretion.
Plaintiffs urge us to reject the approach taken by the Fifth Circuit Court of Appeals in Oscar Private Equity Inv. v. Allegiance Telecom, Inc., 487 F.3d 261 (5th Cir.2007), requiring proof of loss causation at the class certification stage, and instead follow the courts in this Circuit that have rejected such attempts by defendants to require such proof for certification. Compare Oscar Private Equity Inv. v. Allegiance Telecom, Inc., 487 F.3d 261, 269 (5th Cir.2007) ("We hold hence that loss causation must be established at the class certification stage by a preponderance of all admissible evidence."), with Wagner v. Barrick Gold Corp., 251 F.R.D. 112, 118-19 (S.D.N.Y.2008) (concluding that in order to trigger the fraud-on-the-market presumption and thereby satisfy the predominance requirement of Rule 23(b)(3), plaintiffs need not prove loss causation at the class certification stage); Darquea v. Jarden Corp., 06 Civ. 722(CLB), 2008 WL 622811, at *4 (2008) (rejecting Oscar and holding that to show predominance, "[p]laintiff[s] in the Second Circuit may benefit from the fraud-on-the-market presumption of reliance at the certification stage based solely on a showing that they made purchases or sales in an efficient market, and need not show that they specifically relied on the allegedly fraudulent conduct, as reliance-an element of a 10(b) claims-is presumed."); In re Omnicom Group, Inc. Sec. Litig., No. 02 Civ. 4483(RCC), 2007 WL 1280640, at *8 (S.D.N.Y. Apr.30, 2007) (rejecting loss causation challenge to predominance as "an attempt to litigate class certification on the merits of the action"). Each of these cases, however, including Oscar, discusses proof of loss causation in the context of the Rule 23(b)(3) predominance requirement, and the cases cited from this Circuit represent the position that a plaintiff is entitled to a presumption of reliance at the certification stage that does not require the court to make a conclusive finding as to loss causation in order to trigger the fraud-on-the-market presumption laid out in Basic Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988), an issue that is not before us here.
By contrast, whether or not Plaintiffs here have met their burden in establishing that the in-and-out traders will be able to show loss causation is relevant to Rule *40 23(a) for reasons that do not implicate either predominance or Basic. Since the lower court appointed Hunter, an in-and-out trader, as Class Representative, Judge Conner was required to find, by a preponderance of the evidence, that he is both an adequate and typical representative of the class and not subject to any "unique defenses which threaten to become the focus of the litigation." Baffa, 222 F.3d at 59.
Rather than remand this issue to the district court to consider whether the in-and-out traders were properly included in the class, we conclude that Plaintiffs have not presented sufficient evidence to demonstrate that the in-and-out traders will even "conceivably" be able to prove loss causation as a matter of law, and that they therefore should not have been included in the certified class. See McLaughlin, 522 F.3d at 228.
In Dura, the Supreme Court rejected the view that an inflated purchase price is sufficient to plead loss causation on 10(b) claims. 544 U.S. at 340, 125 S.Ct. 1627, 161 L.Ed.2d 577. In so doing, the Court recognized that while "an initially inflated purchase price might mean a later loss ... that is far from inevitably so." Id. at 342, 544 U.S. 336, 125 S.Ct. 1627, 161 L.Ed.2d 577 (emphasis in original). Indeed, "that lower price may reflect, not the earlier misrepresentation, but changed economic circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions, or other events, which taken separately or together account for some or all of that lower price." Id. at 343, 544 U.S. 336, 125 S.Ct. 1627, 161 L.Ed.2d 577.
The Supreme Court's holding in Dura did not represent a break from this Circuit's approach to loss causation, but rather reaffirmed the analysis we laid out in Lentell, 396 F.3d at 173 (holding that to prove loss causation, a plaintiff must allege "that the misstatement or omission concealed something from the market that, when disclosed, negatively affected the value of the security"). In Lentell, we described the two requirements necessary to establish loss causation: 1) the loss must be foreseeable, and 2) the loss must have been caused by the materialization of the concealed risk. Id. In order to satisfy the foreseeability prong, a plaintiff must prove that the risk "was within the zone of risk concealed by the misrepresentations and omissions alleged by the disappointed investor." Id. (emphasis in original).
The standards laid out in Dura and Lentell are relevant to the in-and-out traders because in order to prove loss causation, any plaintiff who sold their stock prior to the February 13, 2002 disclosure must prove that the loss they suffered was both foreseeable and caused by the "materialization of the concealed risk." The leakage theory put forth by Plaintiffs,[5] and accepted as "conceivable" by the lower court, is based on evidence that "the truth regarding Flag's financial condition began to leak into the market prior to the February 13, 2002 announcement, causing the value of Flag common stock to decline." In re Flag, 245 F.R.D. at 166. In support of this theory, Plaintiffs point to an "event study" prepared by Plaintiffs' expert, Dr. Hakala, and several "industry events" that occurred prior to the Company's own February 13, 2002 announcement, that they claim sufficiently establish loss causation *41 for the in-and-out traders' claims.[6] None of this evidence, however, satisfies Lentell because Plaintiffs have failed to demonstrate that any of the information that "leaked" into the market prior to February 13, 2002, revealed the truth with respect to the specific misrepresentations alleged. Lentell, 396 F.3d at 175.
According to Plaintiffs, "the truth about demand and profitability began to leak into the market as early as February 2001 through `industry events'" and "by August 2001, specific news concerning Flag began to leak into the market and depressed Flag's share price further." Plaintiffs Br. at 17-18. However, rather than providing evidence of corrective disclosures, the industry events cited by Plaintiffs appear in their complaint in the context of Defendants' misleading statements themselves. See Third Consolidated Amended Complaint ¶ 113 ("[D]efendant McCormack's statements about the Company's supposedly `enviable' position were an attempt to inaccurately and misleadingly create the impression that FLAG was not in the unenviable position of its competitors, who were being adversely affected by the glut of bandwidth supply, falling prices and raising costs."); ¶ 119 ("FLAG's purpose in providing guidance to analysts to adjust forecasts upward was to distinguish itself from its competitors who, at the same time, were providing much gloomier guidance concerning the state of the telecom industry and the outlook for future results."); ¶ 172 ("FLAG thus continued to issue false and misleading statements about its condition and prospects, even though its competitors were beginning to acknowledge the difficulties they were facing."). Plaintiffs cannot have it both ways. They cannot allege that Defendants made certain misstatements, namely, that Flag was doing well compared to its competitors, and simultaneously argue that the misstatement itself constituted a corrective disclosure, that is, the fact that the other companies were not doing well exposed the public to the truth about Flag's misstatements. See Lentell, 396 F.3d at 173. To permit Plaintiffs to do so in this context would "tend to transform a private securities action into a partial downside insurance policy." Dura, 544 U.S. at 347-48, 125 S.Ct. 1627, 161 L.Ed.2d 577.
Plaintiffs further fail to connect the decline in the price of Flag stock to any corrective disclosures as required by the second prong of Lentell. While the event study links the decline in value of Flag common stock to various events, Plaintiffs have not presented sufficient evidence on which the lower court could conclude that any of the events revealed the truth about the subject of any of Defendants' alleged misstatements. Given that the '33 and '34 Act Plaintiffs primarily allege misstatements with respect to the pre-sale and subsequent reciprocal sales, nothing submitted by Plaintiffs link any disclosure prior to February 13, 2002, to either of these alleged misrepresentations. Without more, we conclude that Plaintiffs have not put forth sufficient evidence on which the in-and-out traders could establish loss causation, and they must therefore be excluded from the certified class. Accordingly, Hunter may not serve as class representative.
III. Remaining Arguments
Defendants raise additional issues challenging the lower court's grant of certification. Since we find these arguments to have no merit, we address them only briefly here.
In addition to the challenges to the adequacy of the class representatives discussed above, Defendants claim that Hunter *42 and Coughlin lack the basic familiarity and involvement with the class required under Rule 23(a)(4).[7]See Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072, 1077-78 (2d Cir.1995) ("[C]lass certification may properly be denied where the class representatives ha[ve] so little knowledge of and involvement in the class action that they would be unable or unwilling to protect the interests of the class against the possibly competing interests of the attorneys." (internal quotations and citation omitted) (alteration in original)). Given our general disfavor of "attacks on the adequacy of a class representative based on the representative's ignorance," Baffa, 222 F.3d at 61, we do not conclude that the lower court abused its discretion in finding that the class representatives "are sufficiently knowledgeable and involved to adequately represent the putative class." In re Flag, 245 F.R.D. at 162.
Similarly, we reject Defendants' argument that the district court erred in including in the class '33 Act Plaintiffs who purchased common stock in the secondary market traceable to the Company's IPO as late as May 10, 2000.[8] Despite Defendants' evidence that on March 17, 2000 and March 23, 2000, Flag employees exercised "a significant amount of stock options" pursuant to the Company's Long Term-Incentive Plan ("LTIP"), the court concluded that since Defendants had produced no evidence that LTIP shares were actually sold in the market prior to the May 10, 2000 cut-off, it was "inclined to resolve the dispute in favor of plaintiffs." In re Flag, 245 F.R.D. at 173. Because we do not conclude that this factual determination constitutes clear error, we affirm this aspect of the certification order.
Finally, Defendants challenge the fairness of the briefing process below on due process grounds. We do not find that the lower court abused its "ample discretion" to limit both discovery and the extent of the hearing on Rule 23 requirements, In re IPO, 471 F.3d at 41, and we therefore also reject Defendants' due process challenge to the certification order.
CONCLUSION
For the reasons stated above, the district court's order granting class certification is affirmed with the exception of that portion of the order that includes in the class those individuals who sold their Flag stock prior to February 13, 2002. To the extent the certified class includes such individuals, that portion of the order is vacated, and the case is remanded to the district court for further proceedings.
NOTES
[*] The Honorable Robert W. Sweet, of the United States District Court for the Southern District of New York, sitting by designation.
[1] Citigroup served as the lead underwriter of the IPO, and the Individual Defendants all served as directors or officers of Flag around the time of the IPO.
[2] The "Rahl Complaint," filed in the Supreme Court of New York State, New York County, on November 19, 2003, by the Trustee of the Flag Litigation Trust, asserts various claims for breaches of fiduciary duties against several defendants, including several of the Individual Defendants named in this action. See Rahl v. Bande, 316 B.R. 127 (S.D.N.Y.2004).
[3] Coughlin, who purchased 250 shares in the IPO on February 23, 2000, and 100 shares in the market on July 3, 2001, brings claims under both the '33 and '34 Acts.
[4] Defendants also seek review of the district court's denial of its motion to dismiss the '33 Act Plaintiffs' claims. See In re Flag Telecom Holdings, Ltd. Sec. Litig., 411 F.Supp.2d 377. According to Defendants, we are permitted under Rule 23(f) to "address issues that should have resulted in the dismissal of some or all claims prior to class certification to the extent that such dismissal would have precluded class certification." Citigroup Br. at 25. We disagree. Defendants' interpretation of the scope of Rule 23(f), even in light of In re IPO, goes too far, and we therefore do not reach the lower court's motion to dismiss on this appeal. See also Regents of the Univ. of Cal. v. Credit Suisse First Boston (USA), Inc., 482 F.3d 372, 380 (5th Cir.2007) (acknowledging that although "[t]he fact that an issue is relevant to both class certification and the merits ... does not preclude review of that issue," "the text of [Rule 23(f)] makes plain that the sole order that may be appealed is the class certification").
[5] We do not take issue with the plausibility of Plaintiffs' "leakage" theory. Indeed, in Lentell, we explicitly acknowledged that loss causation can be established by a "corrective disclosure to the market" that "reveal[s] ... the falsity of prior recommendations." Lentell, 396 F.3d at 175 n. 4. And nowhere does either Dura or our precedent suggest that such disclosures must come from the Company itself.
[6] According to Plaintiffs' expert witness, the purpose of the event study was to "assess the reaction of Flag Telecom's share price to relevant news events." Hakala Decl. ¶ 15.
[7] We have already found that Hunter cannot serve as a class representative for reasons unrelated to his knowledge and competence. Thus, the remainder of our analysis concerns only Coughlin.
[8] Neither party disputes "that shares that are bought on the market after unregistered shares have entered the market cannot be traced back to the IPO." In re Flag, 245 F.R.D. at 173. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1425795/ | 532 F.3d 37 (2008)
UNITED STATES of America, Appellee,
v.
René VÁZQUEZ-BOTET, M.D. and Marcos Morell-Corrada, Defendants, Appellants.
Nos. 07-1205, 07-1398.
United States Court of Appeals, First Circuit.
Heard March 5, 2008.
Decided July 9, 2008.
*42 Scott A. Srebnick, with whom Howard M. Srebnick and Black, Srebnick, Kornspan & Stumpf, P.A., was on brief for appellant Vázquez-Botet.
Rafael F. Castro-Lang, for appellant Morell-Corrada.
Peter W. Miller, with whom Stuart A. Weinstein-Bacal, José A. Cabiya-Morales, and Weinstein-Bacal & Miller, P.S.C., was on brief for amicus curiae Caribbean International News, Inc. d/b/a El Vocero, Santa Rita Acquisitions Corp. d/b/a The San Juan Star, Wilfredo G. Blanco-Pi d/b/a Wapa Radio, and Madifide, Inc. d/b/a Notiuno 630.
Mary K. Butler, Trial Attorney, Public Integrity Section, Criminal Division, U.S. Department of Justice, with whom William M. Welch, II, Chief, was on brief for appellee.
Efrem M. Grail, with whom Reed Smith LLP, Thomas J. Farrell, and Dreier LLP, was on brief for intervenors Dick Corporation and Dan Martin.
Before LYNCH, Chief Judge, TORRUELLA, Circuit Judge, and SELYA, Senior Circuit Judge.
TORRUELLA, Circuit Judge.
René Vázquez-Botet ("Vázquez") and Marcos Morell-Corrada ("Morell") were convicted of conspiracy, extortion, and mail and wire fraud for their roles in demanding money from construction contractors in exchange for using their influence in the Puerto Rico government to secure them a major project. On appeal, the defendants claim that the district court committed a myriad of errors invalidating their convictions; alternatively, they claim errors requiring remand for resentencing. After careful consideration of each of these arguments in light of the record, we affirm both defendants' convictions and sentences.
I. Background
Because Morell challenges the sufficiency of the evidence supporting his conviction, *43 we relate the facts "as the jury could have found them, drawing all inferences in the light most consistent with the jury's verdict." United States v. Colón-Díaz, 521 F.3d 29, 32 (1st Cir.2008) (citation and internal quotation marks omitted). We consider only those facts relevant to the issues on appeal. In August 1994, the Puerto Rico Aqueduct and Sewer Authority ("PRASA") solicited bids from construction contractors to build a large water pipe dubbed the "Superaqueduct" along Puerto Rico's north coast. The magnitude of the project required the bidding contractors to form consortia with local subcontractors for the provision of equipment, expertise, financial resources, and labor. One of the aspirants was a consortium led by contractor Thames-Dick, a joint venture between a British firm and the Dick Corporation of Pennsylvania. Within the Thames-Dick consortium were a number of Puerto Rico subcontractors: (1) Las Piedras Construction, owned by Pedro "Cuco" Feliciano; (2) Constructora Hato Rey, owned by Waldemar Carmona; (3) Longo de Puerto Rico, owned by Greg Laracy; (4) Carrero Engineering, owned by Alberto "Tico" Carrero; and (5) Cobián, Agustín & Ramos, controlled by José Cobián-Guzmán ("Cobián"). Thames-Dick won the $305 million contract in January 1996; it began construction in September 1996 and finished in 2000.
Cobián, a key government witness, testified at trial that he knew from experience that, in order for his consortium to be awarded the contract, he would need to bribe someone influential in the government, which at the time was controlled by the New Progressive Party ("NPP"). Thus, in June 1995, Cobián approached Vázquez, an ophthalmologist and the manager of Governor Pedro Rosselló's reelection campaign. Several witnesses testified that Vázquez was believed to hold an almost unparalleled degree of sway within the Rosselló government. Vázquez told Cobián that he would do what he could in exchange for two percent of the total value of the contracts awarded to the Thames-Dick subcontractors. Cobián explained that the subcontractors' share of the total would be more than $200 million; two percent was estimated to be about $2.4 million. Vázquez indicated that Morell, an attorney and NPP Secretary-General, and José Granados-Navedo ("Granados"), the NPP chair of the House of Representatives infrastructure committee, would be assisting him and would need a share of the $2 million. Cobián proposed that it be split four ways, with him receiving a quarter; Vázquez acquiesced. Vázquez said he would deal only with Cobián and must be paid in cash, and that Cobián should approach Morell and Granados directly to arrange their payments. Vázquez did not explain to Cobián what actions he or others would take to make sure Thames-Dick got the contract.
Cobián then went to subcontractors Feliciano, Carmona, Laracy, and Carrero and told them that together they would have to pay two percent of their part of the contract award to purchase the assistance of influential people in the government. Although the subcontractors had not delegated authority to Cobián to make such a deal on their behalf, they grudgingly agreed to pay.
The subcontractors paid Cobián incrementally as they received payments from Thames-Dick. They understood that Cobián would then pass the payments on to the politicians in question. Cobián delivered monthly cash payments to Vázquez in his office, and made other payments to third parties for NPP campaign expenses owed them by Vázquez. On one occasion Feliciano, who had figured out that Vázquez was one of the recipients of the *44 extortionate payments, made a $5,760 payment to him in person at his medical office.
On Vázquez's instructions, Cobián went to Morell's law office to arrange how his payments would be made. Morell drew up a sham contract under which Cobián was to pay Morell's law firm $5,000 per month for legal services; Cobián made these monthly payments from 1997 to 1999. In addition, Morell and Cobián arranged for Cobián to make several payments to third parties (including Sears, a rental car company, an architectural firm, and a basketball team) on Morell's behalf. Morell never actually performed any legal services for Cobián or his company. Cobián similarly made payments to third parties on Granados's behalf, and also made some cash payments to Granados.
In all, the subcontractors gave Cobián cash and checks totaling over $1 million; of this, Vázquez received the equivalent of over $360,000, and Morell received over $125,000. Vázquez failed to report to the Puerto Rico Treasury Department the money he received from Cobián from 1997 to 1999, and concealed thousands more dollars of cash payments made to him by his ophthalmology patients and businesses involved in healthcare services. Morell reported on his tax returns payments to his law firm by Cobián in 1997 and 1998 under the sham contract. Morell failed to report the approximately $25,000 paid in 1999 and the many third-party payments made by Cobián, which totaled some $23,000; he also failed to report payments from other clients in 1998 totaling about $22,000.
In July 1999, when Cobián learned that he had been indicted for unrelated conduct, he panicked and stopped making payments to Vázquez, Morell, and Granados. After pleading guilty to the indictment, Cobián decided to cooperate with the Government in exchange for immunity with respect to further crimes for which he might implicate himself in rendering such cooperation, and the Government's recommendation of a sentencing reduction. Cobián then told investigators of the details of the Superaqueduct extortion scheme. On the basis of this and other information, the Government sought indictments against Vázquez, Morell, and Granados.
On April 8, 2004, a grand jury returned a public indictment charging Vázquez and Morell with the following: (1) one count of conspiracy to commit extortion and launder money in furtherance of a bribery scheme, in violation of 18 U.S.C. § 371; (2) several counts of extortion under color of official right and by economic fear, in violation of the Hobbs Act, 18 U.S.C. § 1951, and aiding and abetting this offense under 18 U.S.C. § 2; and (3) several counts of mail and wire fraud committed as part of a scheme to defraud Puerto Rico of income tax payments, in violation of 18 U.S.C. §§ 2, 1341, and 1343.[1] The Government's central theory was that the defendants and Granados conspired to induce the subcontractors to pay them a portion of their Superaqueduct profits by making them fear that if they did not pay (and keep making periodic payments), the defendants and Granados would use their influence in the government: (1) to promote the subcontractors' competitors for the bid; (2) to remove the subcontractors from the contract after it was already awarded; or (3) to malign their professional reputations so that their respective businesses would not receive government contracts in the future.
After we ordered the recusal of the original trial judge from this case, see In re United States, 441 F.3d 44, 49 (1st Cir. *45 2006), the case was randomly reassigned to Chief Judge Fusté. Vázquez moved to recuse Chief Judge Fusté on a number of grounds, and Chief Judge Fusté denied the motion, United States v. Vázquez-Botet, 453 F.Supp.2d 362, 374 (D.P.R.2006). We denied mandamus relief, noting that Vázquez could challenge the non-recusal on end-of-case appeal if he were found guilty. In re Vázquez-Botet, 464 F.3d 54, 57 (1st Cir.2006) (per curiam) ("Vázquez-Botet I") (facts presented by Vázquez did not present the "`clear and indisputable'" right to immediate mandamus relief necessary for such an extraordinary remedy (quoting In re Cargill, Inc., 66 F.3d 1256, 1262 (1st Cir.1995))). Vázquez now avails himself of the opportunity to appeal the non-recusal.
Before trial, the then-lead prosecutor of the U.S. Attorney's Office in Puerto Rico granted several of the subcontractors immunity from prosecution in exchange for their testimony. Cobián also testified with immunity under the prior agreement, and Granados pled guilty to crimes committed in carrying out his role in the extortion scheme and also testified for the Government. During the pretrial phase, responsibility for the prosecution of the case was transferred from the U.S. Attorney's Office in Puerto Rico to the Public Integrity Section of the Department of Justice in Washington, D.C.
On September 25, 2006 the day before trial was set to begin and more than two years after he was indicted Vázquez subpoenaed two witnesses, hereinafter "Witness A" and "Witness B," to compel their testimony at trial; he also served a subpoena on Dick Corporation for the production of certain documents. Witness A was a Dick Corporation official and Witness B was a consultant hired by Dick Corporation to conduct marketing activities inside and outside Puerto Rico, including negotiations for the construction of "intercity connectors" pipelines connecting the Superaqueduct to municipal water systems.[2] Vázquez sought to argue at trial, inter alia, that it was Witness B, another consultant ("Consultant C"), and powerful persons for whom they worked who extorted money from the subcontractors in exchange for the Superaqueduct contract, and not Vázquez. The Government, Dick Corporation, and Witness B opposed the subpoenas. The district court ruled the proposed evidence irrelevant in light of the uncontradicted statements of Witnesses A and B to investigators that any relationship between Witness B and Dick Corporation began at least two years after the Superaqueduct project had been awarded. But the court stated that it would allow the defendants to make an offer of proof nonetheless, in order to create a record of its relevancy decision for appellate review.
Accordingly, on October 16, 2006, the district court held a hearing at which Vázquez questioned Witnesses A and B and the Government cross-examined Witness A.[3] The court closed the hearing to the press and public to preclude what it feared would be a "sideshow"; the court clarified that "[t]his is not part of the trial. This is a hearing to determine relevancy." Both witnesses testified that Witness B and Consultant C did not represent Dick Corporation in its efforts to obtain the Superaqueduct contract for the Thames-Dick consortium. They also testified that Dick Corporation did not even hire Witness B until 1998 or 1999 at least two years after the awarding of the contract *46 when the project was nearing completion and hired Consultant C sometime thereafter. Witnesses A and B also testified that, to the extent that the tasks Witness B performed on behalf of Thames-Dick had anything to do with the Superaqueduct project, they were confined to negotiations surrounding the intercity connectors.
On October 19, 2006, the district court issued a sealed order confirming its earlier relevancy ruling and quashing both subpoenas. The court took account of documents submitted by Dick Corporation and the witnesses' testimony to confirm its pre-hearing assessment with respect to Witness B: the proposed evidence was irrelevant to any triable issue or defense, as the contractual relationship between Witness B and Dick Corporation began more than two years after the events giving rise to the accusations against Vázquez; allowing testimony on this relationship would "result in unnecessary and irrelevant distractions." With respect to Witness A, the court found that he had no evidence to offer that would tend to prove or disprove Vázquez's link to any wrongdoing, save possible knowledge of two discrete events on which the defendants should be permitted to question Witness A at trial; the defendants did not ultimately avail themselves of this opportunity and Witness A never appeared at trial. The district court maintained the seal on all written and oral arguments in the litigation surrounding the quashed subpoenas, and ordered that any public dissemination of the hearing transcript or the exhibits proffered at the hearing would result in "severe penalties by contempt or otherwise." The court denied Vázquez's post-trial motion to unseal this portion of the record. Vázquez and Morell now argue before us that these decisions effected a violation of their Sixth Amendment right to a fair trial, compelling us to vacate their convictions.
Trial began on September 26, 2006. Among others, Feliciano, Carmona, Cobián, and Granados testified as government witnesses. Among many other things, Cobián testified on direct that Vázquez told him Morell would be among those helping Thames-Dick to secure the Superaqueduct contract. Morell objected to this testimony as hearsay not covered by the coconspirator exemption in Federal Rule of Evidence 801(d)(2)(E). The district court provisionally allowed the testimony and later confirmed the applicability of Rule 801(d)(2)(E) and kept the testimony on the record. Morell now claims this ruling constituted reversible error.
The Government also called the co-case agent, Federal Bureau of Investigation ("FBI") special agent Ivan Vitousek. Vitousek testified about a number of FBI investigatory practices, including that of using cooperators in public corruption cases. In the course of direct and cross-examination, Vitousek made several statements that the defendants characterized as improper bolstering of the credibility of other government witnesses. Vázquez and Morell argue on appeal that Vitousek's vouching made the jury more likely to believe these witnesses, thus prejudicing the outcome of the trial to their detriment. During closing arguments, the prosecutor made a number of statements the defendants now brand as prosecutorial misconduct mandating retrial. We discuss all these challenges in greater detail below.
On November 3, 2006, the jury convicted Vázquez and Morell on the conspiracy count, on several of the extortion counts, and on several of the mail and wire fraud counts. On January 30, 2007, the district court sentenced Vázquez and Morell each to five years' imprisonment, and a $100,000 fine. The court determined their respective guideline Sentencing ranges ("GSRs") *47 by looking at the total amount of profit earned by the subcontractors some $10 million. On appeal, both defendants challenge the propriety of this methodology.
II. Discussion
A. Chief Judge Fusté's Non-Recusal
Before trial, Vázquez moved for Chief Judge Fusté to recuse himself, claiming recusal was required for a number of reasons. Chief Judge Fusté denied the motion, Vázquez-Botet, 453 F.Supp.2d at 374, and Vázquez petitioned us for mandamus relief, which we denied, Vázquez-Botet I, 464 F.3d at 57. On appeal, Vázquez renews his claim that Chief Judge Fusté should have been recused, but narrows the focus to two arguments. We address these in turn. We will sustain Chief Judge Fusté's decision not to recuse himself unless we find that it "cannot be defended as a rational conclusion supported by [a] reasonable reading of the record." United States v. Snyder, 235 F.3d 42, 46 (1st Cir.2000) (quoting In re United States, 158 F.3d 26, 30 (1st Cir. 1998)).
Vázquez first questions Chief Judge Fusté's partiality because of the professional activities of the judge's wife, an attorney named Rachel Brill, in matters tangentially related to this case. Specifically, Brill represented subcontractor Laracy during several meetings between Laracy and the Government, negotiated the agreement that provided Laracy with immunity in exchange for his grand jury and trial testimony in this case, and represented him when he testified before the grand jury that indicted Vázquez. Brill also represented José Ventura, another local contractor not involved in the events at issue here. During this representation, Brill filed a public motion in the district court (presided over by a different judge) in which she requested sanctions against Vázquez's lawyer for attempting to intimidate Ventura. After Vázquez had been indicted, Brill sent a letter to Vázquez's lawyers accusing Vázquez of trying to extort money out of Ventura by falsely accusing Ventura of slander; Brill copied this letter to the prosecutors in this case so they could investigate whether Vázquez had thereby violated his bail conditions.
Vázquez argues that Chief Judge Fusté's decision not to recuse himself in light of his wife's activities constitutes reversible error under 28 U.S.C. § 455(b)(5)(ii) (judge shall disqualify himself if spouse "[i]s acting as a lawyer in the proceeding"); see also id. § 455(d)(1) ("`[P]roceeding' includes pretrial, trial, appellate review, or other stages of litigation."). We disagree. As we noted in Vázquez-Botet I, "while an attorney need not be `enrolled as counsel' of record in order to fall within [§ 455(b)(5)(ii)], the attorney must at least `actually participate in the case.'" 464 F.3d at 58 (quoting McCuin v. Tex. Power & Light Co., 714 F.2d 1255, 1260 (5th Cir.1983)) (citations and alteration omitted); accord United States ex rel. Weinberger v. Equifax, Inc., 557 F.2d 456, 463-64 (5th Cir.1977) (recusal required where judge's family member actively participates). Chief Judge Fusté has issued a standing order that Brill not appear as an attorney in any proceeding before him. In line with this directive, Brill did not appear before him in this case, as counsel for Ventura, Laracy, or anyone else.
Specifically with respect to Brill's representation of Ventura, it is clear that neither of the incidents impugned by Vázquez counts as "actually participat[ing] in th[is] case." Vázquez-Botet I, 464 F.3d at 58. Brill's motion requesting sanctions against Vázquez's lawyer on Ventura's behalf occurred before Vázquez was even indicted. We reaffirm our observation in Vázquez-Botet *48 I that this action thus fell outside the scope of "pretrial, trial, appellate review, or other stages of litigation." 464 F.3d at 58 (quoting 28 U.S.C. § 455(d)(1)). In Vázquez-Botet I, we likewise rejected Vázquez's other contention relating to Ventura: that Brill's post-indictment letter to Vázquez's lawyers, copied to the prosecutor in this case, somehow converted her into a lawyer acting in this proceeding. Id. at 59. Brill sent this letter in response to a communication from Vázquez directly to Ventura seeking $10 million for allegedly slandering him during testimony in other judicial and legislative proceedings. In her letter, Brill cited a statutory privilege for Ventura's testimony and characterized Vázquez's demand as "laughable." However, while she remarked that Vázquez's demand may also have been extortionate, she did not accuse him of extortion outright. And the prosecutor did not act on the letter by, for example, requesting sanctions against Vázquez for violating his bail conditions, adding charges against him in this case, or issuing a separate indictment for attempting to extort money out of Ventura. Moreover, Brill made no submissions before the district court in this case requesting action against Vázquez; no party sought introduction of Brill's letter into evidence or made any reference to it; and Ventura was not called to testify. These considerations lead us readily to conclude, as we did in Vázquez-Botet I, that any connection between Brill's letter and the events in this case was simply too tangential to qualify her as a lawyer acting in the proceeding.
As for Laracy, while he did testify at trial, he was not represented by Brill at the time.[4] Brill's representation in the negotiations for Laracy's immunity agreement occurred more than ten months prior to Vázquez's indictment, and Brill was not mentioned at any point during the trial. Thus, as we held in Vázquez-Botet I, Brill's representation did not constitute acting in this proceeding. 464 F.3d at 58. We also expressed doubts in Vázquez-Botet I that her representation of Laracy during his grand jury testimony could be considered part of this proceeding because the grand jury is functionally and constitutionally separate from the district court. Id. at 58 n. 6 (citing In re United States, 441 F.3d at 57). Today we confirm our formerly expressed views and hold that, for purposes of the recusal statute, the grand jury hearing was separate from pretrial and trial proceedings in the district court.
Vázquez bases his second challenge to Chief Judge Fusté's impartiality on the more general language of 28 U.S.C. § 455(a), which requires recusal where the judge's "impartiality might reasonably be questioned." Vázquez argues that a reasonable and informed member of the public could fairly conclude that Chief Judge Fusté was biased against him because Brill openly took sides in this litigation by asking another judge to sanction Vázquez's lawyer; moreover, as a conjugal partnership under Puerto Rico law, Chief Judge Fusté and Brill necessarily shared in the legal fees paid the latter by Laracy, and the public surely believes the two talk about their work in private. These arguments are unavailing.
Section 455(a) requires us to examine whether a reasonable observer, knowing all the relevant facts, would have doubts about Chief Judge Fusté's impartiality in this proceeding. Liljeberg v. Health Serv. Acquisition Corp., 486 U.S. 847, 860-61, *49 108 S.Ct. 2194, 100 L.Ed.2d 855 (1988). Vázquez's speculative arguments assume that Brill played a much more significant role than she actually did. Critically, Brill's involvement in this case and in other matters tangentially implicating Vázquez occurred more than two years before Chief Judge Fusté was randomly assigned to replace the original district judge. To that end, Vázquez provides no explanation as to how Brill's fees could possibly have biased Chief Judge Fusté against Vázquez or adversely affected any of his rulings. Furthermore, no reasonable observer would interpret Brill's advocacy on behalf of Ventura as evincing some sort of personal animosity toward Vázquez that somehow endured through pretrial and trial proceedings and prompted her to disparage him in front of her husband.
For these reasons, we cannot say that Chief Judge Fusté's decision not to recuse himself was irrational or lacked support on a reasonable reading of the record. Snyder, 235 F.3d at 46. As such, we dismiss this ground of appeal and proceed to the next one.
B. The Closed Relevancy Hearing
Vázquez and Morell argue that the October 16, 2006 closed hearing violated their Sixth Amendment rights to a public trial and to present evidence in their own defense. See Waller v. Georgia, 467 U.S. 39, 47, 104 S.Ct. 2210, 81 L.Ed.2d 31 (1984); In re Oliver, 333 U.S. 257, 273, 68 S.Ct. 499, 92 L.Ed. 682 (1948). The defendants argue that these errors were structural and we must, therefore, vacate their convictions. See Owens v. United States, 483 F.3d 48, 64 (1st Cir.2007). We allowed two Puerto Rico newspapers and two radio stations to appear jointly as amici curiae.[5] In their brief and in oral arguments before us, the amici joined the defendants in objecting to the October 16 hearing, but on a new ground: that the hearing's closure and the sealing of related documentation violated the press and public's First Amendment right of access to criminal proceedings. See Globe Newspaper Co. v. Superior Court for the County of Norfolk, 457 U.S. 596, 603, 102 S.Ct. 2613, 73 L.Ed.2d 248 (1982). The Government counters that, as explicitly noted by the district court, this particular hearing was merely an offer of proof to preserve the court's relevancy determination, and that neither the defendants' Sixth Amendment rights nor the press and public's First Amendment rights were implicated.[6] Under the circumstances, the Government is correct on the first point; we need not reach the merits of the second.
Vázquez proffered the testimony of Witness A and Witness B and the subpoenaed Dick Corporation documents in an attempt to show that Witness B, Consultant C, and powerful persons for whom they worked were the ones who extorted money out of the subcontractors in exchange for the Superaqueduct contract, and that the defendants were framed in order to throw suspicion off of these and other implicated individuals. After considering the testimony of Witness A and Witness B from the October 16 hearing, the district court confirmed its earlier ruling that the evidence was mostly irrelevant to any matter at issue in the trial of Vázquez and Morell. The court focused primarily on *50 the timeline of the contractual relationship between Witness B and Dick Corporation. Witness A and Witness B indicated that Witness B began working informally on behalf of Dick Corporation sometime in 1998, as a consultant and marketing agent for the company in several construction projects in Puerto Rico and elsewhere. This relationship was formalized in a written contract in the fall of 1999, and Consultant C was hired at around the same time. The witnesses also testified that Witness B and Consultant C had nothing to do with the 1995-96 discussions surrounding the Superaqueduct bid. The district court also examined documents submitted by Dick Corporation, which confirmed that the contractual relationship between Witness B and Dick Corporation began well after the bid was awarded, and opined that Vázquez's subpoena to Dick Corporation "was a broad, sweeping fishing expedition." The court concluded that Vázquez's theory that Witness B was involved in the Superaqueduct extortion scheme was unfounded speculation and that any evidence Witness B could provide at trial would be irrelevant, and accordingly quashed Vázquez's subpoenas to Witness B and Dick Corporation.[7] The court ordered that the transcript of the October 16 hearing and the proffered exhibits remain sealed, and warned that their divulgence would be punished by contempt.
We first address the defendants' contention that the district court's relevancy ruling deprived them of an opportunity to present exonerating evidence to the jury, and thus violated their Sixth Amendment right to defend themselves. We afford the district court considerable discretion in making relevancy determinations and in excluding evidence for lack of relevance, and our review of such determinations is for abuse of discretion. Richards v. Relentless, Inc., 341 F.3d 35, 49 (1st Cir.2003).
After examining the October 16 hearing transcript, the documents provided by Dick Corporation, and the submissions of the parties, we agree with the district court that the proposed evidence was irrelevant to any issue in the prosecution of Vázquez and Morell; we also agree that to place such evidence in front of the jury would have resulted in a confusing and distracting sideshow. Nothing in the transcript, the Dick Corporation documents submitted at the hearing, or the sealed written submissions contains any suggestion that Witness B or Consultant C was connected in any way to the Superaqueduct project until at least 1998, and then only tangentially with respect to the intercity connectors, which involved a completely separate contract. Moreover, nothing in the record reveals that either individual was involved in any scheme to extort money from the subcontractors. The conduct the jury found to be extortionate began in June 1995, when Vázquez told Cobián that he, Morell, and Granados would use their influence to help Thames-Dick win the contract in exchange for money. While the effects of this conduct including the subcontractors' monthly payments to the defendants and Granados continued for several years and partially overlapped in time with Witness B's and Consultant C's employment at Dick Corporation, the main *51 criminal act was accomplished long before these two persons appeared on the scene. Indeed, Witness B testified that he had no contact at all with the individual subcontractors with the exception of Carrero, with whom he had a social relationship and worked on matters unrelated to the Superaqueduct. Witness B's testimony also indicates that his contacts with persons in the Rosselló government were minimal and his influence over them virtually nil.
The district court did not, therefore, abuse its discretion in deeming the proposed evidence irrelevant and excluding it from the trial. See Achille Bayart & Cie v. Crowe, 238 F.3d 44, 49 (1st Cir. 2001); cf. United States v. Nivica, 887 F.2d 1110, 1118 (1st Cir.1989) (affirming district court's denial of subpoenas for three proposed defense witnesses where the anticipated testimony would have been irrelevant, in part because the witnesses' involvement with the defendant occurred subsequent to his criminal conduct). This conclusion disposes of the defendants' claim that the district court violated their Sixth Amendment right to present a defense, as no such right exists where the evidence proffered has been properly ruled irrelevant. See United States v. Maxwell, 254 F.3d 21, 26 (1st Cir.2001) (defendant's "wide-ranging right to present a defense" still "does not give him a right to present irrelevant evidence") (citing In re Oliver, 333 U.S. at 273-74 & n. 31, 68 S.Ct. 499); United States v. Reeder, 170 F.3d 93, 108 (1st Cir.1999) (no "`unfettered'" Sixth Amendment right "`to offer [evidence] that is incompetent, privileged, or otherwise inadmissible under standard rules of evidence'" (quoting Montana v. Egelhoff, 518 U.S. 37, 42, 116 S.Ct. 2013, 135 L.Ed.2d 361 (1996))).
We therefore turn to the defendants' remaining argument concerning the October 16 hearing: that the closure of the hearing and sealing of related documentation violated their Sixth Amendment right to a public trial. Our review of this (preserved) claim is plenary. See United States v. DeLuca, 137 F.3d 24, 33 (1st Cir.1998). Despite the defendants' sweeping assertions regarding the scope of the public-trial right, the question before us is quite narrow. We think it clear that, as characterized by the district court, the October 16 hearing was not a trial session, but rather a "question-and-answer" offer of proof,[8] the purpose of which was to create a record so that we could determine the propriety of the court's relevancy ruling.[9]See 21 Wright & Graham, Federal Practice and Procedure § 5040.3, at 908 (2d ed.2005) (in question-and-answer offer of proof, proponent elicits proposed testimony by questioning witness outside jury's presence); accord United States v. Adams, 271 F.3d 1236, 1241 (10th Cir.2001) (discussing the several types of offer of proof, and expressing a preference for the question-and-answer type).
The defendants point to no precedent in the Supreme Court, this circuit, or else-where *52 extending the Sixth Amendment public-trial right to an outside-of-trial, question-and-answer offer of proof or indeed, any type of offer of proof. Furthermore, the October 16 hearing differed in at least two fundamental respects from the categories of non-trial hearings to which the Sixth Amendment public-trial right has been held to apply in the past, such as hearings on motions to suppress, see, e.g., Waller, 467 U.S. at 47, 104 S.Ct. 2210, and jury-selection proceedings, see, e.g., Owens, 483 F.3d at 62. First, the evidence elicited at the hearing had already (correctly) been ruled irrelevant. Cf. Brown v. Kuhlmann, 142 F.3d 529, 541 (2d Cir.1998) (courtroom closure during trial did not infringe Sixth Amendment rights where it involved cumulative testimony related to matter collateral to charged offense). Second, the district court was under no obligation to hold the hearing in the first place, but chose to do so for our and the defendants' benefit when confronted with Vázquez's eleventh-hour request.
These differences render the Sixth Amendment precedent invoked by the defendants inapposite in the circumstances. While we leave open the possibility that the public-trial right may apply to some offer-of-proof hearings, we decline to recognize such a right on facts as uncompelling as these.[10] We accordingly reject this ground of appeal.[11]
The amici argue that the closure of the October 16 hearing violated the press and public's First Amendment right of access to criminal proceedings. As a remedy, the amici ask us to lift the district court's seal on the hearing transcript along with the gag order on those who know its contents, so that the press may examine and report on what transpired there.
Crucially, however, the defendants did not raise this argument. As we have often acknowledged, we ordinarily will not consider novel arguments advanced by an amicus on appeal, but not also raised by a party or another entity which has formally intervened. See United States v. Sturm, Ruger & Co., Inc., 84 F.3d 1, 6 (1st Cir. 1996); Rhode Island v. Narragansett Indian Tribe, 19 F.3d 685, 705 n. 22 (1st Cir.1994) (declining to address constitutional claims advanced by amici but not raised by parties); accord Knetsch v. United States, 364 U.S. 361, 370, 81 S.Ct. 132, 5 L.Ed.2d 128 (1960). The facts present us with no reason to depart from the general rule. Cf., e.g., United States v. Spock, 416 F.2d 165, 169 (1st Cir.1969) (opting to consider amicus's arguments as to unconstitutionally broad applicability of statute criminalizing aiding and abetting Vietnam War draft dodging). The amici are, of course, free to return to the district court in an attempt to argue that changed circumstances have rendered the seal on the hearing transcript and related documentation no longer necessary, but that is an issue for the district court not us to decide.
Having disposed of the challenges to the closed relevancy hearing, we turn to the defendants' next assignment of error.
*53 C. The Alleged Witness Vouching
Vázquez and Morell next argue that certain statements made by Agent Vitousek during his testimony improperly vouched for the credibility of other government witnesses, made these witnesses more credible in the minds of the jurors, and thus unfairly prejudiced the outcome of the trial. We describe the specific instances of alleged vouching below, but begin with the applicable legal framework.
A prosecutor may not vouch for one of her witnesses by making personal assurances about him; she likewise may not accomplish this goal by putting on another government witness, such as an FBI agent, to make such assurances. This practice is prohibited because of its potential to shore up a witness's credibility by putting the prestige of the United States behind him and thereby inviting the jury to find guilt on some basis other than the evidence presented at trial. United States v. Rosario-Díaz, 202 F.3d 54, 65 (1st Cir. 2000); accord United States v. Pérez-Ruíz, 353 F.3d 1, 13 (1st Cir.2003) ("Although the prosecution's success often depends on its ability to convince the jury of a particular witness's credibility, it cannot entice the jury to find guilt on the basis of a [government] agent's opinion of the witness's veracity.").
The district court's decision to admit testimony over a preserved vouching objection is reviewed for abuse of discretion. United States v. Tom, 330 F.3d 83, 94 (1st Cir.2003). In performing our inquiry, we consider various criteria, including the overall strength of the Government's case against the defendant, the prosecutor's willfulness in eliciting the statement from the witness who did the vouching, the strength and clarity of any curative instructions, and the likelihood that any prejudice that may have survived the instructions affected the outcome of the case. See United States v. Page, 521 F.3d 101, 108 (1st Cir.2008); United States v. Cormier, 468 F.3d 63, 73 (1st Cir.2006). In all events, we will not vacate a defendant's conviction on vouching grounds unless the error likely affected the outcome of the trial. Tom, 330 F.3d at 95; Rosario-Díaz, 202 F.3d at 65.
During the first twelve days of trial, the Government called several of the witnesses directly involved in the extortion scheme. Included among them were Cobián and several of the subcontractor-witnesses, all of whom received immunity in exchange for their cooperation or testimony, and the coconspirator Granados, who pled guilty to his role in the extortion and also cooperated with investigators. On the thirteenth day, the Government called Agent Vitousek, an experienced FBI fraud investigator.
The defendants identify four episodes in which Vitousek allegedly vouched for other government witnesses; we address these in turn. First, the Government sought to elicit from Agent Vitousek that the FBI had followed normal procedures in investigating this case. When the prosecutor asked Agent Vitousek why the FBI uses cooperating insiders as sources in fraud investigations, Vázquez interposed a vouching objection which the court overruled. Vitousek then described the procedure employed with cooperating insiders, stating such things as, "I will tell . . . these cooperating witnesses to tell the truth about the information they are going to provide us," and "a cooperating defendant. . . can explain exactly what happened." We fail to see how the jury could possibly have understood these generic descriptions of procedure with no reference to any specific individual or case to be Vitousek's assurances that Cobián and Granados were truthful in their dealings with the *54 FBI or otherwise. As the defendants provide nothing more, we will go no further than this. See United States v. Parsons, 141 F.3d 386, 390 (1st Cir.1998).
The second claimed instance of vouching occurred during cross-examination by Vázquez. Vázquez asked Vitousek about an incident in which Cobián told investigators that a certain public official had accepted a bribe from him; the substance of the interview was memorialized in a nonpublic FBI report. Later, Cobián admitted to the investigators that the official had not actually accepted a bribe. Vázquez questioned Vitousek at length over why he failed to correct the FBI records on this point. While conceding that mistakes had been made, Vitousek asserted that there was little likelihood of negative repercussions for the official because the government requires much more than a single interview before it will indict someone. "Trust me," Vitousek added, "[w]e need much more evidence." Vázquez argues that this testimony gave assurances to the jury that Vitousek would never seek the indictment of an innocent person, and that the FBI corroborated Cobián's information on Vázquez's role in the Superaqueduct extortion with "much more evidence." Since Vázquez did not timely object to this testimony or move to strike it at trial, we review the challenge for plain error. United States v. Brown, 510 F.3d 57, 72 (1st Cir.2007). Here again, we fail to see how the jury could possibly have understood the testimony as bolstering the credibility of any of the Government's witnesses, and Vázquez does not explain further. As such, we cannot find error, much less plain error.
The defendants' third vouching challenge gets them no further. During an exchange in cross-examination, Vázquez asked Agent Vitousek several times why the Government relied on Cobián despite its policy against dealing with cooperators who lie. Ultimately, the following exchange occurred between Vázquez and Vitousek:
Q. . . . Based on the records of other people, Cuco and Laracy and all the other people who the jury have heard from, you could prosecute Cobián?
A. Yes.
Q. And the Government has given him a benefit and chosen not to prosecute him.
A. He is cooperating.
. . .
Q. He will not be prosecuted for the [Superaqueduct]?
A. If he tells the truth. And . . . up to now, the assessment has been that he has been truthful.
Vázquez objected to this last response as vouching. The district court overruled the objection, finding that Vázquez had "opened the door" to Vitousek's response. This ruling was entirely appropriate, and certainly not an abuse of discretion: Vázquez cannot complain about vouching in response to his own questions, United States v. García-Morales, 382 F.3d 12, 18 n. 1 (1st Cir.2004), especially when he very purposely invited the answer he got by repeatedly questioning Vitousek about why he continued to deal with Cobián despite the latter's dishonesty, see United States v. Cutler, 948 F.2d 691, 697 (10th Cir.1991) ("It is fundamental that a defendant cannot complain of error which he invited upon himself.") (quoting United States v. Taylor, 828 F.2d 630, 633 (10th Cir.1987)) (internal quotation marks omitted).[12]
*55 The fourth and final claimed instance of vouching is somewhat more problematic, but here too we must conclude that no abuse of discretion occurred. On redirect examination, the Government attempted to clarify an inconsistency raised during Morell's cross:
Q. . . . [D]o you recall, at the end of [Morell]'s cross-examination yesterday, he ask[ed] you about the difference between the amount of cash that José Cobián said he gave to Granados and the amount of cash which Mr. Granados admits he received?
A. Yes
. . .
Q. Do you recall that [Morell] asked you, "Would it be fair to say one or both of those cooperators is lying about that? Yes or no?"
A. Yes.
Q. And do you recall that you answered, "If you say that, yes." Please tell the members of the jury what you mean by that answer.
A. . . . I want to explain that at no time I was agreeing with that statement. That is [Morell]'s statement, not mine. And I would like to explain exactly what my words are. . . .
. . .
Now, I want to say my words, and these are the words of Ivan Vitousek. At no time no witness brought here by the Government has lied under oath in this courtroom. . . .
At this, Vázquez objected on vouching grounds. The court indicated it would instruct the jury later, and allowed Vitousek to continue:
A. . . . There is a discrepancy on the amounts of cash that were paid illegally by Mr. Cobián to Mr. Granados Navedo, and there is a discrepancy on the amount that Mr. Granados Navedo says that he received in cash from illegal payments from Mr. Cobián. That doesn't mean that they are lying. . . .
At sidebar after redirect, Vázquez moved to strike this testimony.[13] The court denied the motion because Morell had opened the door on cross by essentially asking Vitousek which of the two men Cobián or Granados was lying. The court opted instead to instruct the jury as follows:
The . . . duty to determine whether somebody has been truthful or not is yours. You are the judges of the believability of the witnesses. You will decide how much of a witness' testimony you are going to accept or you are going to reject.
You should not take the testimony of Mr. Vitousek just now as him telling you that you should believe any witness. What he basically told you was that he, rightly or wrongly, believed what they told him, which is a different story.
You are the sole judges of the credibility of the witnesses. You will decide . . . whether you believe Cobián [and] whether you believe Granados . . ., and how much of their testimony you are going to accept and how much you are going to reject.
The court's end-of-trial jury instructions contained similar language. Neither defendant objected to either set of instructions.
*56 On appeal, Vázquez and Morell argue that Agent Vitousek's statements improperly vouched both for the government's witnesses in general, and for Cobián and Granados in particular. In the circumstances, we need not decide whether either statement constituted vouching because any error the district court may have committed in allowing this testimony to stand was harmless. The district court obviously mindful of the harm the impugned statements might cause to the defendants gave a curative instruction that the jurors not trust in Agent Vitousek's views on any witness's veracity, but instead judge veracity for themselves on the weight of the evidence. These instructions were timely (at most a few minutes after Vitousek uttered the statements), straightforward, explicit, and detailed. See Cormier, 468 F.3d at 74 (no prejudice where instructions were "`strong and clear'") (quoting United States v. Rodríguez-Estrada, 877 F.2d 153 (1st Cir.1989)); accord Olszewski v. Spencer, 466 F.3d 47, 60 (1st Cir.2006); United States v. Palmer, 203 F.3d 55, 59 (1st Cir.2000). Moreover, as we have noted many times, we presume juries understand and follow the court's instructions, see, e.g., United States v. Kornegay, 410 F.3d 89, 97 (1st Cir.2005), and Vázquez and Morell have given us no reason to believe that this jury acted any differently.[14]
Considering this factor together with the general strength of the Government's case against each defendant, we conclude that no prejudice survived the district court's curative instructions, and therefore any vouching that may have occurred could not have affected the outcome of the trial. See Page, 521 F.3d at 108; Cormier, 468 F.3d at 73. For this reason, the district court did not abuse its discretion in allowing this testimony to remain on the record and in continuing with the trial. Tom, 330 F.3d at 94.
Having disposed of all the vouching challenges, we proceed to the next assignment of error.
D. The Prosecutor's Closing Argument
The defendants argue that certain of the prosecutor's remarks in closing improperly disparaged defense counsel and suggested that the defense bore the burden of proof. We again start with the applicable legal framework, and then address the specific instances of alleged misconduct.
If we find that remarks made by the prosecutor at trial rise to the level of prosecutorial misconduct, we analyze them for prejudice under the test in United States v. Manning, 23 F.3d 570 (1st Cir.1994). See United States v. Mooney, 315 F.3d 54, 59-60 (1st Cir.2002). We ask whether the prosecutor's behavior "so poisoned the well" that the defendant must be given a new trial. Manning, 23 F.3d at 573 (quoting United States v. Hodge-Balwing, 952 F.2d 607, 610 (1st Cir.1991)). We consider a number of factors, including the egregiousness of the conduct; the context in which it occurred; whether the court gave curative instructions and what effect these instructions likely had; and the overall strength of the Government's case. Id.; see also United States v. Casas, 425 F.3d 23, 38 (1st Cir.2005) (misconduct evaluated through a "`balanced view of the evidence in the record'" (quoting United States v. Rodríguez-De Jesús, 202 F.3d *57 482, 485 (1st Cir.2000))). We review de novo whether a given remark amounted to prosecutorial misconduct; if we conclude that it did, we review the overruling of a preserved objection to the making of the remark for abuse of discretion. Casas, 425 F.3d at 39; accord United States v. Robinson, 473 F.3d 387, 393 (1st Cir.2007) (no vacatur if error harmless).
The defendants point to several passages in the prosecutor's closing argument that they say poisoned the well. In opening summation, the prosecutor stated:
You've heard and seen a whole lot of evidence of crime: Conspiracy, extortion, tax offenses, and of course obstruction of justice. And the defense has tried very hard to cloud and complicate the real issues in this case, to focus your attention on anyone, anything, but them. That is their job.
In rebuttal, the prosecutor remarked along similar lines as follows:
[T]he government in this case has been accused of political motivation. Is there any evidence of that? We have been accused of intentionally bringing in witnesses who would lie to you, creating a whole fabricated case against these defendants. There is no evidence of this kind of behavior. And it is offensive, and you should take it for what it is: The acts of some very desperate lawyers, lawyers who want to cloud the evidence.
Here, Vázquez objected, but the court made no ruling. The prosecutor continued:
. . . [Morell] has told you repeatedly that if the Government did not bring you a witness, you are entitled to infer that witness would give evidence that would exculpate, that would prove his client is innocent. Make no mistake, the defendant has no burden. No defendant has any obligation to testify before the grand jury or at trial. But the defendant has the same subpoena power as the Government. And if [Morell] or [Vázquez], for that matter, thought they could subpoena a witness who would . . . give you testimony that would exculpate the[m], you would have heard it.[15]
Vázquez again objected and the district court overruled. The court did not give curative instructions.
The defendants make two main arguments. First, they object to the prosecutor's statement that "if [Morell] or [Vázquez] . . . thought they could subpoena a witness who would . . . give you testimony that would exculpate their clients, you would have heard it"; they assert that this remark suggested to the jury that they had the duty to present the missing evidence. See United States v. Díaz-Díaz, 433 F.3d 128, 135 (1st Cir.2005) (such a suggestion "may cross the line"). Second, they contend that the prosecutor's characterization of them as "desperate lawyers" seeking to "cloud the issues" improperly disparaged defense counsel and their important role in the justice system. See Manning, 23 F.3d at 573 n. 1 (disapproving of prosecutor's remark that defense counsel were like "Shakespeare's players, full of sound and fury signifying nothing").
While we are reluctant to find categorically that these remarks constituted misconduct,[16] even assuming they did, we cannot *58 conclude that they so poisoned the well under Manning that the defendants are entitled to a new trial. First, the remarks are simply not that egregious, and come nowhere near the sort of remarks we have found, in rare cases, to mandate a new trial. See, e.g., United States v. Hardy, 37 F.3d 753 (1st Cir.1994) (conviction vacated where prosecutor drew analogy between defendant's running and hiding from police on the night of the crime, and running and hiding again at trial by invoking Fifth Amendment right not to testify); Manning, 23 F.3d 570 (conviction vacated where prosecutor suggested that government witnesses cannot lie and urged jury to "[t]ake responsibility for your community" by convicting defendant); United States v. Arrieta-Agressot, 3 F.3d 525 (1st Cir.1993) (convictions vacated where prosecutor urged jury to consider case as battle in war against drugs, and defendants as enemy soldiers corrupting "our society").
Second, while the court did not give curative instructions, it did instruct the jury at the end of trial that nothing said during closing arguments could be taken as evidence, and must be disregarded if it did not conform to the jury's recollection of the evidence actually presented. The court also reminded the jury that the Government had the burden of putting on evidence to establish the defendants' guilt beyond a reasonable doubt, and that the defendants bore no burden at all. Again, Vázquez and Morell have given us no reason to believe the jury was somehow unable to follow these instructions, and we do not believe the impugned remarks "were of a caliber that would inherently compel jurors to disregard their duty." United States v. Levy-Cordero, 67 F.3d 1002, 1009 (1st Cir.1995); cf., e.g., Rodríguez-De Jesús, 202 F.3d at 486 (no retrial required where court gave no curative instructions at time of remarks, but later instructed jury that counsel's statements were not to be taken as evidence); Levy-Cordero, 67 F.3d at 1009 (similar); Mooney, 315 F.3d at 60 (noting that end-of-trial instructions "are sometimes enough to neutralize any prejudice from improper remarks").
Third, on a comprehensive view of the record, the Government's case against these two defendants was strong. It rested on a solid foundation of testimony from several witnesses, including many personally involved (albeit often grudgingly) in the extortion and fraud schemes, as well as considerable documentary evidence.
Fourth, specifically with respect to the remark on the defendants' ability to subpoena witnesses, we have often acknowledged that retrial is not required where the prosecutor's remarks, even if arguably improper, are a closely tailored response to defense counsel's equally improper remarks. See, e.g., United States v. Nickens, 955 F.2d 112, 122 (1st Cir.1992) ("[I]f the prosecutor's remarks were `invited,' and did no more than respond substantially in order to `right the scale,' such comments would not warrant reversing a conviction." (quoting United States v. Young, 470 U.S. 1, 12-13, 105 S.Ct. 1038, 84 L.Ed.2d 1 (1985))); United States v. Henderson, 320 F.3d 92, 107 (1st Cir.2003) (same); see also United States v. Skerret-Ortega, 529 F.3d 33, 39-40 (1st Cir.2008) (latitude given to prosecutors in responding to provocative remarks by defense *59 counsel); United States v. Pérez-Ruiz, 353 F.3d 1, 10 (1st Cir.2003) (similar).
Morell argued in closing that if a witness with relevant information was available to the Government, but the Government chose not to call the witness to testify, the jury could acquit him on the relevant count of the indictment. He referred specifically to his secretary, who he argued would have corroborated his version of the facts had the Government called her. In rebuttal a few minutes later, the prosecutor reminded the jury (as quoted above) that the defendants had no duty to put on evidence, but that they would have subpoenaed a given witness had they believed her testimony would exculpate them. We find this to have been a limited, proportionate, and thus closely tailored, response to Morell's rather outrageous invitation. See Henderson, 320 F.3d at 107.
Finally, we are mindful of the Supreme Court's admonition that we not set guilty persons free simply to punish prosecutorial misconduct. United States v. Auch, 187 F.3d 125, 133 (1st Cir.1999) (citing United States v. Hasting, 461 U.S. 499, 506-07, 103 S.Ct. 1974, 76 L.Ed.2d 96 (1983)). Ordering retrial is a rare remedy to which we resort only where a miscarriage of justice would otherwise occur, or where the evidence weighs heavily against the jury's verdict. Rodríguez-De Jesús, 202 F.3d at 486. Neither of these conditions is present in the circumstances.
In sum, the impugned remarks, even if rising to the level of prosecutorial misconduct, did not poison the well to the degree required under Manning.[17] We therefore reject this ground of appeal, and proceed to the next one.
E. Sufficiency of the Evidence Against Morell
Morell mounts a broad challenge to the sufficiency of the evidence used to convict him. He argues that no rational jury could have found him guilty of any of the crimes of which this jury convicted him. Those crimes were: (1) conspiracy in Count One of the indictment; (2) Hobbs Act extortion of three subcontractors Feliciano, Carmona, and Laracy in Counts Two, Three, and Four, respectively; (3) wire fraud in Counts Nine to Eleven; and (4) mail fraud in Count Thirteen.[18]
Our central task in evaluating the sufficiency of the evidence is to determine whether a rational factfinder could have found each element of the crime in question beyond a reasonable doubt. United States v. Lizardo, 445 F.3d 73, 81 (1st Cir.2006). Our review is plenary, looking at the record as a whole and "resolv[ing] all questions of credibility and reasonable inferences in favor of the verdict." Id.; accord United States v. Ortiz, *60 966 F.2d 707, 711 (1st Cir.1992) ("[I]t is not the appellate court's function to weigh the evidence or make credibility judgments. Rather, it is for the jury to choose between varying interpretations of the evidence."). We need not be convinced that a guilty verdict was the only one available on the evidence, but merely that "a plausible rendition of the record" supports the verdict. Ortiz, 966 F.2d at 711. Evidence sufficient to support a guilty verdict may be entirely circumstantial, and the factfinder is "free to choose among reasonable interpretations of the evidence." United States v. Wight, 968 F.2d 1393, 1395 (1st Cir.1992).
Morell was convicted on three counts of Hobbs Act extortion by fear of economic harm or under color of official right; each of these counts pertained to the extortion of each of three subcontractors: Feliciano, Carmona, and Laracy. We begin our analysis by determining whether a rational jury could have found the elements of extortion for these three subcontractors. The Hobbs Act provides that "[w]hoever in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce, by . . . extortion or attempts or conspires so to do . . . shall be [punished]." 18 U.S.C. § 1951(a). The Act defines extortion as "the obtaining of property from another, with his consent, induced by wrongful use of . . . fear, or under color of official right." Id. § 1951(b)(2). We have clarified that "fear" "encompasses `fear of economic loss, . . . including the possibility of lost business opportunities.'" United States v. Rivera Rangel, 396 F.3d 476, 483 (1st Cir.2005) (quoting United States v. Bucci, 839 F.2d 825, 827-28 (1st Cir.1988)). Therefore, an individual commits Hobbs Act extortion if he: (1) obtains property from another person; (2) with that person's consent; (3) through fear of economic loss or under color of official right; and (4) the transaction affects interstate commerce. Id.
Morell does not dispute the existence of the fourth element, and we find sufficient evidence in the record to establish this element[19] and the first three. The first element is easily satisfied: Cobián testified and a rational jury could have believed that the subcontractors made periodic cash payments to him between 1997 and 1999 which he then passed on to Vázquez, Morell, and Granados. Several subcontractors verified that they made such payments to Cobián, and this testimony was supported by documentary evidence for example, sham checks from Carmona's business to non-existent individuals for unperformed services, so Carmona could generate the cash necessary to pay Cobián. Feliciano also testified that he made one payment to Vázquez in person. The second element is also easily met: Feliciano, Carmona, and Laracy all testified that they agreed voluntarily (though reluctantly) to pay the money demanded, and a rational jury could have believed this testimony.
As for the third element inducement to pay by fear of economic loss or color of official right it, too, is established on the facts presented. As an initial matter, the two components of this element are disjunctive, and an extortion conviction will stand if there is sufficient evidence *61 to prove either component. Id. To prove the former, "the government must show that the victim reasonably feared that noncompliance with the putative extortionist's terms would result in economic loss." United States v. Cruz-Arroyo, 461 F.3d 69, 74 (1st Cir.2006), cert. denied, ___ U.S. ___, 127 S.Ct. 1169, 166 L.Ed.2d 997 (2007).
The Government here put forth ample evidence to show that Feliciano, Carmona, and Laracy reasonably feared economic harm if they failed to pay the money demanded of them. Feliciano, for example, testified that he agreed to pay the money because, if he did not, "[t]he government" could "make life very difficult" for his construction firm by delaying Superaqueduct project payments and not awarding the firm government contracts in the future. Carmona testified that he felt compelled to pay and keep paying because if he failed to do so, the Thames-Dick consortium could be removed from the Superaqueduct project and his construction firm might also suffer other adverse consequences. Laracy testified in a similar vein that he feared detriment to his business if he did not pay. Feliciano, Carmona, and Laracy testified further that they knew the recipients of the money were people with influence in the NPP government; they knew Granados to be among them; and Feliciano and Carmona also knew Vázquez to be among them. Based on this testimony, a rational jury could have concluded beyond a reasonable doubt that Feliciano, Carmona, and Laracy paid Cobián out of fear of detrimental consequences for their respective businesses, and that this fear was reasonable because they believed the extortionists to have real power to effect such detriment.
The next critical question we must answer is whether a rational jury could have found Morell to be linked to the extortion scheme in a manner that allows criminal liability to be imputed to him. We must therefore examine whether a rational jury could have found a conspiracy to exist, and Morell to be a member of it, as charged in Count One of the indictment. To establish a conspiracy, the Government must prove three elements: (1) an agreement to commit an unlawful act; (2) the defendant's knowledge of the agreement and voluntary participation in it; and (3) an overt act by at least one of the coconspirators in furtherance of the conspiracy. United States v. Muñoz-Franco, 487 F.3d 25, 45 (1st Cir.), cert. denied, ___ U.S. ___, 128 S.Ct. 678, 169 L.Ed.2d 514 (2007). The Government need not prove a formal agreement; instead, "[t]he agreement may be shown by a concert of action, all the parties working together understandingly, with a single design for the accomplishment of a common purpose." Id. at 45-46 (quoting Am. Tobacco Co. v. United States, 147 F.2d 93, 107 (6th Cir. 1944)) (internal quotation marks omitted). Morell's conviction may be sustained on sufficient evidence of a conspiracy to commit any of the three charged conspiracy offenses. Id. at 46. For purposes of the present analysis, we focus on conspiracy to commit extortion.
Morell does not seriously challenge the Government's evidence on the first and third elements of conspiracy, and we find an abundance of evidence in the record to support their existence. Cobián and Granados testified that Vázquez and Cobián devised a plan to compel the subcontractors to hand over a portion of their Superaqueduct profits. As we have found above, a rational jury could have considered this compelled payment to constitute extortion the requisite unlawful act that is the object of the conspiracy. And the record reveals many overt acts in furtherance of such a conspiracy including, for *62 example, Cobián's physical transfer of periodic cash payments from Feliciano and Carmona to Vázquez's medical office.
What remains, then, is the second element: whether Morell knew of the extortion agreement and voluntary participated in it. The most direct evidence against Morell in this regard is Cobián's testimony about one of his initial meetings with Vázquez. According to this testimony, Vázquez told Cobián that Morell and Granados would be assisting him in his efforts to secure the Superaqueduct contract for Thames-Dick, and that Cobián should approach Morell to work out how Morell wished to receive his share of the payments. Yet even in the absence of this testimony, a rational factfinder could still have inferred that Morell knew of and adhered to the extortion agreement based on a significant quantum of other evidence. For example, Cobián testified that, in 1997, he approached Morell to arrange how the latter wished to receive his share. Cobián stated that Morell was not surprised to see him, but instead seemed to have been expecting him and had already devised a specific plan for concealing the transfer of the subcontractors' money. According to Cobián, Morell proceeded to draw up a sham legal contract and made several other elaborate arrangements to this end. Morell then accepted periodic payments from Cobián under the sham contract and through third-party payments from 1997 to 1999 a period largely overlapping with the period during which Vázquez and Granados were also receiving payments. Morell does not dispute that he received thousands of dollars from Cobián over the course of those two years.
As noted above, it is not for us to make credibility determinations on a review of the sufficiency of the evidence, but merely to say whether a rational jury could have believed this testimony. See Ortiz, 966 F.2d at 711. We find that a rational jury could have believed Cobián, and then drawn the reasonable inference that Cobián's payments to Morell were not for legal services and other licit ends, but were instead designed clandestinely to channel him his part of the extortionate proceeds. A rational jury could then have drawn a second inference: that Morell obviously knew of, and voluntarily participated in, the scheme. Accordingly, a rational jury could have found all three elements of conspiracy beyond a reasonable doubt, and this jury's conviction of Morell under Count One was therefore supported by sufficient evidence.
This brings us to the sufficiency of the evidence as to the counts charging Morell with substantive crimes incident to the conspiracy. Contrary to Morell's assertion at oral argument, the law does not require proof that he personally took any steps to instill economic fear in the subcontractors, to influence the award of the contract or the payment for performance under the contract, or that the subcontractors feared Morell or even knew of his involvement. Instead, under the Pinkerton doctrine, a defendant can be found liable for the substantive crime of a coconspirator provided the crime was reasonably foreseeable and committed in furtherance of the conspiracy. United States v. Gobbi, 471 F.3d 302, 309 n. 3 (1st Cir.2006) (citing Pinkerton v. United States, 328 U.S. 640, 647-48, 66 S.Ct. 1180, 90 L.Ed. 1489 (1946)). The district court properly instructed the jury on the Pinkerton doctrine. Based on overwhelming evidence in the record, the jury could rationally have found that Vázquez, Cobián, or Granados committed extortion. Through Pinkerton, such a jury could then have found Morell equally liable for the substantive offense, since extortion was committed in furtherance of the conspiracy (and indeed was the *63 conspiracy's object), and was a reasonably foreseeable result of the conspiracy. See Díaz-Díaz, 433 F.3d at 137.[20] For these reasons, Morell's substantive extortion convictions under Counts Two to Four of the indictment were also supported by substantial evidence.
The last set of convictions Morell challenges on sufficiency grounds stems from various instances of mail and wire fraud charged in Counts Nine to Eleven and Thirteen. In order to convict an individual of mail or wire fraud under 18 U.S.C. §§ 1341 and 1343, the Government must prove: "(1) the defendant's knowing and willing participation in a scheme or artifice to defraud with the specific intent to defraud, and (2) the use of the mails or interstate wire communications in furtherance of the scheme." United States v. Sawyer, 85 F.3d 713, 723 (1st Cir.1996).
Counts Nine, Ten, and Eleven charged Morell with devising a scheme to defraud the Puerto Rico Treasury Department ("Hacienda") by failing to pay income taxes on revenue earned from the extortion. Each count lists a separate wire transaction of thousands of dollars dated April 16, 1999 from Thames-Dick to Feliciano, Carmona, and Laracy, respectively. These were apparently chosen as representative samples of the monthly wire transfers Thames-Dick made to the subcontractors beginning in January 1997, a portion of which the subcontractors then handed over to Cobián, who in turn gave a portion to Morell, Vázquez, and Granados. The indictment charges that Morell failed to account for this 1999 income on his Puerto Rico tax return, and then used the mails to send the return to the Puerto Rico tax agency. This mailing was the basis for the mail-fraud charge in Count Thirteen.
Upon review of the record, we find sufficient evidence for a rational jury to have convicted Morell on all of these counts. A rational jury could have believed Cobián's testimony that Morell directed Cobián to funnel him the subcontractors' money through checks for sham legal services purportedly rendered to Cobián's company, and through payments to third parties for Morell's benefit. Such a jury could also have credited the certified copy of Morell's 1999 tax return in evidence, that failed to report payments made to him by Cobián in that year. A rational jury could likewise have believed Morell's tax preparer, who testified that Morell did not tell him about income earned from Cobián's company in 1999, and that he therefore did not include it on the 1999 return. These findings, in turn, would be sufficient to satisfy the first element for both mail and wire fraud: that Morell intentionally, knowingly, and willingly participated in a scheme to defraud Hacienda. See id.
Specifically with respect to the wire-fraud counts, a rational jury could then have found the second element fulfilled that wire communications were used in furtherance of the scheme.[21] Morell need not have had any personal involvement in *64 initiating the wire transfers; instead, the use of the wires need only have been "a reasonably foreseeable part of the scheme in which he participated." Id. at 723 n. 6 (quoting United States v. Boots, 80 F.3d 580, 585 n. 8 (1st Cir.1996)) (internal quotation marks and alteration omitted); accord United States v. Fermín Castillo, 829 F.2d 1194, 1198 (1st Cir.1987) (it must have been reasonably foreseeable that use of the mails or wires would "follow in the ordinary course of business" (quoting United States v. Benmuhar, 658 F.2d 14, 16-17 (1st Cir.1981)) (internal quotation marks omitted)); see also id. (case law on mail-fraud statute instructive for wire-fraud statute). From the evidence presented, a rational jury could have inferred that it was reasonably foreseeable that interstate wires would be used in the ordinary course of business for Thames-Dick to transfer payments to the subcontractors. These transfers were essential to the success of the extortion scheme and, in turn, the scheme to defraud the Puerto Rico tax agency, because they provided the subcontractors the money they gave to Morell and the others, and which Morell then failed to report. On the basis of such findings, a rational jury could thus have concluded that Morell was guilty of wire fraud on each of the three counts.[22]
Turning specifically to the mail-fraud count, a rational jury could also have found the second element fulfilled here that the mails were used in furtherance of the scheme. The district court admitted into evidence a copy of a meter-marked envelope addressed to Hacienda and bearing a Hacienda receipt stamp, along with Morell's 1999 return. Morell does not dispute that these were his envelope and return, but contends there is no proof that the return was actually placed in the mail. We disagree, and conclude that a rational jury could have credited evidence that Morell mailed the return or reasonably expected that in the regular course of business, it would be mailed to Hacienda on his behalf. Morell's tax preparer, who formerly worked for Hacienda, testified that when tax returns came in the mail, Hacienda kept the envelope and stapled it to the return, but would likely discard an envelope accompanying a hand-delivered return. A rational jury could have believed this testimony, and inferred from it that the 1999 return and the meter-marked envelope were actually mailed. The evidence was therefore sufficient to support a finding of guilt by mail fraud.
For these reasons, we reject all of Morell's challenges to the sufficiency of the evidence, and proceed to the next ground of appeal.
F. Admission of Coconspirator Statement Against Morell
This ground of appeal, also advanced only by Morell, concerns Cobián's testimony on direct examination about one of the meetings in which Vázquez proposed the extortion scheme to Cobián. Cobián testified that he asked Vázquez who else would be helping the subcontractors to secure the Superaqueduct contract, and that Vázquez told Cobián it would be Morell and Granados. At this, Morell objected on hearsay grounds, arguing that this testimony was inadmissible hearsay. The district court provisionally allowed the testimony *65 under our rule in United States v. Petrozziello, 548 F.2d 20 (1st Cir.1977), and later kept it on the record after assessing it in light of other evidence presented at trial. See United States v. Mangual-García, 505 F.3d 1, 7-8 (1st Cir. 2007). Morell now argues that this constituted reversible error because the testimony was the only piece of evidence linking him to a conspiracy involving Vázquez.
Our case law instructs district courts faced with a challenge to the admission of a coconspirator hearsay statement to admit the statement provisionally and wait until the end of trial to consider four factors in the light of all the evidence: (1) whether a conspiracy existed; (2) whether the defendant was a member of the conspiracy; (3) whether the declarant was also a member of the conspiracy; and (4) whether the declarant's statement was made in furtherance of the conspiracy. Colón-Díaz, 521 F.3d at 35-36 (citing Petrozziello, 548 F.2d at 23; Fed.R.Evid. 801(d)(2)(E)). If these four conditions are satisfied by a preponderance of the evidence, the statement qualifies under the coconspirator exemption to the hearsay rule and may therefore be admitted into evidence including to prove the truth of the matter asserted. Id. at 35. We review preserved challenges to a Petrozziello determination (or a portion thereof) for abuse of discretion, and unpreserved challenges for plain error. Id. at 36-37.
In a sealed written order, the district court made the Petrozziello determination, finding the four Rule 801(d)(2)(E) factors satisfied by a preponderance of the evidence. Morell did not object to this assessment with respect to the first, third, and fourth Rule 801(d)(2)(E) factors, and does not quarrel with it now. As such, he forfeited any challenge to the court's findings on these factors. United States v. Thompson, 449 F.3d 267, 273 (1st Cir. 2006). As concerns the second factor whether Morell was a member of the conspiracy we have already concluded above that, on the evidence presented at trial, a rational jury could have found Morell to be a member of the charged conspiracy beyond a reasonable doubt even absent Cobián's testimony that Vázquez implicated Morell during the meeting in question. A fortiori, the record contains ample evidence to support a finding by the requisite preponderance that Morell was a member of the conspiracy for purposes of Rule 801(d)(2)(E). Cf. United States v. Gjerde, 110 F.3d 595, 602 (8th Cir.1997) (finding certain Rule 801(d)(2)(E) factors as necessarily satisfied by preponderance where court had already found the relevant facts proven beyond reasonable doubt). The district court did not, therefore, abuse its discretion in not striking the statement, and the jury was entitled to consider it for the truth of the matter asserted therein.
G. Sentencing
As their final ground of appeal, Vázquez and Morell challenge the manner in which the district court calculated their respective GSRs under the Sentencing Guidelines. We review the district court's legal interpretation and application of the Guidelines de novo, but its loss or benefits calculations are reviewed only for clear error. United States v. Innarelli, 524 F.3d 286, 290 (1st Cir.2008); United States v. Griffin, 324 F.3d 330, 365 (5th Cir.2003).
At sentencing, the district court calculated the defendants' respective GSRs in the manner recommended by their respective Presentence Reports ("PSRs"). It accordingly looked to § 2C1.1 of the 1998 Guidelines,[23] on "Extortion Under Color of Official Right":
*66 (a) Base Offense Level: 10.
(b) Special Offense Characteristics
...
(2) (If more than one applies, use the greater):
(A) If the value of the payment, the benefit received or to be received in return for the payment, or the loss to the government from the offense, whichever is greatest, exceeded $2,000, increase by the corresponding number of levels from the table in § 2F1.1 (Fraud and Deceit)....
U.S.S.G. § 2C1.1 (1998). Section 2C1.1(b)(2)(A) thus provides three alternative amounts, and the court must choose the greatest: (1) the value of the payment; (2) the benefit received or to be received in return for the payment; or (3) the loss to the government from the offense.[24]
Relying on the PSRs, the district court determined that the alternative with the highest quantity was the "benefit to be received in return for the payment," which the court estimated as slightly over $10 million the approximate combined profit earned by the subcontractors for their work on the Superaqueduct project. Following the directive in § 2C1.1(b)(2)(A), the court then looked to § 2F1.1, which instructed it to increase the defendants' respective offense levels by fifteen because the "loss" the defendants caused exceeded $10 million. Id. § 2F1.1(b)(1)(P) (1998). Added to the base offense level of ten (which was undisputed), the defendants were left with offense levels of twenty-five, along with respective Criminal History Categories of I. This produced a GSR of fifty-seven to seventy-one months. After undertaking the remainder of the sentencing analysis, including an examination of the factors in 18 U.S.C. § 3553(a), the court sentenced Vázquez and Morell toward the lower end of this range, to sixty months' imprisonment each. The defendants timely objected to the methodology used to produce this sentence.
On appeal, Vázquez and Morell argue that the district court erred in choosing the "benefit to be received" alternative because there was no evidence that the subcontractors received the roughly $10 million in profits "in return for the payment." U.S.S.G. § 2C1.1(b)(2)(A). According to the defendants, it was undisputed that the Thames-Dick consortium was the most qualified of the bidders, and there was no evidence that Vázquez or Morell actually exerted any real influence on anyone responsible for awarding Thames-Dick the contract. As Granados testified, the coconspirators' promise to help the subcontractors was merely an insurance policy to make sure nothing happened that would impede the awarding of the contract not to compel or persuade the relevant officials to award it. Therefore, because Thames-Dick was awarded the contract based on its and the subcontractors' own merit through a process not tainted by the defendants' crime, the "benefit... to be received in return for the payment" was zero, and the court must *67 sentence the defendants under the (much lower) "value of the payment" alternative in § 2C1.1(b)(2)(A). The district court did not make specific findings on the amount of money the defendants actually received, but other evidence suggested it was below $1 million for each defendant.
We begin by determining whether the district court committed legal error in its interpretation of the meaning of "benefit... to be received in return for the payment" in § 2C1.1(b)(2)(A). This is a question of first impression in this circuit. Evident from the plain language of the guideline "benefit ... to be received" is the Sentencing Commission's intention that this inquiry be forward-looking, a conclusion also reached by the Fifth Circuit in one of the rare cases interpreting the guideline in the context of extortion, as opposed to bribery: "[I]n determining the amount of benefit to be received, courts may consider the expected benefits, not only the actual benefits received." Griffin, 324 F.3d at 366 (emphasis added). This prospective analysis comports with our closely analogous case law on computing loss for purposes of sentencing. We have held that when a person is convicted of a fraud offense, a proper analysis of the loss he intended to cause asks what a person in his position at the relevant time would reasonably have expected to happen to the victim as a result of the fraud. See Innarelli, 524 F.3d at 291. The rationale for an ex ante inquiry lies in the purpose of the exercise: to set the defendant's punishment at a level commensurate with the degree of his moral culpability. For this reason, it is not determinative what loss the victim actually ended up suffering, or indeed whether the victim suffered any loss at all. Id.[25]
This reasoning translates readily into the extortion context. We think that the best interpretation of "benefit ... to be received in return for the payment" is the benefit a person in the defendant's position at the time of the extortion would reasonably have expected the victim to receive by paying him the money he demanded. See Griffin, 324 F.3d at 366. This figure, in turn, affords the court a gauge for how severely the defendant deserves to be punished. We reject the defendants' invitation to look with 20-20 hindsight at whether, at the end of the day, they actually did anything overt to help Thames-Dick get the contract. As reasonable expectation at the time of the extortion is the touchstone of the inquiry, the district court's interpretation was the right one.
As for the amount of the benefit in this case, neither defendant contests the district court's estimate of slightly more than $10 million, a figure the court described as conservative. In any event, our review of the record reveals this estimate to be reasonable, and a reasonable estimate is all that is required. See Innarelli, 524 F.3d at 290; Griffin, 324 F.3d at 365. We therefore see no reason to deem this quantity clearly erroneous. United States v. Gray, 521 F.3d 514, 542-43 (6th Cir.2008) (amount of benefit to be received reviewed for clear error); Griffin, 324 F.3d at 365 (same).
Since more than $10 million is undisputably greater than the other available alternative in § 2C1.1(b)(2)(A) the value of the payments to Vázquez and Morell the district court properly used it to determine how many additional levels to add to their respective base offense levels. See U.S.S.G. §§ 2C1.1(b)(2), 2F1.1(b)(1)(P). *68 Accordingly, the court's GSR calculation for each defendant was correct, and in the absence of any further sentencing challenges, our review ends there.
III. Conclusion
For the foregoing reasons, we affirm Vázquez's conviction and sentence, and affirm Morell's conviction and sentence.
Affirmed.
NOTES
[1] Morell was also charged with obstruction of justice under 18 U.S.C. § 1503 but was acquitted on this count, and this charge is not at issue in this appeal.
[2] The indictment against Vázquez and Morell did not allege any corruption or extortion with respect to the intercity connectors.
[3] The Government chose not to cross-examine Witness B.
[4] It is unclear from the record whether Laracy was accompanied by any lawyer when he gave this testimony.
[5] The amici point out that this case has received high media attention in Puerto Rico due to the defendants' notoriety and letters to newspapers written by Vázquez professing that what was discussed at the October 16 hearing exonerates him.
[6] The Government also asserts that the press may not raise a First Amendment argument not raised by one of the parties.
[7] The court found Witness A's proposed testimony minimally relevant with respect to "two very discrete areas," and left the subpoena intact insofar as the defendants wished to ask him questions only in relation to these areas. These areas had no bearing on whether some-one other than Vázquez, Morell, and Granados was extorting money from the subcontractors. The defendants' decision not to call Witness A at trial waives any objection regarding that potential testimony.
[8] Although the actual hearing took place on October 16, 2006 nearly three weeks after opening statements the subpoenas that resulted in the hearing were issued before trial began, and the district court expressly stated at the start of the hearing that it was not part of the trial.
[9] Although the district court did not use the term "offer of proof," it is evident from the context that this is what the court intended. Black's Legal Dictionary defines offer of proof as "[a] presentation of evidence for the record (but outside the jury's presence) . . . so that the evidence can be preserved on the record for an appeal of the judge's ruling. . . . Such an offer may include tangible evidence or testimony (through questions and answers, a lawyer's narrative description, or an affidavit)." Black's Law Dictionary 1114 (8th ed.2004).
[10] Vázquez would have us adopt a sweeping rule akin to that articulated by the Fifth Circuit in Rovinsky v. McKaskle, 722 F.2d 197, 200 (5th Cir. 1984), which seems to hold the Sixth Amendment right applicable to all but a very small fraction of pretrial and trial proceedings. The facts of this case do not provide us reason to endorse such an expansive reading of the law.
[11] We also note that it was entirely proper and indeed required for the district court to hold the hearing outside the presence of the jury, and thereafter to take measures to keep the irrelevant, and thus inadmissible, evidence from reaching the jury's eyes and ears. See Fed.R.Evid. 103(c); United States v. Galin, 222 F.3d 1123, 1126-27 (9th Cir.2000).
[12] The fact that, now on appeal, Morell belatedly signs on to Vázquez's challenge to this instance of alleged vouching does not compel a different conclusion with respect to Morell. In any event, Morell failed to object at trial, and is thus relegated to plain error review, see Brown, 510 F.3d at 72; United States v. Palow, 777 F.2d 52, 54 (1st Cir.1985), a standard he cannot satisfy on these facts.
[13] Vázquez also moved for mistrial, which the court denied. Vázquez then moved for severance from Morell, which the court also denied. He appeals neither of these rulings.
[14] We also note that the prosecutor did not willfully seek such a bold endorsement by Vitousek of the other witnesses' truthfulness. Instead, these statements appear to have been a spontaneous effort by Vitousek, who had obviously become frustrated with Morell's aggressive cross-examination, to set the record straight.
[15] After Vázquez's objection was sustained, the prosecutor continued: "You are entitled to disregard [Morell]'s argument that [Morell's secretary] had any relevant, important evidence to give in this case because the government did not call her. . . . Don't go chasing off looking for witnesses you didn't hear."
[16] For example, contrary to the defendants' suggestion, not every comment on a defendant's failure to produce evidence supporting his theory of the case is prohibited. See Díaz-Díaz, 433 F.3d at 135 (citing United States v. Kubitsky, 469 F.2d 1253, 1255 (1st Cir.1972)). Indeed, in Díaz-Díaz, we suggested that such remarks would not be improper if made in response to defense arguments "aimed at having the jury draw the inference that the government did not call the [witness] because his testimony would have been harmful to its case." Id. As discussed below, the remarks here would seem to fit this bill.
[17] In light of the several other factors militating against finding an abuse of discretion here, our conclusion remains the same even if, as Vázquez urges, we disregard the invited-response rule with respect to him because it was Morell who told the jury that uncalled Government witnesses would have exonerated him.
We also note that neither defendant objected at trial to the first "cloud the evidence" remark, made during the prosecutor's opening summation. For convenience we have considered both "cloud the evidence" remarks in tandem, but if we were to consider them independently of one another, we would review the first one for plain error, see Henderson, 320 F.3d at 102, 107, and find that it comes nowhere near requiring retrial under that standard.
[18] The indictment had fourteen counts. The jury acquitted Morell of Count Five, extortion of subcontractor Carrero; Count Twelve, one of the wire fraud charges; and Count Fourteen, obstruction of justice. Counts Six to Eight pertained only to Vázquez.
[19] We have held that "the government need only show a realistic probability of a de minimis effect on interstate commerce[ ] in order to bring extortion within the reach of the Hobbs Act." United States v. Rivera-Medina, 845 F.2d 12, 15 (1st Cir.1988); see also United States v. Hathaway, 534 F.2d 386, 396 (1st Cir. 1976) (Hobbs Act reaches "even those effects which are merely potential or subtle" (internal quotation marks omitted)). We find ample evidence on the record before us to prove this element.
[20] Citing United States v. O'Campo, 973 F.2d 1015, 1021 (1st Cir.1992), Morell argues that he cannot be held vicariously liable through Pinkerton because Vázquez and Granados had already committed extortion by the time he began receiving payments. We reject this argument, as extortion can be an ongoing crime, see, e.g., Bucci, 839 F.2d at 829-30, and this extortion went on until the payments ceased in 1999. In any event, a rational jury could have found that Morell adhered to the extortion agreement from its inception, and not merely from 1997, when he began receiving payments.
[21] The parties stipulated that the wire payments traveled in interstate commerce, so we need not address the evidence on this element.
[22] Morell makes much of the fact that the indictment also alleges he committed fraud on his 1997 and 1998 tax returns, but the evidence used to show wire transfers for Counts Nine to Eleven consisted of April 1999 transactions made after the 1997 and 1998 returns had been filed. We need not address this argument because all that was required to sustain Morell's convictions on these counts was sufficient evidence that he committed fraud on one of the returns, and the 1999 return meets this requirement.
[23] The PSRs recommended that the 1998 Guidelines be used by operation of U.S.S.G. § 1B1.11(b)(1) (2006). The district court followed this recommendation, and the parties did not object. We accordingly use the 1998 Guidelines as well, noting that while § 2C1.1 has been amended since 1998, the key language for purposes of analyzing the defendants' challenge remains virtually the same.
[24] It is undisputed that the third alternative loss to the government is not available because the government lost no money as a result of the extortion scheme. Pursuant to U.S.S.G. § 3D1.2 cmt. n. 6 (1998), the district court did not make an independent determination of the defendants' sentences for defrauding the Puerto Rico tax authorities. As such, those losses played no part in the sentencing calculations in this case.
[25] As we noted in Innarelli, this rationale contrasts with that for restitution, which is "necessarily a backward-looking inquiry" because the defendant can only be made to reimburse the victim for the loss he actually caused to the victim. 524 F.3d at 294. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2006362/ | 183 B.R. 171 (1995)
In re Susan A. McLAUGHLIN, Debtor.
Michael E. KEPLER, Plaintiff,
v.
SECURITY PACIFIC HOUSING SERVICES, Defendant.
Bankruptcy No. 94-31936-7. Adv. No. 94-3155-7.
United States Bankruptcy Court, W.D. Wisconsin.
May 23, 1995.
*172 Michael E. Kepler, Kepler & Peyton, Madison, WI, for plaintiff.
Dona J. Merg, Merg & Anderson, S.C., Madison, WI, for defendant.
MEMORANDUM DECISION
ROBERT D. MARTIN, Chief Judge.
Susan McLaughlin wanted to purchase a new mobile home from Steenberg Homes ("Steenberg").[1] The purchase was to be funded in part by financing available through Steenberg. Security Pacific Housing Services ("SPHS") conditionally agreed to accept from Steenberg an assignment of McLaughlin's *173 retail installment contract. After the assignment, SPHS would receive the contract payments and hold a lien on the purchased mobile home. On April 27, 1994 McLaughlin signed a retail installment contract and security agreement with Steenberg and made a down payment. McLaughlin also signed a motor vehicle title application so that the lien she agreed to provide could be perfected. (Def. Ex. 7.)
On May 12, 1994, McLaughlin took delivery of the new home and began to reside in it. Steenberg promptly forwarded the required paperwork to SPHS. The papers had been received by SPHS when, on May 20, 1994, an employee of SPHS telephoned McLaughlin to determine her satisfaction with the home. After this conversation, the retail sales contract and security agreement were modified by the SPHS employee changing the due date of the first installment payment from June 1, 1994 to June 15, 1994. The revised agreement was dated May 15, 1994.
On May 31, 1994, SPHS accepted the assignment of McLaughlin's installment sale contract and security agreement.[2] On June 1, 1994, SPHS mailed a check to the manufacturer, Liberty Homes, for the amount due from Steenberg in exchange for the Manufacturers Statement of Origin ("MSO"). After receiving the MSO on June 10, 1994, SPHS forwarded it and the application for registration to the motor vehicle department.[3] The application was received by the department on June 13, 1994 and a title showing the SPHS security interest was issued on July 2, 1994.
On July 21, 1994, McLaughlin filed for chapter 7 bankruptcy. The trustee moved to avoid the SPHS security interest as the fruit of a preferential transfer. A trial was held on March 29, 1995. At its conclusion, I made a preliminary holding that SPHS' security interest was perfected by a preferential transfer and that the ordinary course of business exception to a preferential transfer did not apply because, inter alia, there were irregularities in the transaction as it was handled by SPHS.[4]
By signing the security agreement on April 27, 1994, McLaughlin created a security interest in favor of Steenberg. Wis.Stat. § 409.105(m) (1993-94). However, the security interest was not enforceable against McLaughlin or any third party until it "attached." Attachment requires that the creditor give value and the debtor have rights in the collateral. Wis.Stat. § 409.203 (1993-94). Steenberg gave value and McLaughlin gained rights in the collateral when the mobile home was delivered to her possession on May 12, 1994.[5]See Chambersburg Trust Co. *174 v. Eichelberger, 403 Pa.Super. 199, 588 A.2d 549, 552 (Pa.Super.Ct.1991). The security interest then became enforceable against McLaughlin, but it could still be primed or defeated by third parties until it was perfected.
When the security interest attached, the contract had yet to be assigned to SPHS. Under the terms of the security agreement, Steenberg was the secured party. Steenberg did not perfect the security interest on its own behalf and it remained unperfected until an application for title was delivered to the motor vehicle department on June 13, 1994. Wis.Stat. § 342.19(2) (1993-94). Nothing in Wisconsin law deems the perfection to relate back to an earlier date.[6]
Section 547(b) requires six elements be shown to avoid a transfer as a preference. "The trustee must show that: a transfer of the property of the debtor to or for the benefit of a creditor, for or on account of antecedent debt, while the debtor is insolvent, within 90 days preceding the petition, and the creditor has received more than what the creditor would have received under chapter 7." In re Ausman Jewelers, 177 B.R. 282, 284 (Bankr.W.D.Wis.1995); see also Matter of Smith, 966 F.2d 1527 (7th Cir. 1992). Each of these elements has been met in this case.
Cases have widely held that giving a security interest in property constitutes transfer of property of the debtor. See In re Melon Produce, 976 F.2d 71, 74 (1st Cir. 1992). When a security interest is not perfected within 10 days after it becomes enforceable, the date of perfection is the date of the transfer. 11 U.S.C. § 547(e)(2)(B) (1994);[7] in the present case, June 13, 1994. McLaughlin is presumed to have been insolvent because the transfer occurred within 90 days of her bankruptcy filing. 11 U.S.C. § 547(f) (1994). The transfer was to SPHS, which by then was a creditor of McLaughlin[8] on account of an antecedent debt.[9] When the home was delivered, McLaughlin had an obligation to pay for it. The questioned transfer took place 32 days later. Finally, SPHS does not dispute that it received more than what it would have received under chapter 7 without the transfer.
Section 547(c) of the Bankruptcy Code provides that certain transactions, although preferential, cannot be avoided by the trustee. The first exception claimed by SPHS, that for ordinary course of business, has already been denied. SPHS also contends that either 11 U.S.C. § 547(c)(1), the contemporaneous exchange exception, or 11 U.S.C. § 547(c)(4), the new value exception, applies to these facts. On the evidence as presented, neither section applies.
*175 The contemporaneous exchange exception provides:
(c) The trustee may not avoid under this section a transfer
(1) to the extent such transfer was
(A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and
(B) in fact a substantially contemporaneous exchange.
11 U.S.C. § 547(c)(1). The parties do not dispute that McLaughlin and SPHS intended the transaction to be contemporaneous. Rather, they disagree on whether the transfer was "in fact" contemporaneous.
The trustee argues that perfection of the security interest was not contemporaneous because it did not occur within 10 days of its creation.[10] Several courts outside of this circuit have so held. See Matter of Tressler, 771 F.2d 791 (3d Cir.1995); In re Davis, 734 F.2d 604 (11th Cir.1984); In re Arnett, 731 F.2d 358 (6th Cir.1984); Matter of Vance, 721 F.2d 259 (9th Cir.1983).
However, the Seventh Circuit follows a different rule. In Pine Top Ins. v. Bank of America Nat. Trust & Sav., 969 F.2d 321, 328 (7th Cir.1992), the court rejected the proposition that to be contemporaneous in fact, a transfer must occur within 10 days of it becoming effective. "[T]he modifier `substantial' makes clear that contemporaneity is a flexible concept which requires a case by case inquiry into all of the relevant circumstances (e.g., length of delay, reason for delay, nature of the transaction, intentions of the parties, possible risk of fraud) surrounding an allegedly preferential transfer." Id. at 329. Thus, the particular facts of the present case must be examined.
After accepting the assignment on May 31, 1994, SPHS took immediate steps to perfect its security interest. SPHS paid Liberty Homes to obtain an MSO and, after receiving it, immediately applied to the motor vehicle department for a title. The actual process of perfecting the security interest was completed as soon as possible after SPHS started it.
However, the process of perfection was not initiated until 19 days after the security interest attached. From May 12, 1994 to May 31, 1994, neither Steenberg nor SPHS attempted to perfect a security interest in the home. SPHS claims that it could not have perfected the security interest prior to May 31, 1994. However, the evidence suggests that SPHS had all of the information necessary to approve the transaction on May 18, 1994 (Def. Ex. 26) and probably sooner. At trial, SPHS' sales manager testified that all of the required information to finalize the transaction was in SPHS' possession within the first two weeks of May. At any time thereafter, SPHS could have finalized its acceptance and initiated the perfection process.
SPHS has offered little justification for its delay. Rather, it focused on events occurring after May 31, 1994. To the extent that SPHS presented evidence to justify its delay, it conflicted with other evidence. At trial, SPHS' sales manager testified that SPHS employees were too busy to initiate the process earlier. However, SPHS' internal purchase log shows that in similar transactions occurring around the same time as McLaughlin's, SPHS took steps to perfect their security interest much more quickly following telephone audits. For an example, inter alia, the telephone audit for account number XXXXXXXX occurred on May 25, 1994 and SPHS purchased the contract on the same date. (Def. Ex. 31.) The telephone audit for account number XXXXXXXX occurred after McLaughlin's, yet that contract was purchased before McLaughlin's. SPHS has not provided a reasonable explanation as to why the McLaughlin transaction took as long as it did.
As the party from whom recovery is being sought, SPHS has the burden of proof in establishing that an exception to the avoidance of a preferential transfer exists. 11 U.S.C. § 547(g) (1994). Because there has *176 been little evidence presented concerning the days from May 18 until May 31, 1994, SPHS has not sustained its burden of proof. When those 13 days are part of the 32 days that elapsed from attachment to perfection of SPHS' interest, perfection cannot be said to be contemporaneous.
SPHS next contends that the new value exception in § 547(c)(4) applies. That section provides:
(c) The trustee may not avoid under this section a transfer
. . . . .
(4) to or for the benefit of a creditor, to the extent that, after such transfer, such creditor gave new value to or for the benefit of the debtor.
(A) not secured by an otherwise unavoidable security interest;
(B) on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor.
11 U.S.C. § 547(c)(4) (1994). SPHS argues that it advanced new value to McLaughlin which allowed her to purchase the home. However, SPHS' reliance on the new value exception is misplaced. This exception only applies to creditors who have received avoidable preferences and thereafter make further loans to the debtor. 11 U.S.C. § 547(c)(4)(A) (1994); Robert E. Ginsberg & Robert D. Martin, Bankruptcy: Text, Statutes & Rules (1993). The exception allows a creditor to set off the amount of post-preference advances that are both unsecured and unpaid on the petition date against any amounts the creditor must return to the trustee under the preference provision. In our case, SPHS is not seeking set off nor did it advance any unsecured funds after the security interest was perfected. Thus, the exception is not applicable.
If a preference is voidable, the trustee may recover from either the initial transferee (or the entity for whose benefit the transfer was made) or any immediate or mediate transferee of the initial transferee under 11 U.S.C. § 550. At the very least, SPHS was Steenberg's immediate transferee by virtue of being first recipient of the security interest's perfection. It could also be argued that SPHS was the entity for whose benefit the transfer was made. Under either characterization, the trustee in this case may recover against SPHS.
Having determined that a preferential transfer has taken place to which there is no applicable exception and that recovery may be had against SPHS, the inquiry must be directed to the appropriate remedy. Section 550(a) provides:
(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property.
When a preferential transfer is avoided, the plain language of § 550(a) allows the trustee to recover the property transferred or its value. However, the section does not offer any guidance in determining which remedy the trustee should receive. In re Classic Drywall, Inc., 127 B.R. 874, 876 (D.Kan. 1991); In re International Ski Service, Inc., 119 B.R. 654, 656 (Bankr.W.D.Wis.1990). Cases have held that the language of § 550 requires that the court order the property returned unless it would be inequitable to do so. In re General Industries, Inc., 79 B.R. 124, 135 (Bankr.D.Mass.1987); In re Morris Communications NC Inc., 75 B.R. 619 (Bankr.W.D.N.C.1987), rev'd on other grds., 914 F.2d 458 (4th Cir.1990). Other cases, however, suggest that the decision to return the property or its value is at the discretion of the bankruptcy court. International Ski, 119 B.R. at 656; see also In re First Software Corp., 107 B.R. 417, 423 (D.Mass.1989); In re Vedaa, 49 B.R. 409, 411 (Bankr.D.N.D. 1985).
Generally, where the record contains no or conflicting evidence of the market value of the transferred property, the courts have ordered that the property be returned. See In re King Arthur Clock Co., Inc., 105 B.R. 669, 672 (Bankr.S.D.Ala.1989); In re General Industries, Inc., 79 B.R. 124, 135 (Bankr.D.Mass.1987); In re Handsco Distributing, Inc., 32 B.R. 358, 360 (Bankr. *177 S.D.Ohio 1983); In re Vann, 26 B.R. 148, 149 (Bankr.S.D.Ohio 1983). "Where the property is unrecoverable or its value diminished by conversion or depreciation, courts will permit the recovery of value." Classic Drywall, 127 B.R. at 877. However, if the market value of the property can be readily determined and would work a savings for the estate, the trustee may recover value rather than the property. International Ski, 119 B.R. at 657. The market price at the time of transfer is the proper measure of § 550 damages. Id. at 659.
In the present case, the transferred property is recoverable and there has been no allegation that the value of the property has diminished. In April, 1994, the mobile home's purchase price was $38,160 plus tax. McLaughlin paid a $7,000 down payment, leaving a debt of $31,160 plus tax in April 1994. This, plus any accrued interest, is the maximum value of SPHS' lien in the property.
The value of the lien is related to the market price of the home. Other than the purchase price, no party has provided any evidence of the mobile home's value. The purchase price may or may not be the home's market value. See King Arthur Clock, 105 B.R. 669, 672 (Bankr.S.D.Ala.1989). Ascertaining the value of a mobile home differs from determining the value of the machinery and supplies returned in International Ski. In International Ski, 119 B.R. at 659, the debtor had returned machinery for which it had not yet paid. In exchange, the creditor credited the debtor what the debtor had agreed to pay for the goods. The court determined this amount to be the value of the property. Id. Presumably, the creditor could easily resell the goods which the debtor had returned to another buyer for the same price the debtor had agreed to pay. However, unlike the goods in International Ski, the mobile home had been used for approximately one month before the transfer took place, a seller may not be able to find a buyer willing to pay the same price that McLaughlin did.
In any event, the value of SPHS' lien cannot be readily determined on the evidence produced. Therefore, the trustee is entitled to recover the lien but not money damages equal to its value. An order may be entered transferring the lien on McLaughlin's mobile home from SPHS to the trustee and requiring SPHS to take whatever steps are required to accomplish that transfer.
This memorandum decision together with my prior ruling on the record constitute my findings of fact and conclusions of law in this matter.
ORDER
The court having this day entered its memorandum decision in the above-entitled matter;
IT IS HEREBY ORDERED that Security Pacific Housing Services' lien in the mobile home of Susan A. McLaughlin be avoided as a preferential transfer.
IT IS FURTHER ORDERED that the lien be transferred to the trustee and that Security Pacific Housing Services take whatever steps are required to accomplish that transfer.
NOTES
[1] McLaughlin and her husband, Neal McLaughlin, purchased the mobile home together. However, they did not file bankruptcy jointly. Susan McLaughlin is the sole debtor in this case. Therefore, she is the only party referred to in this writing.
[2] The testimony of the SPHS sales manager did not make clear what, if any, formal step marked the SPHS acceptance, but the date of the acceptance is not contested.
[3] A security interest in a mobile home or motor vehicle is perfected by an application for a certificate of title. Wis.Stat. § 342.19 (1993-94). In Wisconsin, a Manufacturers Statement of Origin ("MSO") is required to perfect a security interest in a new vehicle. Wis.Stat. § 342.06(1)(d) (1993-94).
[4] Specifically, I stated:
[T]hat there were errors perceived to be on the contract and that those were uncommon. That the correction to the errors was undertaken in a way that is not the common way of doing it. It does appear that new figures were scratched onto the contract. The confirmation letter was sent. There is nothing to suggest that that's the way its done in the industry, although, there was some general statements that everything was in the normal course. I don't find that credible in light of the other testimony. That was unusual. There is no evidence as to the course of business of perfecting security interest other than the defendant under Tolona Pizza in the 7th Circuit. (TR 166.)
[5] The identification of a good in a contract creates a special property interest. Wis.Stat. § 402.501 (1993-94). This special property interest is sufficient to create rights in property so that a security interest may attach. Grant Gilmore, Security Interests In Personal Property § 11.5 (1965). At the time the sales contract was signed, the mobile home was not yet built. Thus, it was a future good. Wis.Stat. § 402.105(1)(b) (1993-94). Under Wis.Stat. § 402.501(1)(b) (1993-94), identification of a future good occurs when the good is shipped, marked or otherwise designated as the goods to which the contract refers. There has been no evidence of when the home was shipped, marked or otherwise designated. Because this date cannot be determined, at the very latest, McLaughlin acquired rights in the home on the date she acquired possession, May 12, 1994.
[6] Under Wis.Stat. § 342.19(2) (1993-94), perfection may relate back to the date the security interest was created if it is perfected within 10 days of its creation. However, if perfection occurs beyond this 10 day period, as in this case, a lien in a mobile home is deemed perfected as of the date of delivery to the motor vehicle department of the application for certificate of title.
[7] 11 U.S.C. § 547(e)(2)(B) provides:
(2) For the purposes of this section, except as provided in paragraph (3) of this subsection, a transfer is made . . .
(B) at the time such transfer is perfected, if such transfer is perfected after such 10 days.
[8] 11 U.S.C. § 101(10) (1994) provides:
(10) "creditor" means
(A) entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor;
(B) entity that has a claim against the estate of a kind specified in section 348(d), 502(f), 502(g), 502(h), or 502(i) of this title; or
(C) entity that has a community claim.
By the time of filing, McLaughlin was obligated to pay SPHS the payments due under the sales contract.
[9] The antecedent debt need not have been first owed to the recipient of the transfer, it is enough that the transferee has been assigned a debt which is antecedent. "The substantive rights of the parties to the assignment . . . are determined by the pre-Code law of assignment, which has not been displaced by the Code and therefore continued under the Code." 68A Am.Jur.2d Secured Transactions § 285 (1993). A valid and unqualified assignment, as in this case, operates to transfer to the assignee all rights, title, or interest of the assignor in the thing assigned. Kornitz v. Commonwealth Land Title Ins. Co., 81 Wis.2d 322, 327, 260 N.W.2d 680 (1977); Matter of Lake Hopatcong Water Corp., 15 B.R. 411, 416 (Bankr.D.N.J.1981). Thus, SPHS stood in Steenberg's shoes. Because Steenberg's debt was antecedent when the contract was assigned, SPHS acquired an antecedent debt.
[10] The trustee argues that the security interest must be perfected within 10 days of its creation in order to be "in fact" contemporaneous. However, § 547(e) provides that the transfer must be perfected within 10 days after the transfer takes effect. Presumably, this would be the date of attachment and not necessarily the date of creation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1373598/ | 8 Utah 2d 383 (1959)
335 P.2d 619
JAMES J. MILLIGAN, PLAINTIFF AND APPELLANT,
v.
CAPITOL FURNITURE COMPANY, A UTAH CORPORATION, GLADYS PETERSON, MARY E. SHULSEN AND JAMES H. SPRUNT, DEFENDANTS AND RESPONDENTS.
No. 8777.
Supreme Court of Utah.
February 19, 1959.
King & Hughes, Salt Lake City, for appellant.
Gustin, Richards & Mattsson, Salt Lake City, for respondents.
WORTHEN, Justice.
Appeal from the order of the trial court entering judgment of "no cause of action" following the jury's answers to certain interrogatories.
Plaintiff fell on a sidewalk in front of defendants' building located on West Second South Street, Salt Lake City, Utah. The sidewalk was 20.9 feet wide from the building to curb line.
Plaintiff was employed by the railroad and had on many occasions prior to his fall stopped at a restaurant just west of the defendants' building. Located in front of defendants' building was a sidewalk elevator covered by two steel doors. Attached to the building just west of the steel doors was a drain spout, which carried water from the roof of the building to a hole in the sidewalk and thence to the street.
There is conflict in the testimony as to the condition of the sidewalk. Plaintiff and a witness called by plaintiff testified that ice covered the full width of the sidewalk from the curb "all the way to the building," "surface of the sidewalk was all ice," "from the building out to the curb I would say approximately eight feet wide."
The proprietor of the restaurant testified that there had been no snow for a couple of days and that there was no snow or ice except in and around the drain pipe and out from the pipe a few feet.
The plaintiff sustained substantial damages and medical and hospital expenses in the amount of $1,123.
The trial court submitted to the jury seven questions to which the jury gave answers as follows:
"Question I
"Did the defendants maintain a down-spout drainage system which was negligently constructed?
"Answer No
"* * * Ignore Question II if the answer to Question I is `No'; however, if the answer is `Yes' then answer Question II.
"Question II
"Was the manner in which the down spout was constructed a proximate cause of plaintiff's fall?
"Answer ____
* * * * * *
"Question III
"Did the defendants negligently allow water from the down spout to run onto the sidewalk and form ice?
"Answer Yes
"Question IV
"Was such negligence a proximate cause of plaintiff's fall?
"Answer Yes
* * * * * *
"Question V
"Was plaintiff negligent in walking across the ice where he fell?
"Answer Yes
* * * * * *
"Question VI
"Was such negligence a proximate cause of plaintiff's fall?
"Answer No
* * * * * *
"Question VII
"As shown by a preponderance of the evidence in this case, what amount of money would fairly and adequately recompense the plaintiff for any and all injuries he sustained as a result of his falling on the ice as set forth in Instruction No. 15?
"Answer $5,000.00"
All jurors signed all answers except to Question V, and only seven jurors signed that answer.
Following the return of the special verdict, plaintiff moved for a judgment for $6,123 and defendant moved for judgment of "no cause of action."
The trial court ordered judgment for defendant as requested. Plaintiff filed a motion for judgment or in the alternative for a new trial which motion the court denied.
Plaintiff appealed charging that the court erred in the following particulars:
1. In refusing to enter judgment in plaintiff's favor on the special verdict.
2. That if the answers to the special verdict questions are inconsistent a new trial should have been granted.
3. That the evidence discloses that plaintiff was not contributorily negligent as a matter of law.
4. That the court committed reversible error and abused his discretion in submitting the special verdict to the jury.
Considering Point 4 we are of the opinion that not only did the court commit no error or abuse his discretion in submitting the special verdict but that the court did just what he should have done under the circumstances.
As to Point 3 there is no suggestion that plaintiff was contributorily negligent as a matter of law. The trial court submitted the question of plaintiff's negligence to the jury, and the jury upon substantial evidence of plaintiff's lack of due care found him negligent.
Plaintiff's second assignment cannot be sustained. Counsel for plaintiff contends that the answers to Questions 5 and 6 are not inconsistent with each other and are not inconsistent with the general verdict. It should be observed however, that we have no general verdict here. The trial court did not submit a general verdict. Counsel states and we believe correctly that it is not within the province of the trial court to decide facts where there is substantial evidence to support a jury finding. We, however, are of the opinion that there was no substantial evidence, nor was there any evidence to support the answer to Question No. 6.
It is immaterial whether or not the answer to Question VI be considered inconsistent with the answer to Question V. Neither was inconsistent with any general verdict and Rule 49(b) has no application. The questions were submitted under Rule 49(a).
There is no evidence that plaintiff's negligence was not a proximate cause of his injury. No inference can be drawn from the evidence that plaintiff's negligence did not proximately contribute to his injury.
The only logical inference available to us is that his negligence was a proximate cause of his injury.
The determination of proximate cause is not a pure fact question, it is largely a conclusion available from the facts adduced.
Proximate cause when the case is submitted under a general verdict is for the jury.[1] In the instant case we are of the opinion that the question of proximate cause of plaintiff's injury affords but one answer. His injury was the natural and probable consequence of his own negligence, and only one inference or deduction is permissible, hence the question of proximate cause is one of law.
In the early case of Anderson v. Bransford[2] this court said:
"It is true that the question of proximate cause is ordinarily one of fact for the jury. This is so because of different conclusions generally arising on a conflict of the evidence, or because of different deductions or inferences arising from undisputed facts, in respect to the question of whether the injury was the natural and probable consequence of the proved negligence or wrongful act, and ought to have been foreseen in light of the attending circumstances. Where, however, there is no such conflict, and where but one deduction or inference under the evidence is permissible, then the question of proximate cause is one of law." (Emphasis added.)
Plaintiff's injury was caused by his slipping on the ice on the sidewalk.
The jury found that plaintiff was negligent in crossing the ice where he did. We do not see how reasonable men could do other than conclude that his crossing the ice contributed to or caused his fall. The evidence discloses no other intervening cause. The ice on the sidewalk and the negligence of plaintiff in crossing the same caused plaintiff's fall and his injury.
In Wold v. Ogden City[3] this court quoted from Dean Prosser as follows:
"The plaintiff cannot be heard to say that he did not comprehend a risk which must have been obvious to him. * * * In the usual case, his knowledge and appreciation of the danger will be a question for the jury; but where it is clear that any person of normal intelligence in his position must have understood the danger, the issue must be decided by the court."
The jury decided that defendants were negligent in allowing the water to run onto the sidewalk and form ice. With that finding of the jury plaintiff does not take issue. If defendants were negligent in permitting ice to form on the sidewalk, plaintiff was, as found by the jury, negligent in attempting to cross over that hazard, and his so doing permits of only one inference, to wit: his choosing to travel where he did, proximately contributed to his fall and injury.
We find no merit to plaintiff's first assignment and the same has been answered in what we have said herein. Unless the court, as a reasonable individual could conclude that the plaintiff's negligence was not a proximate cause of his fall, the court had no alternative but to refuse plaintiff's motion for judgment.
Affirmed. Costs to respondent.
HENRIOD and McDONOUGH, JJ., concur.
CROCKETT, Chief Justice (dissenting).
There were five issues to be determined: (A) Negligence of defendant; (B) Whether it was proximate cause; (C) Damages; (D) Negligence of plaintiff; (E) Whether it was proximate cause.
It will be noted that of the five issues, four of them were determined in favor of the plaintiff. As to (D) only was the answer adverse to him.
It cannot be doubted that strictly upon the basis of the answers as given, the plaintiff would be entitled to a judgment because they found on (E) that even though he was negligent, it had no effect in causing the injury. The only basis upon which the court could possibly justify depriving him of the damages which the jury found he suffered as a result of defendant's negligence is for the court to arbitrarily rule that the jury was wrong on issue (E).
The stated reasoning for the view that the jury was wrong on issue (E) seems to be this: They having found him negligent on issue (D), there is no reasonable basis for finding (E), that it did not contribute to cause the injury. The fallacy in such reasoning is the assumption that the jury was right in finding him negligent on issue (D), and therefore must be wrong on (E). I must concede that there is difficulty in reconciling the jury's opposite answers to (D) and (E). But if the court is going to arbitrarily say the jury is wrong on one or the other, it seems just as logical to say that their finding on issue (E) is right, which would say in effect there was no negligence which proximately contributed to cause the injury, and therefore they must have been mistaken on issue (D) as to negligence, as it would to accept finding (D) as correct and reject (E), thus defeating the plaintiff.
It is appreciated that there is a reasonable basis in evidence for finding (D), that the plaintiff was negligent, whereas, if we assume that finding to be correct, there is no reasonable basis for finding (E) that plaintiff's negligence was not a proximate cause. Nevertheless, the answers were contradictory. They show that the jury were confused and made no clear analysis and determination of the issues. After the return of their answers the inconsistency should have been called to their attention and they be given an opportunity to further deliberate and agree upon consistent answers if possible. Undesirable as it is to protract litigation, as I see it, the only way that justice can be done here is to remand the case for a clear and unequivocal determination of the issues of fact. I would therefore grant a new trial for that purpose.
WADE, J., concurs with the views expressed by CROCKETT, C.J.
NOTES
[1] Farmers Grain Cooperative v. Fredrickson, 7 Utah 2d 180, 321 P.2d 926; Park v. Moorman Mfg. Co., 121 Utah 339, 241 P.2d 914, 40 A.L.R. 2d 273.
[2] 39 Utah 256, 116 P. 1023.
[3] 123 Utah 270, 258 P.2d 453, 456. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1433946/ | 557 F.3d 1117 (2009)
Jermaine Donte GRIFFIN, Plaintiff-Appellant,
v.
Joe ARPAIO, in his individual and official capacity as Sheriff of Maricopa County; Dheerendranath V. Raikhelkar Dr., in his individual and official capacity, also known as Raikeuian; Brooks, RN, in individual and official capacity; Rivera, RN, in PGR individual and official capacity; John Doe No.1, in his individual and official capacity as Jail Commander at Madison Street Jail; John Doe, No.2, in his individual and official capacity as Classification Officer at Madison Street Jail, Defendants-Appellees.
No. 06-16132.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted January 16, 2009.
Filed March 5, 2009.
*1118 Roopali H. Desai, Lewis and Roca, LLP, Phoenix, AZ, for the appellant.
Bruce P. White, Deputy County Attorney; Andrew P. Thomas, Maricopa County Attorney; Rebecca C. Salisbury, Deputy County Attorney, Phoenix, AZ, for the appellees.
Before: J. CLIFFORD WALLACE, JEROME FARRIS and M. MARGARET McKEOWN, Circuit Judges.
FARRIS, Senior Circuit Judge:
Background
For the purposes of this appeal, we take the allegations in Griffin's complaint and grievances as true. They are as follows: Jermaine Griffin is an inmate in the Arizona Department of Corrections system. Defendants are the Sheriff of Maricopa County, a prison doctor, two prison nurses, and two prison officials. In May of 1999, Griffin fell from the top bunk of his jail cell in Maricopa County, Arizona. At the time, Griffin suffered from mental health conditions for which he took prescription drugs. He asserts that these drugs impaired his vision and depth perception, making it difficult for him to access upper bunks. After Griffin's fall, the prison assigned him to a lower bunk. It later reassigned him to a top bunk.
In early December 1999, Griffin fell again while trying to access an upper bunk. He filed an Inmate Grievance Form stating that he had injured himself trying to reach the top bunk, mentioning his mental health conditions and medication, and requesting a ladder or "some sort of permanent step." While his grievance was pending, Griffin obtained an order *1119 for a lower bunk assignment from a prison nurse. A prison officer, the shift supervisor, and the Bureau Hearing Officer replied to Griffin's grievance, stating that the nurse's order resolved his problem. Griffin asserts that prison staff disregarded the nurse's order.
Griffin appealed his grievance in compliance with Maricopa County procedures, first to the Jail Operations Commander on December 9, 1999, and then to an external referee on December 17, 1999. Griffin's appeals did not mention the alleged disregard of his lower bunk assignment, instead continuing to demand better means of access to the top bunk. The Commander replied that the lower bunk assignment addressed Griffin's problem and obviated further action. The external referee's response was similar, adding "That ends it!" He informed Griffin that, having completed the prison's grievance procedures, Griffin could file in district court.
On July 11, 2001, Griffin brought this action for money damages against Defendants in district court pursuant to 42 U.S.C. § 1983, alleging cruel and unusual punishment and unsafe living conditions in violation of the Eighth Amendment of the United States Constitution. Defendants moved to dismiss for failure to exhaust administrative remedies as required by the Prison Litigation Reform Act, 42 U.S.C. § 1997e(a). The district court granted Defendants' motion and dismissed the action with prejudice. It held that Griffin had failed to exhaust his administrative remedies, noting that he alleged deliberate indifference to his medical needs in his federal action without having first grieved it to the prison. Griffin filed a Motion to Reconsider, which the district court granted for reasons unrelated to this appeal. The district court then dismissed the action without prejudice, reiterating the reasoning underlying its earlier dismissal. Griffin timely appeals.
The district court's dismissal without prejudice would typically constitute a non-final judgment and preclude appellate review. However, we treat the dismissal as final because Griffin "has no way of curing the defect found by the court: there is no indication he could begin a new administrative process in the prison." See Butler v. Adams, 397 F.3d 1181, 1183 (9th Cir.2005).
A dismissal for failure to exhaust administrative remedies receives "clear error" review of factual issues. Wyatt v. Terhune, 315 F.3d 1108, 1117 (9th Cir. 2003). We review the district court's legal conclusions de novo. Id.
Discussion
The Prison Litigation Reform Act requires that a prisoner exhaust available administrative remedies before bringing a federal action concerning prison conditions. 42 U.S.C. § 1997e(a) (2008); see Porter v. Nussle, 534 U.S. 516, 524, 122 S. Ct. 983, 152 L. Ed. 2d 12 (2002) ("Even when the prisoner seeks relief not available in grievance proceedings, notably money damages, exhaustion is a prerequisite to suit."). Exhaustion must be "proper." Woodford v. Ngo, 548 U.S. 81, 93, 126 S. Ct. 2378, 165 L. Ed. 2d 368 (2006). This means that a grievant must use all steps the prison holds out, enabling the prison to reach the merits of the issue. Id. at 90, 126 S. Ct. 2378. Prisoners need comply only with the prison's own grievance procedures to properly exhaust under the PLRA. Jones v. Bock, 549 U.S. 199, 218, 127 S. Ct. 910, 166 L. Ed. 2d 798 (2007).
Griffin properly appealed his grievance through all steps that the Maricopa County jail held out. He filed an Inmate Grievance Form and completed the prison's appeals process. Defendants assert that Griffin nonetheless failed to exhaust properly. Griffin did not grieve that prison *1120 staff members were deliberately indifferent to his medical needs, an allegation that now forms the primary component of his Eighth Amendment claim. See Farmer v. Brennan, 511 U.S. 825, 834, 114 S. Ct. 1970, 128 L. Ed. 2d 811 (1994). Defendants contend that, without this allegation, the grievance was not factually specific enough to satisfy the PLRA's exhaustion requirement. Griffin asserts that his grievance alleged every fact necessary for proper exhaustion.
I. Appropriate Standard of Factual Specificity
The Supreme Court held in Jones v. Bock that a prison's own grievance process, not the PLRA, determines how detailed a grievance must be to satisfy the PLRA exhaustion requirement. 549 U.S. at 218, 127 S. Ct. 910. The Maricopa County jail's procedures, however, provide little guidance as to what facts a grievance must include. The jail's Inmate Grievance Form merely instructs the grievant to "[b]riefly describe [the] complaint and a proposed resolution."
We have not yet articulated the standard of factual specificity required when a prison's grievance procedures do not specify the requisite level of detail. Defendants propose that we adopt the standard propounded by the Eleventh Circuit in Brown v. Sikes, 212 F.3d 1205, 1207-08 (11th Cir. 2000). The Brown standard requires the grievant to include all relevant information about his claims that he can reasonably obtain. Id. The district court applied this standard in dismissing Griffin's complaint. Griffin argues that the Seventh Circuit articulated the proper standard in Strong v. David, 297 F.3d 646, 650 (7th Cir.2002). Strong held that, when a prison's grievance procedures are silent or incomplete as to factual specificity, "a grievance suffices if it alerts the prison to the nature of the wrong for which redress is sought." Id.
We adopt Strong as the appropriate standard. See Kikumura v. Osagie, 461 F.3d 1269, 1285 (10th Cir.2006), overruled on other grounds by Robbins v. Oklahoma, 519 F.3d 1242 (10th Cir.2008); Johnson v. Johnson, 385 F.3d 503, 517 (5th Cir.2004); Johnson v. Testman, 380 F.3d 691, 697 (2d Cir.2004); Burton v. Jones, 321 F.3d 569, 575 (6th Cir.2003), abrogated on other grounds by Jones v. Bock, 549 U.S. at 217, 127 S. Ct. 910; Strong, 297 F.3d at 650. It advances the primary purpose of a grievance: to notify the prison of a problem. See Johnson v. Johnson, 385 F.3d at 522, cited with approval in Jones, 549 U.S. at 219, 127 S. Ct. 910. It comports with the Supreme Court's holding in Jones that a prison's own procedures define the contours of proper exhaustion. See 549 U.S. at 218, 127 S. Ct. 910. Strong provides a low floor that clarifies exhaustion requirements, but is unlikely to demand more information than prison procedures permit.
II. Adequacy of Griffin's Grievance under Strong
Under the Strong standard, Griffin's failure to grieve deliberate indifference does not invalidate his exhaustion attempt. A grievance need not include legal terminology or legal theories unless they are in some way needed to provide notice of the harm being grieved. A grievance also need not contain every fact necessary to prove each element of an eventual legal claim. The primary purpose of a grievance is to alert the prison to a problem and facilitate its resolution, not to lay groundwork for litigation. See Johnson v. Johnson, 385 F.3d at 522, cited with approval in Jones, 549 U.S. at 219, 127 S. Ct. 910. Griffin's problem concerned his unsatisfactory bunking situation. Notifying the prison of that problem did not require him to allege that the problem resulted from deliberate indifference.
*1121 Nonetheless, Griffin failed to exhaust properly. He did not provide notice of the prison staff's alleged disregard of his lower bunk assignments. The officials responding to his grievance reasonably concluded that the nurse's order for a lower bunk assignment solved Griffin's problem. Rather than clarifying the situation, Griffin repeatedly demanded a ladder. His grievance did not "provide enough information... to allow prison officials to take appropriate responsive measures." Johnson v. Testman, 380 F.3d at 697.
Conclusion
We reject the district court's reliance on Brown in its dismissal of Griffin's complaint, but we may affirm for any reason supported by the record. United States v. Murphy, 516 F.3d 1117, 1120 (9th Cir.2008). Griffin failed to exhaust administrative remedies as required by 42 U.S.C. § 1997e(a). He did not alert the prison to the nature of his problem. See Strong, 297 F.3d at 650.
AFFIRMED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1395040/ | 495 F.3d 951 (2007)
UNITED STATES of America, Appellee,
v.
Angela Jane JOHNSON, Appellant.
No. 06-1001.
United States Court of Appeals, Eighth Circuit.
Submitted: February 14, 2007.
Filed: July 30, 2007.
*952 *953 *954 *955 *956 *957 Counsel who presented argument on behalf of the appellant was Dean Stowers of Des Moines, IA. Also appearing on appellant's brief was Patrick J. Berrigan of Kansas City, MO.
Counsel who presented argument on behalf of the appellee was Charles J. Williams, AUSA, Cedar Rapids, IA.
Before WOLLMAN, BYE, and SMITH, Circuit Judges.
WOLLMAN, Circuit Judge.
A federal jury found Angela Johnson guilty of aiding and abetting the murder of five individuals while working in furtherance of a continuing criminal enterprise (CCE), violations of 21 U.S.C. § 848(e)(1)(A) and 18 U.S.C. § 2, and five counts of aiding and abetting the killing of these individuals while engaging in a drug conspiracy, also in violation of 21 U.S.C. § 848(e)(1)(A) and 18 U.S.C. § 2. The jury voted to impose the death penalty for four of these murders and voted to impose a sentence of life in prison for the fifth murder, resulting in a total of eight death sentences and two life sentences. Following her convictions, Johnson filed a motion in arrest of judgment, a motion for acquittal, and a motion for a new trial all of which were denied by the district court[1] in a comprehensive memorandum opinion. See United States v. Johnson, 403 F. Supp. 2d 721 (N.D.Iowa 2005). Johnson appeals from her convictions and her sentences, raising 28 issues.[2] We remand the case so that the district court may vacate five of her ten convictions. In all other respects, we affirm.
I.
As set forth in greater detail below, this case revolves around five murders. In July of 1993, Johnson's boyfriend, Dustin Honken, with Johnson's help, abducted and killed Greg Nicholson, Lori Duncan (Nicholson's girlfriend), and Duncan's two young daughters, Amber and Kandi. Nicholson, who had sold drugs for Honken, was the central witness in a drug case against Honken. The Duncans had the misfortune of being present when Honken and Johnson arrived at their home to deal with Nicholson. Months later, Honken, again with Johnson's assistance, murdered a second potential witness against Honken, Johnson's former boyfriend, Terry DeGeus.
In 1992, Honken started manufacturing methamphetamine with his friend Tim Cutkomp in Arizona. Honken's brother, Jeff Honken, financed the operation. *958 Honken distributed the methamphetamine to Greg Nicholson and Terry DeGeus, who were both drug dealers in Mason City, Iowa. In early 1993, during one of Honken's trips to Mason City, DeGeus sent Johnson, who was his girlfriend at the time, to deliver either drug proceeds or methamphetamine to Honken. Johnson told Honken that because DeGeus was using too much of the methamphetamine for his own personal use, Honken should deal directly with Johnson instead. Johnson and Honken began a romantic relationship and within six months, Johnson became pregnant with Honken's child. In late February or early March of 1993, Cutkomp moved to Iowa, but continued participating in Honken's drug enterprise.
In March 1993, police began investigating Nicholson and executed a search warrant for his residence, which led to the discovery of a large amount of methamphetamine and money. Nicholson agreed to cooperate with law enforcement and told agents that Honken had supplied him with several pounds of methamphetamine over a period of 10-11 months, for which he paid Honken a total of approximately $100,000. On March 21, 1993, Nicholson met with Honken to deliver drug proceeds. During their conversation, which was monitored by police, they discussed past and future deliveries of methamphetamine. That day, police arrested Honken and Cutkomp. In Honken's pocket, officers found a note listing money owed to Honken by two individuals referred to as "G-man" and "T-man." A receipt for the purchase of chemicals was found in Cutkomp's pocket. After Honken was arrested, Jeff Honken disposed of items from Honken's drug lab that Honken had kept in one of Jeff Honken's storage sheds.
In April 1993, a federal grand jury indicted Honken for conspiracy to distribute methamphetamine. Honken was released on bond. Honken informed the court that he intended to plead guilty, and a plea hearing was scheduled for July 30, 1993. During June and July of 1993, Honken and Johnson began searching for Nicholson. On the evenings they looked for Nicholson, Johnson would ask her friend, Christi Gaubatz, to babysit Johnson's daughter. Honken and Johnson borrowed Gaubatz's car on these occasions so that they would not be spotted by Nicholson. On July 7, 1993, Johnson purchased a semi-automatic 9 mm assault pistol at a pawn shop about an hour's drive from her home.[3] The last time Johnson asked Gaubatz to babysit so that she and Honken could look for Nicholson was July 24, 1993. That evening, Nicholson, Nicholson's girlfriend, Lori Duncan, and Lori Duncan's two children, Kandi and Amber, were murdered.
Johnson later recounted the details of the murders to various witnesses. The following recitation is drawn from these accounts. Johnson knocked on the door of the Duncans' home and asked if she could look at their telephone book. Johnson was carrying a cosmetics demonstration bag and claimed that she had an appointment to give a demonstration, but was uncertain of the address. She secured entry into the house, with Honken apparently right behind her. There was testimony that once the door was opened, Honken and Johnson "rushed" the occupants. While Johnson and Honken were in the house, one or both of them videotaped Nicholson making statements exculpating Honken. At some point, Johnson went upstairs with Kandi and Amber and had them pack up some of their things either to persuade the girls that they were going on a trip or to convince any subsequent visitors to the house that they had done so. Honken and Johnson *959 bound and gagged the adults with materials that either Honken or Johnson had brought to the house and drove the victims to a wooded area. Honken took the two adults out of the car and shot them in the head while Johnson waited in the car with the children. The children were then taken out of the car and shot as well. All four were placed in a single grave that had been dug earlier. As set forth below, their bodies were eventually discovered years later.
After the murders, Honken provided his attorney with the videotape in which Nicholson exculpated Honken. When Honken appeared for his plea hearing, which took place five days after the murders, he declined to plead guilty. His attorney told the prosecutor that the case was not as strong as the government had believed. The tape was eventually returned to Honken and never seen again.
With Nicholson missing, the government's attention turned to DeGeus. On October 27, 1993, several individuals were subpoenaed, including Johnson and DeGeus's friend, Aaron Ryerson. Ryerson was questioned about possible connections between Honken and DeGeus. After Ryerson spoke with DeGeus, DeGeus called Johnson and told her what Ryerson had said to him about his time before the grand jury. Nine days later, on November 5, DeGeus dropped his daughter off at his parents' house and told them that he was going to meet with Johnson. By this time, DeGeus suspected that something may have happened to Nicholson, and he was concerned that he might share Nicholson's fate. Although DeGeus knew that Johnson was involved with Honken, he apparently agreed to meet with her because he still had strong feelings for her. DeGeus was murdered that night. The evidence indicates that DeGeus was either shot by Honken and then beaten with a baseball bat or beaten first and then shot.[4]
Following DeGeus's disappearance, Johnson gave conflicting reports to police and others about the night he disappeared, telling some individuals that she had not seen him that night and telling others that she had seen him, but that he had left after they had spoken. During the fall of 1993, Gaubatz found a bag containing a large black handgun, which had a silencer attached to it, in her closet. Upset by this discovery, Gaubatz called Johnson, who retrieved the weapon.
In March 1995, the federal drug charges against Honken were dismissed. In 1995, Honken enlisted the assistance of Dan Cobeen to help with the methamphetamine operation, but before Cobeen was allowed to participate, Honken took him to see Johnson for her approval. Unbeknownst to Honken or Johnson, however, Cobeen was cooperating with law enforcement and provided the authorities with information about the methamphetamine operation.
On February 7, 1996, before Honken and his associates were able to produce methamphetamine, law enforcement agents executed a search warrant for Honken's home, whereupon they seized items related to the production of methamphetamine. Two months later, the government brought drug charges against Honken and Cutkomp. After Honken's arrest, Honken and Johnson discussed killing witnesses, including Cobeen and law enforcement agents. Cutkomp testified that Honken was reluctant to involve Johnson in any efforts to kill Cobeen because she was a "hot head and just wanted to go do just do it." Cutkomp was also worried about Johnson pushing Honken to *960 follow through with the plans. Honken pled guilty to drug charges in 1997. Around the time of the sentencing hearing, Johnson called Jeff Honken and yelled, "[I]f Dustin wasn't going to be able to see his kids she was going to make sure [Jeff Honken wasn't] going to be able to see [his]."
Johnson was charged with the murders in July 2000 and taken to the Benton County, Iowa, Jail, where she met another inmate, Robert McNeese. McNeese convinced Johnson that he was connected to the mob and that he could find an inmate already serving a life sentence who would confess to the murders. He told her that all he needed was information about the crimes so that this inmate could convince the authorities of his involvement. Johnson obliged, providing maps depicting the location of the victims' bodies and information about how they were killed. McNeese then provided this information to the authorities. Using the maps, officers found Nicholson and the Duncan family in a single grave. The two adults were found bound and gagged and had been shot multiple times, suffering gunshots to the head. DeGeus's body was found a few miles away in a field behind an abandoned house. He had suffered multiple gunshot wounds, and his skull had been fractured into dozens of pieces.
Johnson's trial was trifurcated into three phases: a "merits" phase, in which the jury found her guilty of the murders, an "eligibility phase," in which the jury determined that she was eligible for the death penalty, and a "selection phase," in which the jury voted for the death penalty for Johnson's participation in the deaths of Lori Duncan, Amber Duncan, Kandi Duncan, and Terry DeGeus. The jury voted for life imprisonment for Johnson's participation in Greg Nicholson's murder. In a separate trial, Honken was also convicted of the murders, but Honken, unlike Johnson, received life sentences for the murders of Lori Duncan and DeGeus.
II.
As indicated earlier, Johnson raises 28 issues on appeal. We will discuss in detail only those issues that we believe merit extended treatment, addressing the issues in roughly the same order as Johnson has presented them.
1. The proportionality of Johnson's death sentences under the Eighth Amendment
Johnson argues first that the district court erred in denying her motion to strike the death penalty from the indictment. She contends that because Honken, the principal, received life sentences for the murders of DeGeus and Lori Duncan, imposing the death penalty for their murders upon Johnson, who had only aided and abetted the killings, would be a disproportionate punishment, in violation of the Eighth Amendment. She also contends that because she was a mere aider and abettor whose conduct did not lead to the deaths of the victims, she was ineligible for the death penalty for any of the murders. Johnson provides little support for her contention that a district court may strike the death penalty from the indictment despite the government's compliance with the statutory prerequisites for seeking the death penalty. Nevertheless, because Johnson also appears to articulate a freestanding Eighth Amendment claim, we will address the merits of her contention that the imposition of the death penalty would constitute cruel and unusual punishment.
We do not believe that the disparity between Honken's and Johnson's sentences violates the Eighth Amendment. While the Supreme Court has "occasionally struck down punishments as inherently disproportionate, and therefore cruel and *961 unusual," Pulley v. Harris, 465 U.S. 37, 43, 104 S. Ct. 871, 79 L. Ed. 2d 29 (1984), the Court's review has traditionally entailed "an abstract evaluation of the appropriateness of a sentence for a particular crime." Id. at 42-43, 104 S. Ct. 871. In other words, traditional proportionality review hinges on whether a particular kind of crime warrants a particular punishment. For example, the Court has concluded that imposing the death penalty for the rape of an adult woman "is grossly disproportionate and excessive punishment for the crime of rape and is therefore forbidden by the Eighth Amendment as cruel and unusual punishment." Coker v. Georgia, 433 U.S. 584, 592, 97 S. Ct. 2861, 53 L. Ed. 2d 982 (1977). Similarly, the Court has determined that the death penalty is a disproportionate penalty for a defendant who is guilty of felony murder, but who did not kill, attempt to kill, or intend or contemplate that a killing would occur. Enmund v. Florida, 458 U.S. 782, 801, 102 S. Ct. 3368, 73 L. Ed. 2d 1140 (1982).
Johnson contends that the Eighth Amendment requires not only proportionality between a sentence and a particular category of crime, but also proportionality between codefendants' sentences. We disagree. The Supreme Court has rejected similar contentions, noting in McCleskey v. Kemp, 481 U.S. 279, 306-07, 107 S. Ct. 1756, 95 L. Ed. 2d 262 (1987), that a defendant cannot "prove a constitutional violation by demonstrating that other defendants who may be similarly situated did not receive the death penalty." Id.; see also United States v. Chauncey, 420 F.3d 864, 876 (8th Cir.2005) (remarking that "a defendant's sentence is not disproportionate merely because it exceeds his codefendant's sentence"), cert. denied, 547 U.S. 1009, 126 S. Ct. 1480, 164 L. Ed. 2d 258 (2006). It bears mention, too, that although we assume that the government presented similar evidence in both Honken's and Johnson's trials, the evidence may have differed slightly. In particular, Johnson has not apprised us of the mitigation evidence Honken presented in his trial. Two juries hearing similar, but not identical, evidence may well reach different conclusions regarding the proper penalty for their respective defendants. In addition, different verdicts may permissibly reflect not only differences between the facts presented at trial, but differences between the juries themselves. "Individual jurors bring to their deliberations qualities of human nature and varieties of human experience, the range of which is unknown and perhaps unknowable." McCleskey, 481 U.S. at 310-11, 107 S. Ct. 1756 (citation and quotation marks omitted). One cannot expect that two different juries each of which is composed of citizens with diverse backgrounds and values must necessarily reach the same verdict.
Johnson contends that Enmund supports the proposition that courts "must evaluate a defendant's culpability both individually and in terms of the sentences of codefendants and accomplices in the same case." (Appellant's Br. at 19). Johnson's reliance on Enmund is misplaced. In Enmund, two people were murdered during the course of a robbery while Enmund was sitting nearby in a car, waiting to help the robbers escape. Enmund was not present during the murders, did not intend that the victims be killed, and had not anticipated that "lethal force would or might be used if necessary to effectuate the robbery or a safe escape." Enmund, 458 U.S. at 788, 102 S. Ct. 3368. Both Enmund and the codefendants who had actually committed the murders were sentenced to death. The Supreme Court concluded that a death sentence "is an excessive penalty for the robber who, as such, does not take human life," id. at 797, 102 S. Ct. 3368, and that the death penalty was a disproportionate penalty for Enmund because he did not "kill, attempt to kill, or intend that a *962 killing take place or that lethal force will be employed." Id. at 797, 102 S. Ct. 3368. Enmund thus holds that the death penalty is too harsh a penalty for a certain category of crime.[5] In sum, we do not believe that Enmund assists Johnson, and we reject her contention that the disparity between her sentence and Honken's violates the Eighth Amendment. See Hatch v. Oklahoma, 58 F.3d 1447, 1466-67 (10th Cir.1995) (holding that the Eighth Amendment does not require codefendants' sentences to be proportional to one another).
Johnson also argues that the death penalty was disproportionate under Enmund and Tison v. Arizona, 481 U.S. 137, 107 S. Ct. 1676, 95 L. Ed. 2d 127 (1987), because she was only minimally involved in the murders, the deaths did not result from her actions, and she had not foreseen that life would be taken. We conclude that these contentions are unavailing. First, there was evidence that the killings resulted from her substantial participation in the murders; namely, that she procured the murder weapon, participated in the hunt for Nicholson, employed a ruse so that she and Honken could gain entry to the Duncans' residence, bound and gagged at least one of the victims, and exploited her relationship with DeGeus to lure him to the remote location where he was killed. There was thus sufficient evidence that Johnson was an essential participant in the murders.
There was also evidence that she intended that the killings occur. First, the jury reasonably rejected Johnson's suggestion that she had, at most, intended to participate in kidnaping Nicholson and the Duncans. Nicholson was a potential witness; if he remained alive there would be a danger that he might recant the exculpatory remarks he made about Honken in the videotape. The Duncans were witnesses to Honken's and Johnson's treatment of Nicholson. To be efficacious for Honken's and Johnson's purposes, a kidnapping would have necessarily constituted an involved, long-term affair. There was no evidence that any such scheme was in the works.[6] As for DeGeus's murder, the jury could have concluded that Johnson lured DeGeus to a secluded location where Honken could kill him, particularly in light of the fact that Johnson knew that Honken had killed Nicholson and the Duncans months earlier.
2. Federal Rule of Criminal Procedure 24(b) and Equal Protection
Johnson next argues that Federal Rule of Criminal Procedure 24(b) violates her equal protection rights. Under Fed. R.Crim.P. 24(b), defendants in non-capital felony cases are entitled to ten peremptory challenges, whereas the government receives six challenges. In a capital case, however, both the defendant and the government receive twenty peremptory challenges. *963 Fed.R.Crim.P. 24(b)(1). Johnson argues that Rule 24(b) violates her equal protection rights because defendants in non-capital cases have a more favorable ratio of peremptory challenges vis-á-vis the government than do defendants in capital cases. Johnson's argument is unavailing.
We reject first Johnson's suggestion that because Rule 24(b) burdens a fundamental constitutional right strict scrutiny applies. Peremptory challenges are not "of federal constitutional dimension." United States v. Martinez-Salazar, 528 U.S. 304, 311, 120 S. Ct. 774, 145 L. Ed. 2d 792 (2000). Instead, the right to peremptory challenges "is in the nature of a statutory privilege," Frazier v. United States, 335 U.S. 497, 506 n. 11, 69 S. Ct. 201, 93 L. Ed. 187 (1948), provided to help secure the defendant's constitutional right to a fair trial. Id. at 505, 69 S. Ct. 201. We also reject Johnson's argument that Rule 24(b) fails rational-basis review. Johnson contends that if defendants need more peremptories than the government in non-capital cases, then defendants also need more peremptories than the government in capital cases. Rational-basis review, however, does not require a perfect or exact fit between the means used and the ends sought. Bankers Life & Cas. Co. v. Crenshaw, 486 U.S. 71, 85, 108 S. Ct. 1645, 100 L. Ed. 2d 62 (1988) (noting that a statute need not be "perfectly calibrated in order to pass muster under the rational-basis test"). The legislature is not required to calculate with precision the exact number of challenges necessary to help secure the defendant's right to a fair trial. Nor is the legislature required to arrive at a perfect defendant-to-government ratio. Although the government does not squarely proffer a reason for the disparity between the ratio of government-to-defendant challenges in capital and non-capital cases, its briefing suggests, and the progress of this case confirms, that in a capital case, the venire panel's views on the death penalty become the primary pivot around which jury selection turns. The government and the defense arguably have an equal interest in exploring the jurors' attitudes. Rule 24(b) may not be "perfectly calibrated," perhaps, but it passes rational-basis muster.
3. Johnson's Sixth Amendment rights and her right to peremptory challenges
Johnson argues that her Sixth Amendment right to an impartial jury was violated because the district court erroneously denied her for-cause challenges to more than a dozen jurors. She also contends that the district court's error impaired her right to exercise peremptory challenges because she was forced to expend a number of her peremptory challenges on jurors who should have been excused for cause.
A. Sixth Amendment argument
Because Johnson exercised peremptory challenges to prevent all the challenged jurors except juror 600 from sitting on her jury, juror 600 is the only juror about whom she can raise a Sixth Amendment objection. See United States v. Nelson, 347 F.3d 701, 710 (8th Cir.2003) (claim that district court erred by not excluding four penalty-phase jurors for cause lacked merit because the defendant had used peremptory challenges to prevent the challenged jurors from sitting on the jury); United States v. Paul, 217 F.3d 989, 1004 (8th Cir.2000) (noting that the defendant's claim on appeal concerning district court's denial of challenge for cause was unavailing because, inter alia, the three challenged jurors did not sit on the jury).
The district court did not abuse its discretion in denying Johnson's motion to strike juror 600. A venireperson may be properly excluded from sitting in a *964 capital case if the venireperson's views on capital punishment would "prevent or substantially impair the performance of his duties as a juror in accordance with his instructions and his oath." Wainwright v. Witt, 469 U.S. 412, 424, 105 S. Ct. 844, 83 L. Ed. 2d 841 (1985). "Because the trial judge is in the best position to analyze the demeanor and credibility of a venireman, we will not reverse a court's rulings absent an abuse of discretion." United States v. Ortiz, 315 F.3d 873, 888 (8th Cir.2002); see also Uttecht v. Brown, ___ U.S. ___, 127 S. Ct. 2218, 2223-25, 167 L. Ed. 2d 1014 (2007) (concluding that a trial judge's determinations regarding substantial impairment should be accorded deference). Johnson contends that juror 600 should have been struck because he stated that his empathy for the victim's family and the fact that the crime involved children could affect his judgments about the case. She also asserts that juror 600 would not consider any deals that a prisoner may have received or might hope for in weighing the prisoner's testimony. Although the juror gave some equivocal answers and acknowledged the possibility that his judgment could be affected by some aspects of the case, the district court concluded that juror 600 could be fair and impartial and that his statements reflected the "reasonable self doubts" of a conscientious and reflective person. Moreover, although he initially indicated little interest in whether witnesses hoped for sentencing reductions in exchange for their testimony, juror 600 stated that he would consider the motivations of witnesses in testifying and acknowledged the "real possibility" that some witnesses might lie to obtain some sort of benefit. We therefore cannot say that the district court abused its discretion in denying Johnson's for-cause challenge to this juror.
B. Impairment of her right to exercise peremptory challenges
Johnson contends also that her statutory entitlement to twenty peremptory challenges was impaired because she was, as she puts it, forced to "waste" 60% of her peremptory challenges on jurors who should have been stricken for cause. We disagree. In Martinez-Salazar, the Supreme Court held that a defendant's right to exercise peremptory challenges is not impaired when the defendant elects to use her challenges to remove jurors who should have been stricken for cause. Martinez-Salazar, 528 U.S. at 317, 120 S. Ct. 774. In reaching this conclusion, the Court noted that peremptory challenges are "auxiliary" to the right of an impartial jury and that they are one means of ensuring a fair trial, but are not themselves of "federal constitutional dimension." Id. at 311, 120 S. Ct. 774; see also Frazier, 335 U.S. at 505, 69 S. Ct. 201 ("the right [to peremptory challenges] is given in aid of the party's interest to secure a fair and impartial jury . . ."). Accordingly, Johnson did not, to use her phrase, "waste" her peremptory challenges. Instead, she "used the challenge[s] in line with a principal reason for peremptories: to help secure the constitutional guarantee of trial by an impartial jury." Martinez-Salazar, 528 U.S. at 316, 120 S. Ct. 774.[7]
Johnson suggests that her case is distinguishable from Martinez-Salazar because *965 unlike Martinez-Salazar, who "did not ask for a makeup peremptory or object to any juror who sat," id. at 318, 120 S. Ct. 774 (Souter, J., concurring), Johnson requested additional peremptory challenges and objected to juror 600. She also asserts that her case is distinguishable, both from Martinez-Salazar, as well as cases applying Martinez-Salazar, because of the sheer number of challenges she expended in removing jurors that she thought should have been removed for cause. We do not consider this sufficient reason to depart from the Martinez-Salazar rule. The language used by the Court does not suggest that the rule of law Martinez-Salazar enunciates hinges on how many peremptory challenges the defendant exercised for curative purposes or how the defendant would have otherwise employed her challenges if she had not used them curatively. The constitutional touchstone, we believe, is the right to a fair trial, and we are not persuaded that Johnson has been deprived of this right. Nor has she shown that her jury or the voir dire process was constitutionally objectionable in any other way. Because Johnson received the twenty challenges to which she was entitled under Rule 24, and because she has not shown that she was denied either the right to a fair trial or any other constitutional right, we conclude that her claim is unavailing.[8]
4. The denial of Johnson's request for additional peremptory challenges
The district court denied Johnson's request for additional peremptory challenges beyond the twenty to which she was entitled under Rule 24. Johnson contends that the denial was improper because she needed the additional challenges to cure the effects of pretrial publicity. Assuming for the sake of argument that the district court had the authority to grant additional peremptory challenges, we cannot discern any error in the denial of Johnson's motion. Johnson was able to challenge for cause jurors adversely affected by pretrial publicity and, if those challenges were denied, exercise her peremptory challenges. She does not appear to allege that any of the sitting jurors were prejudiced by pretrial publicity. Moreover, as the district court noted, the responses to the juror questionnaires indicated that the influence of pretrial publicity did not appear likely to impair Johnson's ability to receive a fair trial. Johnson, 403 F.Supp.2d at 721, 768-69. If Johnson had felt that the voir dire testimony of the jurors belied that conclusion, she could have elected to renew her motion for a change of venue during, or at the conclusion of, jury selection, but she did not. Id. In light of the foregoing, we cannot say that the district court erred in declining to provide Johnson with a greater number of peremptory challenges than the 20 provided by Rule 24(b).
5. The district court's exclusion of two jurors
Johnson argues that the district court erred in striking for cause jurors 458 and 769. When juror 458 was asked if he would consider the death penalty an appropriate punishment for an intentional murder, he responded, "I'd have to say no," adding, "I believe in mercy too." Shortly thereafter he stated, "Well, I think living with the guilt is penalty enough in my opinion. You know, how much worse can it get?" He also remarked that he would vote for a life sentence without the possibility of parole 99% of the time. The district court's determination that this juror *966 was substantially impaired was not an abuse of discretion.
Juror 769 gave markedly inconsistent and equivocal answers to the questions posed to her in the juror questionnaire and during voir dire, and twice expressed reservations about her ability to sign a verdict slip that would have the practical effect of sentencing someone to death. The district court remarked that juror 769 "was the quintessential example of a juror whose answers were so equivocal, ambiguous, and inconsistent, that the court was entitled, if not absolutely required, to remove her for cause." Johnson, 403 F.Supp.2d at 784. We cannot say that excluding this juror constituted, an abuse of discretion.
6. The prosecutor's statements to the jurors that the jurors were permitted to give no weight to various mitigating factors
Johnson contends that the district court erred in allowing the prosecutor to tell jurors during voir dire that, although they were required to consider them, the jurors were permitted to give certain mitigating evidence "no weight" in determining Johnson's sentence. Johnson also asserts that the prosecutor improperly stated during the selection-phase closing arguments that the jurors should not give any weight to the fact that Johnson had no prior criminal record.
Sentencers "may determine the weight to be given relevant mitigating evidence. But they may not give it no weight by excluding such evidence from their consideration." Eddings v. Oklahoma, 455 U.S. 104, 114-15, 102 S. Ct. 869, 71 L. Ed. 2d 1 (1982). A capital jury is not required "to give mitigating effect or weight to any particular evidence." Paul, 217 F.3d at 999-1000 (citing Boyde v. California, 494 U.S. 370, 377, 110 S. Ct. 1190, 108 L. Ed. 2d 316 (1990)). "There is only a constitutional violation if there exists a reasonable likelihood that the jurors believed themselves precluded from considering relevant mitigating evidence." Id. at 1000 (citing Boyde, 494 U.S. at 386, 110 S. Ct. 1190).[9] Based on our review of the voir dire transcript, particularly those portions of the transcript to which Johnson draws our attention, we conclude that the prosecutor's comments and questions accurately reflected the law: jurors are obliged to consider relevant mitigating evidence, but are permitted to accord that evidence whatever weight they choose, including no weight at all.
We also reject Johnson's contention that the prosecutor improperly urged the jury to accord no weight to the fact that Johnson had no prior criminal record. The prosecutor did not suggest that the jury was permitted to exclude this factor from its consideration. Instead, the prosecutor acknowledged that Johnson had no prior criminal record, but suggested that this fact should be accorded no weight because there was evidence that Johnson had committed various crimes for which she had not been arrested or charged.[10]
7. Sufficiency of the evidence
Johnson argues that the evidence was insufficient to show that the murders were *967 committed in furtherance of a conspiracy and that the government failed to establish the elements of CCE murder.
A. Conspiracy Murder
Johnson asserts first that the murders could not have been committed in furtherance of a drug conspiracy because the conspiracy had ended in late 1992 when Cutkomp left Arizona and Honken told his brother that he was going to stop producing methamphetamine. This assertion is incorrect because, despite what Honken may have told his brother, and despite Cutkomp's move to Iowa, the evidence, including the evidence of the events culminating in Honken's March 1993 arrest, demonstrates that Honken and Cutkomp had in fact continued their methamphetamine-related activities. Johnson also suggests that the conspiracy terminated no later than March 1993, when Honken and others were arrested and Nicholson began cooperating with the authorities. A conspiracy may persist, however, "even if the participants and their activities change over time, and even if many participants are unaware of, or uninvolved in, some of the transactions." United States v. Roach, 164 F.3d 403, 412 (8th Cir.1998).
Here, in addition to the murders undertaken to preserve the conspiracy, cf., United States v. Hamilton, 332 F.3d 1144, 1149-50 (8th Cir.2003) ("Eliminating a witness to a murder at the drug house could logically be seen to further the conspiracy by making it less likely that the operation would be shut down as a result of a murder investigation."), there was sufficient evidence to support a finding that a conspiracy to manufacture and sell methamphetamine, with Honken at its center, continued from 1992 through 1996, Honken's 1993 arrest notwithstanding. A couple of months after Honken was arrested, Honken asked Cutkomp to obtain chemicals so that Honken could produce more methamphetamine that Honken could sell to pay off Nicholson or DeGeus. Although Cutkomp did not complete that particular task, he testified that from the time of the disappearances through about 1995, he occasionally assisted Honken in Honken's attempts to manufacture methamphetamine. Cutkomp's participation also included trips to purchase chemicals in 1995 and the disposal of evidence in 1996. Johnson participated also. In addition to her role in the murders, in 1994, Johnson supplied money to purchase chemicals, and some of Honken's attempts to manufacture methamphetamine took place at Johnson's home.
B. CCE Murder
Johnson also argues that the government failed to prove the elements of CCE murder. To establish CCE murder, the government must prove: 1) that an individual is engaged in or working in the furtherance of a CCE; 2) that this person intentionally commanded, induced, procured or caused the killing; 3) that the killing actually resulted; and 4) that there was a substantive connection between the killing and the CCE. See United States v. Jones, 101 F.3d 1263, 1267 (8th Cir.1996). Here, Johnson was charged with aiding and abetting a CCE murder.[11] Consequently, the district court instructed the jury that the second element of the offense would be met if Johnson aided and abetted the killing. The CCE alleged in this case was the drug operation organized by *968 Honken. To establish the existence of this CCE, the government was required to prove: 1) that Honken committed a felony violation of the federal narcotics laws; 2) as part of a continuing series of three or more violations; 3) in concert with five or more other persons; 4) for whom Honken was an organizer, manager, or supervisor; 5) from which Honken derived substantial income or resources. See United States v. Jackson, 345 F.3d 638, 645 (8th Cir.2003) (citing United States v. Jelinek, 57 F.3d 655, 657 (8th Cir.1995)).
Johnson alleges several infirmities in the government's CCE murder case. She contends first that the CCE, like the conspiracy, had ended before the murders took place, reiterating the arguments she made regarding the conspiracy murder charge. For essentially the same reasons stated above, we conclude that this contention lacks merit. She also asserts that Honken did not supervise five or more CCE participants. In particular, she contends that two of the alleged CCE participants, Nicholson and DeGeus, were not managed by Honken because they had only a buyer-seller relationship with him.[12] We disagree. The "management element is established by demonstrating that the defendant exerted some type of influence over another individual as exemplified by that individual's compliance with the defendant's directions, instructions, or terms." United States v. Possick, 849 F.2d 332, 336 (8th Cir.1988). There was evidence that Nicholson and DeGeus were not merely customers, but were directed by Honken in a drug distribution scheme. They were often described as having sold drugs "for" Honken, and the evidence indicates that Honken "fronted" them the drugs, that they remitted some of their drug proceeds to Honken, and that this was an ongoing relationship coordinated by Honken. Cf. Possick, 849 F.2d at 336 (noting that although merely fronting drugs to another person will not suffice to establish supervision, supervision may be found where the defendant fronted another individual drugs and instructed him how to arrange for collection and payment of drugs); United States v. Apodaca, 843 F.2d 421, 427 (10th Cir.1988) (explaining that drug dealers who were fronted drugs by the defendant to whom they passed back a portion of the proceeds from the drug sales were not mere "consumers"). The quantity of drugs coupled with the ongoing relationship also suggests that Nicholson and DeGeus were not merely Honken's customers. See United States v. Prieskorn, 658 F.2d 631, 634-35 (8th Cir. 1981) (noting that the large quantity of cocaine and evidence of an ongoing relationship with suppliers indicated participation in conspiracy). We also note that Nicholson stored drugs for Honken. In sum, we conclude that Honken supervised Nicholson and DeGeus and that the elements of CCE murder were established.[13]
8. Admission of evidence relating to Honken's guilty plea
Johnson moved in limine for the exclusion of evidence pertaining to Honken's 1997 guilty plea, conviction, and sentence. Although she appears to agree that the fact of Honken's 1997 conviction was relevant, she argued to the district court *969 that neither Honken's sentence nor the "particular crimes" with which Honken was charged and to which he pled guilty were relevant. The government responded that evidence of the specific charges was relevant to provide context for statements that Honken made to Cutkomp and Cobeen, but agreed that the sentence was not relevant. The district court ordered that evidence of the sentence be excluded, but ruled that evidence pertaining to the specific charges would be admitted. Accordingly, the government was permitted to introduce exhibits 303 and 304, which reflected the crimes with which Honken was charged, the sentences he received, and the amount of methamphetamine for which he was held accountable. The government was also allowed to introduce the transcript of Honken's plea colloquy. During the merits-phase closing arguments, one of the prosecutors stated, "There were two [violations] for which [Honken] pled guilty, Exhibits 303 and 304. In the evidence in this case and you'll have them back in the jury room set forth his guilty plea and conviction as to two federal felony drug convictions."
Johnson contends that the two exhibits should not have been admitted and that the prosecutor improperly used this evidence of Honken's guilty plea as substantive evidence of Johnson's guilt. Cf. United States v. Rogers, 939 F.2d 591, 594 (8th Cir.1991) (per curiam) ("Any time a guilty plea of a co-offender is either directly or indirectly brought into a trial, trial courts must ensure that it is not being offered as substantive proof of the defendant's guilt."). We conclude that even if these exhibits were improperly admitted or used for an improper purpose, any error was harmless. Although Johnson argues that the jury should not have learned which specific crimes were involved, a reasonable juror who heard the other trial evidence would have assumed that the crimes in question involved methamphetamine. Similarly, the prospect of prejudice was diminished because, even without evidence of the guilty pleas, there was overwhelming evidence of Honken's participation in methamphetamine-related crimes during the relevant period of time. Finally, Johnson's defense did not center on whether or not Honken was involved in drug crimes, but rather on whether Johnson had knowingly participated in the murders.
9. Admission of bad acts evidence
Johnson argues next that the district court erred in permitting the introduction of evidence pertaining to bad acts committed subsequent to the murders, some of which took place years after the killings. She asserts that these bad acts were either more prejudicial than probative under Federal Rule of Evidence 403 or constituted impermissible propensity evidence pursuant to Federal Rule of Evidence 404(b). We disagree. Johnson was charged with murders committed in furtherance of a methamphetamine conspiracy and a CCE that allegedly extended from 1992 through 1998. Most of the bad acts to which Johnson refers on appeal relate to Johnson's participation in the production of methamphetamine or her attempts to influence witnesses to Honken's methamphetamine offenses, which were relevant to establish the existence of, and Johnson's involvement in, the conspiracy or CCE.[14] Indeed, one of the subsequent bad acts about which Johnson complains, evidence that she possessed chemicals and equipment related to the manufacture of methamphetamine at her home in Clear *970 Lake, Iowa, was one of the alleged predicate offenses.
Johnson devotes most of her discussion of this issue to the admission of testimony by Rick Held, an acquaintance of Honken's. Held testified that in 1998, a woman identifying herself as Honken's girlfriend called him on the telephone and told him that Honken did not need a "pup" (which evidently referred to a firearm that Honken had asked Held to acquire for him) anymore. Johnson suggests that this testimony should not have been admitted because Honken had two girlfriends and thus the statement could not have been properly attributed to Johnson. There was evidence, however, from which the jury could infer that it was Johnson who made this call, rather than another girlfriend. Having examined the record, we conclude that admission of the other subsequent bad acts evidence was proper as well.[15]
10. Admission of hearsay statements
Johnson contends that the admission of certain hearsay statements violated both her confrontation rights as well as the Ex Post Facto Clause of the Constitution. Because most of the statements to which Johnson objects were made by Nicholson and DeGeus, we will devote most of our analysis to the admission of these statements.[16] Nicholson's and DeGeus's hearsay statements were admitted pursuant to the forfeiture by wrongdoing doctrine as codified by Federal Rule of Evidence 804(b)(6). As we explained in United States v. Emery, 186 F.3d 921 (8th Cir. 1999), a defendant's confrontation rights under the Sixth Amendment are "forfeited with respect to any witness or potential witness whose absence a defendant wrongfully procures." Id. at 926. "Hearsay objections are similarly forfeited under Fed. R.Evid. 804(b)(6), which excludes from the prohibition on hearsay any `statement offered against a party that has engaged or acquiesced in wrongdoing that was intended to, and did, procure the unavailability of the declarant as a witness.'" Id. (quoting Fed.R.Evid. 804(b)(6)). Forfeiture under Rule 804(b)(6) applies not only in the original cases for which the declarant was an actual or potential witness, but also in any prosecution pertaining to the wrongful procurement of the witness's unavailability. Id. In Emery, for example, the defendant murdered the woman who was cooperating with law enforcement in a drug investigation against him. Id. at 924-26. We concluded that Emery had forfeited his hearsay and confrontation objections not only with respect to "a trial on the underlying crimes about which he feared [the victim] would testify," but also "in a trial for murdering her." Id. at 926.
A. Ex Post Facto Clause
Johnson argues that the Ex Post Facto Clause of the Constitution precludes the application of the forfeiture by wrongdoing doctrine in her case because the rule of evidence codifying the doctrine, Rule 804(b)(6), was enacted four years after the murders took place. The argument lacks merit because Rule 804(b)(6) reflects legal principles that were well and widely recognized at the time of the murders. See Fed.R.Evid. 804, notes of advisory committee on 1997 amendments (collecting cases).
Moreover, even if the enactment of Rule 804(b)(6) had enlarged the category of admissible evidence in a criminal case, we doubt that this would constitute an ex post facto violation. The Ex *971 Post Facto Clause prohibits, inter alia, the application of any "law that alters the legal rules of evidence, and receives less, or different testimony, than the law required at the time of the commission of the offense, in order to convict the offender." Calder v. Bull, 3 U.S. 386, 390, 3 Dall. 386, 1 L. Ed. 648 (1798) (opinion of Chase, J.). Laws that "`simply enlarge the class of persons who may be competent to testify in criminal cases' do not offend the ex post facto prohibition because they do not . . . alter the degree or lessen the amount or measure of proof necessary to convict the defendant." Palmer v. Clarke, 408 F.3d 423, 430-31 (8th Cir.2005) (quoting Hopt v. Utah, 110 U.S. 574, 589, 4 S. Ct. 202, 28 L. Ed. 262 (1884)), cert. denied sub nom. Palmer v. Houston, 546 U.S. 1042, 126 S. Ct. 755, 163 L. Ed. 2d 588 (2005). Accordingly, even if the enactment of Rule 804(b)(6) had enlarged the class of admissible hearsay, this expansion would not violate the Ex Post Facto Clause. We thus find unavailing Johnson's ex post facto objection to Rule 804(b)(6).
B. Applicability of the Forfeiture by Wrongdoing Doctrine
Johnson also contends that her case is distinguishable from Emery and that the forfeiture by wrongdoing doctrine is inapplicable because she did not endeavor to procure the unavailability of any witnesses against her. She also contends that the doctrine could not apply to her because she had been accused only of aiding and abetting the murders. The question, therefore, is whether the doctrine applies when a defendant aids and abets the murder of a potential witness against another person. We conclude that it does.
We observe first that the scope of the forfeiture by wrongdoing doctrine under common law may differ from the version of the doctrine established by Rule 804(b)(6). The Sixth Circuit in United States v. Garcia-Meza, 403 F.3d 364 (6th Cir.2005), noted that although Rule 804(b)(6) may require that the defendant intend to procure a witness's unavailability to testify, under the common law forfeiture doctrine a defendant's confrontation rights may be extinguished even if her misconduct was not specifically directed toward rendering the witness unavailable. Id. at 370. Because the requirements for forfeiture under Rule 804(b)(6) are arguably more stringent than those under the common law version of the doctrine, a matter we need not and do not resolve today, and because the statements at issue here must, in any case, be admissible under the Federal Rules of Evidence (any forfeiture of Johnson's confrontation rights notwithstanding), our analysis will focus on the requirements of the Rule 804(b)(6).
The fact that Johnson may have only aided and abetted the procurement of the witnesses' unavailability is of little moment. If a defendant's role as an aider and abettor may constitute sufficient participation in a murder to warrant the imposition of a death sentence, such conduct should also suffice for the forfeiture of hearsay and confrontation objections. In other words, it "would make little sense to limit forfeiture of a defendant's trial rights to a narrower set of facts than would be sufficient to sustain a conviction and corresponding loss of liberty." United States v. Cherry, 217 F.3d 811, 818 (10th Cir.2000); see also United States v. Carson, 455 F.3d 336, 364 (D.C.Cir.2006) (suggesting that if members of a conspiracy agree to kill potential witnesses against them, all of the members of the conspiracy would be criminally responsible for resulting murders and "there is no good reason why the murder should give any of them an evidentiary advantage"), cert. denied, ___ U.S. ___, 127 S. Ct. 1351, 167 L. Ed. 2d 146 (2007). Furthermore, Rule 804(b)(6) applies when a defendant has "engaged or acquiesced in wrongdoing" procuring a *972 witness's unavailability. We believe that this language encompasses Johnson's substantial involvement in procuring the witnesses' unavailability.
We also conclude that Rule 804(b)(6) applies to Johnson even though she had worked to procure the unavailability of potential witnesses against Honken rather than against herself. "`Because the Federal Rules of Evidence are a legislative enactment, we turn to the traditional tools of statutory construction in order to construe their provisions. We begin with the language itself.'" United States v. Gray, 405 F.3d 227, 241 (4th Cir.2005) (quoting Beech Aircraft Corp. v. Rainey, 488 U.S. 153, 163, 109 S. Ct. 439, 102 L. Ed. 2d 445 (1988)), cert. denied, 546 U.S. 912, 126 S. Ct. 275, 163 L. Ed. 2d 245 (2005). The words of Rule 804(b)(6) provide only that the defendant must procure the unavailability of a witness they do not specify the person against whom the unavailable witness was to have testified. After all, the purpose of Rule 804(b)(6), as the advisory committee to the Federal Rules of Evidence stated, was to enact a "prophylactic rule to deal with abhorrent behavior which strikes at the heart of the system of justice itself." Fed.R.Evid. 804(b)(6), notes of advisory committee on 1997 amendments (citation and quotation marks omitted). Johnson's conduct was no less abhorrent and no less offensive to "the heart of the system of justice itself" because she procured the unavailability of witnesses against Honken rather than against herself. Moreover, applying Rule 804(b)(6) in Johnson's case is consonant with the equitable rationales for the forfeiture by wrongdoing doctrine, which includes preventing individuals from profiting from their own wrongdoing. Gray, 405 F.3d at 242 (collecting cases and observing that "federal cases have recognized that the forfeiture-by-wrongdoing exception is necessary to prevent wrongdoers from profiting by their misconduct"). We also observe that in conspiracy cases, witnesses' cooperation with the government threatens not only the liberty of the particular conspirators against whom the witness may testify, but the viability of the conspiracy as a whole; and an investigation or prosecution that might start with one conspirator may result in charges being levied against other conspirators as well. In sum, it would make little sense in a case such as this to parse the forfeiture doctrine as finely as Johnson proposes. We conclude that the district court reasonably found by a preponderance of the evidence that Johnson had forfeited her confrontation and hearsay objections to the admission of statements by Nicholson and DeGeus.[17]
11. Commentary on Johnson's post-arrest, post-Miranda warnings silence
During the government's merits-phase closing arguments, one of the prosecutors argued that if Johnson had been tricked by Honken into participating in the murders, as she essentially claimed, she would have said so when she spoke about the murders with various individuals. The *973 prosecutor also displayed a chart during closing argument that read as follows:
Gaubatz: no claim of innocence
McNeese: no claim of innocence
Bramow: no claim of innocence
S. Johnson & W. Jacobson: no claim of innocence
Baca: no claim of innocence
Hoover: no claim of innocence
Yager: no claim of innocence
Johnson contends that the prosecutor's remarks and his use of the chart was tantamount to improper commentary on her failure to testify and on her post-arrest silence. We disagree. We cannot see how any of the prosecutor's remarks could be reasonably interpreted as a comment on Johnson's decision to not testify. Johnson asserts that the prosecutor's remarks implied that Johnson was under an obligation to proclaim her innocence, but that plainly was not what the prosecutor was arguing. The prosecutor was contending instead that the jury could infer, relying on its common sense understanding of human motivations, that if Johnson had been duped by Honken, she would have stressed that detail when she spoke with others about the crimes. As for the chart, we do not believe that it constitutes either a direct or indirect comment on Johnson's failure to testify. Cf. Graham v. Dormire, 212 F.3d 437, 439 (8th Cir.2000) (stating that a prosecutor may not directly comment on a defendant's failure to testify and that an indirect comment is impermissible if it manifests "the prosecutor's intent to call attention to a defendant's failure to testify or would be naturally and necessarily taken by a jury as a comment on the defendant's failure to testify").
Nor was there improper commentary on Johnson's post-arrest silence. Ordinarily, a defendant's post-arrest, post-Miranda warnings silence may not be used against her. Doyle v. Ohio, 426 U.S. 610, 619-20, 96 S. Ct. 2240, 49 L. Ed. 2d 91 (1976). The reasons for this rule are two-fold: 1) such silence may be nothing more than an arrestee's exercise of her constitutional rights; and 2) because the Miranda warnings carry an "implicit assurance" that an arrestee's silence will not be used against her, using her silence would unfairly penalize her for relying on these assurances. United States v. Frazier, 408 F.3d 1102, 1110 (8th Cir.2005) (citing Doyle, 426 U.S. at 617-18, 96 S. Ct. 2240), cert. denied, 546 U.S. 1151, 126 S. Ct. 1165, 163 L. Ed. 2d 1130 (2006). We have observed, however, that the "`privilege against compulsory self-incrimination is simply irrelevant to a citizen's decision to remain silent when [s]he is under no official compulsion to speak.'" Frazier, 408 F.3d at 1110 (quoting Jenkins v. Anderson, 447 U.S. 231, 241, 100 S. Ct. 2124, 65 L. Ed. 2d 86 (1980) (Stevens, J., concurring)). In other words, "in determining whether the privilege [to remain silent] is applicable, the question is whether petitioner was in a position to have his testimony compelled and then asserted his privilege, not simply whether he was silent." Jenkins, 447 U.S. at 244, 100 S. Ct. 2124 (Stevens, J., concurring). Thus, we concluded in Frazier that testimony regarding a defendant's post-arrest, pre-Miranda silence does not necessarily constitute a Doyle violation because the mere fact of arrest does not itself give rise to a "government-imposed compulsion to speak" triggering the assertion of an arrestee's Fifth Amendment privilege. Frazier, 408 F.3d at 1111. Here, Johnson's silence was not an exercise of her privilege to remain silent because she was under no official compulsion against which such a privilege would be asserted. Nor is there any reason to believe that Johnson was somehow relying on an implicit assurance by the government that her silence would not be used against her. Cf. Fletcher v. Weir, 455 U.S. 603, 606, 102 S. Ct. 1309, 71 L. Ed. 2d 490 (1982) (per curiam) ("[W]e have consistently explained Doyle as a *974 case where the government had induced silence by implicitly assuring the defendant that his silence would not be used against him."). In sum, as the district court observed, "Johnson has not shown how, when, or why her right to remain silent had attached as to any of these witnesses." Johnson, 403 F.Supp.2d at 828.[18]
12. Merits-phase jury instructions
Johnson's next claim of error concerns the district court's instructions to the jury pertaining to the merits phase of the trial.
Johnson contends that the district court should have given her proposed jury instruction informing the jury that a mere buyer-seller relationship between Honken and others was not sufficient to show that Honken managed or supervised these individuals. We disagree. The district court's instructions informed the jury that the prosecution was required to prove "that Dustin Honken exerted some type of influence over five or more other persons, as shown by these individuals' compliance with his directions, instructions, or terms for performing the activities of the CCE." We believe that these instructions adequately stated the law, as they largely tracked our description of the management element in Possick, 849 F.2d at 336. Moreover, the instructions gave Johnson room to argue that a mere buyer-seller relationship between Honken and others would be insufficient to make Honken a manager or supervisor over these individuals.[19]
Johnson also alleges various defects in the instructions relating to the predicate CCE offenses. Her principal complaint is that the articulation of several of these offenses, which tracks the language of the indictment, is so vague that it violated her right to a unanimous verdict on the predicate offenses underlying the CCE. The district court concluded that all of her complaints about the instructions as they pertain to the CCE predicates essentially reiterate objections to the indictment that it had already deemed waived as untimely. Johnson, 403 F.Supp.2d at 837. In any case, the instructions provide that each predicate offense must be found unanimously.
Johnson appears to be contending that because several of the offenses were alleged to have occurred on unknown dates over an extended period of time, the jurors may have reached different conclusions regarding some of the facts underlying these offenses. Jurors may, however, differ on such "underlying brute facts" as long as they attain unanimity that a particular *975 predicate offense occurred. Cf. Richardson v. United States, 526 U.S. 813, 817, 119 S. Ct. 1707, 143 L. Ed. 2d 985 (1999) (noting the distinction between elements of the offense and the underlying facts of the offense). In a trial for a crime requiring the threat of force, for example, jurors could differ on whether a defendant used a knife or a firearm so long as they reached unanimity that the required element had been met. Id. Finally, even if the first seven alleged predicates about which Johnson complains were defective, the jury found five other offenses, thus rendering harmless any error.
We have considered Johnson's other allegations regarding the merits-phase jury instructions and conclude that they lack merit.
13. Johnson's eligibility for the death penalty
Johnson contends that she was not eligible for the death penalty for the murders of Lori Duncan or DeGeus because there was insufficient evidence that she personally committed the murders in a manner that involved torture or serious physical abuse.[20] She also contends that she was not eligible for the death penalty for Lori Duncan's murder because the evidence was insufficient to demonstrate that Lori Duncan's murder involved torture or serious physical abuse.
Johnson does not challenge on appeal the instructions the district court gave on the statutory aggravating factors, and she provides no authority for her suggestion that this aggravating factor required her to personally commit the murders. The instructions required the jury to find that Johnson "committed the offense in question in an especially heinous, cruel, or depraved manner in that it involved torture or serious physical abuse of the victim." Although Johnson may not have pulled the trigger, the jury was warranted in concluding that her conduct "involved" the "torture or serious physical abuse" required to find this enhancement.[21] As for Lori Duncan's murder specifically, in addition to the "prolonged mental harm"[22] that this young mother undoubtably suffered as she and her children were forcibly taken from their home, there was evidence that she had been bound and gagged, had suffered fractures to her pelvic bone and left hand, and had suffered at least one gunshot wound more than necessary to end her life. The evidence thus establishes both torture and serious physical abuse.
14. Admission of Steven Vest's testimony
During the selection phase, the district court allowed Steven Vest, who had been incarcerated with Honken, to testify to statements that Honken had made to Vest about the murders. Johnson argues that the admission of Vest's testimony violated her rights under the Confrontation Clause, that his statements were constitutionally unreliable, and that the probative value of *976 Vest's testimony was outweighed by its potential for unfair prejudice. We disagree.
First, the admission of Vest's statements did not violate Johnson's confrontation rights. The Confrontation Clause bars the "`admission of testimonial statements of a witness who did not appear at trial unless he was unavailable to testify, and the defendant had had a prior opportunity for cross-examination.'" Davis v. Washington, ___ U.S. ___, 126 S. Ct. 2266, 2273, 165 L. Ed. 2d 224 (2006) (quoting Crawford v. Washington, 541 U.S. 36, 53-54, 124 S. Ct. 1354, 158 L. Ed. 2d 177 (2004)). Only testimonial statements implicate a defendant's confrontation rights. Crawford, 541 U.S. at 53-54, 124 S. Ct. 1354. Testimonial statements typically include "`solemn declaration[s] or affirmation[s] made for the purpose of establishing or proving some fact.'" Crawford, 541 U.S. at 51, 124 S. Ct. 1354 (quoting 2 N. Webster, An American Dictionary of the English Language (1828)). Although the Supreme Court has not provided a comprehensive definition of the phrase "testimonial," and the outer boundaries of the term have yet to be established, we conclude that Honken's remarks fall safely outside the scope of testimonial hearsay. Honken was not making "formal statement[s]." Id. at 51, 124 S. Ct. 1354. Nor were his statements elicited in response to government interrogation whose primary purpose was to establish facts potentially relevant to a criminal prosecution. See Davis, 126 S.Ct. at 2273-74 (describing testimonial statements made during the course of a police interrogation). In other words, when Honken spoke with Vest he did not "bear testimony," Crawford, 541 U.S. at 51, 124 S. Ct. 1354 (citation and quotation marks omitted), in any relevant sense of the term, and the admission of his statements, through Vest's testimony, did not violate Johnson's confrontation rights.[23]
Second, we do not agree that Vest's testimony was so unreliable that its admission violated Johnson's due process rights. "Due process requires that some minimal indicia of reliability accompany a hearsay statement." United States v. Petty, 982 F.2d 1365, 1369 (9th Cir.1993). We believe that the testimony met the requisite threshold of reliability. Honken's statements were against his penal interests, his comments dealt primarily with his involvement in the murders rather than Johnson's, and his remarks harmonized with other evidence in the case. Finally, because Johnson put the extent of her involvement in the murders in question, we conclude that this testimony was more probative than prejudicial.
15. The recitation of a poem during the selection phase
Johnson contends that Lori Duncan's brother, Robert Milbrath, should not have been permitted to read during the selection phase[24] a short poem written by one of Amber Duncan's childhood *977 friends.[25] The government may introduce victim-impact evidence during the penalty phase of a capital trial to demonstrate the "specific harm caused by the defendant," including evidence that shows that the "victim is an individual whose death represents a unique loss to society and in particular to his family." Payne v. Tennessee, 501 U.S. 808, 825, 111 S. Ct. 2597, 115 L. Ed. 2d 720 (1991) (citation and quotation marks omitted). The introduction of evidence describing the emotional loss to the victim's family will violate a defendant's due process rights if "the victim impact evidence introduced is `so unduly prejudicial that it renders the trial fundamentally unfair.'" Nelson, 347 F.3d at 713 (quoting Payne, 501 U.S. at 825, 111 S. Ct. 2597).
Johnson asserts that the poem was more appropriate to a funeral than a murder trial, but she does not appear to argue that the sentiments and emotions articulated by the poem were themselves unduly prejudicial or that their impact was somehow magnified by the fact that they were expressed through poetry. Although Milbrath's tearful and emotional reading of the poem was apparently very moving, it merely conveyed the devastation and loss felt by Milbrath and the poem's author. In addition, the government presented only six family members to offer victim-impact testimony, the testimony lasted less than two hours, and Johnson's own selection-phase evidence featured more witnesses and took twice as many trial days. The fact that the government did not present an undue amount of victim-impact evidence and that Johnson presented significant mitigation evidence, lessened any potential for undue prejudice the poem may have had. See Nelson, 347 F.3d at 713-14 (noting that the government presented only six victim-impact witnesses, that its presentation occupied only 101 of 1100 pages of trial transcript, and that the defendant was able to present a substantial amount of mitigation evidence).
16. The selection-phase verdict forms
Johnson alleges that the verdict forms were erroneous and fatally defective because they required the jury to either unanimously agree to a death sentence or unanimously agree to a life sentence, whereas the law provides that a life sentence will be imposed if any juror votes for life. She also argues that the verdict forms contradict the district court's accurate jury instructions on this topic. Because Johnson did not object to the forms, we review them for plain error. United States v. Martinson, 419 F.3d 749, 753-54 (8th Cir.2005).
The verdict forms do not expressly mention unanimity with respect to the final verdict. Instead, the forms refer the jurors to two of the district court's final selection-phase instructions, one of which states that if any one juror finds that death is not justified for a particular count, the court will impose a sentence of life imprisonment without the possibility of parole on that count. Two other instructions given to the jury but not referenced on *978 the verdict form themselves convey the same information. The jurors were thus correctly informed that unanimity was required for a death sentence, but not for a sentence imposing life in prison. There was no plain error.
17. The government's selection-phase closing argument
Johnson contends that one of the prosecutors made several improper comments during the selection-phase closing arguments. She argues that the prosecutor mischaracterized the law pertaining to mitigating factors, that he improperly attempted to minimize the jurors' sense of responsibility for deciding Johnson's fate, that he took improper advantage of the jurors' sympathy for the victims, and that he denigrated the mitigating factor regarding the victims' consent to the course of conduct resulting in their deaths. Because Johnson raised a contemporaneous objection to only one of the comments, we will review the majority of the assertedly improper remarks for plain error and "we will only reverse under exceptional circumstances." United States v. Mullins, 446 F.3d 750, 758 (8th Cir.2006) (quoting United States v. Eldridge, 984 F.2d 943, 947 (8th Cir.1993)). Because Johnson did object to the prosecutor's comments about the "victims' consent" mitigator, we will review for abuse of discretion the district court's denial of Johnson's objection to the prosecutor's remarks on that subject. United States v. Samples, 456 F.3d 875, 886 (8th Cir.2006), cert. denied, ___ U.S. ___, 127 S. Ct. 1162, 166 L. Ed. 2d 1005 (2007). Our inquiry turns on whether the prosecutor's remarks were improper and, if they were, whether the remarks so "infected the trial with unfairness as to make the resulting [death sentences] a denial of due process." Darden v. Wainwright, 477 U.S. 168, 181, 106 S. Ct. 2464, 91 L. Ed. 2d 144 (1986) (quoting Donnelly v. DeChristoforo, 416 U.S. 637, 643, 94 S. Ct. 1868, 40 L. Ed. 2d 431 (1974)).
Johnson's first contention concerns the prosecutor's remarks about Johnson's mitigators. The prosecutor argued:
The intentional murder of children is an unspeakable evil. It's an evil that cannot be mitigated by any evidence. None of the defendant's mitigators can take away what she did and her involvement in killing those children. Somebody involved in the murder of children deserves the death penalty.
Johnson suggests that the prosecutor was improperly arguing that "mitigating factors did not apply in this context." We disagree. The prosecutor was not arguing that the jurors could choose to ignore the mitigators or exclude them from consideration, but rather that they were insufficient to outweigh the gravity of the offense. As we have already noted, as long as the jurors are not told to ignore or disregard mitigators, a prosecutor may argue, based on the circumstances of the case, that they are entitled to little or no weight.[26]
*979 Johnson also takes issue with the prosecutor's suggestion that by raising her troubled childhood as a mitigating factor, Johnson was attempting to excuse her conduct. Johnson appears to assert that the prosecutor was arguing that Johnson's references to her childhood were an attempt to deny criminal responsibility. We disagree. The prosecutor was arguing instead that she had free will and an opportunity to make the right choices, her difficult childhood notwithstanding. This was permissible. Cf. Bland v. Sirmons, 459 F.3d 999, 1026 (10th Cir.2006) (holding that prosecutor's reference to some of defendant's mitigators as "excuses" was not misconduct), cert. denied, ___ U.S. ___, 127 S. Ct. 2117, 167 L. Ed. 2d 828 (2007).
Johnson asserts next that the prosecutor diminished the jurors' sense of responsibility for the verdict by stating, "And if you choose the death penalty, you choose it as a group. It doesn't rest on the shoulders of any one of you." He also remarked that "[t]here's courage in numbers." These comments were not improper. While "it is constitutionally impermissible to rest a death sentence on a determination made by a sentencer who has been led to believe that the responsibility for determining the appropriateness of the defendant's death rests elsewhere," such as an appellate court, Caldwell v. Mississippi, 472 U.S. 320, 328-29, 105 S. Ct. 2633, 86 L. Ed. 2d 231 (1985), that was not what the prosecutor was doing here. The prosecutor was instead reposing the responsibility upon the jury, where it belonged. Furthermore, while the prosecutor emphasized the collective nature of jury deliberations and the fact that a verdict of death could not be returned unless the jury as a whole determined that it was appropriate, the prosecutor also acknowledged that the decision to vote for death would also have to be made by the jurors individually.
Johnson argues further that the prosecutor improperly encouraged the jury to impose the death penalty based on sympathy for the victims. During closing arguments, Johnson's counsel attempted to underscore the gravity of a life sentence, essentially contending that Johnson had a long time left to live and that with each passing year Johnson would miss various milestones and events in the life of her family, knowing that she had only herself to blame. The prosecutor responded to this argument during rebuttal by remarking that ten, twenty, and thirty years from now, the victims would still be dead and Kandi and Amber would still be ten and six-years old. The prosecutor also added, "No matter how small Angela Johnson's cell may be, it's going to be larger than the coffin that Amber and Kandi Duncan are laying [sic] in now." These remarks strayed over the line. Although the government was entitled to respond to Johnson's portrait of a miserable thirty years behind bars, it should not have used the victims' plights to do so. See Bland, 459 F.3d at 1028 ("[I]t is prosecutorial misconduct for the prosecution to compare the plight of [a murder] victim with the life of the defendant in prison."). As Johnson notes, the prosecutor's comments closely resemble remarks the Tenth Circuit criticized in Le, 311 F.3d at 1014-15. In that case, the prosecutor stated that the following year the defendant would be one year *980 older, but the victim would remain "34 years old from now until eternity. He will always be 34." Id. Later, the prosecutor said, "Defense counsel has asked you to sentence [sic] a punishment of life imprisonment or life without parole, but do you really think that justice would be done if this man goes to prison, gets three meals a day and a clean bed every night and regular visits from his family while Hai Nguyen lays cold in his grave[?]" Id. at 1015. The prosecutor's comments in this case, like those in Le, went beyond the bounds of permissible argument. Nevertheless, because the senseless and unspeakably brutal deaths of the two small children would naturally and inevitably evoke deep sympathy from the jury, those brief comments were not likely to evoke to any further appreciable degree the jury's sympathy for the victims. See Walker v. Gibson, 228 F.3d 1217, 1243 (10th Cir.2000) (concluding that although the prosecutor encouraged the jury to base its decision on sympathy for the victim, sympathy would have been engendered by the nature of the crime, even without the prosecutor's unfortunate remarks). We therefore conclude that the remarks, while questionable, did not infect the selection phase of Johnson's trial with unfairness and were not significant enough to constitute plain error.
Finally, Johnson argues that the prosecutor improperly "denigrated" the mitigating factor associated with the victims' consent. This mitigating factor required the jury to determine whether "two victims, Greg Nicholson and Terry DeGeus, consented to the conduct, methamphetamine manufacturing and distribution, that significantly contributed to the circumstances of their deaths." The prosecutor argued that, through this mitigating factor, Johnson was essentially attempting to blame Nicholson and DeGeus for their demise and contended, "They were murdered because they were witnesses, not because they were involved in the drug trade." The prosecutor thus did not "denigrate" the mitigator, but in essence merely contended that Nicholson's and DeGeus's participation in the drug trade did not significantly contribute to the circumstances of their deaths. In light of the evidence, we cannot say that this was an unfair argument.[27]
18. Multiplicitous convictions
Johnson contends that her convictions for murder while engaging in a conspiracy and her convictions for murder while working in furtherance of a CCE were mutliplicitous. The Supreme Court held in Rutledge v. United States, 517 U.S. 292, 116 S. Ct. 1241, 134 L. Ed. 2d 419 (1996), that because a drug conspiracy violation of 21 U.S.C. § 846 is a lesser included offense of a CCE violation of 21 U.S.C. § 848, a defendant may not be convicted of both offenses. Id. at 306-07, 116 S. Ct. 1241. Johnson's convictions for the conspiracy murders and her convictions for the CCE murders are therefore multiplicitous. See United States v. Moore, 149 F.3d 773, 779 (8th Cir.1998) (noting that the defendant could not be convicted of both conspiracy and CCE murder, but holding that the risk of multiplicitous convictions or punishment was eliminated by a *981 verdict form instructing the jury that they need not consider conspiracy murder charges if they found the defendant guilty of CCE murder). The government does not contest the multiplicitous nature of the charges, arguing instead that Johnson had waived the claim by not raising it in the district court. Because we conclude that the claim was raised sufficiently below and the government has not given us any reason to conclude that the charges were not multiplicitous (as they appear to be), we remand this case so the district court may vacate the conspiracy murder convictions. Cf. Possick, 849 F.2d at 341 (remanding the case to the district court so that it may vacate conspiracy conviction that was a lesser included offense in the CCE conviction).
19. Juror misconduct
Johnson's final claim is that the district court erred in denying her motion for an evidentiary hearing to explore potential juror misconduct. After the trial, Johnson's attorneys were granted leave to contact the jurors "subject to the limits of Rule 606(b) of the Federal Rules of Evidence" and with the understanding that the purpose of contacting the jurors was to help the attorneys try a better case. One of the jurors interviewed by a defense investigator told the investigator that he had visited his son in prison a week before the penalty-phase closing arguments and that he was advised that prisoners serving life sentences are allowed in the general population, whereas those facing the death penalty are kept in solitary confinement. There is no indication that he told the other jurors what he had learned. The juror also said that he had explained to other jurors that Johnson would have three automatic appeals and that the jury's verdict would merely "set the stage" for these appeals. The district court denied Johnson's request for an evidentiary hearing to explore these matters further.
"The district court has broad discretion in managing juror misconduct allegations, and its decision whether to conduct an evidentiary hearing over such allegations will be affirmed absent an abuse of discretion." United States v. Wintermute, 443 F.3d 993, 1002 (8th Cir. 2006) (citing United States v. Vig, 167 F.3d 443, 450 (8th Cir.1999)). Federal Rule of Evidence 606(b) generally precludes inquiry into intrajury communications. United States v. Caldwell, 83 F.3d 954, 956 (8th Cir.1996). The two exceptions to the rule permit testimony regarding "extraneous prejudicial information and outside influences brought to bear on the jury." Id. Before a hearing may be granted, however, the moving party should "show[ ] that outside contact with the jury presents a reasonable possibility of prejudice to the verdict." United States v. Tucker, 137 F.3d 1016, 1030 (8th Cir.1998).
We conclude that the district court's decision to deny a hearing to explore the juror's prison visit was not an abuse of discretion because we are not persuaded that there was a reasonable possibility that information pertaining to prison conditions for death row or life-in-prison inmates would have affected the jurors' deliberations or prejudiced Johnson's case. Indeed, as the district court noted, Johnson herself introduced evidence pertaining to prison conditions. Johnson, 403 F.Supp.2d at 887.
We also conclude that inquiry into the remarks concerning Johnson's "automatic" appeals is precluded by Rule 606(b) because, contrary to Johnson's suggestion, the juror's comments were not extraneous information, but merely reflected the juror's understanding of the appellate process, a topic within the range of jurors' common knowledge. Johnson correctly observes that information may be considered *982 extraneous even if it originates with a juror. United States v. Swinton, 75 F.3d 374, 381 (8th Cir.1996). We have also recognized, however, that "jurors are expected to bring commonly known facts to bear in assessing the facts presented for their consideration." Id.; see also Hard v. Burlington Northern R.R. Co., 870 F.2d 1454, 1461 (9th Cir.1989) ("The type of after-acquired information that potentially taints a jury verdict should be carefully distinguished from the general knowledge, opinions, feelings, and bias that every juror carries into the jury room."). Just as jurors may be expected to have opinions (sometimes accurate; sometimes poorly conceived) on matters pertaining to everyday life, so too may they be expected to possess some notions regarding the criminal justice system. Most, if not all, of the jurors in Johnson's case might be expected to have acquired some impressions regarding the appellate process. These impressions may be incorrect and taking such opinions into account may even, in some circumstances, be improper, but they are not extraneous. See United States v. Rodriquez, 116 F.3d 1225, 1226-27 (8th Cir. 1997) (noting that although it was improper for the jury to draw adverse inferences from the fact that the defendant did not testify, an evidentiary hearing to inquire into this misconduct was properly denied because the defendant's failure to testify was not extraneous information). We therefore conclude that the district court did not abuse its discretion in precluding further examination of the juror's ill-advised remarks to his fellow jurors.
After careful consideration of the record, the parties' arguments, and the district court's most thorough memorandum opinion, we conclude that Johnson's remaining arguments are unavailing. The case is remanded to the district court so that the court may vacate Johnson's multiplicitous convictions and sentences. In all other respects, we affirm.
NOTES
[1] The Honorable Mark W. Bennett, then Chief Judge, United States District Court for the Northern District of Iowa.
[2] One of the issues Johnson raises, the admission of statements by Robert McNeese, has already been addressed by this Court. See United States v. Johnson, 352 F.3d 339 (8th Cir.2003); United States v. Johnson, 338 F.3d 918 (8th Cir.2003). Accordingly, we will not revisit the issue here.
[3] There was testimony that this kind of weapon would not normally be used for hunting and would be more accurately characterized as an assault weapon.
[4] One witness testified that Johnson had told her that Johnson aimed the firearm at DeGeus while Honken beat him.
[5] Johnson's interpretation of Enmund apparently rests on a single passage in which the Court remarks that it was improper for Enmund to be treated as harshly as his more culpable codefendants. Enmund, 458 U.S. at 798, 102 S. Ct. 3368. We do not believe that this isolated comment was intended to require proportionality between codefendants' sentences. Instead, the Court was making the more unexceptional observation that those who kill or intend to kill, such as Enmund's codefendants, are, as a class, more culpable and more deserving of greater punishment than those like Enmund, who do not. Moreover, the Court stated only a few lines earlier that the "focus must be on [Enmund's] 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." Id. (citation and quotation marks omitted).
[6] Although Johnson had the girls pack some things, this was a ruse to convince either the girls or others that they were going away somewhere.
[7] Nor can we agree that Johnson was "forced" to use her challenges in this manner. As the Supreme Court remarked, a defendant who must make a snap decision during jury selection to either use a peremptory challenge to cure an erroneous denial of a for-cause challenge or take her chances on appeal is undoubtably faced with a difficult choice, but a "hard choice is not the same as no choice." Martinez-Salazar, 528 U.S. at 315, 120 S. Ct. 774. Johnson "received and exercised" all twenty of her peremptory challenges, which is all "[s]he is entitled to under the Rule." Id.
[8] We note that Johnson does not contend that "the trial court deliberately misapplied the law in order to force [her] to use a peremptory challenge to correct the court's error." Martinez-Salazar, 528 U.S. at 316, 120 S. Ct. 774.
[9] Jurors may believe themselves precluded from considering relevant mitigation evidence not only as a result of the judge's instructions, "but also as a result of prosecutorial argument dictating that such consideration is forbidden." Abdul-Kabir v. Quarterman, ___ U.S. ___, 127 S. Ct. 1654, 1672 n. 21, 167 L. Ed. 2d 585 (2007).
[10] Because the prosecutor acknowledged during closing argument that Johnson had no prior criminal record, we reject the government's contention on appeal that the closing argument was appropriate because "criminal record" for mitigation purposes also encompasses uncharged criminal conduct.
[11] Johnson argues that liability as an aider and abettor is inapplicable to CCE murder. As Johnson appears to recognize, however, all of the cases cited by the parties on this issue have reached the contrary conclusion. See, e.g., United States v. Walker, 142 F.3d 103, 113 (2d Cir.1998) (concluding that "aider and abettor liability is available" for CCE murder).
[12] Johnson also contests Jeff Honken's classification as a CCE participant. There was evidence that Jeff Honken provided money to Honken in exchange for a portion of the drug proceeds, allowed Honken to store equipment in his sheds, and disposed of drug equipment upon Honken's 1994 arrest. This activity suffices to establish Jeff Honken's participation in the CCE under his brother's supervision.
[13] We have considered carefully Johnson's other contentions regarding the elements of the CCE murder and conclude that they lack merit.
[14] Some of this evidence may have been relevant and admissible for other purposes as well.
[15] Johnson also contends, without supporting argument, that the district court erred in failing to give Johnson's proposed jury instructions on subsequent acts. We disagree.
[16] We have considered Johnson's other assertions regarding the admission of hearsay in the merits phase and conclude that they lack merit.
[17] Johnson asserts that the forfeiture rule is inapplicable because she did not knowingly or intentionally waive her confrontation rights. This argument is unavailing, as courts have consistently concluded that the forfeiture by wrongdoing doctrine rests on the defendant's wrongdoing rather than on a knowing and intelligent waiver. See, e.g., People v. Giles, 40 Cal. 4th 833, 55 Cal. Rptr. 3d 133, 152 P.3d 433, 442-43 (2007) (explaining that the forfeiture by wrongdoing doctrine is based on forfeiture rather than waiver); State v. Hallum, 606 N.W.2d 351, 355 (Iowa 2000) ("[T]he loss of a defendant's right to object is based on a forfeiture theory because the loss rests on the defendant's misconduct, not on the defendant's relinquishment of a known right.").
[18] Doyle may also be inapplicable here because Johnson was not silent about the murders, but elected to speak. See Anderson v. Charles, 447 U.S. 404, 408, 100 S. Ct. 2180, 65 L. Ed. 2d 222 (1980) ("Doyle does not apply to cross-examination that merely inquires into prior inconsistent statements. Such questioning makes no unfair use of silence because a defendant who voluntarily speaks after receiving Miranda warnings has not been induced to remain silent."); see also United States v. DeVore, 839 F.2d 1330, 1332 (8th Cir.1988) ("[A] defendant who chooses to speak after being given proper Miranda warnings and who at trial gives a different account of the same events is subject to cross-examination about the prior statement."). Because we resolve this issue on the basis already stated, we need not explore this possibility further.
[19] It bears mention that a buyer-seller instruction based on Prieskorn, 658 F.2d at 636, was not warranted in this case because the drug relationship between Honken and the two dealers involved multiple transactions and large quantities of drugs rather than a single transaction involving an amount consistent with personal use. See United States v. Cordova, 157 F.3d 587, 597 (8th Cir.1998) (buyer-seller instruction properly rejected in a conspiracy case where there was a large quantity of drugs and a significant amount of interaction between defendants and dealers over an extended period of time).
[20] One of the statutory aggravating factors the jury considered in the eligibility phase was whether "[t]he defendant committed the offense in an especially heinous, cruel, or depraved manner in that it involved torture or serious physical abuse to the victim." 21 U.S.C. § 848(n)(12) (2005).
[21] We note that although there was little evidence that Johnson had directly inflicted any serious physical abuse upon DeGeus, there was testimony that she had aimed the firearm at him while Honken beat him. Accordingly, there was evidence that Johnson not only assisted with the murder, but participated in the serious physical abuse inflicted upon DeGeus as well.
[22] The jury was instructed that "torture" includes "prolonged mental harm caused by . . . the threat that another person will be imminently subjected to death, or severe physical pain or suffering." (Eligibility-phase instruction No. 4).
[23] The parties sharply dispute whether the Confrontation Clause was applicable to Johnson's selection phase. As the government observes, we have held in the context of a noncapital case that "the confrontation clause does not apply in sentencing proceedings." United States v. Wallace, 408 F.3d 1046, 1048 (8th Cir.2005) (per curiam), cert. denied, 546 U.S. 1069, 126 S. Ct. 816, 163 L. Ed. 2d 642 (2005). Johnson argues that capital sentencing is different and that a broader range of constitutional rights including confrontation rights apply in capital sentencing proceedings. We need not address this issue, however, because the statements fall outside the scope of the Confrontation Clause.
[24] As we noted earlier, after the jury found Johnson guilty of the murders, there was an eligibility phase, in which the jury was asked to determine whether Johnson was eligible for the death penalty, followed by a selection phase, in which the jury was asked to determine whether Johnson was to receive on the various charges a death sentence or a sentence of life in prison. In the selection phase, the parties presented evidence and argument concerning aggravating factors that had not been considered during the eligibility phase and on mitigating factors.
[25] The poem reads as follows: "She was only six when she left on a picnic. Then the theft. She never would be able to get to the age of seven, for she was shot, sent to heaven. I never got to say good-bye. The nights I was scared, those nights I'd cry wishing to see her face again, wishing that it would have never been. For my dear friend, I loved her so. I never wanted her to go. Only five and not aware of what would be ahead. Oh, what a scare. Amber isn't just a color. She was my best friend."
[26] We do note, however, that the prosecutor's choice of words was infelicitous. While he had probably meant to argue only that Johnson's mitigators did not outweigh the heinousness of the children's murders, his remarks, if they were taken out of context, could be taken to suggest that the mitigation evidence was intended to diminish the horror of the killings or Johnson's involvement therein. At least some of the mitigating factors, however, such as Johnson's relationship with her daughters or her potential for leading a productive life in prison, were intended to provide reasons for mercy despite the gravity of the offense, rather than to "take away" Johnson's involvement in the crime or portray the murders as any less evil. "`The question is not whether evidence in mitigation makes the defendant any less guilty, or the crime any less horrible, but whether it provides a reason why, despite those things, the defendant should not die.'" Le v. Mullin, 311 F.3d 1002, 1017 (10th Cir. 2002) (per curiam) (quoting Le v. Oklahoma, 947 P.2d 535, 555 (Okla.Crim.App.1997)). Although the prosecutor's comments may have been somewhat imprecise, we do not believe that the comments, taken in their full context, were likely to confuse the jury particularly in light of the fact that Johnson's counsel reminded them that the nature of the crime was only one consideration in determining the penalty and that they were to consider the offender as well as the offense.
[27] There is very little case law interpreting this mitigator. The case most directly on point is United States v. Beckford, 962 F. Supp. 804 (E.D.Va.1997), which, after noting the paucity of federal law or legislative history on this mitigator, surveys relevant state law and the pertinent section of the Model Penal Code. Id. at 817-21. Based on this survey, the district court in Beckford concluded that the victim's consent mitigator will usually be relevant in two circumstances: 1) when the defendant and the victim have consented to participate in a highly dangerous activity, such as Russian roulette; or 2) where the victim consents to a mercy killing. Id. at 821. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2640285/ | 190 P.3d 54 (2008)
SMITT
v.
UEBELACKER.
No. 81176-8.
Supreme Court of Washington, Special Department.
August 5, 2008.
Disposition of petition for review. Denied. | 01-03-2023 | 11-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1304032/ | 596 F.3d 1046 (2010)
Mike RUTTI, Plaintiff-Appellant, and
Kevin Vermillion; Isaac Charlesworth; Murray M. Myers; Dan Johnston; Orlando Jason White; Gicardo Leal; Philip Redfield; Jerome Charles Weiss; Nick Kaminsky; Marcus E. McKay; Richard Demelo; Chris Meacham; Eshon D. Mitchell, Plaintiffs,
v.
LOJACK CORPORATION, INC., Defendant-Appellee.
No. 07-56599.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted February 4, 2009.
Filed March 2, 2010.
*1048 Matthew Righetti and John Glugoski (argued) of the Righetti Law Firm of San Francisco, CA, for the plaintiffs-appellants.
Peter D. Holbrook, Dan Chammas (argued) and Jennifer Fercovich of McDermott Will & Emery LLP of Los Angeles, CA, for the defendant-appellee.
Before: CYNTHIA HOLCOMB HALL, BARRY G. SILVERMAN and CONSUELO M. CALLAHAN, Circuit Judges.
Opinion by Judge CALLAHAN;[1] Separate Opinion by Judge SILVERMAN; Partial Concurrence and Partial Dissent by Judge HALL: Dissent by Judge CALLAHAN.
ORDER AND OPINION
ORDER
The petition for panel rehearing is granted in part and denied in part. The Opinion filed August 21, 2009, and appearing at 578 F.3d 1084 (9th Cir.2009), is withdrawn. It may not be cited as precedent by or to this court or any district court of the Ninth Circuit.
The superseding opinion will be filed concurrently with this order.
OPINION
CALLAHAN, Circuit Judge:
Mike Rutti sought to bring a class action on behalf of all technicians employed by Lojack, Inc. ("Lojack") to install alarms in customers' cars. He sought compensation for the time they spent commuting to worksites in Lojack's vehicles and for time spent on preliminary and postliminary[2] activities *1049 performed at their homes. The district court granted Lojack summary judgment, holding that Rutti's commute was not compensable as a matter of law and that the preliminary and postliminary activities were not compensable because they either were not integral to Rutti's principal activities or consumed a de minimis amount of time. We affirm the district court's denial of compensation under federal law for Rutti's commute and for his preliminary activities. However, we vacate the district court's grant of summary judgment on Rutti's claim for compensation of his commute under California law and on his postliminary activity of required daily portable data transmissions, and remand the matter to the district court for further proceedings consistent with this opinion.
I.
A. Facts
Rutti was employed by Lojack as one of its over 450 nationwide technicians who install and repair vehicle recovery systems in vehicles. Most, if not all of the installations and repairs are done at the clients' locations. Rutti was employed to install and repair vehicle recovery systems in Orange County, and required to travel to the job sites in a company-owned vehicle. Rutti was paid by Lojack on an hourly basis for the time period beginning when he arrived at his first job location and ending when he completed his final job installation of the day.
In addition to the time spent commuting, Rutti sought compensation for certain "off-the-clock" activities he performed before he left for the first job in the morning and after he returned home following the completion of the last job. Rutti asserted that Lojack required technicians to be "on call" from 8:00 a.m. until 6:00 p.m. Monday through Friday, and from 8:00 a.m. until 5:00 p.m. on Saturdays. During this time, the technicians were required to keep their mobile phones on and answer requests from dispatch to perform additional jobs, but they were permitted to decline the jobs.[3] Rutti also alleged that he spent time in the morning receiving assignments for the day, mapping his routes to the assignments, and prioritizing the jobs. This included time spent logging on to a hand-held computer device provided by Lojack that informed him of his jobs for the day.[4] In addition, it appears that Rutti may have completed some minimal paperwork at home before he left for his first job.
During the day, Rutti recorded information about the installations he performed on a portable data terminal ("PDT") provided by Lojack. After he returned home in the evening, Rutti was required to upload data about his work to the company. This involved connecting the PDT to a modem, scrolling down a menu on the PDT *1050 until he encountered an option labeled "transmit," and selecting this option to initiate the upload process. The transmissions had to be done at home because it required the use of the modem provided by Lojack. Rutti was required to make sure that the transmission was successful, and there is evidence in the record that it often took more than one attempt to successfully complete a transmission. Lojack's Installer Training Manual instructed technicians not to transmit their PDT data ten minutes before or after the hour because the corporate computer system is automatically reset at those times. The Manual further instructed technicians to wait an hour if they have technical difficulties and that after two unsuccessful attempts they should call the host computer and document the date, time, PDT error message, number called from, and any specific error message, dial tone, or busy signal heard over the phone line.
B. Procedural History
On April 5, 2006, Rutti filed this putative class action on behalf of himself and similarly-situated technicians asserting that under the Fair Labor Standards Act, 29 U.S.C. §§ 201-19 ("FLSA"), and under California law, Lojack had unlawfully failed to compensate for commuting and "off-the-clock" work. After the parties had engaged in considerable discovery, Lojack moved for partial summary judgment and Rutti sought class certification. The district court decided to rule on the motion for partial summary judgment before addressing class certification, citing Wright v. Schock, 742 F.2d 541, 544 (9th Cir.1984) ("It is reasonable to consider a Rule 56 motion first when early resolution of a motion for summary judgment seems likely to protect both the parties and the court from needless and costly further litigation."). On August 16, 2007, the district court issued its order granting in part and denying in part Lojack's motion for partial summary judgment. The order disposed of all federal claims and denied Lojack's state law claim for compensation for commuting. The district court subsequently issued an order dismissing the remaining state law claims for lack of subject matter jurisdiction. Rutti filed a timely notice of appeal.
II.
Rutti's appeal is from a grant of summary judgment and accordingly, we "must determine, viewing the evidence in the light most favorable to ... the non-moving party, whether there are any genuine issues of material fact and whether the district court correctly applied the substantive law." Olsen v. Idaho State Bd. of Medicine, 363 F.3d 916, 922 (9th Cir.2004). "We may affirm on any ground that is supported by the record." Id.; ACLU of Nevada v. City of Las Vegas, 466 F.3d 784, 790 (9th Cir.2006).
III.
Rutti's appeal raises three major issues: (1) whether Rutti's commute in a Lojack vehicle was compensable under federal or state law; (2) whether Rutti's off-the-clock activities were either not part of his principal activities for Lojack or were de minimis, and thus not compensable; and (3) whether under the "continuous workday" doctrine Rutti's workday started at his home in the morning before he commuted to the first job and extended to his return home.[5] We agree with the district court's *1051 treatment of all of these issues except as to its grant of summary judgment on Rutti's state cause of action for his commute time and his mandatory off-the-clock PDT transmissions.[6]
A. Rutti is not entitled to reimbursement under federal law for commuting
Rutti offers two arguments in support of his claim that he is entitled to compensation for commuting in the vehicle provided by Lojack. First, he asserts, based on a United States Department of Labor letter dated April 3, 1995, that he is entitled to compensation because his use of Lojack's vehicle to commute was not voluntary, and amounted to a condition of his employment. Rutti's second argument is that the restrictions Lojack placed on his use of the vehicle rendered the commute compensable. We do not find Rutti's arguments persuasive.
1. Pursuant to the Employment Commuter Flexibility Act, use of an employer's vehicle to commute is not compensable even if it is a condition of employment.
Rutti's first argument is that because he is required to commute in the vehicle provided by Lojack, he did not voluntarily agree to the arrangement and is therefore entitled to compensation. This argument is based on a Department of Labor letter dated April 3, 1995, which states that an employee need not be compensated for the time spent commuting when "driving the employer's vehicle between the employee's home and customers' work sites at the beginning and ending of the workday is strictly voluntary and not a condition of employment." U.S. Dep't Lab. Op. Ltr. (April 3, 1995). Rutti reads this letter as holding that when the use of employer's vehicle to commute is not "strictly voluntary" and is a "condition of employment," then the employee must be compensated for the commute time.
Even assuming that Rutti might have been entitled to compensation for his commute under the April 3, 1995 letter at the time it was written, his claim to compensation does not survive the passage of the Employee Commuter Flexibility Act ("ECFA"), 29 U.S.C. § 254(a)(2). The language of the ECFA and its legislative history compel the conclusion that the requisite "agreement" concerning the use of an employer's vehicle to commute may be part of the employee's employment.
In 1996, Congress amended the Portal-to-Portal Act by enacting the ECFA. The statute provides that an employer need not compensate an employee for the following activities:
(1) walking, riding, or traveling to and from the actual place of performance of the principal activity or activities which such employee is employed to perform, and
(2) activities which are preliminary to or postliminary to said principal activity or activities,
which occur either prior to the time on any particular workday at which such employee commences, or subsequent to *1052 the time on any particular workday at which he ceases, such principal activity or activities. For purposes of this subsection, the use of an employer's vehicle for travel by an employee and activities performed by an employee which are incidental to the use of such vehicle for commuting shall not be considered part of the employee's principal activities if the use of such vehicle for travel is within the normal commuting area for the employer's business or establishment and the use of the employer's vehicle is subject to an agreement on the part of the employer and the employee or representative of such employee.
29 U.S.C. § 254(a)(emphasis added).
The ECFA's language states that where the use of the vehicle "is subject to an agreement on the part of the employer and the employee," it is not part of the employee's principal activities and thus not compensable. Id. There is no suggestion that the agreement cannot be a condition of employment. Indeed, it would appear that the most logical place to record an agreement between an employee and an employer concerning the use of an employer's vehicle is in the employee's employment contract. One would expect Congress to specify if it did not intend that the statute have such a likely result. Accordingly, we find the plain meaning of the statute does not support Rutti's position. See K & N Eng'g, Inc. v. Bulat, 510 F.3d 1079, 1081 (9th Cir.2007) ("Statutory interpretation begins with the plain language of the statute. If the text of the statute is clear, this court looks no further in determining the statute's meaning.") (internal citations omitted); see also Adams v. United States, 471 F.3d 1321, 1323 (Fed.Cir.2006) (holding commute in government vehicle non-compensable, though condition of employment).
A review of the legislative history confirms the plain language of the ECFA. Both the sponsors and the opponents of ECFA recognized that the requisite agreement could be part of an employee's conditions of employment. The Report on the bill (H.R.1227) stated that the bill "does not require a written agreement, this requirement may be satisfied through a formal written agreement between the employee and employer, a collective bargaining agreement between the employee's representatives and the employer, or an understanding based on established industry or company practices." H.R.Rep. No. 104-585, at 4 (1996). The minority report objected that the bill "permits an employer to compel an employee to agree to use the employer's vehicle for commuting purposes, as a condition of employment," and commented that the majority had rejected an amendment that provided that the agreement "must be knowing and voluntary, and may not be required as a condition of employment." H.R.Rep. No. 104-585 at 8. The author of the bill responded that in some instances an employee's use of the employer's vehicle could be a condition of employment "depending on the agreement between the employer and employee or the terms of a collective bargaining agreement." 142 CONG. REC. 12234 (1996). Thus, the ECFA's legislative history confirms its plain language: the "agreement" required by ECFA may be a condition of the employee's employment.
2. The conditions Lojack placed on Rutti's use of its vehicle did not make his commute compensable.
Rutti's second argument is that restrictions placed on his use of the vehicle render the commute compensable. The ECFA provides that "activities performed by an employee which are incidental to the use of such vehicle for commuting shall not be considered part of the employee's principal activities." 29 U.S.C. *1053 § 254(a)(2). Rutti argues that the restrictions imposed by Lojack exceed the "incidental" and make his use of Lojack's vehicle to commute an integral part of his principal activities for Lojack. Rutti cites Lojack's restrictions against using the vehicle for personal pursuits and transporting passengers, the requirement that he drive directly from home to work and from work to home, and the requirement that he have his cell phone on. Rutti's perspective finds no support in the language of the ECFA, is counter to its legislative history, and has been rejected by those courts that have considered the issue.
The legislative history shows that Congress recognized that employers would place conditions on their employees' use of vehicles for commuting. House Report 585 commented that it "is not possible to define in all circumstances what specific tasks and activities would be considered `incidental' to the use of an employers vehicle." H.R.Rep. No. 104-585 at 5. However, it stated that communications between employer and employee, "routine vehicle safety inspections or other minor tasks, and transportation of tools and supplies, would not change the noncompensable nature of the travel." Id. The minority report objected that as "non-employee passengers in such vehicles are uniformly prohibited," an employee may be "effectively prohibited from engaging in the very common and often necessary family task of dropping off his or her child at school on the way to work." Id. at 13. The failure of the minority report to stimulate any change in the bill indicates that Congress did not object to employers setting conditions on their employees use of company cars for commuting.
Those courts that have addressed this question have held that the cost of commuting is not compensable unless the employees show that they "perform additional legally cognizable work while driving to their workplace." Adams, 471 F.3d at 1325; see also Smith v. Aztec Well Servicing Co., 462 F.3d 1274, 1286-87 (10th Cir. 2006) (noting that "[w]hile the Portal-to-Portal Act clearly excludes normal home to work travel from the scope of the FLSA,... Congress ... still intend[ed] for an employee's activities to fall within the protection of the [FLSA] if they are an integral part of and are essential to the principal activities of the employees") (quoting Steiner v. Mitchell, 350 U.S. 247, 254, 76 S. Ct. 330, 100 L. Ed. 267 (1956)) (internal quotation marks omitted).
The line between incidental and integral is well-illustrated by two cases from the Federal Circuit. In Bobo v. United States, 136 F.3d 1465 (Fed.Cir.1998), a group of Border Patrol agent dog handlers sought compensation for the time spent transporting their dogs between their homes and Border Patrol offices. Id. at 1466-67. They were not allowed to use the vehicles for personal use, were not allowed to make personal stops during their commute, were required to wear their official uniforms while using the vehicles, were required to monitor their radios, report their mileage and look out for suspicious activities. Id. at 1467. In addition, they were required "to make stops for the dogs to exercise and relieve themselves." Id. Nonetheless, the Federal Circuit held that even accepting the restrictions as compulsory and for the benefit of their employer, "the burdens alleged are insufficient to pass the de minimis threshold." Id. at 1468. The court specifically noted that "the main restriction on the INS Agents is the prohibition on making personal stops during their commute," and held that "such a restriction on their use of a government vehicle during their commuting time does not make this time compensable." Id.
*1054 Adams v. United States, 471 F.3d 1321 (Fed.Cir.2007), also concerned a suit by government law enforcement agents seeking compensation for their commute from home to work in government-owned vehicles. Id. at 1323. They argued that they had to be available for emergency calls, had to have their weapons with them, had to monitor their communication equipment, could not run any personal errands, and had to proceed directly from home to work and back without unauthorized detours or stops. Id. The Federal Circuit held that pursuant to 29 U.S.C. § 254(a), merely commuting was insufficient; "the plaintiffs must perform additional legally cognizable work while driving to their workplace in order to compel compensation for the time spent driving." Id. at 1325. The court further held that plaintiffs "had the burden of showing that their drive time was compensable work for FLSA purposes and of showing that it does not fall into the set of activities excluded from the definition of compensable work by the Portal-to-Portal Act as interpreted by our precedent." Id. at 1326. The court concluded, citing its prior opinion in Bobo, that "[u]nder the Portal-to-Portal Act, plaintiffs' driving time is not compensable." Id. at 1327.
Here, Lojack placed fewer restrictions on Rutti's use of its vehicle than were present in Adams and Bobo. More importantly, Rutti has failed to show that Lojack's restrictions amount to "additional legally cognizable work." Adams, 471 F.3d at 1325. The prohibition against carrying non-employee passengers was common practice before the statute was amended in 1996 and is not directly related to the "principal activities of the employees." Aztec Well, 462 F.3d at 1287. In Bobo, the Federal Circuit specifically stated that the restriction on making personal stops did not make the commute time compensable. Bobo, 136 F.3d at 1468. Moreover, this restriction is not directly related to Rutti's principal activities for Lojack. In addition, although the police officers in both Bobo and Adams were required to monitor their communications equipment, in neither case was this considered sufficient to compel compensation.[7] In light of Rutti's failure to cite any authority supporting a claim that Lojack's restrictions constitute "additional legally cognizable work," and because there are no material questions of fact as to the restrictions on Rutti's use of Lojack's vehicle, we affirm the district court's determination that Rutti is not entitled under federal law to compensation for the time he spends commuting in Lojack's vehicle.
B. One of Rutti's off-the-clock activities may be compensable
Rutti also seeks compensation for activities that he engaged in for Lojack before he travels to his first job site and after he returns home from his last job site of the day. The ECFA, however, in addition to exempting commute time from compensation, also provides that an employer need not compensate an employee for "activities which are preliminary to or postliminary to said principal activity or activities." 29 U.S.C. § 254(a)(2). Thus, to be entitled to compensation for his off-the-clock activities, Rutti must show that they are related to his "principal activities" for Lojack. In addition, our case law indicates that activity that might otherwise be compensable is not if the time involved is de minimis. Accordingly, we next discuss the applicable case law, first addressing the definitions of *1055 "principal activities" and "de minimis" for off-the-clock activities. We then apply those definitions to Rutti's preliminary and postliminary activities.
1. Applicable Case Law
a. The definition of "principal activities"
We first considered the definition of "principal activities" in Lindow v. United States, 738 F.2d 1057 (9th Cir.1984). The plaintiffs in that case sought overtime compensation for up to 15 minutes of work before the start of their shifts. Id. at 1059. We held that pre-shift activities are compensable if they are an "integral and indispensable part of the principal activities for which covered workmen are employed," id. at 1060 (quoting Steiner v. Mitchell, 350 U.S. 247, 256, 76 S. Ct. 330, 100 L. Ed. 267 (1956)), and that the term "principal activities" is to be liberally construed "to include any work of consequence performed for an employer no matter when the work is performed." Id. at 1061 (citing 29 C.F.R. § 790.8(a)).
The Fifth Circuit adopted a similar broad definition of principal activities in Dunlop v. City Elec., Inc., 527 F.2d 394 (5th Cir.1976). In Dunlop, electricians arrived at the work site approximately 15 minutes before the work day began at 8:00 a.m. to perform certain duties. Id. at 397. The issue was whether these activities were integral to their principal activities. The Fifth Circuit adopted a broad definition, holding that:
The test, therefore, to determine which activities are "principal" and which are "an integral and indispensable part" of such activities, is not whether the activities in question are uniquely related to the predominant activity of the business, but whether they are performed as part of the regular work of the employees in the ordinary course of business. It is thus irrelevant whether fueling and unloading trucks is "directly related" to the business of electrical wiring; what is important is that such work is necessary to the business and is performed by the employees, primarily for the benefit of the employer, in the ordinary course of that business. We find that the pre-8:00 a.m. activities performed by the electricians and their helpers were within the broad range of "principal activities" performed at their employer's behest and for the benefit of the business; as such they were compensable activities for which the employees would ordinarily have been paid had such work been performed during the normal workday.
Id. at 400-401 (footnote omitted).[8]
In Owens v. Local No. 169, Ass'n of W. Pulp & Paper Workers, 971 F.2d 347 (9th Cir.1992), we approached "principal activities" from a different perspective. In Owens, the plaintiffs were mechanics who sought overtime compensation for the time that they were on call to receive emergency calls to fix equipment at their employer's pulp mill. Id. at 348-49. We observed that the Supreme Court had held that time spent waiting for work is compensable if the waiting time is spent "primarily for the benefit of the employer and his business." Id. at 350 (quoting Armour & Co. v. Wantock, 323 U.S. 126, 132, 65 S. Ct. 165, 89 L. Ed. 118 (1944)). We noted that "facts may show that the employee was `engaged to wait,' which is compensable, or they may show that the employee `waited to be engaged,' which is not compensable." Id. at 350 (quoting Skidmore v. Swift & Co., 323 U.S. 134, 137, 65 S. Ct. 161, 89 L. Ed. 124 (1944)). We nonetheless *1056 rejected the plaintiffs' claims, holding that the proper test "is not the importance of on-call work to the employer, rather the test is focused on the employee and whether he is so restricted during on-call hours as to be effectively engaged to wait." Id. at 354. See also Brigham v. Eugene Water & Elec. Bd., 357 F.3d 931, 938 (9th Cir.2004) (applying the Owens factors and vacating a grant of summary judgment for the employer because the factors narrowly favored the employees).
Thus, Lindow requires that we give "principal activities" a liberal construction "no matter when the work is performed," 738 F.2d at 1061 (citing 29 C.F.R. § 790.8(a)). The Fifth Circuit's opinion in Dunlop suggests that we pay particular attention to whether the activities "are performed as part of the regular work of the employees in the ordinary course of business." 527 F.2d at 401. In addition, Owens counsels that we consider the extent to which the work impacts the employee's freedom to engage in other activities. 971 F.2d at 354.
b. The definition of de minimis
Our opinion in Lindow also applied the de minimis rule to claims of overtime compensation. 738 F.2d at 1062. Taking our lead from the Supreme Court's opinion in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 692, 66 S. Ct. 1187, 90 L. Ed. 1515 (1946), we recognized that an employer's obligation to pay for the employees' efforts had to be moderated by a de minimis rule.[9] We cited the Supreme Court's statement that:
When the matter in issue concerns only a few seconds or minutes of work beyond the scheduled working hours, such trifles may be disregarded. Split-second absurdities are not justified by the actualities of working conditions or by the policy of the Fair Labor Standards Act. It is only when an employee is required to give up a substantial measure of his time and effort that compensable working time is involved.
Lindow, 738 F.2d at 1062 (quoting Anderson, 328 U.S. at 692, 66 S. Ct. 1187).
In Lindow, we concluded that even though some of the employees' activities were principal activities, the district court properly determined that "the 7 to 8 minutes spent by employees reading the log book and exchanging information, even if not preliminary, was de minimis and therefore not compensable." Id. at 1062.
The panel carefully explained its reasoning. An important factor in determining whether a claim is de minimis is the amount of time spent on the additional work. The panel specifically stated that: "[t]here is no precise amount of time that may be denied compensation as de minimis. No rigid rule can be applied with mathematical certainty." Id. at 1062. Nonetheless, the panel noted that most courts "have found daily periods of approximately 10 minutes de minimis even though otherwise compensable." Id. The panel then qualified this statement, explaining: *1057 "[t]he de minimis rule is concerned with the practical administrative difficulty of recording small amounts of time for payroll purposes." Id. Accordingly, employers "must compensate employees for even small amounts of daily time unless that time is so minuscule that it cannot, as an administrative matter, be recorded for payroll purposes." Id. at 1062-63. Furthermore, courts may consider "the size of the aggregate claim," and "have granted relief for claims that might have been minimal on a daily basis but, when aggregated, amounted to a substantial claim." Id. at 1063. Also, courts apply "the de minimis rule in relation to the total sum or claim involved in the litigation." Id. "Finally, in applying the de minimis rule, we will consider whether the claimants performed the work on a regular basis." Id. The court summarized its position as follows:
in determining whether otherwise compensable time is de minimis, we will consider (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work.
Id. at 1063.
Thus, in determining whether an otherwise compensable activity is de minimis, we apply the three-prong test set forth in Lindow. In doing so, we recognize that the test reflects a balance between requiring an employer to pay for activities it requires of its employees and the need to avoid "split-second absurdities" that "are not justified by the actuality of the working conditions." Lindow, 738 F.2d at 1062 (quoting Anderson, 328 U.S. at 692, 66 S. Ct. 1187).[10]
2. Applying the applicable law to Rutti's off-the clock activities
Rutti's off-the-clock activities may be divided between those that take place before he leaves home, i.e. his preliminary activities, and those that take place after he returns home, i.e. his postliminary activities.
a. Preliminary Activities
Rutti's morning activities do not appear to be integral to his principal activities. Most of his activities"receiving, mapping, and prioritizing jobs and routes for assignment"are related to his commute. Under the FLSA, commuting is presumptively noncompensable, and is clearly distinct from Rutti's principal activities for Lojack. Although there are some indications that Rutti also filled out some forms for his jobs at home, it is not clear that the paperwork could not be performed after Rutti reached the job site, or that Lojack required the forms to be filled out before Rutti reached the job site.
In any event, these preliminary activities, to the extent that they are both distinct from his commute (which is not compensable) and related to his principal activities, appear to be de minimis, and *1058 thus, not compensable. Even though Rutti allegedly filled out certain forms every morning, there is nothing to suggest that this took more than a minute or so. Thus, viewing the facts in the light most favorable to Rutti, he has not offered any evidence of preliminary activities that are both integral to his principal activities for Lojack and take more than a de minimis amount of time. Accordingly, the district court properly granted Lojack summary judgment on Rutti's claim for compensation for preliminary activities.
b. Postliminary Activities
Lojack requires that Rutti, after he completes his last job for the day and goes "off-the-clock," return home and send a PDT transmission to Lojack using a modem provided by Lojack. The transmissions have to be made every day as they provide Lojack with information concerning all the jobs its technicians perform during the day. The transmissions appear to be "part of the regular work of the employees in the ordinary course of business," and are "necessary to the business and [are] performed by the employees, primarily for the benefit of the employer, in the ordinary course of that business." Dunlop, 527 F.2d at 401. Accordingly, at least on summary judgment, the district court could not determine that this activity was not integral to the Rutti's principal activities.
Lojack might still be entitled to summary judgment, if it could be determined that this postliminary activity was clearly de minimis. The evidence before the district court, however, does not compel such a conclusion. The fact that several technicians testified that they spent no more than five to ten minutes a night on PDT transmissions might appear to give rise to a presumption that an activity is de minimis, see Lindow, 738 F.2d at 1062, but such a conclusion is neither factually nor legally compelling.
It is not factually compelling because, although it may take only five to ten minutes to initiate and send the PDT transmission, the record shows that the employee is required to come back and check to see that the transmission was successful, and if not, send it again. There is also evidence in the record that there are frequent transmission failures. Accordingly, the record does not compel a finding that the daily transmission of the record of the day's jobs takes less than ten minutes.
Furthermore, we have not adopted a ten or fifteen minute de minimis rule. Although we noted in Lindow, that "most courts have found daily periods of approximately 10 minutes de minimis even though otherwise compensable," we went on to hold that "[t]here is no precise amount of time that may be denied compensation as de minimis" and that "[n]o rigid rule can be applied with mathematical certainty." 738 F.2d at 1062. The panel went on to set forth a three-prong standard, which would have been unnecessary if the panel had intended to adopt a ten or fifteen minute rule.[11]
The application of this three-prong test to the facts in this case do not compel a conclusion that the PDT transmissions are de minimis. The first prong, "the practical administrative difficulty of recording the additional time," id. at 1063, is closely balanced in this case. Certainly, it is difficult to determine exactly how much time each technician spends daily on the PDT transmissions. It is also not clear what *1059 activities should be covered. Is the time when the technician comes back to check to see if the transmission was successful included? When a technician is waiting until ten minutes after the hour, is he "engaged to wait" or "waiting to be engaged?" See Owens, 971 F.2d at 350. Although it may be difficult to determine the actual time a technician takes to complete the PDT transmissions, it may be possible to reasonably determine or estimate the average time. For example, there is evidence in the record that Lojack had agreed to pay one technician an extra 15 minutes a day to cover the time spent on PDT transmissions. In sum, the inherent difficulty of recording the actual time spent on a particular PDT transmission does not necessarily bar a determination that the PDT transmissions are not de minimis. See Reich v. Monfort, Inc., 144 F.3d 1329, 1334 (10th Cir.1998) (holding that the time it took meat packers to don and shed their employer-mandated clothing was not de minimis even though "the practical difficulty of supervising and recording the additional time weighs in favor of finding it noncompensable").
The other two prongs, "the aggregate amount of compensable time," and "the regularity of the additional work," Lindow, 738 F.2d at 1063, favor Rutti. Rutti asserts that the transmissions take about 15 minutes a day. This is over an hour a week. For many employees, this is a significant amount of time and money. Also, the transmissions must be made at the end of every work day, and appear to be a requirement of a technician's employment. This suggests that the transmission "are performed as part of the regular work of the employees in the ordinary course of business," Dunlop, 527 F.2d at 401, and accordingly, unless the amount of time approaches what the Supreme Court termed "split-second absurdities," the technician should be compensated. See Anderson, 328 U.S. at 692, 66 S. Ct. 1187.
Our review of the record suggests that the PDT transmissions are an integral part of Rutti's principal activities and that there are material issues of fact as to whether the PDT transmissions are de minimis. Accordingly, the grant of summary judgment in favor of Lojack on Rutti's claim for the transmissions must be vacated. See Balint v. Carson City, Nev., 180 F.3d 1047, 1054 (9th Cir.1999) (holding that in reviewing a grant of summary judgment, we do "not weigh the evidence or determine the truth of the matter, but only determines whether there is a genuine issue for trial"). This does not mean that on remand, Lojack may not be able to make a persuasive factual showing for summary judgment under the standard clarified in this opinion. We, however, decline to make such a decision in the first instance.
C. Rutti's off-the-clock activities do not extend his workday under the continuous workday doctrine.
Finally, Rutti argues that under the continuous workday doctrine,[12] because his work begins and ends at home, he is entitled to compensation for his travel time, citing Dooley v. Liberty Mutual Ins. Co., 307 F. Supp. 2d 234 (D.Mass.2004). In Dooley, automobile damage appraisers sought compensation for the time they spent traveling from their offices in their homes to locations where they inspected *1060 damaged cars. Id. at 239. The district court first determined that the work the appraisers undertook at home constituted principal activities.[13]Id. at 242. The court then determined that compensation was not prohibited by the Portal-to-Portal Act,[14] and concluded that those appraisers who could show that they performed work at home before or after their daily appraisals were entitled to compensation. Id. at 249.
Even were we to adopt the continuous workday doctrine set forth in Dooley, Rutti would not be entitled to compensation for his travel time to and from the job sites. We have already determined that Rutti's preliminary activities that are not related to his commute are either not principal activities or are de minimis. Accordingly, his situation is not analogous to the situation in Dooley. See 307 F.Supp.2d at 245 ("The first and last trip of the day for these appraisers is not a commute in the ordinary sense of the word-it is a trip between their office, where their administrative work is performed, and an off-site location.").
Our determination that Rutti's postliminary activity, the PDT transmission, is integrally related to Rutti's principal activities might support the extension of his work day through his travel back to his residence, were it not for 29 C.F.R. § 785.16. This regulation provides that "[p]eriods during which an employee is completely relieved from duty and which are long enough to enable him to use the time effectively for his own purposes are not hours worked."[15] Lojack allows a technician to make the transmissions at any time between 7:00 p.m. and 7:00 a.m. Thus, from the moment a technician completes his last installation of the day, he "is completely relieved from duty." His only restriction is that sometime during the night he must complete the PDT transmission. Because he has hours, not minutes, in which to complete this task, the intervening time is "long enough to enable him to use the time effectively for his own purpose." See Mireles v. Frio Foods, Inc., 899 F.2d 1407, 1413 (5th Cir.1990) (holding that waiting time "greater than forty-five minutes are not compensable because *1061 Plaintiffs were not required to remain on Defendant's premises during such periods and could use such periods effectively for their own purposes"). Rutti has not shown that the district court erred in determining that neither his preliminary nor postliminary activities extended his workday under the continuous workday doctrine.
IV.
We substantially agree with the district court's grant of summary judgment in favor of Lojack on Rutti's claims for overtime compensation. We agree that Rutti is not entitled to compensation under federal law for his commute to and from his job sites in a vehicle provided by Lojack. We agree that Rutti is not entitled to compensation for his preliminary activities as those activities are either not principal activities, or if principal activities, are de minimis. However, we vacate the district court's grant of summary judgment on Rutti's claim for compensation for the PDT transmissions because it appears that this function is integral to Rutti's principal activities for Lojack and the record does not compel a determination that the time consumed by this function is de minimis.
We also agree with the district court that Rutti is not entitled to compensation for his commute time under the continuous workday doctrine because, as noted, his preliminary activities are either not principal activities or are de minimis. In addition, accepting that the postliminary PDT transmission is a principal activity, the fact that Rutti is not required to make the transmission at any specific time means that he may use the intervening time for his own purposes, and accordingly pursuant to 29 C.F.R. § 785.16, Lojack need not compensate him for the intervening time.
The district court's grant of summary judgment is affirmed except as to Rutti's claims for compensation for commuting under state law and for the required postliminary PDT transmission, which are vacated. This matter is remanded for further proceedings consistent with this opinion. Each party to bear its own costs.
AFFIRMED in part, VACATED in part, and REMANDED.
Separate Opinion by Judge SILVERMAN.[1]
Compensation for Commute Time under California Law
Rutti contends that even if his commute is not compensable under the federal Employment Commuter Flexibility Act, it is nevertheless compensable under California law. California law requires that employees be compensated for all time "during which an employee is subject to the control of an employer." Morillion v. Royal Packing Co., 22 Cal. 4th 575, 578, 94 Cal. Rptr. 2d 3, 995 P.2d 139. (2000). In Morillion, the California Supreme Court held that the plaintiffs were "subject to the control" of their employer during a mandatory bus commute because "plaintiffs could not drop off their children at school, stop for breakfast before work, or run other errands requiring the use of a car." Id. at 586, 94 Cal. Rptr. 2d 3, 995 P.2d 139. The California Supreme Court reasoned that the "[p]laintiffs were foreclosed from numerous activities in which they might otherwise engage if they were permitted to travel to the fields by their own transportation." Id. That is precisely the situation here. Rutti was required to drive the company vehicle, could not stop off for personal errands, could not take passengers, was required to drive the vehicle directly from home to his job and back, and could not use his cell phone while driving except that he had to keep his *1062 phone on to answer calls from the company dispatcher. In addition, Lojack's computerized scheduling system dictated Rutti's first assignment of the day and the order in which he was to complete the day's jobs. There is simply no denying that Rutti was under Lojack's control while driving the Lojack vehicle en route to the first Lojack job of the day and on his way home at the end of the day.
The dissent attempts to distinguish Morillion by summarily concluding that "Rutti's use of Lojack's automobile to commute to and from his job sites is more analogous to the `home to departure points' transportation in Morillion than to the employees' transportation on the employer's buses." Aside from the lack of factual analysis to support this ipse dixit, the dissent also utterly ignores the relevant question under California law, which is whether Rutti was "subject to the control of an employer" during his mandatory travel time. A straightforward application of Morillion easily answers that question in the affirmative. Rutti was required not only to drive the Lojack vehicle to and from the job site, but was forbidden from attending to any personal business along the way. Because he was obviously under the employer's control in these circumstances he was, under California law, entitled to be paid.[2]
The dissent makes the mistake of assuming that any employer-mandated travel that begins or ends at home is automatically noncompensable, but that assumption again ignores the controlling legal principle. Under California law it is the "level of the employer's control over its employees" that "is determinative," not whether the employee just so happens to depart from, or return to, his home instead of some other location. Id. at 587, 94 Cal. Rptr. 2d 3, 995 P.2d 139. Here, the level is total control. To repeat, Rutti was required to use the company truck and was permitted no personal stops or any other personal use. Thus, under Morillion, Rutti had a valid state-law claim for compensation. The district court's grant of summary judgment as to Rutti's claim for compensation for commuting under California law is reversed.
HALL, Circuit Judge, concurring in part and dissenting in part:
I join in Judge Callahan's opinion except as to Rutti's claim for compensation for the required postliminary PDT transmission, which I would affirm. I believe the time spent engaging in PDT transmissions was de minimis. I also join in Judge Silverman's separate opinion on compensation for commuting under California Law.
There is no dispute regarding the process required for transmission: the task involved connecting the PDT to a modem, scrolling down a menu on the PDT screen, and selecting the "transmit" option to initiate *1063 uploading. No technician has contested that this process took any more than a couple of minutes. As the district court noted, 66 of the 70 purported class members stated total PDT transmission activity took them five minutes or less daily, and the remaining four stated the transmission took them less than ten minutes daily. Even the technician claiming to be paid fifteen minutes daily for his PDT transmission acknowledged that the process actually only took him a total of one to two minutes. Only Rutti claimed that his PDT transmission would take up to fifteen minutes to complete, which he attributed to the delays caused by transmission failures.
Also undisputed is the fact that LoJack clearly established policies for technicians to follow in the event of transmission difficulties. Technicians were required to notify LoJack of errors, were provided technical support, and were instructed on how to set their PDT to automatically transmit overnight. Rutti followed none of these procedures. He did acknowledge, however, that if he waited until 10 p.m., he had no difficulty transmitting the data.
While the majority is correct that Lindow did not establish a per se rule that ten minutes or less is de minimis, the majority overlooks the facts of that case. In Lindow, the court acknowledged that the range of time spent in the activity was five to fifteen minutes, with an average time of seven to eight minutes, yet found that time to be de minimis. Lindow v. United States, 738 F.2d 1057, 1059-60. Here, the vast majority of purported class members state the transmission takes five minutes or less, and likely only one to two minutes. A postliminary activity requiring "only a few seconds or minutes of work beyond the scheduled working hours" is de minimis. Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 692, 66 S. Ct. 1187, 90 L. Ed. 1515 (1946).[1] Only one person, Rutti, claims that the transmission takes up to fifteen minutes, and only if there are transmission difficulties. Other cases, relying on Lindow, have also found ranges of five to fifteen minutes de minimis. See, e.g., Bobo v. United States, 37 Fed. Cl. 690, 702 (1997) (five to fifteen minutes de minimis even where activity was a principal duty) aff'd Bobo v. United States, 136 F.3d 1465 (Fed.Cir.1998).
Those cases, like the district court here, rely heavily on the administrative difficulty involved in recording the time spent. While acknowledging this difficulty, the majority points to the example of one technician who testified he was paid for his PDT transmissions at the rate of fifteen minutes per day, implying that LoJack could simply "extend" that practice to all technicians. That technician, however, admitted that the transmission only took him one to two minutes daily, but that LoJack paid only in fifteen minute increments, so he rounded up. The technician also admitted that he knew company policy required him to clock out from work each day at 5 p.m., whereas the fifteen minutes he recorded were after 5 p.m. The record does not indicate that LoJack approved, or even was aware of, this technician's practice. *1064 This example, rather than supporting the majority's conclusion, highlights the difficulty involved in recording such small periods of time.
The majority is correct to note that the technicians must also check back to see that the data was uploaded successfully, but this requires only a few seconds to do. Rutti testified at his deposition that he would spend the time when the data was transmitting watching television or making a sandwich. And if he set-up the PDT transmission to occur automatically overnight, as LoJack allowed, the transmission time could be spent sleeping. This hardly satisfies the "engaged to wait" standard to be compensable as required by Owens v. Local No. 169, Ass'n of W. Pulp & Paper Workers, 971 F.2d 347, 350 (9th Cir.1992).
Finally, as Rutti argues, the PDT transmission took longer than a couple of minutes only when the transmission required multiple attempts to be successful. Even allowing for the possibility of multiple transmission attempts, each new attempt would add only a few seconds of time to click "transmit" again, and the employees' time between transmission attempts and during actual uploading would be spent on personal activities. As noted above, however, LoJack established procedures for technicians to follow if they experienced technical difficulties, and required them to report any such failures. Rutti admits he never followed procedure to notify LoJack of his difficulties, nor did he set up his PDT transmission to occur automatically. LoJack only required its employees to perform a transmission it believed to be de minimis. If properly performed, as the vast majority of purported class members testified, the total transmission would likely require under five minutes. In Forrester v. Roth's IGA Foodliner, 646 F.2d 413, 414 (9th Cir.1981), this court held that "where an employer has no knowledge that an employee is engaging in overtime work and that employee fails to notify the employer or deliberately prevents the employer from acquiring knowledge of the overtime work, the employer's failure to pay for the overtime hours is not a violation of [the FLSA]." Rutti's deliberate actions in violating company procedure that would have notified LoJack of the problems he experienced, or, in the case of the automatic transmission, would have prevented the difficulties, cannot now be held against LoJack.
Thus, even if the transmission is construed to be a principal activity, it is still not compensable because it is de minimis. And even if the transmission were not de minimis, LoJack is still entitled to summary judgment if Rutti failed to inform LoJack of the time he spent on the transmissions beyond a de minimis time. I conclude that this is precisely the type of activity the Portal-to-Portal Act and the de minimis rule were designed to reach. I respectfully dissent from that portion of the opinion which concludes otherwise.
CALLAHAN, Circuit Judge, dissenting from Judge Silverman's opinion on compensation for commuting under state law:
Rutti contends that even if his commute is not compensable under ECFA, it is compensable under California law pursuant to Morillion v. Royal Packing Co., 22 Cal. 4th 575, 94 Cal. Rptr. 2d 3, 995 P.2d 139 (2000). He asserts that in Morillion, the California Supreme Court adopted a standard more favorable to employees "by merely requiring that the worker be subject to the `control of the employer' in order to be entitled to compensation."
The "control of the employer" standard set forth in Morillion may be more favorable to employees than federal law, but it does not cover Rutti's commute. In Morillion, the employer required the employees *1065 "to meet at the departure points at a certain time to ride its buses to work, and it prohibited them from using their own cars." Id. at 587, 94 Cal. Rptr. 2d 3, 995 P.2d 139. The court held that under California law, the employees' "compulsory travel time, which includes the time they spent waiting for [the employer's] buses to begin transporting them, was compensable," but "the time [the employees] spent commuting from home to the departure points and back again is not." Id. at 587-88, 94 Cal. Rptr. 2d 3, 995 P.2d 139. Here, Rutti's use of Lojack's automobile to commute to and from his job sites is more analogous to the "home to departure points" transportation in Morillion than to the employees' transportation on the employer's buses.[1]
My review of subsequent cases construing California law fails to reveal any case extending Morillion to cover Rutti' situation. In Overton v. Walt Disney Co., 136 Cal. App. 4th 263, 271, 38 Cal. Rptr. 3d 693 (2006), the court held that time spent by an employee on an employer-provided shuttle bus from the employer-provided parking lot to the job site was not compensable because employees were not required to use the parking lot or to take the shuttle. In Burnside v. Kiewit Pacific Corp., 491 F.3d 1053 (9th Cir.2007), we read Morillion as covering "employees for time spent traveling from designated meeting points to their job sites and back" in company provided vehicles. Id. at 1070. There was no suggestion that the employees were entitled to compensation for commuting to the designated meeting points. The decision in Ghazaryan v. Diva Limousine Ltd., 169 Cal. App. 4th 1524, 87 Cal. Rptr. 3d 518 (2008), similarly concerned time spent by limousine drivers between calls, not the time spent commuting from home to their first assignments. Furthermore, our reading of Morillion is consistent with California Labor Code § 510(b), which provides that "[t]ime spent commuting to and from the first place at which an employee's presence is required by the employer shall not be considered to be a part of a day's work, when the employee commutes in a vehicle that is owned, leased, or subsidized by the employer and is used for the purpose of ridesharing."[2]
Accordingly, I dissent from Judge Silverman's opinion and would hold that the district court properly held that Rutti is not entitled to compensation for the time spent commuting to and from his job sites in a vehicle provided by Lojack under either 29 U.S.C. § 254(a)(2) or California law.
NOTES
[1] Judge Silverman joins in this opinion and Judge Hall joins in this opinion except as to Rutti's claim for compensation for the required postliminary PDT transmissions. Judge Silverman has authored a separate opinion concerning Rutti's claim for compensation under California law for commuting, which Judge Hall joins, and to which Judge Callahan has filed a dissent.
[2] Although not in the dictionary, this word is used in the critical statute, 29 U.S.C. § 254(a)(2). The statute provides that an employer need not pay for:
activities which are preliminary to or postliminary to said principal activity or activities, which occur either prior to the time on any particular workday at which such employee commences, or subsequent to the time on any particular workday at which he ceases, such principal activity or activities. There is some inherent ambiguity in this definition. On the one hand, these terms refer to the timing of the activity as either before or after the employee's primary job functions. On the other hand, the terms appear to be used to distinguish off-the-clock activities for which an employee is not entitled to compensation from "principal activities" for which an employee is entitled to compensation. In this opinion, the terms are used primarily to refer to the timing of the activities in issue.
[3] During Rutti's six years with Lojack, he only received two calls for additional jobs while "on-call." Rutti accepted one job and declined the other.
[4] In the district court, Rutti also sought compensation for time spent washing his work clothes, washing and maintaining the company car, driving to the United Parcel Service, organizing supplies, purchasing and maintaining his work tools, and commuting to and waiting for meetings. The district court held that Rutti was not entitled to compensation for any of these activities and Rutti has not challenged those rulings on appeal.
[5] Before the district court, Rutti also sought compensation for time spent "on-call." Rutti did not adequately brief this court on this claim however, referring to on-call compensation only in a letter filed pursuant to Rule 28(j), after briefing was completed. This is insufficient to preserve his claim and we consider it waived. See Miller v. Fairchild Indus., Inc., 797 F.2d 727, 738 (9th Cir. 1986); Fed. R.App. P. 29(a)(9).
[6] Rutti also challenges on appeal the district court's denial of his request for $500 in reimbursement for expenses incurred in repairing damage to the company vehicle caused by his failure to maintain the vehicle. California law provides that an employee who violates his duty to use reasonable care, skill and diligence is liable for losses which his employer sustains as a result of his negligence or breach of duty. See Cecka v. Beckman & Co., 28 Cal. App. 3d 5, 11, 104 Cal. Rptr. 374 (1972). The record shows that Rutti admitted that he failed to maintain the van. Accordingly, there is no outstanding issue of material fact and the district court properly denied Rutti reimbursement for the $500 deductible he paid.
[7] Although the Federal Circuit in Adams and Bobo concluded that the restrictions there at issue did not pass the de minimis threshold (Adams, 471 F.3d at 1327; Bobo, 136 F.3d at 1468), as a practical matter, this is the same as determining that the restrictions did not amount to "additional legally cognizable work."
[8] The Fifth Circuit, however, remanded the case "for further determination whether all these activities combined still resulted in so slight an expenditure of the employees' time as to be de minimis and therefore not compensable." Id. at 401.
[9] In Anderson, the Supreme Court first noted that "the time spent in walking to work on the employer's premises, after the time clocks were punched, involved physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business." 328 U.S. at 691-92, 66 S. Ct. 1187. It then commented that "compensable working time was limited to the minimum time necessarily spent in walking at an ordinary rate along the most direct route from time clock to work bench. Many employees took roundabout journeys and stopped off en route for purely personal reasons. It would be unfair and impractical to compensate them for doing that which they were not required to do." Id. at 692, 66 S. Ct. 1187.
[10] In Anderson, the Supreme Court indicated that an employee was entitled to compensation for principal activities unless the employer met its burden of showing that the time consumed by the activity was truly de minimis.
The master ... denied recovery solely because the amount of time taken up by the activities and the proportion of it spent in advance of the established starting time had not been proved by the employees with any degree of reliability or accuracy. But, as previously noted, the employees cannot be barred from their statutory rights on such a basis. Unless the employer can provide accurate estimates, it is the duty of the trier of facts to draw whatever reasonable inferences can be drawn from the employees' evidence as to the amount of time spent in these activities in excess of the productive working time.
328 U.S. at 693, 66 S. Ct. 1187.
[11] The panel noted that the "plaintiffs spent an average of 7 to 8 minutes a day reading the log book and exchanging information." 738 F.2d at 1064. If the panel had intended to adopt a rigid rule, it could have simply concluded that because the activities took less than ten minutes they were per se de minimis.
[12] See IBP, Inc. v. Alvarez, 546 U.S. 21, 29, 126 S. Ct. 514, 163 L. Ed. 2d 288 (2005), noting that "the Department of Labor has adopted the continuous workday rule, which means that the `workday' is generally defined as `the period between the commencement and completion on the same workday of an employee's principal activity or activities.' [29 C.F.R.] § 790.6(b)."
[13] The court explained: "Appraisers are required, as part of their job duties, to check their email and voice mail, to prepare their computers for use, and to return telephone calls. These tasks are `part of the regular work of the employees.'" Dooley, 307 F.Supp.2d. at 242 (citing Dunlop, 527 F.2d at 401).
[14] The court reasoned:
The Portal-to-Portal Act applies only to those activities that occur "either prior to the time on any particular workday at which such employee commences, or subsequent to the time on any particular workday at which he ceases, such principal activity or activities." 29 U.S.C. § 254(a). I concluded, above, that the plaintiffs' alleged activities at home constitute principal activities. Because the plaintiffs' drive to the first appraisal site does not occur "prior to the time [the] employee commences [his or her] principal activity or activities," the drive is outside the ambit of the Portal-to-Portal Act. The default rule of the FLSA that the plaintiffs must be paidapplies. See 29 C.F.R. § 790.6(a).
Dooley, 307 F.Supp.2d at 243.
[15] Subsection (a) of 29 C.F.R. § 785.16 states:
Periods during which an employee is completely relieved from duty and which are long enough to enable him to use the time effectively for his own purposes are not hours worked. He is not completely relieved from duty and cannot use the time effectively for his own purposes unless he is definitely told in advance that he may leave the job and that he will not have to commence work until a definitely specified hour has arrived. Whether the time is long enough to enable him to use the time effectively for his own purposes depends upon all of the facts and circumstances of the case.
[1] Judge Hall joins in this opinion. Judge Callahan dissents.
[2] The additional cases cited by the dissent do nothing to advance its conclusion. In Overton v. Walt Disney Co., 136 Cal. App. 4th 263, 271, 38 Cal. Rptr. 3d 693 (2006), the court held that time spent by an employee on an employer-provided shuttle bus from the employer parking lot to the job site was not compensable because the employees were not required to use the parking lot or to take the shuttle. In contrast, Rutti was required to drive the company vehicle and was subject to numerous restrictions while doing so. The dissent also cites Burnside v. Kiewit Pac. Corp., 491 F.3d 1053 (9th Cir.2007), which it says gave "no suggestion that the employees [in Morillion] were entitled to compensation for commuting to the designated meeting points." But no one has ever suggested that the employees in Morillion were entitled to compensation for that timethey clearly were not "subject to the control of an employer" then. Finally, California Labor Code § 510(b) does not apply to compulsory travel time. See Morillion, 22 Cal.4th at 590 n. 6, 94 Cal. Rptr. 2d 3, 995 P.2d 139.
[1] The majority cites heavily from the Anderson opinion to support its policy discussion of compensable time and its interpretation of the scope of the de minimis rule. See Opinion at 1056-57 n. 9 & 10. I separately object to this reliance. Congress overruled the Anderson decision by passing the Portalto-Portal Act, which modified the FLSA, less than one year after the decision was reached in order to vitiate the very reasoning on which the majority now relies. See Carter v. Panama Canal Co., 463 F.2d 1289, 1293-94 (D.C.Cir.1972). It is the Portal-to-Portal Act that excludes compensation for commuting and preliminary and postliminary activities. See id.; see also 29 U.S.C. § 254. Thus, the reliance on the Anderson case should be restricted to its creation of the de minimis exception.
[1] I note that in Morillion, the California Supreme Court stated: "we emphasize that employers do not risk paying employees for their travel time merely by providing them transportation." 22 Cal.4th at 588, 94 Cal. Rptr. 2d 3, 995 P.2d 139. Although Rutti was required to drive the company vehicle, he was free to determine when he left and his route.
[2] "`Ridesharing' means two or more persons traveling by any mode, including, but not limited to, carpooling, vanpooling, buspooling, taxipooling, jitney, and public transit." Cal. Veh.Code § 522. If the provision of a vehicle by the employer for commuting does not constitute part of a day's work when the employee has to share the vehicle with other employees, it follows that it should not constitute part of a day's work when the employee's use of the employer-provided vehicle is freed of such a limitation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1318086/ | 525 F.3d 622 (2008)
Samuel W. BOSTON, Appellant,
v.
Douglas WEBER, Warden, South Dakota State Penitentiary; Larry Long, Attorney General, State of South Dakota, Appellees.
No. 07-2222.
United States Court of Appeals, Eighth Circuit.
Submitted: January 16, 2008.
Filed: May 8, 2008.
*623 Kenneth R. Dewell, argued, Robert W. Van Norman, on the brief, Rapid City, SD, for appellant.
Gary Campbell, AAG, argued, Pierre, SD, for appellee.
Before BYE, BEAM and GRUENDER, Circuit Judges.
GRUENDER, Circuit Judge.
Samuel W. Boston appeals the district court's[1] order dismissing his petition for a writ of habeas corpus under 28 U.S.C. § 2254 as untimely. We affirm.
I. BACKGROUND
A jury convicted Boston of second-degree murder, and he was sentenced to life in prison without the possibility of parole. The South Dakota Supreme Court affirmed the conviction on June 11, 2003. Boston did not seek a writ of certiorari to the United States Supreme Court before the ninety days allowed for filing such a writ expired on September 9, 2003. See Sup.Ct. R. 13. He filed an application for state habeas relief on January 15, 2004. The state circuit court dismissed Boston's habeas application. On January 7, 2005, the South Dakota Supreme Court denied Boston's motion for a certificate of probable cause to appeal the circuit court's denial of his habeas application.
Boston filed his petition for a writ of habeas corpus pursuant to 28 U.S.C. § 2254 in federal district court on December 20, 2005. The State did not argue that Boston's petition was untimely, and the magistrate judge's Findings and Recommendations contended that "[t]he petitioner's federal writ of habeas corpus was filed within one year of the state Supreme Court order denying his motion for an appeal. Therefore, the one year statute of limitations has been met." The magistrate judge recommended that Boston's habeas petition be denied on the merits. Boston filed objections in the district court.
The district court sua sponte ordered the parties to address whether Boston's petition was time barred under the Antiterrorism and Effective Death Penalty Act of 1996 ("AEDPA"), Pub.L. No. 104-132, 110 Stat. 1214. The State then filed a motion to dismiss the petition as untimely, and Boston filed a response in opposition to the motion. The district court dismissed Boston's petition finding that it was time barred under AEDPA. Alternatively, the district court concluded that, even if *624 timely, the petition should be dismissed because it was a mixed petition, one that included both exhausted and unexhausted claims. The district court granted a certificate of appealability on the following three issues: (1) whether the petition was timely filed under AEDPA; (2) whether the State intelligently waived the AEDPA statute of limitations defense; and (3) whether the petition raised issues that were not exhausted at the state level. Boston now appeals on all three grounds.
II. DISCUSSION
A. Timeliness under AEDPA
We review the district court's decision to dismiss a § 2254 habeas petition based on the AEDPA statute of limitations de novo. O'Neal v. Kenny, 501 F.3d 969, 970 (8th Cir.2007), petition for cert. filed, ___ U.S.L.W. ___ (U.S. Feb. 15, 2008). AEDPA requires a state prisoner seeking a writ of habeas corpus to file his federal petition within one year after "the date on which the judgment became final by the conclusion of direct review or the expiration of the time for seeking such review." 28 U.S.C. § 2244(d)(1)(A). When the state court of last resort enters a judgment in a direct criminal appeal and the petitioner does not seek a writ of certiorari, the judgment is final at the conclusion of the ninety days allowed by the Supreme Court for the filing of such a writ. Curtiss v. Mount Pleasant Corr. Facility, 338 F.3d 851, 853 (8th Cir.2003). In this case, the judgment was final on September 9, 2003.
The AEDPA statute of limitations is tolled for "[t]he time during which a properly filed application for State post-conviction or other collateral review with respect to the pertinent judgment or claim is pending...." 28 U.S.C. § 2244(d)(2). In Painter v. Iowa, we held "that the time between the date that direct review of a conviction is completed and the date that an application for state post-conviction relief is filed counts against the one-year period." 247 F.3d 1255, 1256 (8th Cir. 2001). Boston filed his state habeas application on January 15, 2004, 127 days after the state judgment became final on September 9, 2003. Applying the rule in Painter, these 127 days count against the one-year AEDPA limitation period. When the South Dakota Supreme Court denied his motion for certificate of probable cause on January 7, 2005, Boston had 238 days or until September 2, 2005, to file his federal habeas petition. However, Boston filed his federal habeas petition on December 20, 2005, more than three months after the AEDPA statute of limitations had expired.
Nonetheless, Boston argues that his federal habeas petition is timely because the Supreme Court's decision in Carey v. Saffold, 536 U.S. 214, 122 S. Ct. 2134, 153 L. Ed. 2d 260 (2002), and our circuit's post-Saffold decisions in Curtiss, Williams v. Bruton, 299 F.3d 981 (8th Cir.2002), and Wright v. Norris, 299 F.3d 926 (8th Cir.2002), have implicitly overruled Painter. Boston asserts that
as long as the right to file a state habeas petition exists the petition is `pending' if the one year statute of limitations (the AEDPA rule) has not expired. When the state petition is then actually filed in the state habeas proceeding the entire block of timefrom the date of the conclusion of the direct appeal and the date of the filing of the South Dakota Supreme Court denial of a certificate of an appealable issueis included as `pending' as long as one calender year has not then elapsed, therefore the AEDPA is tolled during that time.
Reply Br. for Appellant at 4. Essentially, Boston argues for retroactive tolling, *625 which effectively means the AEDPA statute of limitations would not begin to run until after the conclusion of the state habeas proceedings so long as the state habeas application is filed within one year of the judgment becoming final. Because Boston's state habeas application was filed within one year of the judgment becoming final, Boston contends that the AEDPA statute of limitations for his federal habeas petition expired on January 7, 2006, a year after the South Dakota Supreme Court denied his motion for certificate of probable cause. As a result, he claims his federal habeas petition filed on December 20, 2005, is timely. We disagree.
First, Boston's reliance on Saffold is misplaced. In Saffold, the Supreme Court held that, upon filing a state habeas application, the application is "pending" until the completion of the state collateral review process. 536 U.S. at 219-21, 122 S. Ct. 2134. Saffold does not support Boston's argument because it did not address the time period between the date the judgment became final and the date of filing an application for state collateral review. To extend Saffold to exclude this time period as Boston seeks would thwart AEDPA's purpose to "reduce delays in the execution of state and federal criminal sentences," Rhines v. Weber, 544 U.S. 269, 276, 125 S. Ct. 1528, 161 L. Ed. 2d 440 (2005) (quotation omitted), without furthering the goals of "comity, finality, and federalism," Saffold, 536 U.S. at 220, 122 S. Ct. 2134 (quotation omitted).
The Supreme Court also did not apply such retroactive tolling in its subsequent decision in Day v. McDonough, 547 U.S. 198, 126 S. Ct. 1675, 164 L. Ed. 2d 376 (2006). Day filed his application for state post-conviction relief 353 days after the state judgment became final, and he filed his federal habeas petition thirty-six days after the state appellate court denied state post-conviction relief. Id. at 203, 126 S. Ct. 1675. Although the issue before the Court was whether the district court could raise the timeliness issue sua sponte, Day's petition clearly would have been timely if the 353 days were excluded from the AEDPA one-year limitation period. Nonetheless, the Court affirmed the dismissal of Day's habeas petition as untimely, thereby implicitly adopting our rule in Painter. Id. at 211, 126 S. Ct. 1675.
Second, Boston's reliance on Wright, Williams and Curtiss is equally misplaced. In Wright, we held that the federal habeas petition was untimely after "assum[ing] without deciding that state post-conviction proceedings in Arkansas remain pending,... for the eighteen month period when the Supreme Court of Arkansas will entertain a motion for a belated appeal of the denial of state post-conviction relief." 299 F.3d at 928. In Williams, we determined that an application for state post-conviction relief "is `pending' (and thus the limitations period is tolled) during the appeal period, even if the petitioner does not appeal [the denial of his application to a higher state court]." 299 F.3d at 983. In Curtiss, we held that Curtiss's federal habeas petition was untimely when he filed his state habeas application more than one year after the judgment became final. 338 F.3d at 855. As we stated in Curtiss, "[n]either Williams nor Wright provides support for [the petitioner's] contention that Painter has been abrogated." Id. These cases simply do not support the retroactive tolling rule that Boston asserts. Rather, our circuit has continued to recognized the validity of the Painter rule. See Runyan v. Burt, 521 F.3d 942, (8th Cir.2008) (finding a federal habeas petition untimely by including in the AEDPA one-year limitation period the time between the judgment becoming final and the filing of the state habeas application even though the state *626 habeas application was filed within one-year of the judgment becoming final).
Indeed, our rule in Painter is consistent with the plain language of 28 U.S.C. § 2244, which states that the "limitation period shall run from ... the date on which the judgment became final[,]" 28 U.S.C. § 2244(d)(1)(A), and the limitation period tolls only when "a properly filed application for State post-conviction or other collateral review with respect to the pertinent judgment or claim is pending[,]" 28 U.S.C. § 2244(d)(2) (emphasis added). The tolling provision does not apply to the period before the application was properly filed. Therefore, because the period between the date the judgment became final and the date of filing the state habeas application is included in the AEDPA one-year limitation period, Boston's petition is untimely.[2]
B. Waiver
Boston next argues that the State waived its AEDPA statute of limitations defense because the State neither asserted that Boston's habeas petition was untimely in its responsive pleadings nor objected to the magistrate judge's conclusion that the petition was timely. The district court determined that the State did not waive its statute of limitations defense. We review the district court's decision for an abuse of discretion. Sweet v. Sec'y, Dep't of Corr., 467 F.3d 1311, 1320 (11th Cir.2006), cert. denied, 550 U.S. ___, 127 S. Ct. 2139, 167 L. Ed. 2d 871 (2007).
The Supreme Court has stated that "should a State intelligently choose to waive a statute of limitations defense, a district court would not be at liberty to disregard that choice." Day, 547 U.S. at 211 n. 11, 126 S. Ct. 1675. In Day, Florida failed to raise the one-year bar in its responsive pleadings and, through a miscalculation, explicitly conceded that the habeas petition was timely. Id. at 205, 126 S. Ct. 1675. The Supreme Court did not find this to constitute an intelligent waiver because "there was merely an inadvertent error, a miscalculation that was plain under Circuit precedent...." Id. at 211, 126 S. Ct. 1675. Here, South Dakota never explicitly conceded that the petition was timely, as Florida did in Day. When the district court raised the issue sua sponte, South Dakota immediately filed a motion to dismiss and a motion to amend its answer. Based on this evidence, we cannot conclude the district court abused its discretion when it determined that the State did not intelligently choose to waive the AEDPA statute of limitations defense.
Boston further argues that before determining whether the State waived this defense, the district court was required to "assure itself that the petitioner is not significantly prejudiced by the delayed focus on the limitation issue, and determine whether the interests of justice would be better served by addressing the merits or by dismissing the petition as time barred." Id. at 210, 126 S. Ct. 1675 (internal quotation omitted). The district court gave Boston *627 due notice and a fair opportunity to show why his petition should not be dismissed as untimely. See id. Other than claiming that the petition was meritorious, Boston did not present any argument, to the district court or to this court, that the delayed focus on the timeliness issue actually prejudiced him or that the interest of justice would be better served by addressing the merits of his petition.[3] We also find no such argument for him sua sponte. Therefore, we conclude that the district court did not abuse its discretion in determining that the State did not waive the AEDPA statute of limitations defense.
III. CONCLUSION
Accordingly, we affirm the district court's dismissal of Boston's petition for writ of habeas corpus.[4]
NOTES
[1] The Honorable Karen E. Schreier, Chief Judge, United States District Court for the District of South Dakota.
[2] Boston argued to the district court that he filed his application for state habeas relief on November 12, 2003, the date he signed the application and over two months before the district court received the application. This argument was not raised on appeal and is therefore waived. See Cormack v. Settle-Beshears, 474 F.3d 528, 531 (8th Cir.2007). Even if Boston had filed his state habeas application on the day he signed it, the AEDPA statute of limitations would have expired on November 5, 2005. Because he did not file the federal habeas petition until December 20, 2005, his petition would still be untimely. Boston also argued unsuccessfully to the district court that he was entitled to equitable tolling. Because he also failed to raise this argument on appeal, it also is waived. See id.
[3] Because all petitioners claim that their petition is meritorious, we do not think that such an argument by itself establishes prejudice or that the interest of justice would be better served by addressing the merits of the petition.
[4] Because Boston's habeas petition is untimely, we need not address whether the district court erred in alternatively dismissing the petition as a mixed petition. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1344862/ | 190 Ga. App. 304 (1989)
378 S.E.2d 712
PEABODY
v.
THE STATE.
77804.
Court of Appeals of Georgia.
Decided February 14, 1989.
Harlan M. Starr, for appellant.
Jack O. Partain III, District Attorney, for appellee.
SOGNIER, Judge.
David "Skip" Peabody appeals from his convictions on one count of burglary and seven counts of forgery in the first degree.
1. Appellant contends the trial court erred by admitting into evidence the statements he made to the police because the State failed to prove appellant knowingly and intelligently waived his right to counsel. At the hearing conducted pursuant to Jackson v. Denno, 378 U.S. 368 (84 SC 1774, 12 LE2d 908) (1964), Detective Quarles of the Whitfield County Sheriff's Department testified that he interviewed appellant on July 16, 1987, on December 9, 1987, and two days thereafter after at appellant's own request. Detective Quarles stated that he ascertained during the first interview that appellant was 34 years old with a two-year college degree. Quarles testified he then read appellant a form setting forth his rights under Miranda v. Arizona, 384 U.S. 436 (86 SC 1602, 16 LE2d 694) (1966), including, inter alia, that appellant had the right to talk to a lawyer, to have the lawyer present with him while he was being questioned, and to have one appointed to represent him before any questioning, if he wished and could not afford to hire one. Detective Quarles stated appellant signed the form under the waiver, providing "I have read the above statement of my rights and I understand each of those rights, and having these rights in mind I waive them and willingly make a statement." Detective Quarles testified that appellant was likewise advised of his Miranda rights on both of the succeeding interviews and that appellant signed a second form waiving his rights at the December 9 interview. Detective Quarles stated that at each interview appellant seemed to understand his rights as they went over them, that appellant did not appear to be under the influence of any alcohol, drugs, or other intoxicants, that no threats or hopes of benefit or reward were made to appellant, and that appellant's statements were voluntarily made.
Appellant testified that at the time of the July 16 interview, he was under the influence of pain medication prescribed for a work-related back injury which "[s]lowed [him] down" but that he "had a pretty good bit of my wits together, except for the slowness." While appellant acknowledged he was read his Miranda rights at that time, *305 he stated he understood them to mean that he was entitled to a lawyer only before he went to court, not at the time of the questioning. At the second interview, appellant stated that because the detective did not "just come right out and say, `You need a lawyer,'" that appellant did not understand he was supposed to have a lawyer with him before he volunteered any information. When asked whether he understood the rights read to him, appellant replied, "[n]ot deep down and heartily like I should've." On cross-examination, appellant acknowledged that he was not "a stranger to the criminal justice system," having been in court before on other charges in the past and having been read his rights before the subject incidents.
"We are satisfied that appellant's enumeration of error is without merit, and that appellant did knowingly, intelligently and voluntarily waive his right after being properly advised thereof. Factual and credibility determinations as to voluntariness of a confession, including factual and credibility determinations as to issues of rights waiver, are normally made by the trial judge and must be accepted by appellate courts unless such determinations are clearly erroneous. [Cits.]" Johnson v. State, 186 Ga. App. 801, 803 (368 SE2d 562) (1988).
2. Appellant contends the trial court erred by denying his motion for a new trial because the evidence was insufficient to support his convictions for the burglary of Capitol Adhesives, a business engaged in the manufacture of carpet adhesives, and for seven counts of forgery involving checks stolen from another business, North Georgia Yarn Shippers. Specifically, appellant contends that the testimony of accomplices was not sufficiently corroborated.
As to the burglary count, at trial appellant's co-defendant, Keith Barclay, testified that when appellant and Randy Thomas visited him at Capitol Adhesives, where Barclay was employed, they had discussed how easy it would be to burglarize the business, that appellant at that time broke into a locked tool box to examine its contents and told Barclay not to worry about the damage since "he was gonna come back and take it," and that Barclay showed appellant how to enter the business by pulling up the corner of the roll-up dock door. Barclay testified that the business was burglarized the night of his discussion with appellant and that when Barclay asked appellant if he had done it, appellant said yes, and that Barclay should have seen Randy Thomas' face when appellant wheeled over some cutting torches to cut open a vending machine on the premises.
A review of the evidence at trial reveals testimony by appellant that he and Randy Thomas talked to Barclay at Capitol Adhesives, at which time Barclay told them it would be easy to break into the business, and when appellant inquired how easily, Barclay demonstrated the vulnerability of the dock door. Appellant had stated to Detective Quarles, and testified as well at trial, that he had purchased tools *306 from Randy Thomas around the time of the Capitol Adhesives burglary and that he suspected, but had no proof, that the tools were stolen from that business.
The State also introduced as corroborating evidence the testimony of Charles Kirby, the Capitol Adhesives employee who discovered the burglary, who stated that there was no sign of forcible entry, but that entry could be made through the dock door by squeezing through the edge of it. Kirby also stated that he discovered the vending machine had been cut open by means of a torch and crowbars and that in addition to the money in the vending machine, 290 blank Capitol Adhesives checks had been taken as well as some three to four thousand dollars worth of tools. Detective Quarles testified that when he spoke to appellant on December 9, after he told appellant that someone "had used their trump card on him" (a phrase an informant had heard appellant use), appellant immediately responded that Keith Barclay was lying, even though Detective Quarles had not mentioned Barclay's name to appellant at that point.
As to the seven counts for forgery involving checks drawn on the account of North Georgia Yarn Shippers (NGYS), Billy McGuire testified that his stepbrother, Randy Thomas, gave him a number of NGYS checks already signed and made out in his (McGuire's) name. McGuire testified that Thomas, who was staying with appellant, told McGuire that there were "two guys" involved in acquiring the checks, but gave no names. McGuire testified that shortly after he began cashing the checks, he met appellant when he took his truck to appellant for some repair work on a throw-out bearing. McGuire stated he paid appellant $60 in cash for the work and did not offer to pay appellant with an NGYS check because Thomas had told him to keep quiet about the forged check scheme. McGuire testified that during the time he was cashing the forged checks, appellant came over to McGuire's apartment, told McGuire that he (appellant) was the "middle man" in the scheme, that he was the one who had taken the risks getting the NGYS checks, and demanded a larger cut of the cash. McGuire also testified that appellant stated that he (appellant) had been "doing this for years and I know what I'm doing." McGuire said Thomas subsequently brought him several more checks, but that these checks were drawn on the account of Capitol Adhesives. McGuire stated that he refused to participate any further in the scheme and that his only other contact with appellant was at a corner market at which time appellant had threatened him for informing on him.
The State's evidence corroborating McGuire's testimony consisted primarily of testimony regarding the similarities between the Capitol Adhesives burglary, where 290 checks were stolen, and the burglary at NGYS when the subsequently forged checks were taken. Detective Quarles stated that when questioned, appellant said he met *307 McGuire when he replaced a throw-out bearing in McGuire's truck and denied having ever seen any checks from NGYS. Although appellant's fingerprints were not found on the NGYS checks, Quarles asked appellant if there was any reason for his fingerprints being on the checks. Appellant responded by claiming that his fingerprints might be on one check because McGuire, when paying for the truck repair, initially presented appellant with a check similar in appearance to the NGYS check, which appellant held in his hand before returning it, stating he could not cash it and receiving cash instead. When appellant testified, he affirmed the contents of the statement made to Detective Quarles and stated that he knew McGuire and Thomas were the people involved in the scheme because, at some point after appellant repaired McGuire's truck, Thomas asked appellant if he would like to invest in a "quick cash" scheme, to which appellant testified he said no.
In order to warrant a conviction based upon the testimony of an accomplice, the circumstances must be such as, independently of the testimony of the accomplice, lead to the inference of the defendant's guilt. Dennis v. State, 201 Ga. 53, 56 (1) (38 SE2d 832) (1946). "It is well settled that `"(w)hile a conviction based entirely upon the testimony of an alleged accomplice, uncorroborated by other competent evidence, will not be allowed to stand, corroboration is peculiarly a matter for the jury, and sufficient corroboration may consist of either direct or circumstantial evidence which connects the defendant with the crime, tends to show his participation therein, and would justify an inference of the guilt of the accused independently of the testimony of the accomplice." [Cits.]' [Cit.] Only slight corroborative evidence is required, and it need not be sufficient by itself to support a conviction. [Cit.]" Davis v. State, 178 Ga. App. 760, 762 (2) (344 SE2d 730) (1986). "`(P)resence, companionship, and conduct before and after the offense are circumstances from which one's participation in the criminal intent may be inferred. [Cit.]' [Cit.]" Howard v. State, 181 Ga. App. 187 (351 SE2d 550) (1986).
Appellant's testimony that he participated in the conversation about how to burglarize Capitol Adhesives, while slight, was sufficient evidence to corroborate the testimony of the accomplice to that burglary, Barclay. See Raines v. State, 186 Ga. App. 239, 240-241 (2) (366 SE2d 841) (1988). We further hold that the evidence when considered in connection with the testimony of the accomplice was sufficient to enable any rational trier of fact to find appellant guilty of burglary beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. 307 (99 SC 2781, 61 LE2d 560) (1979). Thus the trial court did not err by denying appellant's motion for a new trial on the burglary charge. See Jones v. State, 181 Ga. App. 651, 653 (1) (353 SE2d 593) (1987).
Likewise, we find the testimony of McGuire as to appellant's participation *308 in the forgeries to be corroborated. The fact that appellant committed the burglary of Capitol Adhesives, in which checks were stolen, provides evidence of a similar transaction that points to appellant's association and participation in an unlawful enterprise in which blank checks were stolen from businesses, then forged. "`(S)ufficient corroboration may consist of either direct or circumstantial evidence which connects the defendant with the crime, tends to show his participation therein, and would justify an inference of the guilt of the accused independently of the testimony of the accomplice. [Cits.]' [Cit.]" Howard, supra at 188. This corroborative evidence, together with the accomplice's testimony, was sufficient to enable a rational trier of fact to find appellant guilty of forgery beyond a reasonable doubt. Jackson, supra. Therefore, the trial court did not err by denying appellant's motion for new trial on the forgery counts.
Judgment affirmed. Carley, C. J., and Deen, P. J., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2501008/ | 61 F. Supp. 2d 1308 (1999)
ALLAPATTAH SERVICES, INC., et al., Plaintiffs,
v.
EXXON CORPORATION, Defendant.
No. 91-0986-Civ.
United States District Court, S.D. Florida.
July 6, 1999.
*1309 Eugene Stearns, Miami, FL, Sidney Pertnoy, Gerald Bowen, McLean, Virginia, for plaintiffs.
Larry Stewart, Miami, FL, Robert Abrams, Robert Brookheiser, Stuart Harris, Darren B. Bernhard, Robert Wallis, Exxon Company, U.S.A., Houston, Texas, for defendant.
*1310 ORDER DENYING EXXON'S RENEWED MOTION FOR SUMMARY JUDGMENT ON COUNT I
GOLD, District Judge.
THIS CAUSE is before the Court upon Exxon's Renewed Motion for Summary Judgment on Count I [D.E. # 1027]. Exxon's motion for summary judgment is predicated on two grounds: (1) Under applicable law and the undisputed facts in the record, there is no basis for Plaintiffs' claim that each class member's individual Sales Agreement gave rise to a "collective" contractual obligation to the "dealer class as a whole" to reduce wholesale prices by an amount that "on average, over time, across all markets," offset credit card processing fees charged to dealers over the twelve-year period of Exxon's Discount for Cash program; and (2) Even if such an obligation existed, the undisputed evidence establishes that Exxon did, in fact, comply with that alleged obligation, by having reduced its wholesale prices in an amount that offset credit card processing fees.
The record supports the conclusion that Exxon had a legal obligation to each dealer and that the legal obligation extended to the dealer class, as a whole. Because genuine issues of material fact exist regarding whether Exxon met or breached its legal obligation, Exxon is not entitled to summary judgment.
I. Factual and Procedural Background
As a threshold matter, the Court is constrained to overturn a ruling by a predecessor judge, and may do so only under exceptional circumstances. See, e.g., Stevenson v. Four Winds Travel, Inc., 462 F.2d 899, 904-05 (5th Cir.1972). To further the policy considerations underlying this restraint, the Local Rules for the Southern District of Florida require reconsideration of a prior ruling only where the Court determines that there exists a "clear and obvious error," which in the "interests of justice" mandates correction. See S.D.Fla.L.R. 7.1(f); American Home Assur. Co. v. Glenn Estess & Assoc., Inc., 763 F.2d 1237, 1239 (11th Cir.1985). Nevertheless, district courts "have the power and the duty" to delineate and narrow the issues to be tried. See Johnson Enters. of Jacksonville, Inc. v. FPL Group, Inc., 162 F.3d 1290, 1333 (11th Cir.1998).
Judge Kehoe, who formerly presided over this action, entered an order denying Exxon's previous motion for summary judgment. Having found that Exxon's renewed motion raises no new issues, and having reviewed Judge Kehoe's order, the Court concurs with and adopts the ultimate conclusions of Judge Kehoe that: (1) the proper construction of the Sales Agreement did not permit Exxon to act arbitrarily in setting the wholesale prices it charged its dealers; (2) to determine the "agreement" assented to by the parties, the Sales Agreement must be read in conjunction with Exxon's Automotive Credit Card Guide and Agreement; (3) Exxon's duty to act in good faith precluded Exxon from double charging "on average" its dealers for credit card processing; and (4) parol evidence is admissible to establish Exxon's duty of good faith and the alleged breach of that duty.
However, because the duty of good faith is an express covenant in all contracts, and is implied in all contracts governed by the Uniform Commercial Code, the undersigned does not adopt Judge Kehoe's conclusion that, to the extent that a duty to impose duplicative charges on the dealers for the cost of credit card processing does not arise from the express language of the contract, such a term may be implied as a matter of law.[1] Consequently, to assist *1311 the parties in ascertaining this Court's understanding of the relevant issues, the following sets forth supplemental findings of fact and rationales for denying summary judgment, as well as frames the ultimate issues to be tried to the jury regarding the duty and breach of duty elements to a cause of action predicated on a contractual relationship.
The essential facts relative to the good faith issue are not in dispute. Exxon sells gasoline, as well as other motor fuel products, to each of its direct-served dealers pursuant to supply contracts, which are typically in effect for a three-year period (the "Sales Agreement"). Each dealer's separate Sales Agreement with Exxon governs, among other things, the price each dealer must pay for its gasoline delivered by Exxon. The Sales Agreements contain an open price term, which permits Exxon to adjust prices, higher or lower, in response to the commercial dynamics in each of its various distribution markets.
Although the Sales Agreement did not expressly restrict the dealers' choice to purchase from suppliers other than Exxon, the record contains numerous references which illustrate that it would have been commercially impractical for the dealers to exercise their prerogative to purchase gasoline from alternate suppliers. These practical limitations on the dealers impeded their ability to avoid the economic effects of Exxon's pricing strategy.
Prior to adopting and implementing its Discount for Cash ("DFC") program, Exxon's wholesale price to its dealers included a cost for credit card processing. Pursuant to standard language in all of its form Sales Agreements, Exxon's dealers were required to purchase certain minimum monthly volumes of graded gasoline throughout the duration of the contract. Regardless of how it was stated over time, the price charged to the dealers was an "open price," which was intended to fluctuate based on a number of factors in effect when loading commenced or upon delivery.[2] In their respective form contracts, the dealers acknowledged receipt of the Seller's Automotive Credit Card Guide and Agreement (the "Credit Card Agreement"), and agreed to be bound by all of the terms and conditions thereof, as may be amended by Exxon from time to time.
Additionally, each Sales Agreement, both before and during the DFC program, included express language to the effect that any breach of a provision by either party of a failure to carry out the contract provisions "in good faith" was conclusively deemed to be substantial. The Sales Agreements also contained an integration clause stating that the writing was "intended by the parties to be the final, complete *1312 and exclusive statement of their agreement about the matters covered" therein. The clause further disclaimed the existence of any oral understandings, representations or warranties affecting the written terms. By separate paragraph, the Sales Agreement purported to cancel and supersede any prior contract between the parties relative to the purchases and sales at the identified premises of any of Exxon's petroleum products covered by the contract.
In August of 1982, following a trend in the oil distribution industry, Exxon instituted its DFC program. The DFC program was designed as a competitive response to "private branders," which were selling unbranded gasoline on a "cash only" basis at prices below those charged by Exxon's dealers. Major petroleum companies, including Exxon, were experiencing lower demands while realizing increased operating costs, including the cost of maintaining a credit card system. These factors merged to reduce Exxon's earnings for petroleum products. Exxon sought to accomplish its goal of inducing its dealers to be more competitive and to increase their retail gasoline sales through its DFC program by: (1) reducing the wholesale price of gasoline and diesel fuel, which on average, would offset the charge for credit card usage to the dealer; (2) encouraging dealers to implement a tiered cash/credit retail pricing structure; and (3) charging its dealers a three percent (3%) fee on all credit card receipts submitted to Exxon for processing. Without dispute, Exxon's DFC program was facially similar, if not identical, to other such programs adopted and implemented by some of its competitors around the same time period.
Exxon tested the efficacy and potential acceptance of the DFC program by initially implementing the program in four pilot markets. Upon determining its success, Exxon set the environment for a national expansion of the program. At that time, Exxon announced the implementation of the program to its dealers and to the public at large.
Although Exxon's dealers were permitted to individually decide whether or not to offer a discount for cash to their respective customers, the charge on credit card assignments applied to all dealers and distributors. Similarly, the wholesale price reductions applied to all dealers and distributors. By letter dated August 24, 1982, Exxon unilaterally amended its Credit Card Agreement. All Exxon dealers were notified that, effective August 24, 1982: "All purchases by Exxon of accounts receivable evidenced by credit sale tickets will be discounted at a rate equal to 3% of the face value of the tickets."
Although not required to, most Exxon dealers participated in the DFC program. Nevertheless, the record clearly illustrates that dealers could not opt out of Exxon's offset pricing scheme. See Discount for Cash: Questions & Answers (Updated 1/20/84), at ¶ 7; April 30, 1990 Exxon Notice to Exxon Retailers. Without dispute, Exxon proceeded to collect the 3% credit card fee on receipt after August 1982.
Notwithstanding the clear implementation of Exxon's DFC program nationwide, the essence of Exxon's promises to its dealers and the legal effect of its commitment are hotly contested.[3] Exxon concedes that, at a minimum, it told its dealers that it would remove from the dealer transport truck ("DTT") price an amount that "on average" would offset the charge to dealers for credit card processing, resulting in a reduced DTT price for motor and diesel fuels.[4] Exxon's position in this *1313 litigation, however, is that its statements about its proposed pricing modifications did not create a contractual obligation to individual dealers. Rather, it was a mere "marketing goal." Yet, Exxon also admits that it adhered to its representations throughout the twelve-year duration of its DFC program. Specifically, Exxon claims that an amount which "on average" offset the charge of credit card recovery fees was removed from the DTT price paid by its dealers.[5] In fact, in hearings before a Congressional Sub-Committee on December 2, 1982, Exxon testified that:
we have implemented our Discount for Cash program on a nationwide basis to allow our dealers and distributors to be more competitive for this cash customer. Under this program, we simultaneously instituted a 3 percent processing fee on credit card tickets submitted by dealers and jobbers and cut our dealer and jobber buying price by an amount to offset, on average, the 3% fee.
Statement of Exxon Company, U.S.A. Before the Energy, Environment & Safety Subcommittee of the Small Business Committee on Marketing Practices, at 2 (emphasis added).
In contrast, Plaintiffs have phrased the obligation differently. They contend that, in accordance with Exxon's own documents and pronouncements, Exxon was obligated to set wholesale motor fuel prices in a manner that, on average, over time, across all markets, would offset the separately imposed 3% credit cost recovery fee.[6] Plaintiffs further allege that Exxon not only failed to do as it promised, it also breached its obligation in bad faith, by secretly dividing its dealers into "keepers" and "non-keepers," while internally recognizing that its pricing practices were driving the "non-keepers" out of business. As Judge Kehoe noted:
Thus, Plaintiffs contend the practice of double charging for credit cost recovery, once through a direct fee and again in the wholesale price, had the economic effect of advancing Exxon's strategy of closing down dealerships which did not meet its internal criteria. On this basis, Plaintiffs conclude, and the Court tends to agree, that a jury could accept Plaintiffs' view of the weight of the evidence.
Ultimately, what Exxon said, did, or failed to do, is a matter of fact to be resolved by the jury. However, the legal effect of Exxon's representations to its dealers is for the Court to determine.
II. Discussion and Analysis
To substantiate its assertion that it cannot be held liable for breach of contract, Exxon directs the Court's attention to the integration clause contained in all of the Sales Agreements entered into with its dealers. Exxon contends that the integration clause precludes consideration of any terms or obligations not expressly within the four corners of the Sales Agreement. Consequently, Exxon argues that, since the Sales Agreement explicitly provides that it had the contractual authority to set the wholesale price for gasoline distributed to its dealers, Exxon properly used this authority to unilaterally set the wholesale price, and therefore, its pricing methodology cannot be a basis for establishing a breach of the Sales Agreements. Exxon further argues that it did not breach its good faith obligation in setting its wholesale prices, because the covenant of good faith imposes only an obligation to set a reasonable price. Because Exxon's wholesale prices were comparable to its competitors, it complied with the reasonableness *1314 standards for fixing its open price term.[7]
Exxon's arguments are flawed, however, in several respects. First, the integration clause does not exonerate Exxon as a matter of law. Second, even though Exxon had the discretionary authority concerning its wholesale pricing, that authority is expressly limited by its contractual obligation of "good faith," and further, by the UCC's requirement that the price be set in good faith. Third, merely setting a price comparable to its competitors, does not preclude a finding that Exxon's prices were reasonable for purposes of substantiating its good faith obligation. Because determinations of these issues require factual analysis, which underlying facts are disputed among the parties, summary judgment is inappropriate.
A. Determining the Final Expression of Contracting Parties
Exxon correctly points out that each Sales Agreement contained an integration clause which provided, with minor variations, that the Sales Agreement was "the final, complete and exclusive statement of [the parties'] agreement about the matters covered [t]herein," and that there were "no oral understandings, representations or warranties affecting [the agreement]." Exxon further correctly states that each Sales Agreement provided that modification could be accomplished "only by a writing signed by both of the parties or their duly authorized agents." However, case law applicable to interpreting the controlling effect of integration clauses and limiting modifications by subsequent oral agreement construe these as factual determinations, which cannot be decided as a matter of law.
1. The Effect of Integration Clauses
The UCC provides that, even though words and terms in a writing intended to be the final expression of the agreement of the parties may not be contradicted by evidence of a prior or contemporaneous agreement, extrinsic evidence may be used to explain or supplement the writing, in the form of course of dealing, trade usage, and "by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement." UCC § 2-202. An integration clause which merely states that the parties intend the writing to be a complete and exclusive statement of the terms of the agreement does not suffice to negate the importance of trade usage and course of dealing, "because these are such an integral part of the contract that they are not normally disclaimed by general language in the merger clause." Hawkland, Uniform Commercial Code Series § 2-202:03 (1984). "Unless carefully negated [trade usage and course of dealing] have become an element of the meaning of the words used."[8]Id.
*1315 Although merger or integration clauses have been considered strong evidence of finality, they are not conclusive on the issue of whether the writing encompasses the entire agreement of the parties. See, e.g., Sierra Diesel Injection Service, Inc. v. Burroughs Corp., Inc., 890 F.2d 108, 112 (9th Cir.1989). In fact, the UCC's definition of "agreement" necessarily contemplates that the parties' obligations transcend the written words within the signed document: "`Agreement' means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance." UCC § 1-201.
Thus, to determine whether the writing constitutes the final expression of the parties as to their obligations under a valid contract, multiple factors should be considered. See, e.g., Nanakuli Paving & Rock Co. v. Shell Oil Co., Inc., 664 F.2d 772, 796-97 (9th Cir.1981). These factors include evidence of trade usage, course of dealing, and course of performance. See id. at 794; Transamerica Oil Corp. v. Lynes, Inc., 723 F.2d 758, 765 (10th Cir. 1983). Trade usage is "relevant to show that the expectation of the parties that a given usage would be observed was justified." Nanakuli Paving & Rock Co., 664 F.2d at 785. Both parties need not be consciously aware of the particular trade usage at issue. "It is enough if the trade usage is such as to `justify an expectation' of its observance." Id. at 792 n. 28 (quoting White & Summers, Uniform Commercial Code § 3-3, at 84 (1972)). "[P]arties to a contract such as the one in issue are presumed to have intended the incorporation of trade usage in striking their bargain." Nanakuli, 664 F.2d at 798 n. 40. Since the UCC provides that the scope and existence of a trade usage must be established by factual proof, the extent to which trade usage affects the written expressions of contracting parties is a jury question. See id. at 792.
Course of dealing, like trade usage, gives meaning to and supplements or qualifies the terms of a written agreement. However, since course of dealing actually controls usage of trade, course of dealing is a more important factor for consideration. See id. at 795.[9] According to the Official Comment,[10] course of dealing is determined by considering the language of the agreement, the actions of the parties, commercial standards, "and other surrounding circumstances." Thus, the proper construction of contracts governed by the UCC requires familiarity with the commercial context in which the agreement was formed. See id.; see also 2 Anderson, Uniform Commercial Code § 2-202:13 (3d ed.1982). Whether a course of dealing exists between parties to a transaction is a question of fact. See Gord Industrial Plastics, Inc. v. Aubrey Mfg., Inc., 103 Ill.App.3d 380, 59 Ill. Dec. 160, 431 N.E.2d 445, 449 (1982).
Of the factors to be considered for determining the finality of a writing as enumerated in the UCC, actual performance provides the greatest weight to the parties' intentions and expectations.[11]See Nanakuli Paving & Rock Co., 664 F.2d at 795. *1316 The rationale for placing such importance on course of performance is obvious: "The parties themselves know best what they have meant by their words of agreement and their action under that agreement is the best indication of what that meaning was." Id. (quoting source omitted).[12]
The majority of courts have utilized these factors in determining whether a writing was intended to be the final and exclusive expression of the parties' contractual obligations. See id. at 798-805 (citing several cases including Chase Manhattan Bank v. First Marion Bank, 437 F.2d 1040, 1048 (5th Cir.1971) ("the use of such evidence `simply places the court in the position of the parties when they made the contract, and enables it to appreciate the force of the words they used in reducing it to writing.'")). The UCC does not presume that a written contract sets forth the parties' entire agreement. See Betaco, Inc. v. Cessna Aircraft Co., 32 F.3d 1126, 1132 (7th Cir.1994). Instead, in addition to these factors, the UCC focuses on the intention of the parties to determine the efficacy of an integration clause. See Sierra Diesel Injection Service, 890 F.2d at 112.
2. The Effect of the No-Modification Clause
As with the integration clause, the UCC does not rigidly enforce clauses which preclude modification in the absence of a writing assented to by both parties.[13] Courts have likewise been reluctant to adhere to strict interpretations of an agreement's express terms "when doing so would not serve the underlying purpose of the terms." Radiation Systems, Inc. v. Amplicon, Inc., 882 F. Supp. 1101, 1103 (D.D.C.1995) (citations omitted).
Parties to a contract with an express term disclaiming the efficacy of a modification unless in writing can waive such an express term through their subsequent performance. See id. at 1105. *1317 Thus, while a written agreement may provide that it cannot be modified except by a writing signed by both parties, as the term exists in the Sales Agreements at issue, "the agreement can be changed by a course of actual performance." All-Year Golf, Inc. v. Products Investors Corp., 34 A.D.2d 246, 310 N.Y.S.2d 881, 885 (1970); see also Nanakuli, 664 F.2d at 795 ("Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the contract."); note 10, supra. Modifications can also be effectuated "by subsequent oral agreement or course of dealing with one another despite the requirement of a writing in order to modify." Linear Corp. v. Standard Hardware Co., 423 So. 2d 966, 968 (Fla. 1st DCA 1982) (citations omitted). Modifications to contracts under the UCC, however, must meet the test of good faith. See UCC § 2-209, cmt. 2. "The effective use of bad faith to escape performance on the original contract terms is barred, and the extortion of a `modification' without legitimate commercial reason is ineffective as a violation of the duty of good faith...." Id.
3. Propriety of Summary Judgment on the Integration and Modification Issues
Applying the relevant law to the instant action, the Court must consider several factors to determine whether the Sales Agreement is a writing expressing the final agreement of the parties as to all of their respective obligations. Situations implicating integration and modification clauses raise factual issues important to determining the justifiable expectations of the parties. Insofar as these determinations are dependent on Exxon's intentions in setting its wholesale prices, which frequently fluctuated, factual questions exist which preclude summary judgment. See Betaco, Inc., 32 F.3d at 1131 (citations omitted). "When a court interpreting a contract goes beyond the four corners of the contract and considers extrinsic evidence, the court's determination of the parties' intent is a finding of fact." See id. (quoting In re Pearson Bros. Co., 787 F.2d 1157, 1161 (7th Cir.1986)).
Exxon admits that, for at least a period of time, it did offset the wholesale prices to its dealers by an amount equal to the 3% credit card recovery fee.[14] It has been further admitted that, in 1991, Exxon began showing a 1.5 cent per gallon line item credit fee discount on its dealer invoices. Since Exxon's actions after the implementation of its DFC program suggest that it waived the prohibition against unwritten modifications contained in the Sales Agreement, "modification of the agreement's express terms becomes a triable issue of fact, not a matter for summary judgment." Radiation Systems, Inc., 882 F.Supp. at 1103.
Moreover, any misrepresentations among the contracting parties "undermines the intentional adoption of an integrated writing." Latham & Assocs., Inc. v. William Raveis Real Estate, Inc., 218 Conn. 297, 589 A.2d 337, 343 (1991). Thus, parties cannot avoid the consequences of a breach of the implied covenant of good faith merely by including an integration clause in their agreement. See Amoco Oil Co. v. Ervin, 908 P.2d 493, 499 (Colo.1995) *1318 ("The merger and integration clauses do not permit Amoco to breach the implied covenant of good faith and fair dealing by duplicate charging.").
In sum, the duty of good faith must be present throughout the entire formation and performance of the contract. See UCC § 2-209. Whether Exxon modified the Sales Agreement or whether the Sales Agreement constituted a final expression of the parties' intentions and justifiable expectations are disputed issues for the jury to decide. See Allied Chemical Corp. v. DeHaven, 752 S.W.2d 155, 159 (Tex.App. 1988). Resolution of these issues will necessarily depend upon whether Exxon performed its obligations under the Sales Agreements in good faith, which is also very much in dispute.[15]
B. Establishing the Legal Duty of Good Faith
Exxon points out that it had four different open price terms in effect during the course of its DFC program, and that none of those terms refers to: (1) the DFC program; (2) any price reduction, deduction or offset in the price of gasoline; and (3) any formula or method for establishing Exxon's wholesale prices to its dealers. Exxon correctly avers that the 3% fee amendment to its Credit Card Agreement did not refer to the DFC program or any reduction or offset to its wholesale prices. Nevertheless, Exxon's averments do not, as a matter of law, reconcile its alleged conduct with the considerations applicable under the UCC for determining whether contractual obligations have been performed in good faith.[16]
1. The UCC's Obligation of Good Faith
Under the UCC, every contract or duty within the Sales Act imposes an obligation of good faith in its performance and enforcement. See UCC § 1-203.[17] The UCC defines good faith as it relates to sales transactions as "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade." UCC § 2-103(1)(b).[18] The Official Comments *1319 to this section state that good faith is "a basic principal running throughout this Act," and that the concept is broad and general in its application, and "is further implemented by Section 1-205 on course of dealing and usage of trade." Thus, because there is no exact formula to apply, courts have looked at the ambiguities inherent in the UCC's definition to define the concept within the context of the agreement.[19] The Comment disclaims any provision of an additional cause of action for failure to act in good faith. See also Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 617 (3d Cir.1995) (good faith is an interpretive tool to determine the parties' justified expectations, and is not to be used for enforcement of "an independent duty divorced from the specific clauses of the contract"). Rather, the doctrine merely directs courts toward "interpreting contracts within the commercial context in which they are created, performed, and enforced." UCC § 1-203, Official Comment.
The policy considerations underlying the good faith doctrine are generally "to effectuate the intentions of the parties or to honor their reasonable expectations." Amoco Oil Co., 908 P.2d at 497. Satisfaction of these considerations requires performance of contractual obligations faithfully as to "an agreed common purpose and consisten[t] with the justified expectations of the other party." Id. Bad faith occurs when a party acts to exploit changing economic conditions to secure gains that exceed those reasonably expected at the time of contracting. See, e.g., Orange & Rockland Utils., Inc. v. Amerada Hess Corp., 59 A.D.2d 110, 397 N.Y.S.2d 814, 818 (1977). The implied duty of good faith and fair dealing is most commonly raised as an issue in output and requirements contracts, wherein the price and quantity terms are left open. See, e.g., Ervin v. Amoco Oil Co., 885 P.2d 246, 250 (Colo.App.1994).
The duty of good faith is especially applicable in situations when the contract confers one party with the discretion to determine certain terms of a contract, such as an open price term agreed to be unilaterally set. See id. (citing Hubbard Chevrolet Co. v. General Motors Corp., 873 F.2d 873, 876 (5th Cir.1989). The duty acts to preserve and to control opportunistic behavior, by requiring that the price be "reasonable and set pursuant to reasonable commercial standards of fair dealing in the trade." TCP Industries, Inc. v. Uniroyal, Inc., 661 F.2d 542, 548 (6th Cir. 1981). Consequently, although it may be agreed that one party has the discretionary authority to set an open price term, this discretion is circumscribed by the duty placed on the discretion-exercising party to set the price in good faith. See id.
Case law interpreting this implied covenant under UCC § 1-203, support this obligation to act in good faith when determining terms to be implied in a contract where the terms are not expressly provided therein. See L.C. Williams Oil Co. v. Exxon Corp., 625 F. Supp. 477, 481 (M.D.N.C.1985); see also United Air Lines, Inc. v. ALG, Inc., 912 F. Supp. 353 (N.D.Ill.1995) (the duty requires that parties act in good faith when exercising discretion afforded by the contractual relationship and to act in a manner consistent with the reasonable expectations of the parties); Garrett v. BankWest, Inc., 459 N.W.2d 833 (S.D.1990) (breach of contract claim for breach of the covenant of good faith is permitted even though the conduct failed to violate the express terms of the contract); Einhorn v. Ceran Corp., 177 N.J.Super. 442, 426 A.2d 1076 (1980) (where fairness and justice require, courts may impose a duty required to effectuate *1320 the implicit covenant of good faith and fair dealing necessarily involved in the parties' contractual relations); Nora Springs Co-op. Co. v. Brandau, 247 N.W.2d 744 (Iowa 1976) ("good faith" refers to honesty in fact in the conduct or transaction concerned). Moreover, it appears that the duty to act in good faith is directly correlative to the amount of discretionary authority delegated by the contract. See Melso v. Texaco, Inc., 532 F. Supp. 1280, 1297 (E.D.Pa.1982).[20]
2. Exxon's Compliance With Its Good Faith Obligations
In the instant case, every Sales Agreement in effect or entered into by Exxon and its dealers between August 1982 and August 1994 contained an open price term, imposing a concurrent express duty to carry out the provisions of each Sales Agreement in good faith. Accordingly, under § 2-305 of the UCC,[21] as well as under the express terms of its Sales Agreement, Exxon was required to fix the price charged to each of its dealers in good faith.[22] Similarly, the UCC's § 2-311 provides that where the particulars of performance are specified by one of the parties, "[a]ny such specification must be made in good faith and within limits set by commercial reasonableness." UCC § 2.311(1).[23] Thus, Exxon had a duty to each dealer to set its open price term in good faith and within the limits set by commercial reasonableness. This duty was part of each Sales Agreement and was independent of any subsequent amendment or modification..
Moreover, "in the `normal case,' a `posted price' or a future seller's or buyer's `given price,' `price in effect,' `market price,' or the like, satisfies the good faith requirement." UCC § 2-305, cmt. 3. "However, the words `in the normal case' mean that, although a posted price will usually be satisfactory, it will not be so under all circumstances." Nanakuli Paving & Rock Co., 664 F.2d at 805.
Exxon contends that its "price in effect" is, by definition, a price set in good faith. To support its contention, Exxon asserts *1321 that "courts have uniformly rejected claims that open price terms in gasoline supply contracts require specific pricing obligations based on oral statements, written representations or marketing programs." However, based on the reasons given by the courts in Exxon's cited cases, which addressed issues surrounding similar DFC programs, the Court finds that the facts and allegations in the instant case are distinguishable.
For instance, in Wayman, service station franchisees sued their franchisor for breach of contract for failing to set its dealer buying price for gasoline in good faith and in a commercially reasonable manner as required by the UCC. See Wayman v. Amoco Oil Co., 923 F. Supp. 1322 (D.Kan.1996). The franchisees had signed contracts with Amoco providing that they would purchase their gasoline from Amoco at its "dealer buying price." See id. at 1332. The franchisees alleged, however, that this price was higher than the price at which independent marketers could purchase their fuel, placing Amoco franchisees at a competitive disadvantage. See id. at 1334. The court found that, according to the commentary, UCC § 2-305 was designed "to prevent discriminatory pricing i.e., to prevent suppliers from charging two buyers with identical pricing provisions in their respective contracts different prices for arbitrary or discriminatory reasons." Id. at 1347. Because all Amoco franchisees paid the same dealer buying price, there was no discriminatory pricing and, therefore, no UCC violation. See id. Significantly, the district court made a specific finding that the basis of the plaintiffs' claims was that the fuel supplier charged a wholesale price higher than the dealers thought reasonable. See id. at 1338.
Another example offered by Exxon is based on an Illinois appellate decision that reached the same conclusion when interpreting the plaintiffs' claim of over charging. See Abbott v. Amoco Oil Co., 249 Ill.App.3d 774, 189 Ill. Dec. 88, 619 N.E.2d 789, 794 (1993). In Abbott, the dealers claimed that Amoco had agreed to discount its wholesale prices to offset credit card processing fees Amoco began charging for credit purchases. See id. at 780, 189 Ill. Dec. 88, 619 N.E.2d 789. However, the dealers felt that Amoco's discounts were not "realistic" and "meaningful." Id. In effect, "the dealers thought that Amoco's gas was still priced too high, even after the application of the discount." Id. (emphasis added). Thus, the court determined that the gravamen of the dealers' complaints was that "Amoco charged too much for its gasoline." Id. According to the court, "allegations of an unexpectedly high price, without more, do not state a claim for breach of the implied covenant of good faith and fair dealing in light of the contractual terms at issue in this case." Id. at 783, 189 Ill. Dec. 88, 619 N.E.2d 789.
In Remus, a dealer alleged that Amoco violated a state statute by adopting a DFC that applied to all dealers. See Remus v. Amoco Oil Co., 794 F.2d 1238, 1239 (7th Cir.1986). Because most of the dealer's sales were for credit, the dealer complained that Amoco's unilateral action constituted a substantial change in the competitive circumstances of his dealership agreement. See id. at 1239-40. The court found that, since the DFC policy was system-wide, Amoco was not discriminating. More importantly, the court actually determined that Amoco had "unbundled" the cost of credit card processing from the wholesale price of gasoline. See id. at 1241. Thus, these courts reached the conclusion that the plaintiffs had not established bad faith on the part of the oil suppliers.
In contrast, and more on point, is Amoco Oil Co. v. Ervin, 908 P.2d 493 (Colo.1995), in which the Colorado Supreme Court determined that, "by duplicate charging, Amoco did not perform the contracts in accordance with the dealers' reasonable expectations." Id. at 499. Accordingly, the court upheld the jury verdict which found that Amoco had breached the covenant of good faith and fair dealing. See id.
*1322 Significantly, two of the cases relied upon by Exxon discuss the situation whereby there is a presumption of bad faith when a merchant acts in a manner intended to drive a franchisee out of business. In Remus, the Seventh Circuit, in addition to finding that Amoco had "unbundled" as promised and implemented its DFC to affect all dealers, the court determined that "[t]here [was not] a shred of evidence that Amoco has ever wanted to drive Remus out of business." Remus, 794 F.2d at 1240-41. Similarly, in Wayman, the district court stressed that in the absence of allegations of double-charging and excessive pricing designed to drive dealers out of business, the dealers failed to raise a triable issue of a breach of good faith. See Wayman, 923 F.Supp. at 1347, 1352-53 & n. 23. Both of these allegations double charging and intent to drive dealers out of business have been raised in the instant case. Moreover, Plaintiffs have adduced enough evidence to raise a triable jury issue on these allegations.
As to Exxon's price-setting practices prior to implementing its DFC program, the Court concurs with Exxon's representation. Plaintiffs do not claim that Exxon's wholesale prices were discriminatory or outside the range of prices charged by other major oil companies. Rather, Plaintiffs argue, and Judge Kehoe determined, that this case deserves special treatment because it is not a "normal case" as contemplated by § 2-305. As concluded by Judge Kehoe:
It would not be the normal case for Exxon to double charge for credit cost recovery through its price to people lacking the means to know it was happening, or to tell its dealers for twelve years who lacked the means to know otherwise that its price was net of credit costs when it was not, or to use its pricing discretion to eliminate dealers as alleged here.
Because the parties' dispute is not over the actual amount of the price Exxon charged for its wholesale gasoline to its dealers, but rather over the manner in which the wholesale price was calculated without considering the doubled charge for credit card processing, the instant action is not the "normal" case. See id. Accordingly, I concur with Judge Kehoe's conclusion, albeit with some supplementation.
Pursuant to the UCC, as a merchant, Exxon's duty of good faith to its dealers meant factual honesty and the observance of reasonable commercial standards of fair dealing in the trade. UCC § 2-103(b). Thus, good faith consists of two separate components, both of which must be satisfied.[24]
a. Honesty in Fact
As to the first element, the record evidence shows that Exxon adopted and implemented a nationwide standard of performance to fix its open wholesale prices in a manner that would not "double charge" the dealers "on average" for credit card processing fees. By virtue of the express terms of their individual contracts, Exxon's good faith performance obligation extended to each dealer. This same good faith obligation was extended collectively, as well, to all its dealers nationwide, because Exxon's wholesale price reduction was for *1323 an amount, which "on average," would offset the charge for credit.
In the Court's view, Exxon misstates the nature of Plaintiffs' claim. Plaintiffs have adduced evidence from Exxon's own documents, which indicates that dealers did not have a choice on whether or not they wished to participate in the offset arrangement. Although they could decline to offer their customers discounts for using cash, the charge on credit card assignments was to apply to all dealers, "regardless of their decisions on whether to offer cash discounts. Similarly, the product price reductions applied to all dealers and distributors." Exhibit N to Respondents' Appendix in Support of Response to Petition for Writ of Mandamus. Thus, it is clear that the dealers, at least those whose contracts were in effect as of August 24, 1982, had no choice in Exxon's decision to implement its wholesale/credit offset plan.
Consequently, while each class member asserts his or her individual claim based on their respective Sales Agreement with Exxon, Exxon owed the same duty of good faith performance to each and every dealer, and thereby, to the collective class as a whole. Specifically, Exxon's good faith performance obligation was to offset on average among all its dealers from which the collective class of dealers nationwide would benefit. By adopting and implementing its program, a duty arose to carry it out "honestly in fact" in favor of each dealer, and all dealers nationally, to accomplish the "on average" reduction.[25]
As Judge Kehoe concluded, if Exxon did, in fact, double charge in its pricing decisions, it would not have acted "honestly in fact" in regard to its transactions with its dealers. How each dealer was to benefit "on average" is a matter of fact and proof. The mere fact that the benefit was "on average," does not excuse Exxon from its good faith performance obligation to each dealer to act according to the representations made to all its dealers.
b. Commercial Reasonableness
The second component of the good faith analysis focuses on the objective "commercial reasonableness" of fixing the open price term. Commercial reasonableness acts as a guide for courts to determine whether a party acted in good faith. Because there is no precise definition of the term "commercial reasonableness," the facts of the case will be determinative of whether conduct is commercially reasonable. See Colorado Interstate Gas Co. v. Natural Gas Pipeline Co., 661 F. Supp. 1448, 1476 (D.Wyo.1987). "All the factors are to be evaluated according to the standard of commercial reasonableness under the particular circumstances of the case." S&S, Inc. v. Meyer, 478 N.W.2d 857, 863 (Iowa App.1991). Departures from customary usages and commercial practice, flushed out through expert testimony, strongly indicate that the merchant's conduct is unreasonable. Mantese, The UCC and Keeping the (Good) Faith, 70 Mich. Bar J. 270, 274 (March 1991) (a party is not required to prove the existence of a specific commercial standard or rule to prove a failure of reasonable commercial standards of fair dealing in the trade where the merchant's conduct is inconsistent with other related norms).
For instance, in Nanakuli Paving & Rock Co. v. Shell Oil Co., 664 F.2d 772 (9th Cir.1981), the Ninth Circuit held that a jury could reasonably have concluded that the supplier's manner of carrying out the price increase did not conform with commercially reasonable standards. In another case, a district court found that, to be commercially reasonable, an oil company's pricing "must maintain a[DTT] price which will permit the [ ] dealers to remain competitive with other dealers and earn a profit *1324 margin that will enable them to remain in business." See Melso, 532 F.Supp. at 1286.
The commercially reasonable factor must be regarded as conceded by Exxon. For instance, Exxon claims that it adjusted its wholesale prices in favor of its dealers during the entire twelve-year existence of the DFC program. Its commitment was not illusory. Exxon acknowledges it fully understood the representations made to the dealers and manner in which it would accomplish the underlying commitments on a nationwide basis: "Following the onset of the Discount for Cash Program in August of 1982, Exxon utilized a pricing methodology that provided a wholesale price reduction to its dealers in an amount which, on average, offset the charge for credit to its dealers."[26] According to Exxon, its actions were consistent with DFC programs implemented by its competitors, both before and after the initiation of its own DFC program. For summary judgment purposes, the Court concludes that it was, therefore, also consistent with fair dealing in the trade based on custom or usage.
In sum, the court respectfully rejects Exxon's argument that, notwithstanding Exxon's conduct in doing as it said it would do, its commitment leads to a number of commercially unreasonable consequences, and therefore, it should be viewed as having made no commitment with any legal effect. Exxon's own expert testified that he thought "it was possible for Exxon to remove an amount from the DTT that on average would be sufficient to offset the credit card cost." From the evidence considered on summary judgment, the Court does not regard Exxon's commitment as being so vague as to be unenforceable on the basis of indefiniteness or impracticality.
Moreover, Plaintiffs specifically claim that Exxon exercised bad faith based on Exxon's plan to double charge for the purpose of running the "non-keeper" dealers out of business. Courts have considered whether a contracting party implemented a policy as an underhanded attempt to drive an individual dealer out of business to determine if that party acted in bad faith contrary to well-established tenets of contract law. See, e.g., East Bay Running Store, Inc. v. NIKE, Inc., 890 F.2d 996, 1000 (7th Cir.1989).
2. Propriety of Summary Judgment on the Issue of Good Faith
Exxon urges the Court to accept its assertion that it acted in good faith in setting its wholesale price, since its prices were not unreasonable and were comparable to, and at times below, prices charged by other major oil companies in the pertinent areas and were wholly within the terms of the Sales Agreements. However, the parties' intentions in setting an open price term, as well as the reasonableness of an open price term are questions for the trier of fact. See TCP Industries, Inc., 661 F.2d at 548. The question of price then whether it was reasonable as calculated is a question for the jury to resolve upon the evidence.
Additionally, in light of the alleged agreement between the parties, which is ascertained in conjunction with oral statements and representations and the literature disseminated by Exxon to implement and explain its DFC program, which it encouraged dealers to implement by promising to reduce its wholesale price of gas in the amount it had been formerly charged to cover the cost of credit card processing and charging such fee only as to credit card receipts actually submitted, there is a question of fact as to whether Exxon breached the contract. Although Exxon was given discretionary authority to set its wholesale price, it was required to set the price in good faith. Good faith means honesty in fact and in conformity with reasonably commercial standards. A jury could find that Exxon breached its duty to act in good faith, thereby breaching its legal obligations under the contract, by charging dealers twice for the cost of credit *1325 card processing and by concealing this conduct from the dealers, who lowered prices in reliance on Exxon's promises.[27]
In sum, ample record evidence creates issues of fact for the jury as to what Exxon did or did not do during the twelve years of its DFC program, and whether it performed its obligations under the Sales Agreements throughout that period in good faith. The evidence reflects that Exxon had superior knowledge of the market price of gasoline and the cost of credit card processing. Therefore, according to Plaintiffs, they relied upon Exxon's representations that they were purchasing their requirements from Exxon at a price arrived at in good faith. Determining what constitutes good faith necessarily involves factual findings. It is the responsibility of the trier of fact to evaluate the credibility of Plaintiffs' claim of "honesty in fact." See, e.g., Tonka Tours, Inc. v. Chadima, 372 N.W.2d 723, 728 (Minn.1985). Moreover, the record exposes issues of fact from which a jury may reasonably find that Exxon's pricing scheme during the DFC program was not commercially reasonable and lacked good faith.
III. Conclusion
The basic tenet of contract law instructs that "a contract consists of a binding promise or set of promises, [therefore,] a breach of contract is a failure, without legal excuse, to perform any promise which forms the whole or part of a contract." Montgomery v. Amoco Oil Co., 804 F.2d 1000, 1003 n. 6 (7th Cir.1986) (quoting Williston on Contracts). Whether Exxon performed under the Agreement is disputed.
While it is true that there are some matters over which there is no disagreement, it is equally true that other matters are very much disputed. Exxon, for example, denies that it exercised bad faith in adjusting its wholesale price to dealers in a manner that double charged them for the cost of credit card processing. In fact, Exxon declares that, since it was not legally obligated to adjust its prices in conformity with its dealers' choices, there was no contract under which a covenant of good faith could be breached.
Whether Exxon breached its duty of good faith to its dealers is a question of fact for the jury. See Tonka Tours, Inc., 372 N.W.2d at 728. Although there is evidence to support Exxon's position, there is more than a scintilla of evidence that infers Exxon did not act in a manner consistent with the UCC's requirement of honesty in fact when it refused to offset the wholesale price of its fuel by an amount comparable to its 3% credit card recovery charge. There are also disputed issues regarding what Exxon said to its dealers, or what the dealers came to know, over the course of the DFC program that led them to expect the wholesale price reduction. Thus, there are definite evidentiary conflicts that cannot be summarily adjudicated. Since the Court finds that significant and genuine issues of material fact exist in the record to preclude summary judgment, it is accordingly
ORDERED AND ADJUDGED that Exxon's Renewed Motion for Summary Judgment on Count I [D.E. # 1027] is DENIED.
ORDERED.
NOTES
[1] Contracts for the sale of fuel products, including gasoline supply contracts, have been held to constitute transactions for the sale of "goods" within the meaning of Article 2 of the Uniform Commercial Code. See 67 Am. Jur.2d Sales § 53 (1985 & Supp.1992); see also Etheridge Oil Co. v. Panciera, 818 F. Supp. 480, 483 n. 1 (D.R.I.1993). As represented by the parties, depending on the jurisdiction, courts construing contracts which include both goods, which are covered by Article 2 of the UCC, as well as services, which are not, apply either the "predominant factor" test or the "gravamen of the action" test. Under the former, the Court must decide whether the predominant purpose of the contract is to supply goods or services. See, e.g., Novamedix, Ltd. v. NDM Acquisition Corp., 166 F.3d 1177, 1182 (Fed.Cir.1999). For the latter test, the Court must focus on which aspect of the contract the dispute arises. Only if the dispute relates to the "goods" aspect of the contract does the UCC apply. See, e.g., Delorise Brown, M.D., Inc. v. Allio, 86 Ohio App. 3d 359, 620 N.E.2d 1020 (1993). In the instant action, Plaintiffs do not dispute that they were obligated to pay the 3% credit card fee, which, Exxon has argued, is a service charge for the use of credit purchasing. Rather, the dispute arises over the wholesale price of the fuel delivered, which was to have been calculated at a price 3% less than they were formerly charged, to offset the "service charge" for credit card usage. Since the wholesale, or DTT, price relates to the "goods" portion of the contract, the UCC is applicable under either test. Moreover, Exxon's practice of dealing in goods of the kind involved in the transactions at issue and having knowledge and skills peculiar to the relevant goods, conforms to the definition of a "merchant" under the UCC. See UCC § 2-104(1); DeWeldon, Ltd. v. McKean, 125 F.3d 24, 27 (1st Cir.1997) (the UCC attaches an expansive definition to the term "merchant").
[2] Each form Sales Agreement over the twelve years of the DFC program contained essentially the same provisions, which included provisions that the dealer would pay Exxon at: (1) "Seller's established price at the time and place of delivery for the particular product(s) involved"; (2) "Seller's established dealer price appropriate for the transaction and in effect at the time loading commences"; and (3) "Seller's price in effect at the time of loading of the delivery vehicle."
[3] Plaintiffs contend that the record evidence establishes that Exxon used various labels to articulate its "commitment" to its dealers, such as: (a) to reduce the wholesale price of gasoline by 1.7 cents per gallon to offset separate credit card charges; (b) to "unbundle" or remove credit card charges from the wholesale price of its gasoline; (c) to charge a "cash" as opposed to a "credit" dealer transport truck price; and (d) to reduce the wholesale price of gasoline by an amount sufficient to offset the 3% credit cost recovery fee.
[4] The DTT price is merely another name for the wholesale price. The terms, as referred to in this Order, are interchangeable.
[5] Exxon does not contend it had an obligation to offset credit card recovery fees only one time at the beginning of the DFC program. Rather, its position is that it did so throughout the twelve-year period. Plaintiffs contend that Exxon only made three such adjustments during the twelve years of the DFC program.
[6] The record reflects that Exxon communicated its promise to offset the 3% credit card processing charge by an "on average" amount deducted from the wholesale price of fuel to its dealers, and that it represented to the dealers that it was, in fact, providing the offset. See, e.g., April 30, 1990 letter to Exxon Retailers.
[7] Exxon has raised additional arguments: (1) since the Sales Agreements contain an integration clause, the Court is precluded from using extrinsic evidence to establish a breach of the agreement; and (2) Exxon's contractual obligations differed among its dealers, and therefore, Plaintiffs cannot establish a "collective" obligation necessary to proceed as a class action. As to the use of extrinsic evidence, the Court has determined that the UCC, which governs the Sales Agreement, condones the liberal use of parol evidence to explain and supplement the express terms of contractual provisions. This issue is further articulated in the Court's Order on Exxon's Motion to Exclude Extrinsic Evidence to Establish the Alleged Obligation Under the Written Contracts. With regard to Exxon's second additional argument, which has been addressed in several prior orders, Exxon's own documentation substantiates that, although the actual amount of the reduction might have varied from dealer to dealer, Exxon owed the same duty to all dealers: The duty to set the wholesale price in good faith, which incorporates the duty not to charge its dealers twice for the cost of credit card processing.
[8] "[I]t should be noted that the limiting effect of the integration clause ... is reserved for situations covered by section 2-202(b), namely those in which evidence other than trade usage, course of dealing, or course of performance is proffered to explain or supplement the terms of an integrated writing." Hawkland, Uniform Commercial Code Series § 2-202:03 (1984).
[9] The UCC defines "course of dealing" as "a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct." UCC § 1-205. "Usage of trade" refers to "any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question."
[10] Although not binding law, courts give deference to the UCC's Official Comments, and may use the commentary as persuasive guidance to assist in construing and applying the Code. See, e.g., Appeal of Copeland, 531 F.2d 1195 (3d Cir.1976).
[11] Exxon has argued that no affirmative representations were made to several of the dealers in the Plaintiff-class. Therefore, according to Exxon, those dealers' expectations are not justifiable and cannot be considered. Nevertheless, even if this contention is correct, there is substantial evidence in the record, considered on summary judgment, that creates a genuine and material factual dispute regarding this issue. For instance, Exxon testified that, National Dealer Advisory Council meetings, the dealers repeatedly questioned whether Exxon was offsetting the 3% fee from the wholesale fuel price. Repeatedly, Exxon represented that it was. See Deposition of Morton Voller, at 304-05. Whether the regional dealer representatives disseminated this information in a manner that all dealers became aware of Exxon's obligation, and its affirmance of it, is a question to be determined based on factual proof. Thus, these facts, when developed at trial, will resolve the dispute over individual dealer's expectations.
[12] Unlike trade usage and course of dealing, which involve implied agreements that are made prior to, or contemporaneous with, the writing, course of performance occurs after the writing is executed, and there, a writing may be contradicted by course of performance. See Hawkland, supra. "As a result evidence as to the existence and meaning of terms supplied by course of performance should never be excluded." Id.
[13] Contrary to Exxon's position, contracts controlled by the UCC do not require a modification to be supported by consideration. See UCC § 2-209(1). Under the UCC, "[a]ny contract, however made or evidenced, can be discharged or modified by subsequent agreement of the parties." Pepsi-Cola Co. v. Steak `N Shake, Inc., 981 F. Supp. 1149, 1153-54 (S.D.Ind.1997) (quoting 3 Corbin Corbin on Contracts § 574, at 371 (1960)); see also Roth Steel Prods. v. Sharon Steel Corp., 705 F.2d 134, 145 (6th Cir.1983) (citations omitted). The Code does, however, impose a duty of good faith on all efforts to modify a contract. See UCC § 1-203(3); T & S Brass & Bronze Works, Inc. v. Pic-Air, Inc., 790 F.2d 1098, 1105 (4th Cir.1986). Nevertheless, Exxon's obligation did not lack for consideration. All dealers suffered a detriment by having incurred a unilaterally imposed new 3% credit card fee. Exxon obtained a benefit through the anticipation of increased gasoline sales by its dealers as a result of the DFC program. The consideration on the part of the dealers was to continue to sell Exxon's gasoline products and to pay the 3% credit card processing fee in exchange for the offset in the wholesale price. See, e.g., Roth Steel Prods., 705 F.2d at 144-45. Exxon itself notes that the 3% processing fee was necessary in order to encourage its dealers to participate in the DFC program, because retailers had no incentive to discount for cash unless it was cost effective for them to do so. When Exxon unilaterally changed its good faith obligation of performance to encourage participation in the DFC program nationwide, and unilaterally amended the Credit Card Agreement, no additional reciprocal obligation was required from the dealers to cause Exxon to adhere to its good faith duty. See T & S Brass & Bronze Works, Inc., 790 F.2d at 1105.
[14] Exxon also makes admissions that it adhered to the offset pricing scheme throughout the entire twelve year duration of its DFC program. In papers filed in this action, admissions were made that: "On the first day of the program, Exxon reduced its wholesale gasoline prices by 1.7 cents per gallon in each of its markets.... Exxon continued to adjust its prices in this manner until the DFC program was discontinued in August 1994." Exxon's Fuel Pricing Coordinator also testified that every time the issue was raised by the dealers, they were told that Exxon was offsetting the credit cost recovery fee. Record evidence indicates that similar adjustments were made in 1986, 1990, and 1992. In so acting, Exxon has interjected a genuine issue of fact as to a modification through a course of performance.
[15] Exxon also argues that the Sales Agreement included a paragraph that a subsequent three-year contract entered into by the parties would cancel and supersede all prior contracts between the parties for the transactions covered therein. See Sales Agreement, at ¶ 27. However, a superseding contract does not always rescind prior contractual obligations. See, e.g., Latham & Assocs., Inc., 589 A.2d at 341-42. In fact, the Sales Agreement states that: "Termination of this contract by either party for any reason shall not relieve the parties of any obligation theretofore accrued under this contract." Sales Agreement, at ¶ 21(g). Thus, another jury issue has been raised as to the survivability of Plaintiffs' cause of action upon execution of a subsequent Sales Agreement, and whether the parties intended for subsequent agreements to discharge the obligations previously assumed by the parties in the prior, expired Sales Agreement, which intentions, again, will need to be viewed in light of the duty to contract in good faith. See also UCC § 2-106(3) ("On `termination' all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives.") (emphasis added).
[16] Every state in the union, except Louisiana, has adopted, by statute, almost verbatim versions of the UCC. See Pennzoil Co. v. Federal Energy Regulatory Comm'n, 789 F.2d 1128, 1142 (5th Cir.1986) (since "all states except Louisiana have adopted the UCC, variations between state law and general principles are likely to be few"). In 1975, Louisiana incorporated part of the UCC into its revised statutes. See Brill v. Catfish Shaks of America, Inc., 727 F. Supp. 1035, 1041 & n. 10 (E.D.La. 1989). However, regarding the definition of "good faith," Louisiana adopted only the subjective "honesty in fact"not the objective "commercial reasonableness"standard for determining good faith. See id. at 1041. "There is no provision in Louisiana law to support application of an objective standard of good faith." Id.
[17] The UCC's obligation to contract in good faith simply states that: "Every Contract or duty within this Act imposes an obligation of good faith in its performance and enforcement." UCC § 1-203.
[18] UCC Section 1-203, Official Comment Note provides that "... under the Sales Article definition of good faith (Section 2-103), contracts made by a merchant have incorporated in them the explicit standard not only of honesty in fact (Section 1-201), but also of observance by the merchant of reasonable commercial standards of fair dealing in the trade."
[19] "Part of the strength of such general concepts as `good faith' and `commercial reasonableness' lies in an elasticity and lack of precision that permits them to be, in the language of the Code's own comment, `developed by the courts in light of unforseen and new circumstances and practices.'" Farnsworth, Good Faith Performance, 30 Univ.Chi.L.Rev. 666, 676 (1963).
[20] For instance, when the dispute involves a contract of adhesion, the court must review its terms for fairness. See Melso v. Texaco, Inc., 532 F. Supp. 1280, 1297 (E.D.Pa.1982) (citing Corbin on Contracts). A contract of adhesion is one in which the terms are not negotiable, requiring one party to "take-it-or-leave-it." See id. For a contract of adhesion to be fair, it "must not give one party all the benefits while giving the other party all of the burdens of the contract." Id. at 1298 (citing Corbin on Contracts). Moreover, it is a basic tenet of contract law, especially in the context of adhesion contracts, that ambiguities be interpreted against the party that drafted the contract. Plaintiffs have, on occasion, inferred that Exxon's Sales Agreement constitutes a contract of adhesion. The Court does not reach this determination. The analogy of the subject Sales Agreements to the legal theories applicable to adhesion contracts is merely illustrative of the incremental scrutiny in which courts are instructed to engage when addressing issues predicated on contracts conferring discretion-exercising authority on one party to ensure that that party does not overreach its discretionary authority.
[21] Section 2-305 of the UCC establishes the standard for setting an open price term. The section explicitly states that: "A price to be fixed by the seller or by the buyer means a price for him to fix in good faith."
[22] There is no issue of law or fact as to whether Exxon owed a duty of good faith to each of its dealers. Exxon agrees that it owed such a duty both pursuant to the express terms of its Sales Agreement and under the UCC. The dispute, however, concerns what this duty means and how it applies under the circumstances.
[23] The commentary to this section provides that:
The party to whom the agreement gives power to specify the missing details is required to exercise good faith and to act in accordance with commercial standards so that there is no surprise and the range of permissible variation is limited by what is commercially reasonable. The "agreement" which permits one party so to specify may be found as well in a course of dealing, usage of trade, or implication from circumstances as in explicit language used by the parties.
UCC § 2-311, cmt. 1.
[24] An oft cited treatise on the UCC explains that:
The Code employs two standards of good faith. Section 1-201(19) states the generally applicable "subjective" ("white heart and empty head") standard which concentrates on the actual state of mind of the party rather than on the state of mind a reasonable man would have had under the same circumstances. Thus, the section defines good faith as "honest in fact in the conduct or transaction concerned." In the case of merchants, however, or at least those merchants governed by Article 2 on Sales, an objective element is added to their good faith duties. Section 2-103(1)(b) provides that "`[g]ood faith' in the case of a merchant means honest in fact and the observance of reasonable commercial standards of fair dealing in the trade." This definition imposes a duty on merchants to meet good faith requirements that are measured both subjectively and objectively.
2 Anderson, Uniform Commercial Code § 1-203:1.
[25] The commentary to UCC § 1-201 provides that "... in the Article on sales, Section 2-103, good faith is expressly defined as including in the case of a merchant observance of reasonable commercial standards of fair dealing in the trade, so that throughout that Article wherever a merchant appears in the case an inquiry into his observance of such standards is necessary to determine his good faith." UCC Section 1-201, cmt. 19 (emphasis added).
[26] Plaintiffs claim that Exxon did not perform other than in 1982 and 1991.
[27] As to damages, it is equally reasonable to conclude that by lowering its cash price, while receiving no decrease in the wholesale price, the dealers were duped into losing profits, and consequently, suffered damages. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1621913/ | 733 So. 2d 774 (1999)
Brandi HERRINGTON
v.
LEAF RIVER FOREST PRODUCTS, INC., a foreign corporation; Warren Richardson, an individual; Acker Smith, an individual; Leaf River Corporation, a foreign corporation; Great Northern Nekoosa Corporation, a foreign corporation; and Georgia Pacific Corporation, a foreign corporation, Successor of Great Northern Nekoosa Corporation.
No. 96-CA-00976-SCT.
Supreme Court of Mississippi.
February 25, 1999.
*775 John M. Deakle, William R. Couch, Hattiesburg, Patrick W. Pendley, Plaquemine, Curtis R. Hussey, Larry O. Norris, Hattiesburg, Attorneys for Appellant.
W. Wayne Drinkwater, Jr., Margaret Stewart Oertling, Jackson, Joe Sam Owen, Gulfport, James H. Heidelberg, Pascagoula, Attorneys for Appellees.
BEFORE PITTMAN, P.J., SMITH AND MILLS, JJ.
MILLS, Justice, for the Court:
STATEMENT OF THE CASE
¶ 1. Appellant Brandi Herrington brought a civil action against Leaf River Forest Products, et. al. in the Circuit Court of Jones County, Mississippi. After recusal of the trial judge, the action was transferred to Jackson County. Herrington's action was one of hundreds brought against Leaf River Forest Products complaining that its pulp mill discharged 2,3,7,8-tetra-chlorodibenzo-p-dioxin ("dioxin") into the Leaf River in Perry County. The trial court granted a motion for summary judgment in favor of Leaf River Forest Products and stated that those plaintiffs with physical injury, including Herrington, had claims which lacked legally sufficient evidence to show their exposure or the mill's release of dioxin into the Leaf River. The court stated, "... such Plaintiffs have no medical or scientific evidence that their diseases were caused by dioxins or other chemicals of the kind discharged by the Leaf River Mill." From the lower court's grant of summary judgment, Brandi Herrington appeals assigning the following as error:
I. WHETHER THE TRIAL COURT ERRED IN DENYING HERRINGTON'S MOTION FOR A STAY OR IN THE ALTERNATIVE *776 AN EXTENSION BEFORE RULING ON THE SUMMARY JUDGMENT MOTION.
II. WHETHER THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT IN FAVOR OF LEAF RIVER FOREST PRODUCTS, INC.
STATEMENT OF THE FACTS
¶ 2. Brandi Herrington lived in her father's cabin and later in her grandmother's cabin, both on the Leaf River near New Augusta, Mississippi, from 1983 through 1989. During this period, Herrington alleges Leaf River Forest Products, Inc. released dioxin into the Leaf River. Both cabins were approximately one and a half river distance miles downstream from the Leaf River pulp mill. Herrington's father often fished in the river, and she frequently ate the fish he caught. When deposed, however, Herrington's father stated that after the mill started up and the water became smelly, he went above the mill to fish and never fished below the mill again. Any contaminants from fish caught above the mill cannot be attributed to Leaf River Forest Products. However, Herrington says she also remembers the river flooding the land around the cabins and remembers water sometimes entering the cabins.
¶ 3. The family moved to Hattiesburg, Mississippi, in 1989. In 1990, Herrington moved to South Carolina, and she was diagnosed with Hodgkin's disease in 1991. She underwent five surgeries, and in March 1994, doctors determined she was cured. Herrington believes her exposure to fish and water from the Leaf River caused her to develop Hodgkin's disease. From the lower court's summary disposition of her action against Leaf River Forest Products, Inc. et. al., she appeals.
STANDARD OF REVIEW
¶ 4. When reviewing the lower court's decision to grant summary judgment, we employ a de novo standard. Moore ex rel. Benton County v. Renick, 626 So. 2d 148, 151 (Miss.1993). The argument underlying a request for summary judgment is that there are no issues of material fact. Brown v. Credit Center, Inc., 444 So. 2d 358, 362 (Miss.1983). Before summary judgment is granted, the lower court must determine if there are material factual questions in issue over which reasonable jurors could disagree. Russell v. Orr, 700 So. 2d 619, 624 (Miss. 1997) (citing Carpenter v. Nobile, 620 So. 2d 961, 965 (Miss.1993)). The non-moving party is given the benefit of every reasonable doubt which arises as to whether there is an issue of material fact. Brown, 444 So.2d at 362. On review of a grant of summary judgment, our only determination is whether there are material issues of fact to be tried. Mink v. Andrew Jackson Casualty Insurance Co., 537 So. 2d 431, 433 (Miss.1988).
I. WHETHER THE TRIAL COURT ERRED IN DENYING HERRINGTON'S MOTION FOR A STAY OR IN THE ALTERNATIVE AN EXTENSION BEFORE RULING ON THE SUMMARY JUDGMENT MOTION.
¶ 5. Leaf River Forest Products, Inc. included in its motion and renewed motion for summary judgment the affidavit of Dr. Joseph Rodricks, an expert in dioxin analysis, two affidavits of Warren Richardson, the pulp mill manager, and the affidavit of Professor Christopher Rappe, head of the Institute for Environmental Chemistry in Umea, Sweden. Herrington contends she should have been given an extension or stay in order to investigate the validity of Dr. Christopher Rappe's affidavit and to depose Dr. Rappe. Leaf River Forest Products contends summary judgment was proper even without the affidavit of Dr. Rappe. We agree with Leaf River.
II. WHETHER THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT IN FAVOR OF LEAF RIVER FOREST PRODUCTS, INC.
*777 A. Burden of Proof
¶ 6. Leaf River relies on our prior decisions involving its pulp mill and contends Herrington was required to undergo blood tests to establish causation. In Beech v. Leaf River Forest Products, Inc., 691 So. 2d 446, 451 (Miss.1997), we held: "... the plaintiffs' failure to produce any proof through blood tests or other medical evidence was fatal to their claims for mental and emotional distress and fear of future disease." Herrington contends this case is one of first impression since the facts are distinct from prior cases involving Leaf River Forest Products. Because Herrington's theory of recovery is negligence and not emotional distress, nuisance, or trespass, this factual distinction is readily apparent.
¶ 7. In Leaf River Forest Products, Inc. v. Ferguson, 662 So. 2d 648 (Miss.1995), we dealt with infliction of emotional distress and nuisance claims. We dealt with nuisance and trespass claims in Leaf River Forest Products, Inc. v. Simmons, 697 So. 2d 1083 (Miss.1996). In Beech, we were not called on to deal with the negligence claim. 691 So.2d at 446. In Anglado v. Leaf River Forest Products, Inc., 716 So. 2d 543 (Miss.1998), we discussed trespass and nuisance. Therefore, we must address the burden of proof required to withstand summary judgment when the theory of recovery is negligence and the damages asserted are physical injuries.
¶ 8. Citing our prior holdings in slip and fall cases and the language of the Fifth Circuit Court of Appeals in asbestos litigation, Herrington contends circumstantial evidence is sufficient to establish causation. Circumstantial evidence consists of "evidence of a fact, or a set of facts, from which the existence of another fact may reasonably be inferred." Hardy v. K Mart Corp., 669 So. 2d 34, 38 (Miss.1996)(quoting Mississippi Winn-Dixie Supermarkets v. Hughes, 247 Miss. 575, 585, 156 So. 2d 734, 736 (1963)). However, the circumstantial evidence must be such that it creates a legitimate inference that places it beyond conjecture. Hardy, 669 So.2d at 38.
¶ 9. In 1934, we addressed circumstantial evidence and toxic contamination in another case involving the Leaf River and a plant which produced masonite boards and released effluent into the river. Masonite Corp. v. Hill, 170 Miss. 158, 154 So. 295 (1934). In that case, we observed:
... as to inferences deduced from the facts, it is not the unqualified rule that an inference may not be based upon another inference. Numerous cases of circumstantial evidence found in our books, and many trials in the everyday experience of our bench and bar, disclose that inference upon inference is availed and is enforced.
170 Miss. at 166, 154 So. at 298 (citations omitted). However, we also noted:
[W]here a party, who has the burden of proof, has the power to produce evidence of a more explicit, direct, and satisfactory character than that which he does introduce and relies on, he must introduce that more explicit, direct, and satisfactory proof, or else suffer the presumption that, if the more satisfactory evidence had been given, it would have been detrimental to him and would have laid open deficiencies in, and objections to, his case, which the more obscure and uncertain evidence did not disclose.
170 Miss. at 167, 154 So. at 298 (citations omitted).
¶ 10. We have also held:
On the issue of the fact of causation, as on other issues essential to the cause of action for negligence, the plaintiff, in general, has the burden of proof. The plaintiff must introduce evidence which affords a reasonable basis for the conclusion that it is more likely than not that the conduct of the defendant was a cause in fact of the result. A mere possibility of such causation is not enough....
*778 Burnham v. Tabb, 508 So. 2d 1072, 1074 (Miss.1987)(quoting W. Keeton, Prosser & Keeton on Torts, § 41 (5th ed.1984)).
¶ 11. Herrington relies heavily on a United States Court of Federal Claims case, Land v. United States, 37 Fed. Cl. 231 (1997), discussing circumstantial evidence and toxic exposure. Herrington construes the following language in that opinion in her favor:
Thus, whether plaintiffs chose to prove their case by direct evidence or by circumstantial evidence, plaintiffs still have the burden to prove causation.... Plaintiffs, however, did not present any circumstantial evidence showing that their alleged illnesses were consistent with the symptoms of poisoning by either DIMP, mustard gas, nerve gas, pesticides, herbicides, elemental mercury, or any other chemical found at the Arsenal.
Land, 37 Fed. Cl. at 236. Herrington asserts the testimony of Dr. Hayes, her oncologist, satisfied the requirement missing in Land and was sufficient evidence of causation to defeat summary judgment here.
¶ 12. Herrington also cites the Fifth Circuit decision which set the standard of proof for products liability and asbestos claims. In asbestos cases, the causation test adopted by most jurisdictions was the "frequency-regularity-proximity" test. Slaughter v. Southern Talc Co., 949 F.2d 167, 171 (5th Cir.1991).This test, used with products liability cases involving asbestos, was applied when plaintiffs had established or defendants had conceded that asbestos was present in the areas where the plaintiffs worked or lived. Id. Herrington's evidence is insufficient to show there were abnormally high levels of dioxin in the Leaf River near her family's cabin. Therefore, this standard is of no use in deciding the validity of Herrington's claim.
B. Herrington's Proof
¶ 13. Herrington's proof consists of the testimony of Dr. Hayes, her pediatric oncologist, who relied on literature on dioxin contamination, and Herrington's testimony that she was exposed to water that came down the Leaf River from the mill. Herrington also relies on the deposition of Dr. James Pinson who is associated with the American Laboratories and Research Services group whose tests purported to show Leaf River placed dioxin into the river. We find no evidence in the deposition of Dr. Pinson to support the conclusion that there was an abnormally high level of dioxin released into the river. Dr. Pinson's evaluation is inconclusive and deals mostly with coloration of the water.
¶ 14. Herrington presents the court with no scientifically verifiable evidence that there was dioxin in the river near her cabin or in her body although she no doubt knew she could undergo tests to support her claim. The Ferguson and Simmons cases, on which the lower court waited to begin a summary judgment hearing in Herrington's case, both clearly identified the need for testing and scientific proof in similar contamination actions. Ferguson, 662 So.2d at 657; Simmons, 697 So.2d at 1085 ("Simmons, like Ferguson, presented no evidence of dioxin tests conducted on his property or his person"). Even in her reply brief, Herrington states that if we find her evidence insufficient, we should remand to give her a chance to produce such direct evidence. Herrington had an obligation to present this type of evidence before the hearing on the summary judgment motion since it was readily available. Since she did not, we must presume it would have been detrimental to her case. See Hill, 154 So. at 298.
¶ 15. She also fails to present any evidence that even if dioxin in fact caused her Hodgkin's disease, any dioxin present came from the mill owned by Leaf River Forest Products. She simply states she was exposed to fish in the river downstream from the mill in contradiction to her father's testimony, states her belief that there was dioxin in the river from the plant, and states she was diagnosed and *779 cured of Hodgkin's disease. We have repeatedly held post hoc ergo propter hoc (after this consequently by reason of this) is a misplaced argument in modern tort law. Western Geophysical Co. v. Martin, 253 Miss. 14, 174 So. 2d 706, 716 (1965); Kramer Service, Inc. v. Wilkins, 184 Miss. 483, 497, 186 So. 625, 627 (1939). "It is not enough that negligence of one person and injury to another coexisted, but the injury must have been caused by the negligence." Wilkins, 184 Miss. at 497, 186 So. at 627. Further, Herrington has wholly failed to show negligence of Leaf River or injury at the time of the alleged negligence.
¶ 16. The testimony of Dr. Hayes, Herrington's pediatric oncologist, is not supported by substantial evidence, and the trial judge correctly ruled it was insufficient to show causation. As a basis for his testimony, Dr. Hayes identifies literature he has reviewed. He suggests the literature shows a correlation between dioxin exposure and cancers of the lymphnoid system. We have held, "Only sworn denials providing a credible basis in evidence will suffice to create an issue of fact." Strantz v. Pinion, 652 So. 2d 738, 742 (Miss.1995)(citing Brown, 444 So.2d at 364.) Allegations without "detailed and precise facts" will not prevent summary judgment. Strantz, 652 So.2d at 742 (citing Crystal Springs Ins. Agency, Inc. v. Commercial Union Ins. Co., 554 So. 2d 884, 885 (Miss.1989)). The testimony offered by Dr. Hayes fails to give any detailed or specific facts and gives no credible basis in evidence. He merely speculates from reading journal articles about other patients.
¶ 17. Dr. Hayes testified there was a correlation between dioxin exposure and lymphnoid cancer based on his literature review. However, his testimony fails to address the critical link, proof of dioxin exposure, with anything more than speculation. Therefore, the trial court was correct in finding his testimony insufficient to show causation.
¶ 18. Herrington suggests that upon finding her evidence insufficient, we should remand for blood tests which would determine whether there is any dioxin in her body. While blood tests are not necessarily required to meet the burden of proof in every case, these tests would have helped Herrington carry her burden of proof. Herrington refused to undergo and introduce these tests done at her own peril.
¶ 19. Herrington was required to bring any information she could attain to the court's attention prior to the summary judgment hearing. We presume any evidence she failed to present was detrimental to her case. The time when Herrington could have submitted to blood tests or conducted tests on the river to support her claim is past. As we have stated before, the hearing on a summary judgment motion is the flashpoint when the plaintiff's proof is evaluated. Brewton v. Reichhold Chemicals, Inc., 707 So. 2d 618, 620 (Miss. 1998). Since Herrington failed to provide the lower court with sufficient evidence to support her claim at the hearing, there were no factual questions in issue over which reasonable jurors could disagree, and the motion was properly granted. No continuance was warranted since summary judgment was appropriate even without the affidavit of Dr. Rappe. Therefore, we find no error in the Jackson County Circuit Court's grant of summary judgment.
CONCLUSION
¶ 20. We fully recognize a party's right to a common law negligence action against any or all actors including entities such as Leaf River Forest Products. However, as the trial court stated in its order granting summary judgment, "[Herrington has] no medical or scientific evidence that [her] diseases were caused by dioxins or other chemicals of the kind discharged by the Leaf River Mill." Herrington failed to carry her burden of proof. The failure of Herrington's evidence leaves no questions of material fact to be decided by a jury. *780 Therefore, the grant of summary judgment by the Jackson County Circuit Court was proper and is affirmed.
¶ 21. AFFIRMED.
PRATHER, C.J., SULLIVAN AND PITTMAN, P.JJ., BANKS, JAMES L. ROBERTS, Jr., SMITH AND WALLER, JJ., CONCUR.
McRAE, J., CONCURS IN RESULT ONLY. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1721037/ | 978 S.W.2d 678 (1998)
LAZY M RANCH, LTD., Appellant,
v.
TXI OPERATIONS, LP, as successor and assignee of Texas Industries, Inc., Appellee.
No. 03-97-00687-CV.
Court of Appeals of Texas, Austin.
September 24, 1998.
*679 Carlos R. Soltero, Smyser, Kaplan & Veselka, Houston, for Appellant.
E. Michelle Bohreer, Boyar, Simon & Miller, Houston, for Appellee.
Before POWERS, KIDD and B.A. SMITH, JJ.
POWERS, Justice.
TXI Operations, LP ("TXI") sued Lazy M Ranch, Ltd. ("Lazy M") for specific performance of a contract giving TXI an option to lease land for mining.[1] The trial court granted TXI's motion for summary judgment, *680 awarding TXI specific performance of the option provision. Lazy M appeals the trial-court order. We will reverse the summary judgment order and remand the cause to the trial court.
THE CONTROVERSY
TXI wished to explore a portion of the Lazy M land for sand, gravel, and other construction materials and to obtain an option right to mine the materials if prospects proved favorable. In September 1995 the company began negotiations with Dr. George Morris, Jr., the owner of Lazy M.
In February 1996 Dr. Morris informed TXI of the creation of Lazy M Ranch, Ltd., ("Lazy M"), a limited partnership. Dr. Morris was president of Lazy M's sole general partner, Lazy M Management, L.L.C. Ownership of the ranch had been transferred to the partnership. At this time, Dr. Morris was suffering from a serious illness but continued to negotiate the lease on behalf of Lazy M.
On April 1, 1996, TXI and Dr. Morris (representing Lazy M) executed a written contract. The contract required TXI to pay Lazy M $2,000 for the right to explore by conducting subsurface tests on a part of Lazy M land1,669 acres specifically described in the contract by metes and bounds. For the same consideration, the contract gave TXI an exclusive and irrevocable option to lease 300 of the 1,669 acres to mine subsurface materials. To exercise the option right, the contract required TXI to (1) give Lazy M written notice of its election within six months of the April 1 contract and (2) tender $98,000 to Lazy M. TXI paid the required $2,000 and began exploration under the contract.
Dr. Morris died in August 1996. On September 27, 1996, TXI attempted to exercise its option by delivering the required written notice accompanied by a $98,000 bank check. Dr. Morris's son, George Morris, III, who had succeeded his father as president of Lazy M Management, L.L.C., refused to lease any of the land to TXI. He returned TXI's check with a letter explaining that Lazy M would not lease the land as promised because TXI had breached the contract by entering upon and testing Lazy M's land outside the 1,669 acres specified in the contract. Morris further stated he believed TXI had unfairly procured the agreement by taking advantage of the ailing Dr. Morris.
TXI sued Lazy M for specific performance of its obligation to give a lease. The trial court granted TXI's summary-judgment motion and awarded TXI specific performance. Lazy M brings four points of error: (1) there exists a genuine issue of material fact as to whether Dr. Morris had the mental capacity to enter into a binding contract at the time the contract was executed; (2) TXI materially breached the contract before attempting to exercise the option, thereby excusing Lazy M from performance; (3) TXI is not entitled in equity to specific performance because TXI had "unclean hands" in the transaction; and (4) Lazy M did not have adequate notice or opportunity to respond to new arguments and additional grounds TXI raised to support its motion for summary judgment.
A movant for summary judgment has the burden of showing its entitlement to judgment as a matter of law. In deciding whether a disputed issue of material fact precludes summary judgment, proof favorable to the nonmovant will be taken as true and every reasonable inference will be indulged to resolve any doubt in favor of the nonmovant. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985).
Material Breach Excusing Lazy M from Performance
The parties do not dispute that TXI gave timely notice of its election to lease the property described in the contract; they do not dispute that TXI tendered the required $98,000. In its second point of error Lazy M contends the summary judgment is nevertheless erroneous because the record contained genuine issues of material fact. These pertain to Lazy M's affirmative defense that TXI materially breached the contract while Lazy M's obligation to deliver a lease remained executory. See Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex.1984). A party to a contract may elect to terminate the contract and be excused from performance of any executory obligation if the other party *681 repudiates the contract or commits a material breach. See MJR Corp. v. B & B Vending Co., 760 S.W.2d 4, 20-21 (Tex.App.-Dallas 1988, writ denied); Corso v. Carr, 634 S.W.2d 804, 808 (Tex.App.-Fort Worth 1982, writ ref'd n.r.e.); Board of Regents of University of Texas v. S & G Const. Co., 529 S.W.2d 90, 97 (Tex.Civ.App.-Austin 1975, writ ref'd n.r.e.).
In addition to pleading the foregoing defense, Lazy M urged the defense in opposition to TXI's motion for summary judgment supported by the affidavit of George C. Morris, III. The affidavit states as follows:
Contrary to the agreement, TXI personnel roamed throughout other parts of the Ranch and conducted testing and coring outside of the area subject to the agreement. Ranch personnel saw TXI conducting [tests] outside of the area subject to the agreement. We found numerous core holes outside of [the area]. We repeatedly objected to the continued violations. In the sand and gravel business, the data from testing and coring is valuable.... TXI ... stole valuable information about the subsurface potential of the Ranch.... These breaches occurred and had been communicated to TXI before TXI tendered the check and notice of intent to exercise its option to lease.
Nothing in the summary-judgment record contradicts the facts set forth in the affidavit; they must be taken as undisputed. The issue reduces to whether those facts show prima facie the "material" breach necessary to the defense. We believe the undisputed facts show prima facie a "material" breach.
It is generally said that breach of a "dependent" covenant of the contract may give the non-breaching party an election to terminate the contract while breach of an "independent" covenant will not; in the latter case, the non-breaching party may only recover for the breach in a separate cause of action. See, e.g., Investors' Utility Corp. v. Challacombe, 39 S.W.2d 175, 178 (Tex.Civ. App.-Waco 1931, no writ). It is also said that whether a covenant is dependent or independent depends on the parties' intention at the time the contract is made. See, e.g., John R. Ray & Sons, Inc. v. Stroman, 923 S.W.2d 80, 86 (Tex.App.-Houston [14th Dist.] 1996, writ denied). The parties' intention is, however, not always discernable from the contract language and the parties often neglect entirely to consider whether they intend a particular covenant to be dependent or independent. For that reason, "it is better to drop any talk about the intention of the parties when they express none and rest doctrines of [constructive dependence] solely on their fairnessa quite sufficient basis." 6 Williston on Contracts § 825 (3d ed.1962).
In the present case, the parties' contract expressly limits the ranch area that TXI would be permitted to explore. By agreeing to this restriction, TXI impliedly covenanted not to explore outside the restricted area. Nothing in the contract language expressly indicates, however, whether the parties intended the implied covenant to be dependent or independent. We turn then to the question of fairness as suggested by Williston.
If the implied covenant is held to be dependent, TXI will forfeit its right to an option. Forfeitures will be avoided unless contract language admits of no other construction or results in a construction that is unreasonable, inequitable, or oppressive. Reilly v. Rangers Management, Inc., 727 S.W.2d 527, 530 (Tex.1987). In this connection, several factors may be considered.
One factor is the extent to which the non-breaching party will be deprived of the benefit it reasonably could have anticipated had the breach not occurred. "The less the non-breaching party is deprived of the expected benefits, the less the material breach." Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 693 (Tex.1994). In the present case, it is not shown that Lazy M is deprived of any benefit by reason of the breach; the summary-judgment record shows without contradiction, however, that the breach caused injury to Lazy M.
The following factors also suggest that it would be unreasonable, inequitable, and oppressive to regard the breach as pertaining merely to an independent covenant:
*682 (1) the extent to which the injured party can be adequately compensated for the part of the benefit of which he will be deprived;
* * *
(3) the likelihood that the party failing to perform will cure his failure, taking into account all of the circumstances including any reasonable assurances; and
(4) the extent to which the behavior of the party failing to perform comports with standards of good faith and fair dealing.
See Restatement of Contracts (Second) § 241(a) (1981); Gulf Group Lloyds, 875 S.W.2d at 693.
The Morris affidavit shows prima facie that TXI's trespasses were intentional and repeated over several protests by Lazy M. In addition to injuries to the surface of land outside the restricted area, TXI obtained information about the geology of the subsurface of that landinformation that belonged to Lazy M and information that TXI acquired in violation of the contract and without any right whatever. This is distinctly unlike a simple case of surface trespass and the repair of any surface injury for which reasonable compensation may be calculated and paid. The record does not show that TXI made any reasonable assurances regarding a cure for its wrongs or the injuries it inflicted on Lazy M, including compensation for any non-tangible injuries resulting from the sub-surface information it obtained. The factor of good faith and fair dealing weighs most heavily against TXI in light of its repeated testing of areas outside the area specified in the contract over Lazy M's repeated objections. Nothing in the record refutes Morris's affidavit declaration that "[i]n the sand and gravel business, the data from testing and coring is valuable" and that TXI "stole valuable information about the subsurface potential of the ranch." In light of these factors, we believe it would be inequitable, unreasonable, and oppressive to construe as an independent covenant TXI's implied covenant not to explore outside the area delimited in the contract.
TXI contends that even if its breach was material, Lazy M waived its right to terminate the contract by allowing TXI to continue testing after the breach.[2]See Chilton Ins. Co. v. Pate & Pate Enters., Inc., 930 S.W.2d 877, 887-88 (Tex.App.-San Antonio 1996, writ denied) ("[T]reating a contract as continuing, after a breach, deprives the nonbreaching party of any excuse for terminating their own performance."). It is not shown in the record, however, that Lazy M treated the contract as continuing. Neither party explains in the record when the alleged trespasses occurred or when Lazy M voiced its objections to them. The record does not show that Lazy M failed to voice its objections within a reasonable period of time or that there was the type of delay between the time Lazy M discovered the breach and the time it repudiated the contract such that Lazy M waived as a matter of law any right to end the contract.
For the foregoing reasons, we sustain Lazy M's second point of error.
Specific Performance
Even if TXI's breach was not a material breach of a dependent covenant, the record does not demonstrate that TXI was entitled as a matter of law to the equitable remedy of specific performance:
In the language of Lord Selborne: "the principle which is material to be considered is, that the court gives specific performance instead of damages only when it can by that means do more perfect and complete justice." The foundation and measure of the jurisdiction is the desire to do justice, which the legal remedy would fail to give. This justice is primarily due to the plaintiff, but not exclusively, for the equities of the defendant are also protected. Specific performance is, therefore, a conscious attempt on the part of the court to do complete justice to both the parties *683 with respect to all the judicial relations growing out of the contract between them.
4 Pomeroy's Equity Jurisprudence § 1401 at 1033 (5th ed.1941) (emphasis in original).
Lazy M argues that even if its failure to honor the option agreement entitled TXI to some relief, perhaps damages, TXI is not entitled to the equitable remedy of specific performance because it comes to the court with "unclean hands." Under the doctrine of unclean hands, a court may refuse to grant equitable relief to a plaintiff who has been guilty of unlawful or inequitable conduct regarding the issue in dispute. See Right to Life Advocates, Inc. v. Aaron Women's Clinic, 737 S.W.2d 564, 571 (Tex.App.-Houston [14th Dist.] 1987, writ denied).
TXI contends that the doctrine of "unclean hands" cannot apply in the present circumstances. According to TXI, even if it breached the lease by trespassing outside the restricted area, its inequitable conduct was unrelated to the issue in dispute. See Axelson v. McIlhany, 798 S.W.2d 550, 556 (Tex.1990) (doctrine of unclean hands held inapplicable where inequitable conduct unrelated to relief sought by petitioners).
We do not believe TXI's trespass was unrelated to TXI's attempt to enforce the contract. We agree the doctrine of unclean hands does not apply when a party is guilty of inequitable conduct with regard to a transaction separate from the one in dispute. 1st Coppell Bank v. Smith, 742 S.W.2d 454, 464 (Tex.App.-Dallas 1987, no writ). But in this case, the issue in dispute is whether TXI is entitled to enforce rights embodied in the very contract that TXI allegedly violated.
The equitable maxim as to clean hands "is confined to misconduct in regard to, or at all events connected with, the matter in litigation, so that it has in some measure affected the equitable relations subsisting between the two parties, and arising out of the transaction; it does not extend to any misconduct, however gross, which is un connected with the matter in litigation, and with which the opposite party has no concern.
* * *
The rule does not go so far as to prohibit a court of equity from giving its aid to a bad or faithless man or a criminal. The dirt upon his hands must be his bad conduct in the transaction complained of. If he is not guilty of inequitable conduct toward the defendant in that transaction, his hands are as clean as the court can require.
2 Pomeroy's Equity Jurisprudence § 399 at 95-96 (5th ed.1941) (emphasis added). It may not reasonably be contended that TXI's alleged misconduct did not grow out of or is unconnected to the lease-option transaction, or that it is a matter with which Lazy M has no concern. We hold accordingly.
Finally, the summary-judgment record is not sufficiently developed so as to permit a court to determine as a matter of law a set of facts that would entitle TXI to specific performance in equity. When a trial court purports to make a decision without a sufficient factual basis, it is said that the court abuses its discretion. See Dallas General Drivers v. Wamix, Inc. of Dallas, 156 Tex. 408, 295 S.W.2d 873, 878 (1956); Powers v. Temple Trust Co., 124 Tex. 440, 78 S.W.2d 951, 952 (Tex.1935); Haden Employees' Ass'n v. Lovett, 122 S.W.2d 230, 233 (Tex.Civ. App.-Galveston 1938, writ ref'd). We hold accordingly and sustain Lazy M's third point of error.
The points of error discussed above are dispositive of the appeal.
We reverse the summary judgment and remand the cause to the trial court.
NOTES
[1] TXI Operations, LP, is successor and assignee of Texas Industries, Inc.
[2] TXI also asserts it cured any alleged breach by ceasing its trespassing. According to TXI, Lazy M "asserts that it complained of [the] alleged testing and that such testing was thereafter ceased." TXI refers us to Morris's affidavit. We find in Morris's affidavit no assertion that TXI ceased its unauthorized testing. To this extent TXI misstates the record. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1137135/ | 647 So.2d 533 (1994)
Janet JEANES, Plaintiff-Appellee,
v.
G.F.S. COMPANY, Defendant-Appellant.
No. 94-739.
Court of Appeal of Louisiana, Third Circuit.
December 7, 1994.
Writ Denied February 17, 1995.
*534 Joseph H. Stephens, for Janet Jeanes.
Jennifer J. Bercier, for G.F.S. Co.
Before YELVERTON, THIBODEAUX and PETERS, JJ.
YELVERTON, Judge.
Janet Jeanes filed suit against G.F.S. Company for damages it caused when it conducted seismic operations without her permission on land she owned in Cameron Parish. Both parties filed motions for summary judgment on the issue of liability. The trial court granted Jeanes' motion finding G.F.S. liable to Jeanes for damages and denied G.F.S.'s motion. G.F.S. appealed. We affirm.
G.F.S. claims that it received permission for the operations from 80% of the co-owners of the mineral interests and therefore is not liable pursuant to La.R.S. 31:175. This statute permits co-owners owning at least an undivided eighty percent of a mineral servitude the right to conduct operations on the property subject to the servitude. Based on this statute it claims that summary judgment in favor of Jeanes was improper.
A party seeking summary judgment has the burden of showing a complete absence of a genuine issue of material fact. All doubts as to the absence will be decided in favor of a trial on the merits and no summary judgment will be granted. La.Code Civ.Proc. art. 966.
In support of her motion for summary judgment Jeanes submitted an affidavit by Joseph Stephens, an attorney for Jeanes who was familiar with the land involved. The affidavit set forth the ownership of the land involved in this dispute. The property involved is a 7,615 acre tract. This tract was owned by approximately 80 people or entities. Around 1977, Wetlands Corporation was formed and most of the owners transferred their surface interest in the property to this corporation in exchange for stock. No mineral interests were conveyed. In 1985 surface interests were reconveyed to certain shareholders, including Jeanes. The information contained in this affidavit was not disputed.
G.F.S. claims that by having the permission of Wetlands in addition to other holders of the mineral interests, it has procured consent of 80% of the mineral servitude owners pursuant to La.R.S. 31:175 and therefore it could conduct operations on the property. However, in reviewing the evidence in the record at the time of the summary judgment, it is clear that Wetlands did not own an interest in a mineral servitude on the land. It owned the land itself in indivision with *535 other parties. La.R.S. 31:175 does not apply to this case.
Moreover, what was being conducted on this land were seismic operations. Test holes were shot on December 6, 1991. La. R.S. 30:217 is applicable to this case: it provides that no person shall conduct geological surveys for oil, gas, or other minerals by means of a torsion balance, seismograph explosions, mechanical device, or any method whatsoever on any land without the consent of the owner.
Act No. 212 of 1934 (now embodied in this section) recognizes that the right to prospect by geophysical and geological surveys is a valuable right belonging to the owner of the soil if it has not been disposed of. State v. Evans, 214 La. 472, 38 So.2d 140 (1948). See also, Picou v. Fohs Oil Co., 222 La. 1068, 64 So.2d 434 (1953) and Layne Louisiana Co. v. Superior Oil Co., 209 La. 1014, 26 So.2d 20 (1946).
Based on La.R.S. 30:217 and these cases, G.F.S. for its operations needed the consent of the owner of the land irrespective of who owned the mineral rights. The evidence is clear that G.F.S. obtained permission of more than 80% of the landowners, since Wetlands is the owner of the land, but did not obtain permission from Jeanes.
La.Civ.Code art. 801 provides that the use and management of the thing held in indivision is determined by agreement of all the co-owners. Since G.F.S. used the land for its seismic exploration, it needed the consent of all the co-owners of the land. It failed to get the consent of Jeanes and is therefore liable to her.
For these reasons the judgment of the trial court is affirmed at appellant's cost.
AFFIRMED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1456311/ | 578 F.3d 505 (2009)
SHARP ELECTRONICS CORPORATION, Plaintiff-Appellant,
v.
METROPOLITAN LIFE INSURANCE COMPANY, Defendant-Appellee.
No. 08-2959.
United States Court of Appeals, Seventh Circuit.
Argued April 14, 2009.
Decided August 18, 2009.
*507 Craig R. Annunziata, Fisher & Phillips, Chicago, IL, Brian K. Lafratta (argued), Fisher & Phillips, Chicago, IL, for Plaintiff-Appellant.
Ian S. Linker (argued), Metlife Group, Incorporated, Long Island City, NY, for Defendant-Appellee.
Before KANNE, ROVNER, and WOOD, Circuit Judges.
WOOD, Circuit Judge.
From 1997 until April 2, 2002, Sandra Rudzinski worked for Sharp Electronics Corporation. As a full-time employee, she was entitled to participate in a long-term group disability plan (the "Plan"), which was underwritten by Metropolitan Life Insurance Company ("MetLife"). The present controversy arose out of a lawsuit between Rudzinski and MetLife. Briefly, after Rudzinski stopped working for Sharp, she applied for a conversion policy with MetLife to preserve her long-term disability coverage. MetLife denied her application. Rudzinski responded with a suit in federal court asserting that MetLife had wrongfully denied her benefits. Initially, MetLife was the sole defendant. During a settlement conference, however, MetLife represented to Rudzinski that one reason it had refused to pay her any long-term benefits was that Sharp had failed to make required payments to it on her behalf.
Based on this statement, Rudzinski filed an amended complaint adding Sharp as an additional defendant; she asserted that Sharp had breached its fiduciary duty to her and had interfered with her benefits. On July 19, 2006, following an unsuccessful motion to dismiss, Sharp filed a cross-claim against MetLife asserting that MetLife had breached a fiduciary duty it allegedly owed to Sharp under the Employment Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132, that MetLife was obliged to indemnify Sharp for certain expenses, and that MetLife was estopped from denying these obligations.
*508 Although Rudzinski and Sharp reached a settlement and the district court entered judgment in favor of Rudzinski in her action against MetLife, Sharp's claim against MetLife remained pending. After Sharp filed an amended cross-claim, MetLife moved to dismiss for failure to state a claim. See FED.R.CIV.P. 12(b)(6). The district court granted that motion on July 9, 2008, and Sharp has now appealed from the judgment against it. We affirm.
I
Sharp adopted the MetLife long-term disability plan in 1997 as part of the welfare benefits package it furnished for its employees; the Plan was qualified under ERISA. Sharp was, at all relevant times, the Plan administrator and MetLife the Plan fiduciary. Pursuant to the Plan, Sharp was required to pay short-term disability benefits to eligible employees during a 180-day policy benefits elimination period. Thereafter, MetLife was required to pay long-term disability benefits to employees who met criteria specified in the Plan. Sharp was required under the Plan to pay premiums to MetLife for the benefit of its employees, but it had no responsibility to pay premiums for a person whose employment with Sharp had been terminated, unless the person was disabled and was within an elimination period at the time her employment ended.
On April 2, 2002, as a result of chronic fatigue, joint pain, and headaches, Rudzinski ceased active employment with Sharp. (Later, she was diagnosed with fibromyalgia.) As a participating member in the Plan, Rudzinski was eligible for both short-term and long-term disability benefits. Accordingly, following the cessation of her employment, she began receiving short-term disability benefits from Sharp and the 180-day elimination period began to run. Rudzinski also filed a claim with MetLife in which she requested long-term disability insurance benefits, to commence immediately upon the completion of the 180-day period.
On July 9, 2002, Sharp notified Rudzinski that if she did not return to active employment by July 31, 2002, she would lose her job and Sharp would cease making payments on her behalf to MetLife for long-term disability benefits. Rudzinski did not return to work at Sharp, and, as promised, Sharp ended her employment effective July 31, 2002. Sometime prior to the deadline, Sharp informed Rudzinski that, if she did not return to work, she could preserve her long-term disability coverage with MetLife by obtaining a "conversion policy" and paying premiums on her own behalf as a non-employee. Rudzinski took the advice, applied to MetLife for a conversion policy, and paid the requisite premiums. After some time had passed, however, MetLife denied Rudzinski long-term disability benefits on the ground that she had a pre-existing disability at the time she applied for the conversion policy. Rudzinski then made a formal demand on MetLife for long-term disability benefits pursuant to the Plan. MetLife considered her demand and denied it, this time on the ground that she had not fulfilled the 180-day period that was supposed to precede long-term benefits.
Rudzinski then filed a claim in the district court pursuant to 29 U.S.C. § 1132(a)(1)(B), alleging that MetLife wrongfully denied her benefits. Approximately two years after Rudzinski filed her lawsuit, and more than two years after MetLife initially denied her claim for benefits, MetLife's lawyer let slip in a settlement conference that an additional reason why she did not qualify for benefits was that Sharp had discontinued payment of her long-term disability premiums following the termination of her employment. The Plan does not obligate Sharp to make premium payments for any employee once *509 the person is no longer working for it. Based on this representation from MetLife, Rudzinski amended her complaint to add Sharp as a defendant, alleging that Sharp violated 29 U.S.C. § 1140 by wrongfully interfering with her disability benefit rights under the Plan; violated its fiduciary duties to her; and misled her into believing that by obtaining a conversion policy and paying the necessary premiums, she could protect her rights to longterm disability benefits.
Sharp responded to Rudzinski's claim in two ways. First, it filed a Rule 12(b)(6) motion to dismiss for failure to state a claim; the district court denied that motion on April 27, 2006. Second, Sharp filed a cross-complaint against MetLife, alleging that (1) MetLife breached its fiduciary duties to Sharp under 29 U.S.C. §§ 1132(a)(2), 1132(a)(3), and 1109(a), when it stated in Rudzinski's presence that Sharp's nonpayment of premiums influenced its decision about her benefits; (2) MetLife was equitably estopped from relying on Sharp's alleged nonpayment as a reason for denying Rudzinski's benefits; and (3) if Sharp were found liable to Rudzinski on any of her claims, MetLife had to indemnify Sharp.
On January 16, 2007, Rudzinski voluntarily dismissed her claims against Sharp. This action left two claims pending in the district court: Rudzinski's claim against MetLife, and Sharp's cross-claim against MetLife. MetLife moved to dismiss Sharp's cross-claim. It argued with respect to Sharp's assertion that MetLife had breached a fiduciary duty that it owed to Sharp that it owed no such duty. MetLife also asserted that Sharp's indemnification claim was preempted by ERISA. On January 25, 2007, the district court denied MetLife's motion to dismiss, holding that the question whether MetLife owed any fiduciary duty to Sharp was one of fact, and that Sharp had stated a cognizable claim for indemnification that was not necessarily preempted by ERISA. MetLife then filed an answer to the cross-claim, and in the meantime, the district court entered judgment in favor of Rudzinski on her claim against MetLife, finding that MetLife wrongfully denied her benefits.
That left Sharp's cross-claim against MetLife as the only remaining claim before the district court. At that stage, the parties consented to the resolution of the claim before a magistrate judge. See 28 U.S.C. § 636(c). The next event of any consequence occurred on April 4, 2008, when Sharp filed an amended cross-complaint raising seven different theories of recovery against MetLife: breach of fiduciary duty under ERISA, 29 U.S.C. §§ 1132(a)(2), 1132(a)(3), and 1109(a); indemnification; negligence; negligent inducement; negligent misrepresentation; abuse of process; and common law breach of fiduciary duty.
MetLife responded on April 25, 2008, with a motion to dismiss the entire cross-complaint under Rule 12(b)(6). MetLife asserted that all of the theories outlined in Sharp's amended pleading were based upon statements made during the course of litigation. Those statements, it maintained, were absolutely privileged and could not form the basis of any liability. MetLife also argued that Sharp lacked standing to pursue the claims, that the relief sought was not available to Sharp, that the claims were preempted by ERISA, and that because Sharp had previously been dismissed from the case it could not recover damages, fees, or costs incurred in defending Rudzinski against MetLife. Sharp resisted these arguments on their merits and also contended that MetLife's motion was barred by the law of the case because the district court earlier *510 had denied MetLife's motion to dismiss the cross-claims.
On July 9, 2008, the district court granted MetLife's motion, holding that the law of the case doctrine was inapplicable because the determination of MetLife's earlier motion to dismiss did not involve the claims as Sharp presented them in its amended cross-complaint. The court then held that, although the statement made by MetLife during the settlement conference was not privileged, MetLife's motion should be granted because MetLife had not breached any fiduciary duty to Sharp. The district court finally held that Sharp's remaining state-law claims are preempted by ERISA because, it thought, it would be impossible to resolve them without referring back to the Plan to determine the parties' obligations.
II
On appeal, Sharp argues that the district court erred by failing to apply the law of the case doctrine and in granting MetLife's motion to dismiss. Sharp also argues that the district court erred when it determined that Sharp's state law claims were preempted by ERISA. We review a district court's dismissal of a complaint for failure to state a claim under FED.R.CIV.P. 12(b)(6) de novo, accepting as true all of the factual allegations contained in the complaint. Segal v. Geisha NYC LLC, 517 F.3d 501, 504 (7th Cir.2008). Dismissal is required if, taking the properly pleaded facts in that light, the complaint fails to describe a claim that is plausible on its face. Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009).
A
We begin with a brief word about Sharp's assertion that the district court acted inconsistently with the law of the case when it granted MetLife's motion to dismiss the amended cross-complaint. There are two reasons why this point is not well taken. First, the law of the case doctrine has little force when a higher court is reviewing decisions of a lower court. The doctrine reflects the idea that a single court should not revisit its earlier rulings unless there is a compelling reason to do so. It is designed to further consistency, to avoid constantly revisiting rulings, and to conserve judicial resources. Minch v. City of Chicago, 486 F.3d 294, 301 (7th Cir.2007). From the point of view of this court, the district court's first ruling is no more binding than any reconsideration of that ruling would be. Second, the case changed in any event between the two rulings, and the district court was free to take a new look at it. When the court initially denied MetLife's motion to dismiss, it was faced only with Sharp's fiduciary breach claims and its indemnification claim. The picture changed with Sharp's amended cross-complaint. There, Sharp repleaded its breach of fiduciary duty and indemnification claims. But it went on to drop the equitable estoppel claim that was present in the original cross-complaint and to add five state law claims: negligence, negligent inducement, negligent misrepresentation, abuse of process, and common law breach of fiduciary duty. While it might have been useful for the judge to explain more fully why he was taking a fresh look at the case, we see no reason to belabor this point. Our review in any event is de novo, and so we think it best simply to proceed to decide whether Sharp's amended cross-complaint includes any claim on which relief can be granted. Minch, 486 F.3d at 302.
B
Sharp's theory of the case is inventive, if nothing else. It asserts broadly that MetLife had a fiduciary duty to it, and in particular a duty "not to mislead plan participants or misrepresent the terms or administration of the Plan." In Sharp's view, *511 MetLife was obliged under the Plan to "inform Sharp and Rudzinski of each and every basis for its denial of Rudzinski's claim during the claims process, ... to render its decisions of claims brought under the Plan in a manner consistent with the terms and requirements of the Plan and Policy, and ... to advise Sharp if any required premiums were owed." Sharp reasons that when MetLife told Rudzinski that she was not entitled to benefits because Sharp had ceased paying premiums, this amounted to a breach of fiduciary duty to Sharp. MetLife's careless statement, Sharp asserts, caused it to suffer damage, because it "has been forced to expend sums of money on attorneys' fees and related costs in defending itself against Rudzinski's lawsuit and in bringing this cross-claim, and has been required to expend extensive amounts of employee time and resources into the investigation and defense of Rudzinski's claims." Sharp wants a court order finding that MetLife breached its fiduciary duty to Sharp and an order "requiring MetLife to reimburse to the Plan its losses resulting from MetLife's breach of fiduciary duty." It argues that it is entitled to this relief under ERISA, 29 U.S.C. §§ 1132(a)(2), 1132(a)(3), and 1109(a).
The district court rejected this theory lock, stock, and barrel. The court ruled that ERISA does not impose the fiduciary duties that Sharp alleged, nor does it authorize the kind of relief Sharp sought. As the court noted, Sharp "didn't sue to recover anything on behalf of the Plan; rather, it is suing to recover attorney's fees and costs that it paid ([and] there is no allegation that the Plan paid these fees and costs; nor is there any allegation that the Plan lost anything as a result of the alleged breach)." The court ultimately concluded that 29 U.S.C. § 1109(a) imposes liability for Plan losses only, and therefore Sharp's claim "simply does not fit within the parameters of that statute." We agree with the district court's assessment. This analysis applies with equal force to two additional theories that Sharp advanced: that it is entitled under 29 U.S.C. § 1132(a) to bring a civil action for relief under 29 U.S.C. § 1109(a); and that it has a direct right to recover under 29 U.S.C. § 1132(a)(3). Sharp complains on appeal that the district court erred by failing to address its claim for breach of fiduciary duties under 29 U.S.C. § 1132(a)(3). There was no need for the district court to do so, however, given the fundamental conclusion that there was no fiduciary duty to begin with.
Sharp urges this court to find that ERISA does not limit breach of fiduciary duty claims to persons who are fiduciaries with respect to a plan. It bases its argument on the language of § 1109(a). Section 1109(a) reads:
Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.
29 U.S.C. § 1109(a) (emphasis added).
Sharp contends that the emphasized text is a "second clause" that "sets forth no requirement that the fiduciary's breach of fiduciary duty claim must be based on plan losses." Unfortunately for Sharp, however, the Supreme Court expressly rejected this reading in its 1985 decision in Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 141-42, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985). There the Court held *512 that "[t]o read directly from the opening clause of [§ 1109(a)], which identifies the proscribed acts, to the `catchall' remedy phrase at the endskipping over the intervening language establishing remedies benefitting, in the first instance, solely the planwould divorce the phrase being construed from its context and construct an entirely new class of relief available to entities other than the plan." Id. The Court concluded that "[a] fair contextual reading of the statute makes it abundantly clear that its draftsmen were primarily concerned with the possible misuse of plan assets, and with remedies that would protect the entire plan, rather than with the rights of an individual." Id. at 142, 105 S.Ct. 3085.
We can assume that MetLife was a fiduciary with respect to the Plan, and we can also assume that Sharp was a fiduciary with respect to the Plan. But this does not mean that either one was a fiduciary with respect to the other. Their relationship was purely contractual: MetLife agreed to perform certain services for Sharp, with respect to this benefits plan. See 29 U.S.C. § 1002(21)(A) (defining circumstances in which "a person is a fiduciary with respect to a plan" without any mention of fiduciary relationships arising between parties who contract for plan-related services); cf. Johnson v. Georgia-Pacific Corp., 19 F.3d 1184, 1188 (7th Cir. 1994) ("This definition [in § 1002(21)(A)] does not make a person who is a fiduciary for one purpose a fiduciary for every purpose. A person is a fiduciary to the extent that he performs one of the described duties; people may be fiduciaries when they do certain things but be entitled to act in their own interests when they do others."). Put a little differently, Sharp is not the kind of entity that Congress had in mind for the protections it created in ERISA. Sharp's argument based on a direct fiduciary duty therefore must be rejected.
Sharp next argues that even if it could assert a claim to relief only on behalf of the Plan, it met that standard (at least as a matter of pleading). Sharp refers us to the ad damnum clause of its amended cross-complaint, in which it requests the court to "[e]nter an order requiring MetLife to reimburse the Plan its losses resulting from MetLife's breach of fiduciary duty." Sharp contends that, under the liberal pleading standard in the federal court, this request is sufficient to demonstrate that it was seeking relief on behalf of the Plan. We do not read the cross-complaint that way.
Under FED.R.CIV.P. 8(a)(2), a complaint (or cross-complaint) must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." While Rule 8(a)(2) does not require detailed factual allegations, the Supreme Court now requires it to include "more than an unadorned, the-defendant-unlawfullyharmed-me accusation." Iqbal, 129 S.Ct. at 1949 (discussing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). To survive MetLife's motion to dismiss, Sharp had to include allegations that supported (1) its right of action under ERISA (that is, that Sharp was acting either as a plan fiduciary, beneficiary, or participant); (2) MetLife's status as a plan fiduciary; (3) MetLife's breach of its fiduciary duties; and (4) a cognizable loss to the plan flowing from that breach. See Pegram v. Herdrich, 530 U.S. 211, 223-26, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000); Jenkins v. Yager, 444 F.3d 916, 924 (7th Cir.2006). Sharp's complaint falls short. Its amended cross-complaint offers only the conclusory statements that MetLife is a fiduciary, that Sharp is a plan fiduciary, that MetLife breached its fiduciary duties to Sharp, that Sharp has suffered damage from that breach, and that MetLife must reimburse the Plan for its losses. At no *513 point does Sharp explain how the alleged breach of fiduciary duty imposed (or could have imposed) a loss on the Plan. See Wsol v. Fiduciary Mgmt. Assocs., Inc., 266 F.3d 654, 656 (7th Cir.2001). Nothing Sharp has said tells the reader how the expenditures it made in the Rudzinski caseenhanced as they might have been because of MetLife's commentrelate to any duty under ERISA.
Finally, Sharp contends that even if its cross-complaint lacked critical details, the district court erred by not permitting it to replead. We see no reversible error in that respect. It is unclear from the record whether Sharp ever moved the district court for leave to amend its amended cross-complaint. See FED.R.CIV.P. 15(a). If not, then Sharp has forfeited the point. And even if it did preserve it, in our view any amendment would have been futile.
Sharp cannot avoid the fact that any recovery it may hope to achieve must be related to the fiduciary duties that it alleges MetLife owes to it, that MetLife must have been performing a fiduciary function when it made the comment during the settlement discussions, and that it must be seeking to recover losses to the Plan. See Coyne & Delany Co. v. Blue Cross & Blue Shield of Virginia, 102 F.3d 712, 714-15 (4th Cir.1996). Sharp's claim does not meet this requirement. Sharp claims that the "damage" caused by MetLife's comment can be measured by the monies Sharp expended on "attorneys' fees and related costs in defending itself against Rudzinski's lawsuit and in bringing [the] cross-claim," as well as the "extensive amounts of employee time and resources" poured into the investigation and defense of Rudzinski's claims. But these are plainly damages and expenses to Sharp, as a company, not to the Plan. They are therefore not appropriate items of damage under either § 1109(a) or § 1132(a)(3). The only reasonable understanding of Sharp's cross-complaint is that it is seeking a monetary award for itself, individually, as reimbursement for the cost of its legal expenses. ERISA does not provide remedies other than those expressly set forth by Congress, and §§ 1109(a) and 1132(a)(3) provide relief only for damage to the Plan. In the final analysis, what really frustrates Sharp is that under the American Rule it must bear its own legal costs, including those attributable to Rudzinski's decision to add it as a defendant to her lawsuit. Nothing in ERISA upsets that general rule, as it applies to Sharp.
C
Sharp also asserts that the district court erred when it dismissed its claim for indemnification. Its cross-complaint does not identify whether this alleged right to indemnification is based on ERISA or state law (though its brief suggests that the indemnification claim is federal). We find no such indemnification right on Sharp's behalf in ERISA. Like claims under §§ 1109(a) and 1132(a)(3), indemnification claims under ERISA may go forward only if the plan has suffered a loss. 29 U.S.C. § 1105(a); Alton Memorial Hosp. v. Metropolitan Life Ins. Co., 656 F.2d 245, 249-50 (7th Cir.1981). As with Sharp's fiduciary breach claims, Sharp has entirely failed to plead any loss to the Plan resulting from MetLife's clumsy effort to blame Sharp for its benefits decision. As with the fiduciary breach claims, this is fatal to the indemnification claim.
D
Finally, Sharp argues that the district court erred when it held that its state-law claims are preempted by ERISA. As the Supreme Court observed in Aetna Health, Inc. v. Davila:
Congress enacted ERISA to "protect... the interests of participants in employee *514 benefit plans and their beneficiaries" by setting out substantive regulatory requirements for employee benefit plans and to "provid[e] for appropriate remedies, sanctions, and ready access to the Federal courts." 29 U.S.C. § 1001(b). The purpose of ERISA is to provide a uniform regulatory regime over employee benefit plans. To this end, ERISA includes expansive preemption provisions, see ERISA § 514, 29 U.S.C. § 1144, which are intended to ensure that employee benefit plan regulation would be "exclusively a federal concern." Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981).
542 U.S. 200, 208, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004). Section 1144 expresses that policy by saying that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a). Congress chose this aggressive form of preemption in order to "knock out any effort to use state law, including state common law, to obtain benefits under such a plan." Pohl v. National Benefits Consultants, Inc., 956 F.2d 126, 127 (7th Cir. 1992). The idea is to "protect the financial integrity of pension and welfare plans by confining benefits to the terms of the plan as written ...." Id. at 128. Nonetheless, while ERISA's preemption provision is broad, it does not sweep all state law off the table. See Pegram v. Herdrich, 530 U.S. 211, 236-37, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000) (holding that challenges to mixed eligibility and treatment decisions made by an HMO are not preempted by ERISA). If the connection between a state law claim and the benefit plan is too tenuous, remote, or peripheral, ERISA's preemption provision may not apply. Id.; Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1494-95 (7th Cir.1996).
The district court thought that Sharp's state-law claims could not be resolved "without referring back to the Plan to determine Sharp's and MetLife's respective obligations." We do not understand Sharp's claims in that way. As we have said throughout this opinion, Sharp's claims arise under the contract it had with MetLife; the ERISA Plan was the subject of that contract, but nothing in the contract depended on the particular content of the Plan. We conclude that the transaction costs Sharp incurred are not sufficiently related to ERISA to bring them within the scope of ERISA's preemptive field.
This conclusion does not mean, however, that Sharp is necessarily entitled to continue to litigate in federal court. Anticipating the possibility of our ruling on the merits, the district court alternatively held that even if Sharp could amend its state-law counts in such a way as to avoid preemption, the court would decline to exercise supplemental jurisdiction over those claims and dismiss them pursuant to 28 U.S.C. § 1367(c)(3), in light of its dismissal of all claims over which it had original jurisdiction. A district court's decision to decline to exercise supplemental jurisdiction over a state-law claim for this reason is reviewed for an abuse of discretion. Carlsbad Technology, Inc. v. HIF Bio, Inc., ___ U.S. ___, 129 S.Ct. 1862, 1866-67, 173 L.Ed.2d 843 (2009); Williams Elecs. Games, Inc. v. Garrity, 479 F.3d 904, 906 (7th Cir.2007).
Normally, when "all federal claims are dismissed before trial, the district court should relinquish jurisdiction over pendent state-law claims rather than resolving them on the merits." Wright v. Associated Ins. Cos., Inc., 29 F.3d 1244, 1251 (7th Cir.1994). There are three acknowledged exceptions to this rule: when (1) "the statute of limitations has run on the pendent claim, precluding the filing of *515 a separate suit in state court"; (2) "substantial judicial resources have already been committed, so that sending the case to another court will cause a substantial duplication of effort"; or (3) "when it is absolutely clear how the pendent claims can be decided." Id. (internal quotation marks omitted).
We see no abuse of the district court's discretion here. While it is likely that the statute of limitations has technically run on some, if not all, of Sharp's state-law claims, there is an Illinois statute that authorizes tolling in these circumstances. 735 ILCS 5/13-217. If it applies, then Sharp's claims would not be time-barred if it pursues them in state court. In addition, the district court disposed of the federal claims on a motion to dismiss, and so it is difficult to see how "substantial judicial resources" have been committed to this case. See Davis v. Cook County, 534 F.3d 650, 654 (7th Cir.2008). Finally, we are not prepared to say that the proper resolution of the state-law claims is absolutely clear. We conclude, therefore, that the district court did not abuse its discretion in declining to exercise supplemental jurisdiction over Sharp's state law claims.
* * *
We AFFIRM the judgment of the district court in favor of MetLife on Sharp's ERISA claims and VACATE the district court's decision on the merits of the state-law claims. Sharp's state-law claims instead are DISMISSED without prejudice pursuant to 28 U.S.C. § 1367(c) in accordance with the district court's alternative ruling. Costs on appeal are to be taxed against Sharp. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2984856/ | February 4, 2014
JUDGMENT
The Fourteenth Court of Appeals
DANIEL E. SUPKINS, JR., M.D., Appellant
NO. 14-14-00018-CV V.
THE METHODIST HOSPITAL, Appellee
________________________________
Today the Court heard the parties’ joint motion to dismiss the appeal from
the judgment signed by the court below on September 23, 2013. Having considered
the motion and found it meritorious, we order the appeal DISMISSED.
We further order that each party shall pay its costs by reason of this appeal.
We further order that mandate be issued immediately.
We further order this decision certified below for observance. | 01-03-2023 | 09-22-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1411413/ | 669 S.E.2d 716 (2008)
MULLIS
v.
BIBB COUNTY.
No. A08A1580.
Court of Appeals of Georgia.
November 19, 2008.
*717 Westmoreland, Patterson, Moseley & Hinson, Bradley G. Pyles, Macon, for appellant.
Chambless, Higdon, Richardson, Katz & Griggs, John J. Makowski, Macon, for appellee.
PHIPPS, Judge.
This appeal involves a dispute between Richard Mullis and his former employer, Bibb County, concerning the date on which Mullis was to start receiving monthly retirement benefits from the county. When Mullis left employment with the county, he was informed that he would begin receiving benefits on one date, but the county later asserted that Mullis could not receive benefits until nine years later. The trial court granted summary judgment to the county, and Mullis appeals this ruling as to his claims for breach of contract and promissory estoppel. Finding no error, we affirm.
A party is entitled to summary judgment if that party demonstrates that no genuine issue of material fact remains and he is entitled to judgment as a matter of law.[1] We review a grant of summary judgment de novo, considering the evidence, and all reasonable conclusions and inferences drawn from it, in the light most favorable to the nonmovant.[2]
Viewed in the light most favorable to Mullis, the evidence shows that he worked for the county for almost 21 years and became vested in the county's pension plan, which was part of the county code. Under the pension plan, a participant would become eligible to receive retirement benefits upon reaching his or her "normal retirement date," which was defined based either on the participant reaching a certain age or completing a certain number of years of service. The county's deputy human resources administrator testified that she interpreted this service requirement to count years after an employee had left employment with the county as part of the employee's years of service. Thus, when Mullis left the county's employment in February 1995, the administrator determined that Mullis was entitled to begin receiving retirement benefits in June 2004, at which time he would have had 30 years of service had he remained employed by the county. The administrator communicated this date to Mullis in a March 1, 1995 letter. In May 2004, Mullis contacted the county to make arrangement for his benefits. Later that month the county informed Mullis by letter that his "projected starting retirement date was calculated in error" and that instead he would begin receiving benefits on May 24, 2013, when he reached the normal retirement date age.
1. Mullis argues that the trial court erred in granting summary judgment to the county on his claim that the county breached *718 a contractual obligation to begin distributing his retirement benefits in June 2004.
Mullis's contract of employment with the county incorporated the terms of the county's pension plan.[3] Mullis contends that the pension plan's definition of "normal retirement date" is ambiguous and capable of supporting the interpretation given it by the county's deputy human resources administrator, so as to include his years after leaving employment with the county in determining the start date of his retirement benefits. We find no such ambiguity. The plan defined Mullis's "normal retirement date" to be either the attainment of a certain age or the "[c]ompletion of 30 years of service." The plan defined "service" as "the period of the participant's employment by the county and while a participant in this plan[.]" This language is plain, unambiguous, and capable of only one reasonable interpretation, that to reach the "normal retirement date" a plan participant must either have attained a certain age or have been employed by the county and participated in the plan for 30 years.[4] Because it is undisputed that, as of June 2004, Mullis had neither met the age requirement nor been employed by the county for 30 years, he had not reached his "normal retirement date" under the plan and the county had no contractual obligation to begin paying him retirement benefits at that time.
Mullis argues that certain facts support a finding of ambiguity in the plan, specifically the deputy human resources administrator's different interpretation of the service requirement and the county's later amendment to the definition of "service" under the plan.[5] The existence or nonexistence of ambiguity in a contract is a question of law for the court and not a fact-driven determination.[6] But neither an erroneous interpretation of contract language nor a later decision to revise that language creates ambiguity in contract language that is capable of only one reasonable interpretation.[7]
Mullis's other arguments in support of his breach of contract claim likewise are without merit. Although the deputy human resources administrator had the responsibility to calculate benefit start dates under the pension plan, Mullis points to no support in the record for the position that this responsibility conferred upon the administrator the authority to modify or create new terms in the plan. And although Mullis correctly points out that the Georgia Constitution prohibits a government from decreasing retirement benefits by amending a statute or ordinance,[8] the county's later amendment to the plan did not decrease Mullis's benefits because, as discussed supra, the terms of the plan prior to the amendment did not authorize Mullis to begin receiving benefits in June 2004.
Because we find that the county had no contractual obligation to begin Mullis's retirement benefits in June 2004, the trial court did not err in granting summary judgment to *719 the county on Mullis's breach of contract claim.
2. Mullis argues that the trial court erred in granting the county summary judgment on his claim for promissory estoppel, which he based on the county's statement in the March 1995 letter that his retirement benefits would begin in June 2004.
OCGA § 13-3-44(a) provides that "[a] promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee ... and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise."[9] A promise may not be enforced against a governmental entity, however, if it arises from an ultra vires action, in which a "government official had no authority to take the action in question."[10] In cases involving claims of promissory estoppel concerning the administration of retirement plans, the Supreme Court of Georgia has drawn a distinction between an action that disregarded or deviated from authority conferred by an ordinance or statute (determined to be an ultra vires action)[11] and an error made during the commission of an otherwise authorized action (determined not to be an ultra vires action).[12]
In Dukes v. Board of Trustees for the Police Officers Pension Fund,[13] the plaintiff, a city police officer, was told by a pension board official that the period he worked for a different governmental entity would be included in determining his eligibility for retirement benefits. After the police officer retired, the pension board rescinded this decision and recalculated the officer's benefits. The Court upheld a grant of summary judgment in favor of the board on the officer's claim for promissory estoppel.[14] In so doing, the Court noted that "the question ... turn[ed] on whether [the board official] and the board had the legal authority to disburse retirement benefits based on [the officer's] prior service."[15] The Court held that the relevant ordinance allowed credit for prior service only if two requirements were met and "[did] not confer upon the board the authority to disregard or deviate from the mandatory language of [the ordinance]."[16]
By contrast, in Quillian v. Employees' Retirement System etc.,[17] the plaintiff tendered his resignation in express reliance upon a representation that he would be credited for a certain number of service years, but afterward he was told that his number of service years had been miscalculated and that his retirement benefit would be reduced. The Court held that, because the retirement system had the power to calculate the plaintiff's service years, the error in making the calculation did not render the act of calculating ultra vires.[18] The Court further held that "[u]nder the unique circumstances of this case, the retirement system must be estopped from denying the benefits."[19]
The question presented in this appeal is whether the deputy human resources administrator's decision that Mullis could begin receiving benefits, as expressed in the March 1995 letter to him, at a time when he had not met the "normal retirement date" as defined in the plan, is properly characterized as a decision she was not authorized to make, as *720 in Dukes, or as a decision she was authorized to make but that she made incorrectly, as in Quillian. We find the administrator's decision exceeded her authority, as in Dukes. As discussed above, the terms of the plan authorized the county to disburse retirement benefits to a person who had reached a certain age or had been employed with the county for 30 years.[20] The plan did not authorize the county to disburse benefits to a person meeting neither requirement. By promising to provide benefits to an employee before that person had satisfied the plan's requirements for receiving such benefits, the administrator disregarded and deviated from the terms of the plan, rather than simply making a mistake during an otherwise authorized action under the plan. As such, the administrator engaged in an ultra vires action that cannot support Mullis's claim for promissory estoppel.[21]
Mullis argues that, in ruling on his promissory estoppel claim, the trial court made an erroneous factual finding concerning the amount of time that passed between his departure from the county and his receipt of the letter setting forth the June 2004 benefit start date. This fact is not determinative of the legal question concerning whether the administrator's practice was an ultra vires action.
3. Mullis argues that the county waived its right under the plan to begin his benefits on the later date.
"Waiver is the voluntary relinquishment of a known right and may be established by express statements or implied by conduct. An implied waiver is one shown by a party's decisive, unequivocal conduct reasonably inferring the intent to waive."[22] Summary judgment is appropriate against a claim of waiver where there is no evidence that the defendant intentionally or voluntarily relinquished a known right.[23]
Mullis has not pointed to any evidence that creates a factual dispute about whether the county, when it gave Mullis an inaccurate start date for his benefits, knowingly and voluntarily relinquished its rights under the plan. And there is no merit in Mullis's contention that the county's actions in connection with a different former employee waived the county's rights as to Mullis.[24]
Judgment affirmed.
BARNES, C.J., and JOHNSON, P.J., concur.
NOTES
[1] OCGA § 9-11-56(c).
[2] Matjoulis v. Integon Gen. Ins. Corp., 226 Ga. App. 459(1), 486 S.E.2d 684 (1997).
[3] See, e.g., Unified Govt. of Athens-Clarke County v. McCrary, 280 Ga. 901, 901-902, 635 S.E.2d 150 (2006) ("a statute or ordinance establishing a retirement plan for government employees becomes a part of an employee's contract of employment if the employee contributes ... toward the benefits he is to receive, and if the employee performs services while the law is in effect....") (citation omitted).
[4] See First Data POS v. Willis, 273 Ga. 792, 794(2), 546 S.E.2d 781 (2001) (when contract language is plain, unambiguous, and capable of only one reasonable interpretation, it must be afforded its literal meaning); Evans v. Employees' Retirement System etc., 264 Ga. 729, 731(1), 450 S.E.2d 195 (1994) (applying rule of contract interpretation to language of legislative enactment concerning retirement plan incorporated into contract of employment).
[5] The amended plan additionally provided: "[A] participant's service, for purposes of calculating years of service under this pension plan, shall end on the last day the employee reports for work."
[6] See Ga. Glass & Metal v. Arco Chemical Co., 201 Ga.App. 15, 16, 410 S.E.2d 142 (1991).
[7] See Plymel v. Teachers Retirement System, 281 Ga. 409, 413(4)(c), 637 S.E.2d 379 (2006) (court is not required to follow agency's interpretation of statute if, based on court's independent determination, interpretation does not follow statute's plain language).
[8] See Ga. Const. of 1983, Art. I, Sec. I, Par. X; Athens-Clarke County, supra at 901, 635 S.E.2d 150.
[9] See Hendon Properties v. Cinema Dev., 275 Ga. App. 434, 438-439(2), 620 S.E.2d 644 (2005) (discussing essential elements of claim of promissory estoppel).
[10] City of Warner Robins v. Rushing, 259 Ga. 348, 349, 381 S.E.2d 38 (1989) (emphasis omitted); see OCGA § 45-6-5 ("The public may not be estopped by the acts of any officer done in the exercise of an unconferred power.").
[11] See Dukes v. Board of Trustees for the Police Officers Pension Fund, 280 Ga. 550, 629 S.E.2d 240 (2006).
[12] See Quillian v. Employees' Retirement System etc., 259 Ga. 253, 379 S.E.2d 515 (1989).
[13] Supra.
[14] Id. at 554, 629 S.E.2d 240.
[15] Id. at 552-553, 629 S.E.2d 240.
[16] Id. at 553, 629 S.E.2d 240.
[17] Supra.
[18] Id. at 254(3)(b), 379 S.E.2d 515.
[19] Id. at 255(5), 379 S.E.2d 515.
[20] See Division 1, supra.
[21] See Miller v. Clayton County, 271 Ga. 135, 136(1), 518 S.E.2d 402 (1999) (no claim for estoppel where government official lacked authority to change or expand legislatively-prescribed definition of parties entitled to benefit).
[22] Kennestone Hosp. v. Hopson, 273 Ga. 145, 148, 538 S.E.2d 742 (2000) (punctuation and footnotes omitted).
[23] West v. Fulton County, 267 Ga. 456, 458(2), 479 S.E.2d 722 (1997).
[24] See Athens-Clarke County, supra at 904, 635 S.E.2d 150 (fact that governmental entity gave some retirees a certain benefit did not give plaintiff a contractual or other right to same benefit, where applicable legislation establishing retirement benefits did not so provide); Withers v. Register, 246 Ga. 158, 160(2), 269 S.E.2d 431 (1980) (fact that city calculated retirement benefits of other employees using erroneous formula does not allow plaintiff to avoid summary judgment on claim for same benefits). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2517811/ | 196 F. Supp. 2d 343 (2002)
Bernard MCDANIEL and Maureen McDaniel, Claimants-Petitioners,
v.
BEAR STEARNS & CO., INC. and Bear Stearns Securities Corp., Respondents-Respondents.
No. 01 CIV. 7054(SAS).
United States District Court, S.D. New York.
January 16, 2002.
As Amended January 25, 2002.
*344 *345 Jonathan Kord Lagemann, Lagemann Law Offices, New York City, for Petitioner.
Peter L. Zimroth, Michael D. Schissel, David A. Weintraub, Arnold & Porter, New York City, for Respondents.
*346 OPINION AND ORDER
SCHEINDLIN, District Judge.
Bear Stearns & Co., Inc. ("Bear Stearns"), a New York investment bank, offers clearing services for other broker-dealers through its subsidiary Bear Stearns Securities Corporation ("BSSC"). BSSC served as the clearing firm for broker-dealer A.R. Baron ("Baron") at a time when Baron engaged in criminal and fraudulent conduct. Petitioners Bernard and Maureen McDaniel ("Claimants") were Baron customers during this time.
On July 31, 2001, an arbitration panel (the "Panel") found Bear Stearns and BSCC (collectively "Bear") jointly and severally liable to Claimants for breach of contract and for aiding and abetting Baron's fraud. The arbitrators issued a thirty-six page arbitration award (the "Award") which offered detailed findings of fact and explained their conclusions of law. In this motion to vacate that Award, Bear has attacked the Panel's decision on numerous grounds. As discussed below, none of the issues raised by Bear show that the Panel exceeded its power or manifestly disregarded the law or evidence so as to require vacating the Award.
The Supreme Court has more than once told lower courts that the Federal Arbitration Act ("FAA") establishes a strong federal policy favoring arbitration. See e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62, 115 S. Ct. 1212, 131 L. Ed. 2d 76 (1995); Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226, 107 S. Ct. 2332, 96 L. Ed. 2d 185 (1987). This policy reflects a desire to enforce arbitration agreements into which parties have entered as well as to encourage swift and efficient dispute resolution. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 220, 105 S. Ct. 1238, 84 L. Ed. 2d 158 (1987); Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir.1997). "Undue judicial intervention would inevitably judicialize the arbitration process, thus defeating the objective of providing an alternative to judicial dispute resolution." Tempo Shain Corp. v. Bertek Inc., 120 F.3d 16, 19 (2d Cir.1997) (quotation marks omitted). For these reasons, arbitration decisions are accorded "great deference." Id.
An investment bank such as Bear that has repeatedly agreed to arbitrationand, in fact, drafted the contract requiring these parties to arbitratewas well-aware of the binding nature of arbitration and the deference that courts must afford to arbitration awards. Bear knows that a motion to vacate is not an appeal; federal courts are not supposed to "superintend arbitration proceedings." Id. (quotation marks omitted). It also knows that district courts do not hear appeals from decisions of arbitration panels which, by definition, are final and binding.
Bear has payed lip service to the vacatur standards of "exceed[ing] its power" and "manifest disregard" in asking this Court, sub silentio, to substitute its judgment for that of the Panel. If I had that authority, I might indeed have decided the case differently.[1] However, the Court's review of an arbitration award is rigidly narrow. Given these constraints, Bear's motion undermines the concept of swift and efficient dispute resolution.
For the reasons stated below, Bear's motion to vacate the Award is denied and Claimants' cross-motion to confirm the Award is granted.
*347 I. BACKGROUND
A. The Role of Clearing Firms and the Applicable Regulatory Scheme
In a typical clearing arrangement, a clearing firm provides many backroom and administrative functions for another broker-dealer's customer accounts. See Gerald B. Cline and Raymond L. Moss, Liability of Clearing Firms: Traditional and Developing Perspectives, 1062 PLI/Corp. 139, 143 (1998). Generally, the clearing firm is responsible for maintaining records and mailing customer account documentation, as well as receiving, maintaining and delivering customers' securities and funds. See id.; Henry F. Minnerop, The Role and Regulation of Clearing Brokers, 48 Bus. Law. 841, 841 (1993). The clearing firm may also extend credit in order to finance customer transactions in margin accounts or, in some cases, may execute transactions on exchanges or on the over-the-counter markets. See id. Meanwhile the broker-dealer, referred to as the `introductory broker', maintains many of the functions that require direct personal contact with customers, such as soliciting customers, providing investment advice, and accepting customer orders for the purchase or sale of securities. See id.
According to Rule 382 of the New York Stock Exchange ("NYSE"), as amended in 1982, a clearing agreement must "specifically identify and allocate the respective functions and responsibilities of the introducing and carrying organizations . . . ." Ross v. Bolton, 904 F.2d 819, 825 (2d Cir. 1990) (quoting Rule 382, reprinted in NYSE Guide (CCH) ¶ 2382). The Rule also requires that a customer whose account has been "introduced" to a clearing firm receive notice of the existence of the clearing agreement introductory broker and clearing firm, and a notice of the allocation of responsibilities between them. See NYSE Rule 382.
B. The Parties and Relevant Non-Parties
In June or early July 1995, Bear and Baron entered into an Agreement for Securities Clearing Services (the "Clearing Agreement").[2]See Award, Ex. A to Declaration of Michael D. Schissel, attorney for defendants ("Schissel Dec."), at 16. At that time, Richard Harrington was President of BSSC and in charge of its clearing business, Peter Murphy was a Managing Director of BSSC and Andrew Bressman was President of Baron. In September, 1995, claimant Bernard McDaniel opened a brokerage account with Baron. See Statement of Claim, Ex. B to Schissel Dec., ¶ 3. He opened another account with Baron in late April 1996, this time with his wife, Maureen McDaniel. See Exs. C-2, R-18.[3] Roman Okin eventually became Claimants' broker at Baron.
Pursuant to the Clearing Agreement, Bear was required to notify Baron's customers "in writing concerning the respective obligations of the parties . . . and any other Customer related responsibilities of the parties to [the] Agreement." Ex. R-31 at 2. Claimants and Bear entered into a standard, pre-printed Customer Agreement with respect to both of their accounts.[4]See Award at 15; Ex. R-5. The *348 Agreement set forth the terms and conditions under which Bear would transact business with Claimants. See id. Among other things, the Agreement explained how Bear would maintain Claimants' accounts, provide reports of executed orders and statements of Claimants' accounts. See id. It also stated that Bear was permitted to charge commissions and other fees to Claimants for execution, custody or any other services furnished to Claimants, and that Claimants agreed to pay any such commissions and fees at Bear's then-prevailing rates. See id. In Paragraph Seven of the Customer Agreement, Claimants acknowledged receiving Bear's `Truth-in-Lending disclosure statement', typically called a `Rule 382 Letter', which described the allocation of functions and responsibilities between Baron and Bear. See Exs. R-3 ¶ 7; R-7.
During the time when Claimants maintained their accounts with Baron, Baron engaged in criminal activity, securities laws violations and fraudulent activity, some of which affected Claimants' accounts. See Award at 14; Respondents' Memorandum of Law in Support of Their Motion to Vacate and in Opposition to the Petition to Confirm the Arbitration Award ("Def.Mem.") at 20. On May 29, 1996, the Securities and Exchange Commission ("SEC") issued an emergency temporary cease-and-desist order against Baron, Bressman and Okin to halt Baron's fraudulent trading practices. Baron ceased doing business at the end of June 1996, and filed a Chapter 11 bankruptcy petition on July 3, 1996. See Statement of Claim, ¶¶ 21-22. On July 11, 1996, upon the application of the Securities Investor Protection Corporation ("SIPC"), Baron was placed into liquidation under the control of an independent trustee. See Def. Mem. at 15; SEC Order Instituting Proceedings ("Bear's OIP"), Ex. C-7 at 21 n. 1. On May 13, 1997, Baron and thirteen of its officers and employees were indicted on charges of criminal securities fraud. See Bear's OIP at 21 n. 3. With the exception of John McAndris, Baron's former Chief Financial Officer, all of the defendants pled guilty to enterprise corruption and grand larceny. See id. McAndris was tried and, on February 26, 1998, he was found guilty on twenty-five charges. See id.
The Baron investigation led to an investigation of Bear's relationship with Baron. See Def. Mem. at 20. On August 5, 1999, Bear consented to the SEC's entry of an Order Instituting Proceedings (the "OIP"), without admitting or denying the SEC's findings.[5]See Bear's OIP at 20 n. 1; SEC Order Instituting Proceedings ("Harrison's OIP"), Ex. C-6, at 2; Respondents' Reply Memorandum in Support of Their Motion to Vacate and In Opposition to the Motion to Confirm the Arbitration Award ("Def.Repl.") at 6. Pursuant to the settlement agreement, Bear was required to pay a $5 million civil penalty and $30 million to a fund to satisfy the claims of Baron's customers. See Def. Mem. at 36; Ex. C-7 at 20. In addition, Bear was required to retain an Independent Consultant to recommend supervisory and compliance policies which BSSC was required to adopt. See Def. Mem. at 36-37; Ex. C-7 at 19-20.
C. Claimants' Allegations Against Bear
On January 27, 1997, Claimants filed a Statement of Claim with the National Association *349 of Securities Dealers ("NASD") against Bear Stearns, BSSC and Michael Davis, a Baron employee who helped handle Claimants' account. See Statement of Claim. Claimants alleged that Bear caused them to suffer losses of not less than $900,000 during the period from the Fall of 1995 to the Summer of 1996. They alleged that Bear was liable to them under the following theories: control person liability, failure to register Baron as an `approved person' pursuant to NYSE requirements, violations of NYSE Rule 382, issuance of false and misleading confirmations and statements in violation of SEC Rule 10b-10 and NASD Rule 2230, breach of duty of fair dealing in violation of NASD Rule IM 2310-2(a)(1) and IM 2310-2(d), violations of credit requirements and Regulation T [12 C.F.R. § 220.8(d)], breach of contract, negligence, fraud, alter-ego liability for Baron's wrongful acts, aiding and abetting Baron's conversion and fraud, and refusal to honor transfer instructions. See id. ¶¶ 70-94. They sought compensatory damages, punitive damages of three times compensatory damages, and all costs of the proceeding. See id. ¶¶ 95-96. In its Answer, Bear asserted the following affirmative defenses: failure to state a claim, failure to investigate, notice of Baron's misconduct and ratification of that misconduct, loss causation on the part of Claimants, assumption of risk, waiver, and estoppel. See Amended Answer, Ex. D. to Schissel Dec., ¶¶ 66-80.
D. Arbitration Proceedings
Arbitration hearings took place in Boston on April 25, 26, 27, and 30 and May 1, 2001.[6]See Petition ¶ 9. On April 25, Claimants filed a Motion in Limine seeking to offer into evidence the OIPs relating to Bear and Harrington. See Award at 9. After considering the submissions and the oral arguments of the parties, the Panel granted Claimants' motion subject to various conditions. See Award at 10; see also infra Part I.E.2 (discussing conditions). On April 26, 2001, Bear made an oral motion to admit as evidence the "Wells Submission," a memorandum Bear had submitted in connection with the SEC's administrative proceedings relating to the Bear-Baron relationship. See Award at 10; Ex. R-27. After hearing oral argument, the Panel granted Bear's motion. See id. at 10-11. The Panel admitted the body of the Wells Submission and most of the exhibits to that document, but did not accept into evidence the attached trial testimony and deposition transcripts. See id. at 11.
The presentation of evidence concluded on May 1, 2001. See id. at 12. The parties declined the opportunity to present oral closing arguments and opted instead to file post-hearing briefs. See id.; see also Claimants' Post-Hearing Brief ("Pl. Post-Hear.Mem."), Ex. G to Schissel Dec.; Respondents' Post-Hearing Memorandum ("Def.Post-Hear.Mem."), Ex. H to Schissel Dec. Proceedings ended on June 12, 2001, upon the filing of the post-hearing briefs. See Award at 13.
E. The Arbitration Award
The Panel issued its Award on July 31, 2001. The Panel found Bear liable for aiding and abetting Baron's fraud and for breach of contract. See id. at 18, 23. Specifically, the Panel found that Bear aided and abetted Baron's fraud because it: (1) was "aware of Baron's fraud," (2) "assisted and helped conceal Baron's fraud" by engaging in activities "above and beyond *350 those involved in a normal back-office, clearing operation," and (3) "proximately caused the primary harm of Baron's fraudulent and unlawful conduct against customers such as Claimants." Id. at 22-24. Breach of contract liability was based on the Panel's finding that Bear had breached the duty of good faith and fair dealing created by the Customer Agreement between Claimants and Bear. See id. at 15-18. In particular, the Panel found that Bear breached this duty by: (1) failing to disclose Baron's commissions and markups on account statements generated by Bear, (2) failing to honor Claimants' requests to transfer their account, and (3) being "unresponsive" in its dealing with Claimants after Baron went out of business. See id.
The Panel awarded Claimants $600,000 in compensatory damages and $211,571.60 in prejudgment interest on those damages. See id. at 26, 28-31. It explained that, although Claimants had suffered $788,988 in damages, those damages would be reduced to $600,000 because Claimants had contributed to and compounded their own losses. See id. at 26. The Panel also awarded Claimants $1 million in punitive damages, $25,000 as a sanction for delay caused by Bear, and $75,000 in attorney's fees as a sanction against Bear for failure to cooperate with discovery. See id. at 29, 31. It also held that Bear should be responsible for two-thirds of the forum fees. See id. at 28. All of the compensatory award and all but $68,135.60 of the prejudgment interest was offset by the $743,436 that Claimants had already received from the restitution fund financed by Bear. See id. at 27-28.
II. LEGAL STANDARD
"Arbitration awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation." Willemijn Houdstermaatschappij, 103 F.3d at 12 (quotation marks omitted). The Federal Arbitration Act (the "FAA") lists specific instances where an award may be vacated. See 9 U.S.C. § 10(a). Of relevance to this action are the provisions permitting vacatur when "the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the . . . matter submitted was not made," or where the arbitrators were guilty of "misconduct in . . . refusing to hear evidence pertinent and material to the controversy."[7] 9 U.S.C. § 10(a). Where arbitrators are accused of exceeding their powers, a court must ask "whether the arbitrators had the power, based on the parties' submissions or the arbitration agreement, to reach a certain issue, not whether the arbitrators correctly decided that issue." DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 824 (2d Cir. 1997). Arbitrators' determinations regarding admission of evidence are not open to review "except where fundamental fairness is violated." Polin v. Kellwood Co., 103 F. Supp. 2d 238, 261 (S.D.N.Y.2000) (quoting Tempo Shain Corp. v. Bertek, 120 F.3d 16, 20 (2d Cir.1997)). Arbitrators are only required to hear proffered evidence that is "pertinent and material," and their determination of what is "pertinent and material" will only be deemed erroneous if it "deprives a party of a fundamentally fair arbitration process." Id. (quoting Bell *351 Aerospace Co. Div. of Textron, Inc. v. Local 516, Int'l Union, United Automobile, Aerospace and Agric. Implement Workers of Am., 500 F.2d 921, 923 (2d Cir.1974)).
The Second Circuit has also recognized that a court may vacate an arbitration award that was rendered in "manifest disregard of the law." Greenberg v. Bear, Stearns & Co., 220 F.3d 22, 28 (2d Cir. 2000); Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 202 (2d Cir.1998). However, "[r]eview for manifest error is `severely limited'." Greenberg, 220 F.3d at 28 (quoting DiRussa, 121 F.3d at 821). The Second Circuit has cautioned that "manifest disregard clearly means more than error or misunderstanding with respect to the law." Halligan, 148 F.3d at 202 (quotation marks omitted). Specifically, a court may not vacate an arbitration award unless it finds that: "(1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case." Greenberg, 220 F.3d at 28 (citing DiRussa, 121 F.3d at 821).
In very limited situations, a court may vacate an award because arbitrators have manifestly disregarded the evidence. See Halligan, 148 F.3d at 202 (vacating an award where arbitrators "manifestly disregarded the law or the evidence or both"); Beth Israel Med. Ctr. v. Local 814, No. 99 Civ. 9828, 2000 WL 1364367, at *6 (S.D.N.Y. Sept.20, 2000); Green v. Progressive Mgmt. Inc., No. 00 Civ. 2539, 2000 WL 1229755, at *2 (S.D.N.Y. Aug. 29, 2000) (noting that Halligan extends "manifest disregard" standard to review of the evidence); Daily News, L.P. v. Newspaper & Mail Deliverers' Union of New York and Vicinity, No. 99 Civ. 5165, 1999 WL 1095613, at *7 (S.D.N.Y. Dec.2, 1999) (same). "[J]udicial review of an arbitrator's factual determinations is quite limited." Beth Israel Med. Ctr., 2000 WL 1364367, at *6. A court may only vacate an arbitrator's award for manifest disregard of the evidence if "there is `strong evidence' contrary to the findings of the arbitrator and the arbitrator has not provided an explanation of his decision." Id. (citing Halligan, 148 F.3d at 204; Daily News, 1999 WL 1095613, at *7; Greenberg, 1999 WL 642859, at *1). A court may not review the weight the arbitration panel accorded conflicting evidence. Id. (citing Campbell v. Cantor Fitzgerald & Co., 21 F. Supp. 2d 341, 349 (S.D.N.Y.1998), aff'd, 205 F.3d 1321, 1999 WL 1424999 (2d Cir. 1999)); Sobol v. Kidder, Peabody & Co., Inc., 49 F. Supp. 2d 208, 216 (S.D.N.Y.1999) (citing Chisolm v. Kidder, Peabody, 966 F. Supp. 218, 229 (S.D.N.Y.1997), aff'd, No. 97-7828, 1998 WL 695041 (2d Cir.1998)). Nor may a court question the credibility findings of the arbitrator. See Beth Israel Med. Ctr., 2000 WL 1364367, at *6 (citing Campbell, 21 F.Supp.2d at 349); Greenberg, 1999 WL 642859, at *1 ("The Court will not second-guess the credibility findings of the arbitration panel.").
The party seeking vacatur of an arbitration award bears the burden of proving manifest disregard. See Greenberg, 220 F.3d at 28 (citing Willemijn Houdstermaatschappij, 103 F.3d at 12). But, even if that party proves that the arbitrators' decision is based on a manifest error of fact or law, a court must nevertheless confirm the award if grounds for the decision can be inferred from the facts of the case. See Willemijn Houdstermaatschappij, 103 F.3d at 13; Green, 2000 WL 1229755, at *2.
III. DISCUSSION
A. Aiding and Abetting Award
Bear claims that the Panel's finding of aiding and abetting fraud should be vacated because the Panel: (1) manifestly disregarded well-settled law regarding clearing *352 firm liability for acts of an introductory firm; (2) manifestly disregarded the evidence in finding the intent required to establish aiding and abetting fraud; (3) manifestly disregarded the burden of proof required for aiding and abetting fraud; and (4) failed to find proximate cause.
1. Manifest Disregard for the Law[8]
a. The Law on Clearing Firm Liability
Under New York law, the elements for a claim of aiding and abetting fraud are: (1) an existing fraud, (2) knowledge of the fraud, and (3) substantial assistance to advance the fraud's commission. See Cromer v. Berger, 137 F. Supp. 2d 452, 470 (S.D.N.Y.2001) (citing Wight v. Bankamerica Corp., 219 F.3d 79, 91 (2d Cir.2000)). Generally, "substantial assistance" exists where: (1) a defendant "affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables the fraud to proceed," and (2) "the actions of the aider/abettor proximately caused the harm on which the primary liability is predicated." Id. (citing Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 284 (2d Cir.1992); Nigerian Nat'l Petroleum Corp. v. Citibank, N.A., No. 98 Civ. 4960, 1999 WL 558141, at *8 (S.D.N.Y. July 30, 1999); Kolbeck v. LIT Am., Inc., 939 F. Supp. 240, 249 (S.D.N.Y.1996)). Where defendant does not owe a fiduciary duty directly to the plaintiffs, however, mere "inaction" by the defendant cannot constitute "actionable participation." Id. (citing Kolbeck, 939 F.Supp. at 247); see also Stander v. Fin. Clearing & Svcs., 730 F. Supp. 1282, 1287 (S.D.N.Y.1990). Indeed, "the `scienter' requirement scales upward," and plaintiffs have the additional burden of showing that the assistance rendered is "both substantial and knowing;" in other words, there must be "something close to an actual intent to aid in fraud" or "scienter of the `conscious intent' variety." Ross v. Bolton, 639 F. Supp. 323, 327 (S.D.N.Y.1986) aff'd, 904 F.2d 819 (2d Cir. 1990) (quoting Edwards & Hanly v. Wells Fargo Sec. Clearance Corp., 602 F.2d 478, 484 (2d Cir.1979) and IIT, an Int'l Inv. Trust v. Cornfeld, 619 F.2d 909, 925 (2d Cir.1980)).
It is well-settled that, when a clearing firm acts merely as a clearing agent, it owes no fiduciary duty to the customers of its introducing broker and cannot be held liable for the acts of an introducing firm. See Greenberg, 220 F.3d at 29; Carlson v. Bear, Stearns & Co., 906 F.2d 315, 318 (7th Cir.1990); Warren v. Tacher, 114 F. Supp. 2d 600, 603 (W.D.Ky.2000); Cromer, 137 F.Supp.2d at 470; Connolly v. Havens, 763 F. Supp. 6, 10 (S.D.N.Y.1991); Dillon v. Militano, 731 F. Supp. 634, 636 (S.D.N.Y.1990); Stander, 730 F.Supp. at 1286. As the Second Circuit clearly stated:
The simple providing of normal clearing services to a primary broker who is acting in violation of the law does not make out a case of aiding and abetting against the clearing broker.
Greenberg, 220 F.3d at 28 (quotation marks omitted). Moreover, courts have refused to hold clearing firms liable for the practices of introducing brokers even where the clearing firm continued to provided clearing services after it knew or should have known of the introducing broker's fraudulent scheme. See Ross, 639 *353 F.Supp. at 327 (dismissing claim against Bear for aiding and abetting the fraud of an introducing broker where "the complaint does not specify what assistance Bear Stearns rendered other than to continue to clear transactions when it `knew or should have known' that" the introductory firm was engaging in fraud); In re Blech Secs. Litig., 961 F. Supp. 569, 584 (S.D.N.Y.1997) ("Blech II") ("Even assuming Bear Stearns had knowledge of the [introductory firm's] scheme, primary liability [under Section 10(b)] cannot attach when the fraudulent conduct that is alleged is no more than the performance of routine clearing functions."); In re Blech Secs. Litig., 928 F. Supp. 1279, 1295-96 (S.D.N.Y.1996) ("Blech I"); Connolly, 763 F.Supp. at 10.
On the other hand, where a clearing firm moves beyond performing mere ministerial or routine clearing functions and becomes actively and directly involved in the introductory broker's actions, it may expose itself to liability with respect to the introductory broker's misdeeds. See Berwecky v. Bear Stearns & Co., 197 F.R.D. 65 (S.D.N.Y.2000) (finding plaintiffs' claim against Bear viable where complaint alleged that Bear "shed [its] role as a mere clearing broker for [Baron], and with actual knowledge, directly participated in the heretofore described scheme."); Koruga v. Fiserv Correspondent Servs., 183 F. Supp. 2d 1245, 1247 (D.Or.2001) (confirming arbitration award finding clearing firm and introductory broker jointly and severally liable for fraud where "panel made specific factual findings that [clearing firm] was directly involved in the challenged transaction and materially participated in the wrongdoing."); Blech II, 961 F.Supp. at 585 (finding complaint against clearing firm viable where plaintiffs alleged that Bear engaged in activities that did not "reflect ... the standard practice of [a] clearing broker."); Hirata v. J.B. Oxford & Co., 193 F.R.D. 589, 600 (S.D.Ind.2000) (denying clearing firm's motion to dismiss because facts might establish that clearing firm "materially aided" introductory broker's securities law violation); Margaret Hall Found., Inc. v. Atlantic Fin. Mgmt., Inc., 572 F. Supp. 1475, 1480-81 (D.Mass. 1983) (denying clearing firm's motion to dismiss 10b-5 claim where complaint alleged "a very close relationship" between clearing firm and introductory broker); Cannizzaro v. Bache, Halsey, Stuart, Shields, Inc., 81 F.R.D. 719, 721 (S.D.N.Y. 1979) (denying motion to dismiss aiding and abetting claim against clearing firm where facts might show that clearing firm performed more than mere mechanical functions for introductory broker); see also, Michael G. Shannon, "Clearing Firm LiabilityHas the Dam Really Cracked?," 1196 PLI/Corp. 677, 690-97 (Aug.2000); Gerald B. Kline & Raymond L. Moss, "Liability of Clearing Firms: Traditional and Developing Perspectives," at 144 ("[A] clearing broker may suffer liability exposure when it moves beyond performing its routine clearing functions or pressures the introducing broker to act wrongfully.").
b. The Panel Did Not Ignore the Law
As an initial matter, the Panel did not "ignore" the law on clearing firm liability. To the contrary, the Panel cited and discussed several cases denying clearing firm liability, explaining that Bear's involvement in Baron's affairs went "far beyond" the factual patterns in those cases. Award at 25. Thus, the case law denying clearing firm liability was distinguished, not ignored.
c. The Panel Did Not Refuse to Apply the Law
Bear argues that, although the Panel "paid lip service" to the law on clearing firm liability, it "did not honor" *354 these legal principles when it found that Bear's involvement in Baron's activities went beyond the ordinary clearing function. Def. Mem. at 31. Recent New York and Southern District decisions involving Bear's clearing operations are instructive in distinguishing between normal clearing operations, which do not expose a clearing firm to liability for its introducing broker's misconduct, and activity which is active and direct, for which liability may attach.
In Blech I, Judge Robert Sweet of this Court dismissed a claim of manipulation against Bear on the ground that Bear's activity as a clearing firm, standing alone, was not grounds for liability. See 928 F.Supp. at 1295. The next year, in Blech II, the court denied Bear's motion to dismiss the amended complaint, finding that the amendments alleged direct action by Bear Sterns that went beyond ordinary clearing functions. See 961 F.Supp. at 585. Among other things, the amended complaint alleged that:
Bear was motivated to artificially inflate the market prices for Blech Securities by its desire to decrease its own risk of loss and eliminate the debit balance outstanding at Bear;
Bear had "access to confidential, non-public information concerning Blech Co.'s financial condition, liquidity, and net capital position;"
Bear had the "power to extend or deny credit to Blech & Co. based upon the value of Blech Securities held as collateral," and "the power and control to determine whether or not to execute securities transactions on behalf of Blech & Co. and its clients;"
Bear demanded that Blech sell certain securities in order to reduce the debt owed to Bear and eliminate Bear's own exposure.
Id. at 577-78. Based on these allegations, Judge Sweet found that the alleged "pressure exerted by Bear Stearns on Blech to reduce Blech's debit balance, when combined with Bear Stearns' knowledge of Blech's sham trading and its clearing of such trades does not `reflect ... the standard practice of [a] clearing broker'." Id. at 585 (quoting Blech I, 928 F.Supp. at 1295) (ellipse and parenthesis in original).
In Cromer Finance, Judge Denise Cote of this Court held that plaintiff investors failed to state a claim for aiding and abetting fraud against Bear where Bear had acted as the clearing firm for an off-shore investment fund. See 137 F.Supp.2d at 471-72. The court held that plaintiffs' allegations that Bear "fail[ed] to enforce margin requirements, or continu[ed] to execute trades despite margin violations" or "execut[ed] trades in order to reduce `a loan of money under margin'" did not make out a claim of "substantial assistance".[9]Id. (citing Dillon, 731 F.Supp. at 637, 639; Stander, 730 F.Supp. at 1287 and quoting Ross, 639 F.Supp. at 327).
In Schwarz v. Bear, Stearns & Co., No. 603795/97, 1998 WL 672708 (Sup.Ct. N.Y.Co. Aug. 24, 1998), aff'd, 266 A.D.2d 133, 698 N.Y.S.2d 855 (1st Dep't 1999) (mem.), a case involving Bear's activities as clearing agent for Baron, the New York Supreme Court dismissed plaintiffs' complaint for failure to state a claim. In a summary paragraph, the Complaint alleged:
*355 A.R. Baron was able to engage in this massive fraud only because Bear, Stearns provided the firm with the necessary administrative, carrying and clearing functions to stay in business. Had Bear, Stearns refused, based on its knowledge of A.R. Baron's activities to provide its institutional support to A.R. Baron, that firm would have closed its doors on July 20, 1995 and its customers would not have been defrauded after that date.
Shannon, "Clearing Firm LiabilityHas the Dam Really Cracked?" at 698 (quoting Schwarz complaint). The Schwarz court held that plaintiffs' causes of action for negligence and negligent misrepresentation must fail because "[it] is undisputed that Bear Stearns was acting as Baron's clearing broker at the time plaintiff's alleged losses were sustained [and][i]t has been determined that `as a matter of law, a clearing broker owes no duty of disclosure to the clients of an introductory broker.'" Schwarz, 1998 WL 672708 at *2 (quoting Blech I, 928 F.Supp. at 1295-96); see also Schwarz, 698 N.Y.S.2d at 855 ("[D]efendants, as clearing brokers, had no duty to disclose to the introducing broker's clients, and thus the statutory cause of action, as well as the negligence claim, were properly dismissed.").
In Berwecky, which also involved allegations against Bear as clearing agent for Baron, Judge John Sprizzo of this Court sustained the complaint against Bear. See 197 F.R.D. at 68 (granting class certification); 10/20/98 Order of Judge Sprizzo, Ex. C. to Declaration of Jonathan Kord Lagemann, counsel for plaintiffs ("Lagemann Dec. No. 1") (denying Bear's motion to dismiss). In that case, plaintiff alleged that Bear "shed [its] role as a mere clearing broker for A.R. Baron, and with actual knowledge, directly participated in the heretofore described scheme." 197 F.R.D. at 67. Specifically, the complaint alleged that after Baron was sanctioned by the NASD, Bear "asserted control over Baron's trading operations" by: (1) "placing Bear, Stearns' employees at Baron's offices to observe Baron's trading activities," (2) "approving or declining to execute certain trades," (3) "imposing restrictions on Baron's inventory," and (4) "loaning funds to Baron." Id. The complaint further alleged that Bear took these actions "in order to keep A.R. Baron a viable concern while Bear, Stearns and Harrington continued to reap the large profits that they received from their activities with A.R. Baron." Id. In light of these allegations, Judge Sprizzo concluded that plaintiffs had a viable claim against Bear for knowing participation in Baron's fraudulent scheme. See id. at 68; 10/20/98 Order of Judge Sprizzo.
The most recent Southern District case involving Bear's role as clearing agent is Goldberger v. Bear Stearns & Co. Inc., No. 98 Civ. 8677, 2000 WL 1886605 (S.D.N.Y. Dec.28, 2000). In Goldberger, Judge John Martin of this Court granted Bear's motion to dismiss the complaint alleging that Bear knowingly participated in price manipulation by the introductory broker. Id. at *5. Distinguishing the case from Berwecky and Blech II, Judge Martin explained:
Here, there are no allegations that Bear Stearns instigated trading that it "knew or should have known would result in fraudulent trades that would artificially inflate the price" of the manipulated securities. Nor are there allegations that Bear Stearns "asserted control over [the Introducing Brokers'] trading operations by, inter alia, placing Bear, Stearns' employees at [their] offices to observe [their] trading activities, approving or declining to execute certain trades, imposing restrictions on [their] inventory, and loaning funds to [them]." ... the complaint does no more than allege that Bear Stearns performed the normal function of a clearing broker.
*356 Id. at *6 (quoting Blech II, 961 F.Supp. at 584-85; Berwecky, 197 F.R.D. at 67) (parentheses in original).
In the instant case, the Panel listed nine "key factual elements" that constituted Bear's "active participation, substantial assistance and aiding and abetting." Award at 24. It found that Bear:
(1) either understood or did not report commissions and markups to customers with the result that Baron was able to conceal its unlawful conduct, (2) processed trades and gave Regulation T extensions on trades which were unpaid by customers and which Bear knew or had reason to know were unauthorized, (3) made loans above and beyond normal clearing debt to help Baron meet net capital requirements, (4) continued clearing, rescinded clearing termination notices, and resumed clearing after Baron went off the box with knowledge of Baron's unlawful and fraudulent conduct, (5) intervened on behalf of Baron with NASD and assisted Baron in the NASD net capital acquisition and approval process, (6) monitored, supervised, and restricted trading by Baron, including requiring, restricting, and not processing certain trades, (7) became actively involved in Baron operations by placing Bear employees on Baron's premises, (8) was aware of, communicated with Baron about, and attempted to monitor customer complaints, and (9) collaborated closely with Baron regarding Baron's affairs.
Id. In addition, the Panel found that Bear, in order to protect against its credit risk, restricted certain trades which would have benefitted Baron's customers and, in some instances, required Baron to increase certain transactions to the detriment of its customers. See id. at 20-22. Based on these factual findings, the Panel concluded that Bear's involvement in Baron's affairs went "above and beyond those involved in a normal back-office, clearing operation." Award at 22; see also id. at 24 ("Bear's actions and involvement in Baron's affairs were not merely routine clearing functions ..."); id. ("Bear took numerous actions to involve itself in Baron's business and financial affairs and assist Baron ... these actions being far above and beyond those of a normal back-office, clearing operation.").
Bear argues that the activities listed by the Panel "simply describe the activities directly related to Bear Stearns' clearing role." Def. Mem. at 31. As Bear correctly points out, some of these "key factual elements" are clearing-related functions that are insufficient, on their own, to support a finding of `substantial assistance'. See id. at 22-24. Nevertheless, some of the activities identified by the Panel have been found to be beyond mere clearing functions by other courts. See Berwecky, 197 F.R.D. at 67 (complaint alleged that Bear placed employees at Baron's offices to observe Baron's trading activities, approved or declined to execute certain trades, imposed restrictions on Baron's inventory, and loaned funds to Baron); Blech II, 961 F.Supp. at 578 (complaint alleged that Bear required its introducing broker to take actions that reduced Bear's credit risk but were detrimental to customers); see also Goldberger, 2000 WL 1886605, at *3 (recognizing that activities described in Berwecky and Blech II are beyond normal clearing functions). Thus, the Panel did not refuse to apply the law when it found that Bear's activities, taken as a whole, exposed it to liability for aiding and abetting Baron's fraud. See Berwecky, 197 F.R.D. at 68; Blech II, 961 F.Supp. at 585.
2. Manifest Disregard of the Evidence
Bears also argues that the Panel's finding of fraudulent intentan essential *357 element of aiding and abetting fraudwas in manifest disregard of the evidence. It argues that the Panel's determination that Harrington and Bressman were "close personal friends" was "a fiction" created by the Panel and that, without this factual finding, the Panel could not have determined that Bear acted with the requisite fraudulent intent.[10] Def. Mem. at 16, 19-30 (quoting Award at 19). According to Bear, the Panel had to "manufactur[e]" this finding of fact because it knew that a mere finding that Bear was on notice of Baron's fraud or that Bear knowingly or recklessly disregarded several indicia of fraud was insufficient evidence of fraud. See Def. Mem. at 30.
Bear's argument does not justify vacatur because Bear has not proven that the Panel manifestly disregarded "strong evidence contrary" to the contested factual finding. Beth Israel Med. Ctr., 2000 WL 1364367, at *6 (quotation marks omitted). Neither Harrington nor Bressman testified at the hearing, so there is no direct evidence with regard to their personal relationship.[11] The only witness with knowledge of Harrington's relationship with Bressman was Murphy, who testified that "[t]hey seemed to have a good, you know, a good relationship on some level." 4/26 Tr. at 158. He also testified that Bressman had free access to Harrington's office other than through the front door so that Murphy "used to joke and wonder how he did it," and that Harrington allowed Bressman to taunt Murphy in Harrington's presence and to make remarks such as "it's funny to see Murphy frustrated or running around." Id. at 159.
With respect to Murphy's testimony, the Panel found that "Murphy knows much more than he was willing to say in his testimony," and explained that it "took that into consideration in making its findings and conclusions." Award at 23. To the extent that the Panel believed that Murphy was concealing his true knowledge of Harrington's relationship with Bressman, it was entitled to do so, and this Court has no authority to question the credibility findings of the arbitrators. See Beth Israel Med. Ctr., 2000 WL 1364367, at *6 (citing Campbell, 21 F.Supp.2d at 349). Because the Panel could have inferred from Murphy's testimony that Harrison and Barrington were close personal friends, and Bear has provided no evidence to the contrary, Bear has not met its burden of proving that the Panel manifestly disregarded the evidence.
Even absent this factual finding, the Panel could have inferred fraudulent intent. Fraudulent intent may be inferred from facts showing either (1) circumstances indicative of conscious misbehavior, or (2) a motive for participating in a fraudulent scheme and an opportunity to do so. See Primavera, 130 F.Supp.2d at 507; Blech II, 961 F.Supp. at 582-83. Here, the Panel found evidence to support both of these tests.
First, the Panel found that Bear had actual knowledge of Baron's fraud. See *358 Award at 24 ("[Bear was] aware of Baron's risky circumstances and fraud.") ("[Bear had] knowledge of Baron's unlawful and fraudulent conduct."). Second, the Panel found that, even if Harrington and Bressman had not been close personal friends, Bear had both the motive and the opportunity to engage in Baron's fraud. One factor motivating Bear was the simple desire to continue to collect clearing fees and other income it received from Baron as part of the Clearing Agreement. See Award at 19. As Bear properly notes, the mere desire "to prolong the benefits" of an ordinary clearing relationship is not enough to support the scienter element of an aiding and abetting claim. Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1130 (2d Cir.1994); see also Def. Mem. at 30 (citing In re Solucorp Indus. Secs., Ltd. Litig., No. 98 Civ. 3248, 2000 WL 1708186, at *5 (S.D.N.Y. Nov.15, 2000)). But the Panel also found that Bear was motivated by its desire to recover from Baron's on "loans above and beyond the normal clearing debt"loans the Panel described as "extraordinary". Id. at 21-22. Where a defendant's "economic motives were extraordinary," a court may infer fraudulent intent. ABF Capital Mgmt. v. Askin Capital Mgmt., 957 F. Supp. 1308, 1331 (S.D.N.Y.1997).
Finally, several of the Panel's finding of fact show that Bear had the opportunity to participate in Baron's fraud. Not only did Bear clear Baron's fraudulent transactions, but it also intervened with the NASD on Baron's behalf, helped to conceal Baron's fraud from its customers, exercised control over Baron's trading practices, placed Bear employees on Baron's premises, and extended "loans above and beyond normal clearing debt" to Baron. Award 20-22, 24-25. Accordingly, Harrington and Bressman's "close personal friend[ship]" was not essential to the Panel's finding of fraudulent intent.
3. Manifest Disregard for the Burden of Proof
Bear argues that the Panel manifestly disregarded the burden of proof, which requires a claim for aiding and abetting fraud be proven by "clear and convincing evidence." Def. Mem. at 30-31 (quoting Primavera, 130 F.Supp.2d at 488). As an initial matter, Bear has misrepresented the standard of proof used by the Panel. See id. at 30. Bear states that the Panel based its conclusion on a "preponderance of the evidence" standard, but the Award actually uses the term "significant preponderance of the evidence." Award at 23 (emphasis added). While the standard actually employed by the Panel was still not technically correct, this is a question of semantics. The facts the Panel found to constitute a "significant preponderance of the evidence" could also have been described as "clear and convincing evidence." Thus, the Panel's alleged legal error is not a valid ground for vacating the award. See Willemijn Houdstermaatschappij, 103 F.3d at 13 (arbitration award will not be vacated where, despite error of law, conclusion is supported by the facts); Green, 2000 WL 1229755, at *2 (same).
4. Failure to Find Proximate Cause
Bear also argues that the Award should be vacated because the Panel did not find that Bear was the "proximate cause" of Claimants' injuries. See Def. Mem. at 25. First, Bear suggests that the Panel ignored the law when it "clearly stated that it was basing the Award on its view that Bear Stearns was the `but for' cause of Claimants' losses." Id. at 35 (citing Award at 22). However, Bear again has misrepresented the Panel's conclusions. The words "but for" do not appear on the page of the Award cited by Bear and the Panel explicitly found that Bear's actions "proximately caused the primary harm of Baron's fraudulent and unlawful *359 conduct against customers such as Claimants" and that "[t]he harm was a direct and foreseeable result of Bear's conduct." Award at 24 (emphasis added). Clearly, the Panel did not "ignore" the proximate cause requirement.
Second, Bear claims that the nine "key elements" of aiding and abetting fraud do not establish "proximate cause." See Def. Mem. at 35. I disagree. Proximate cause exists where defendant's actions were "a substantial factor in the sequence of responsible causation," and plaintiff's injury was "reasonably foreseeable or anticipated as a natural consequence." First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 769 (2d Cir. 1994). Claimants' injury must either have been "the natural and probable consequence of the fraud" or an injury that Bear "ought reasonably to have foreseen as a probable consequence of the fraud;" Bear need not have foreseen or intended the damages suffered by Claimants. The City of New York v. Coastal Oil of New York, No. 96 Civ. 8667, 1999 WL 493355, at *12 (S.D.N.Y. July 12, 1999) (citing Citibank, N.A. v. K-H Corp., 968 F.2d 1489, 1496 (2d Cir.1992); Cumberland Oil Corp. v. Thropp, 791 F.2d 1037, 1044 (2d Cir. 1986); Nat'l Commercial Bank v. Morgan Stanley Asset Mgmt. Inc., No. 94 Civ. 3167, 1997 WL 634292, at *7 (S.D.N.Y. Oct.15, 1997)). Here, the Panel found that, after Bear became aware of Baron's fraud, it not only continued to clear for Baron, but also engaged in activities beyond its normal clearing function. See Award at 22. These actions "either (1) protected Bear at the expense or to the detriment of Baron and Bear customers or (2) assisted Baron to stay in business and engage in unlawful, criminal, and fraudulent activity resulting in the losses and damages suffered by Claimants and numerous other Baron and Bear customers." Id. at 23. Based on these facts, the Panel could reasonably have concluded that Bear "ought reasonably to have foreseen" that Claimants' injury would be "a probable consequence" of its actions. The City of New York, 1999 WL 493355, at *12. Accordingly, Bear has not shown that the Panel refused to apply the law of proximate cause.
B. Breach of Contract Award
Bear argues that the breach of contract award should be vacated because the Panel: (1) exceeded its authority by manifestly disregarding the terms of the contract upon which Claimants' breach claim is based; (2) manifestly disregarded the law regarding a clearing firm's `duty to disclose'; (3) manifestly disregarded evidence relating to Bear's alleged failure to honor Claimants' transfer requests; and (4) manifestly disregarded the law and the evidence in imposing liability on Bear based on its failure to respond to Claimants' inquiries.
1. Manifest Disregard of the Contract Between Bear and Claimants
Bear claims that the Panel exceeded its authority when it "manifestly disregarded the Customer Agreement and the Rule 382 Letter" and "simply imposed its own notions of justice throughout the award." Def. Mem. at 24. Bear recognizes that "all contracts contain a covenant of good faith and fair dealing," but insists that the Panel improperly used this duty to create obligations that detracted from or altered the terms of the Agreement itself. Id. at 23 (citing Primavera, 130 F.Supp.2d at 531; Granite Partners, L.P. v. Bear, Stearns & Co., 17 F. Supp. 2d 275, 306 (S.D.N.Y.1998)).
Contrary to Bear's assertion, the Panel did not "disregard" the Customer Agreement. Rather, it thoroughly examined the language and the contours of that Agreement and concluded that the Agreement did not exempt Bear from all responsibility to Baron's customers. See Award at *360 15-16. The Panel recognized that the Customer Agreement placed certain limits on Bear's responsibility to Claimants. It noted that the Agreement "provided that Bear carried the accounts as Clearing agent for [Baron]," and that "Bear may accept from the broker without any inquiry or investigation orders for the purchase or sale of securities and any other instructions concerning the accounts or the property of Claimants." Id. It also noted that, under the Agreement, "Bear shall have no responsibility or liability to Claimants for any acts or omissions of [Baron], its officers, employees, or agents." Id. Finally, the Panel noted that Claimants received from Bear a letter explaining, in accordance with Rule 382, the allocation of responsibilities between Bear and Baron with respect to Claimants' accounts. See id. Based on these facts, the Panel recognized that Bear was "entitled to reasonable protection" from "liability for unlawful transactions initiated by broker-dealers." Id. at 18.
Nevertheless, the Panel explained, "[t]he Customer Agreements did not say that Bear disclaimed responsibility for its own actions in regard to Claimants' accounts or Baron." Id. It further explained that, although Rule 382 permits an allocation of responsibility for various functions between an introductory broker and a clearing firm, the SEC has emphasized that:
contractual arrangements for the allocation of functions between an introductory firm, such as Baron, and clearing firm, such as BSSC, and recognized by Rule 382 cannot operate to relieve either organization from their respective responsibilities under the securities laws and applicable rules of self-regulatory organizations, such as NASD.[12]
Id. (citing Exchange Act Release No. 18497 (Feb. 19, 1982)). Included among the applicable rules of self-regulatory organizations are two rules cited by the Panel NYSE Rule 401 and NASD IM-2310-2(a)(1) and (d). See id. at 16. These rules require all members to "adhere to the principles of good business practice in the conduct of [their] business affair[s]," impose upon members a "fundamental responsibility for fair dealing" with customers and others, require members to "deal fairly with the public," and recognize that "brokers and dealers have an obligation of fair dealing in actions under the general anti-fraud provisions of the federal securities laws." See NYSE Rule 401; NASD IM-2310-2(a)(1); NASD IM-2310-2(d). Citing these rules, the Panel concluded: "The Customer Agreements between Bear and Claimants created duties of fair dealing and good faith between the contracting parties ...." Award at 15-16. Thus, far from "creating" or "manufactur[ing]" obligations that contradict the Agreement, Def. Mem. at 23, the Panel relied on an SEC Release as well as NASD and NYSE rules that were implicitly incorporated in the Agreement.[13]
Nor did the Panel manifestly disregard the law regarding the extent of a clearing *361 firm's duty to the customers of its introductory broker. The Panel explicitly recognized that "Bear owed no fiduciary duty to Claimants ... as to the basic clearing relationship between Bear and Baron." Award at 26. That said, it concluded that the Customer Agreement created a "duty of good faith and fair dealing." This determination was not contrary to well-established law.
In RPR Clearing v. Glass, No. 97 Civ. 0017, 1997 WL 460717, at *2 (S.D.N.Y. July 28, 1997), defendant clearing firm moved to vacate an arbitration award holding it jointly and severally liable with the introductory broker for fraud committed against investors. See id. at *2. As in this case, the investors had entered into a customer agreement with the clearing firm that "allocated various responsibilities" between the clearing firm and the introductory firm. Id. at *1. While the court recognized that clearing firms owe no fiduciary duty to customers of an introductory firm, it nevertheless confirmed the arbitration award based on the theory that the clearing agreement imposed a duty of "ordinary care."[14]Id. at *2. The court explained that merely because "there is no case directly on point holding a clearing broker liable for a breach of ordinary care, [] does not demonstrate a manifest disregard of the law." Id. Furthermore, the court noted that in Stander Judge Louis Stanton of this Court suggested that a clearing broker may owe some sort of duty to an investor, if not a fiduciary duty.[15]RPR Clearing, 1997 WL 460717, at *2 (citing Stander, 730 F.Supp. at 1287). Similarly, in In re Lloyd Sec., Inc., No. 90-0985S, 1992 WL 318588, 1992 Bankr.Lexis 1796 (E.D.Pa. Oct. 29, 1992), the court found that the clearing firm's customer agreements and pertinent NYSE and NASD business conduct standards imposed upon the clearing firm a duty to follow "a standard of care consistent with sound business practices." Id. at *10 (holding that clearing firm was duty bound to safeguard customer funds). Given the existence of "case law that suggests the possibility of a duty [to customers of an introductory firm], [Bear] has failed to demonstrate the Panel's manifest disregard of the law." RPR Clearing, 1997 WL 460717, at *2.
2. Manifest Disregard of the Law Regarding `Duty to Disclose'
The Panel found that the monthly account statement furnished by Bear to *362 Claimants with respect to transactions in their accounts "were incomplete and materially misleading, in that they omitted or understated and did not fully disclose" the "unlawful, excessive and unauthorized" commissions and markups that Baron was charging to Claimants. Award at 17. According to Bear, this determination imposed upon Bear a "duty of disclosure" that is contrary to well-settled law. Def. Repl. at 9.
First, Bear claims that the law is well-settled that "clearing firms have no duty of disclosure to customers of introductory firms." Id. (citing e.g., Blech I, 928 F.Supp. at 1295-96; Connolly, 763 F.Supp. at 10). However, as the Panel stated, "the cases cited by Bear are distinguishable." Award at 18. The Panel explained that, unlike the cases Bear cited, Bear did not simply perform "back office work on behalf of Baron and Claimants, for the accounts of Claimants, with whom Bear had little or no contact." Id. Rather, "Claimants were actual customers of Bear, acknowledged by the Customer Agreements which created a direct contractual relationship between Bear and Claimants." Id. Moreover, "Bear had extensive contact from and dealings directly with McDaniel." Id. Given these findings, it cannot be said that the Panel manifestly disregarded the above cited case law.[16]
Second, Bear argues that the district court in Greenberg rejected a "nearly identical" attempt to impose a duty of disclosure on Bear in its capacity as a clearing firm. Def. Mem. at 25 (citing Greenberg, 1999 WL 642859, at *1). In Greenberg, as in this case, claimant argued that Bear owed him a duty to disclose on confirmation statements allegedly enormous profits the introductory broker was making on trades. See Greenberg, 1999 WL 642859, at *3. Rejecting this argument, the court stated: "The legal duty of a broker-dealer to notify purchasers of its own self dealing cannot be imposed upon Bear Stearns, a clearing broker that the panel found was unaware of [the introductory broker's] fraud." Id. (emphasis added). In contrast, the Panel in this case specifically found that Bear "had knowledge of the fraud" committed upon Claimants by Baron. Award at 23.
Third, Bear claims that the Panel improperly relied on SEC Rule 10b-10 and NASD Rule 2230 to impose upon Bear "a duty to send Claimants monthly account statements which accurately listed the amounts of commissions and rebates being received or charged by Baron." See Def. Mem. at 25 (quoting Award at 17). According to Bear, these rules are inapplicable because they only relate to the brokerdealer who transacts business directly with the customer and they only apply to disclosures on trade confirmation slips, not account statements. See id. at 25 & n. 19; Def. Rep. at 9. However, even if the Panel erroneously cited these rules as support for its determination that Bear had a duty to disclose, there is case law in this District supporting the Panel's conclusion. In RPR Clearing, the court found that a clearing firm breached its "duty of ordinary care" by not sending a confirmation of a forged form to customers who could have detected the introductory broker's fraud. See 1997 WL 460717, at *2. Moreover, in Stander, the court noted that the agreement between a clearing firm and a *363 customer imposes reporting duties on the clearing firm. See 730 F.Supp. at 1287 & n. 4. Thus, any possible legal error by the Panel cannot be the basis for vacating the Award.[17]See Willemijn Houdstermaatschappij, 103 F.3d at 13 (holding that court must confirm award if there are alternative legal grounds to support the award); Green, 2000 WL 1229755, at *2 (same).
The Panel's conclusion that Bear made material and misleading omissions or understatements in violation of its duty of good faith and fair dealing is, by itself, a sufficient basis for holding Bear liable for breach of contract. See Ainger v. Michigan Gen'l Corp., 632 F.2d 1025, 1026 (2d Cir.1980) (omissions or misstatements made in violation of a contractual duty to disclose, with reliance on those statements or omissions, constitutes breach of contract)[18]; Polycast Tech., Corp. v. Uniroyal Inc., 728 F. Supp. 926, 951 (S.D.N.Y.1989) (failure to disclose material fact in violation of implied duty of good faith constitutes breach of contract). Accordingly, it is not necessary for the Court to address Bear's other arguments regarding breach of contract.
C. Punitive Damages
1. Fraudulent or Evil Motive
Bear argues that the Panel exceeded its powers in awarding punitive damages because there was no evidence of "fraudulent or evil motive" on the part of Bear, as required under New York law. Def. Mem. at 35 (quoting Prozeralik v. Capital Cities Comm., Inc., 82 N.Y.2d 466, 605 N.Y.S.2d 218, 226, 626 N.E.2d 34 (1993)). Because I have determined that there was sufficient evidence to infer fraudulent intent, Bear's argument is not unavailing.
2. Disregard of Penalty Imposed by SEC
Bear also argues that the punitive damages award should be vacated because the Panel manifestly disregarded much of the penalty imposed on Bear by the SEC which, according to Bear, would sufficiently deter future fraudulent conduct. See Def. Mem. at 36-37. In arriving at the $1 million figure, the Panel specifically took into account the $30 million restitution fund Bear was required to provide for compensatory damages to Baron's customers. See id. (citing Award at 31). According to Bear, the Panel should also have taken into consideration the $5 million civil penalty as well as the requirement that Bear hire and adopt the findings of an independent consultant. See id. at 36-37 (citing Ex. C-7 at 18-19). The Panel was clearly aware of these additional penalties because it had the OIPs imposing those penalties. This Court has no authority to review the weight the arbitrators accorded to those penalties. See Beth Israel Med. Ctr., 2000 WL 1364367, at *6; Sobol, 49 F.Supp.2d at 216. Because Bear has offered no legal authority requiring the Panel to reduce the punitive damage award any further than it did, the punitive damages award cannot be vacated on these grounds.
*364 3. Public Policy
Bear also argues that the Panel's award of punitive damages is contrary to public policy because it affords a windfall to Claimants who were at least partially responsible for their own losses. A district court can only vacate an arbitration award on the basis of public policy if there is (1) "a violation of `some explicit public policy'," and (2) "the award explicitly conflicts with `law and legal precedents', as opposed to `general considerations of supposed public interests'." Alberti v. Morgan Stanley Dean Witter Reynolds, Inc., No. 97 Civ. 9385, 1998 WL 438667, at *6 (S.D.N.Y. July 31, 1998), aff'd, 205 F.3d 1321, 2000 WL 19090 (2d Cir.2000) (quoting United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 43, 108 S. Ct. 364, 98 L. Ed. 2d 286 (1987)). Bear correctly identifies an "explicit public policy" against awarding windfalls to persons who were themselves engaged in wrongful conduct. See Def. Mem. at 37 (citing Barker v. Kallash, 91 A.D.2d 372, 459 N.Y.S.2d 296, 298-99 (2d Dep't 1983)). However, it has failed to show that the $1 million punitive damages award "explicitly conflicts" with this public policy. The Award states that, in arriving at the $1 million figure, "[t]he panel took into account that Claimants' actions and inactions contributed to their losses." Award at 31. Thus, the punitive damages award reflected the very public policy considerations Bear claims were ignored.
D. Attorneys' Fees
The Panel awarded Claimants $75,000 in attorneys' fees (out of the $248,443 requested) as a sanction for Bear's discovery violations. See Award at 7-8, 29. Bear seeks to vacate this award because, under New York law, arbitrators are precluded from awarding attorney's fees. See Def. Mem. at 38 (citing N.Y. C.P.L.R. § 7513). Bear acknowledges that NASD arbitrators may award "costs" under certain circumstances, see Def. Mem. at 38 (citing NASD Rule 10332(c)), but notes that "New York courts have held that the word `costs does not include attorneys' fees," id. (quoting Libra Bank Ltd. v. Banco Nacional de Costa Rica, S.A., 570 F. Supp. 870, 892 (S.D.N.Y.1983)).
Bear's argument fails for two reasons. First, Bear has not shown that the Panel was aware of this legal principle. The Award does not mention the rule against arbitrators awarding legal fees and Bear did not make this rule known to the Panel at the hearings or in its post-hearing brief. The only rule cited by the Panel is Section VIII of the NASD Notice to Members 99-90 which explicitly authorizes arbitrators to award attorneys' fees as a sanction for failure of a party to properly make discovery unless they find that there is substantial justification for the failure. See Award at 9, 29; see also NASD Notice to Members 99-90, Ex. E to Lagemann Dec. No. 1, at 691. The Panel specifically found that Bear made "no showing of substantial justification" that would spare it from sanctions. Award at 9.
Second, Bear has misstated New York law. Courts have held that, consistent with section 7513, arbitrators may award attorneys' fees if either (1) the parties' agreement to arbitrate so provides, see Spector v. Torenberg, 852 F. Supp. 201, 210 (S.D.N.Y.1994) (citing N.Y. C.P.L.R. § 7513), or (2) the parties acquiesce to the payment of attorneys' fees, see id.; GPR, Inc. v. Phoenix Petroleum Co., No. 95 Civ. 0395, 1995 WL 314709, at *1 (S.D.N.Y. May 24, 1995).[19] A party can acquiesce to *365 the award of attorneys' fees by either making its own demand for attorneys' fees or by failing to object to the other party's demand for such fees. See Spector, 852 F.Supp. at 210. Here, Claimants' post-hearing brief specifically requested legal fees as a discovery sanction against Bear. See Pl. Post-Hear. Mem. at 13-14. Although Bear argued that its actions did not warrant a sanction, it never raised a legal objection to the award of attorneys' fees. See Def. Post-Hear. Mem. at 16-18. Because Bear never maintained, as it does here, that attorneys' fees are unlawful, it implicitly conceded that it was within the Panel's authority to award such fees.
E. Evidentiary Rulings
Bear contests three of the Panel's evidentiary rulings: (1) the exclusion of excerpts from the SEC's deposition of John LaFond, one of the NASD regulators responsible for Baron, which was an exhibit to the Wells Submission, see Def. Mem. at 17 & n. 15, 34 n. 25; (2) the exclusion of Okin's testimony in McAndris' criminal trial, which was also an exhibit to the Wells Submission, see id. at 18; and (3) the acceptance of the OIP related to BSSC into evidence, id. Def. Repl. at 6-7.
1. LaFond's and Okin's Testimony
Bear contends that it was "substantially prejudiced" by the exclusion of LaFond's deposition testimony because that testimony would have established that "there is nothing extraordinary about a clearing firm having contact with the NASD concerning the net capital of one of its introductory firms." Def. Mem. at 34 n. 25. Bear claims that Okin's testimony was improperly excluded because that testimony would have helped to explain how Baron tried to hide its conduct from Bear. See id. at 18-20.
The Panel provided a number of explanations for its decision to exclude the testimony attached to the Wells Submission. First, the Panel explained that much of the testimony was hearsay. See 4/26/01 Tr. at 51. Second, the Panel explained that "depositions aren't favored in arbitration," particularly where those depositions were not "taken in anticipation of this proceeding." Id. Third, the Panel noted that, if Bear needed to address some of the issues in the excluded exhibits, it could call witnesses to testify about those issues. Id. ("[I]f there are witnesses that have to be produced, in order to deal with some of these issues [in the excluded depositions and trial testimony], so be it."). In addition, much of the purportedly excluded testimony was actually received into evidence because it was summarized and referenced in the body of the Wells Submission.[20]See RX-27, at 30 (referring to LaFond Deposition); id. at 23, 31-32, 40 (referring to Okin testimony). Given the Panel's reasoned explanation for excluding LaFond's and Okin's testimony and its acceptance of Bear's summary of the relevant portions of that testimony, Bear has not shown that the Panel violated "fundamental fairness." Polin, 103 F.Supp.2d at 261.
*366 2. The OIP Related to BSSC
Bear argues that the Panel erroneously received into evidence the OIP related to BSSC because it was a settlement agreement with the SEC. See Def. Repl. at 6 (citing Ex. C-7 at 1 n. 1). According to Bear, settlement agreements between private companies and federal agencies cannot be used in subsequent litigation. See id. (citing e.g., Lipsky v. Commonwealth United Corp., 551 F.2d 887, 893 (2d Cir.1976); In re Alder, Coleman Clearing Corp., No. 95-08203, 97/8423A, 1998 WL 160036, at *8 (Bankr.S.D.N.Y. Apr.3, 1998)).
Although not bound by the Federal Rules of Evidence, the Panel explicitly recognized the rules precluding the use of settlement agreements as admissions or evidence of guilt. The Panel stated that it would not consider the OIPs "binding on the panel or preclusive in any way, that the findings would not be regarded as res judicata or collateral estoppel, they would [not] be considered as an admission of facts or liability by Bear or shift the burden of proof from Claimants to Bear." Award at 10. It also stated that "it would not consider and would disregard the `settlement' provisions in the SEC Consent Orders ... and [would] consider only the factual findings and evidentiary materials set forth in the SEC Consent Orders." Id.
Instead, the Panel admitted the OIPs pursuant to Rule 803(8)(c) of the Federal Rules of Evidence, which excepts from the hearsay rule statements setting forth, in civil actions and proceedings, factual findings resulting from an investigation made pursuant to authority granted by law. See id.; Plaintiffs' Motion in Limine 2-4, Ex. A to 10/22/01 Declaration of Jonathan Kord Lagemann ("Lagemann Dec. No. 2"). As the Panel explained, it considered the SEC findings of fact as simply one type of evidence offered for its consideration. The Panel stated that it "would consider the weight, relevance and materiality of the findings as well as the parties' arguments in that regard, any other evidence relevant to the issues set forth in the SEC findings and would not necessarily conclude that the SEC findings establish a prima facie case for Claimants." Award at 10. It also stated that it would not "defer to the findings of the SEC contrary to the duty of the panel to find the facts in this arbitration." Id.
Finally, the Panel made a conscious effort to ensure that Bear had an opportunity to rebut the SEC's findings. When admitting the Wells Submission, the Panel explained that it sought to give Bear a type of "rebuttal" against the OIPs in order to ensure "an element of fairness." 4/26/01 Tr. at 51. Thus, the Panel did not manifestly disregard the law, exceed its authority, or violate "fundamental fairness" when it admitted the OIP related to BSSC into evidence.
IV. CONCLUSION
For the foregoing reasons, Bear's motion to vacate the Award is denied and Claimants' motion to confirm the Award is granted. Consistent with the Award, the following judgment is hereby entered against Bear:
1. Compensatory damages in the amount of $600,000.00, which is completely offset by SIPC payments to Claimants;
2. Prejudgment interest equal to $211,571.60, which is offset by SIPC payments to Claimants in the amount of $143,436.00, resulting in a balance of $68,135.60 which remains due to Claimants;
3. Punitive damages in the amount of $1,000,000.00;
4. A sanction for delay in the amount of $25,000.00 (and it shall pay two thirds of the forum fees);
*367 5. Legal fees in the amount of $75,000.00;
6. Interest at the rate of 9% per annum simple interest on the remaining amount due ($1,168,135.60) if that amount was not paid within thirty (30) days of the Award, which interest shall commence thirty (30) days from the date of the Award on any amount remaining due.
SO ORDERED.
NOTES
[1] For cases dismissing claims against a clearing firm for aiding and abetting an introducing broker's fraud, see infra Part II.A.1.a & c. For cases dismissing claims against a clearing firm for failing to disclose certain information to the introductory firm's customers, see infra Part II.B.2.
[2] Bear had previously cleared for Baron between 1992 and 1993. See Award at 16.
[3] Respondents' exhibits from the arbitration hearing are designated with the prefix "R" and Claimants' exhibits from the arbitration hearing are designated with the prefix "C". These exhibits are attachments to the transcript compiled by Bear from audio tapes of the arbitration hearing.
[4] Although Claimants insisted that they were unaware that Bear cleared for Baron and disclaimed recollection of receiving a Customer Agreement or Rule 382 Letter, see 4/24 Transcript ("Tr.") at 197-99, the Panel found that they did in fact execute the Agreement, see Award at 15. Claimants are not contesting this factual finding.
[5] The SEC found that Bear: (1) caused violations of the antifraud provisions of the federal securities laws in connection with its clearing relationship with Baron, (2) aided and abetted and caused Baron's violations of the SEC's net capital and contingency offering rules, and (3) violated the SEC's credit-extension and record keeping rules. See Bear's OIP.
[6] As members of the NASD, Bear Stearns and BSSC were required to arbitrate Claimants' claims pursuant to Article VIII § 1(a)(4) of the By-Laws of the NASD and NASD Rule 10301(a) as well as a written agreement between the parties. See Petition ¶ 4.
[7] The other grounds for vacatur listed in the FAA are (1) the award was procured by corruption, fraud or undue means, (2) the arbitrators exhibited "evident partiality" or "corruption," or (3) the arbitrators were guilty of "misconduct in refusing to postpone the hearing, upon sufficient cause shown," or guilty of "any other misbehavior" that prejudiced the rights of any party. 9 U.S.C. § 10(a). Bear does not argue that any of these provisions apply.
[8] Claimants argue that Bear may not claim "manifest disregard" because it has not provided the Court with the full arbitration record. See Petitioners' Memorandum of Law in Support of Motion to Confirm and in Opposition to the Motion to Vacate the Arbitration Award ("Pl.Opp.") at 6-7. Because Bear filed a copy of the official record, in the form of audio tapes of the arbitration hearing, this argument has no merit.
[9] Plaintiffs attempted to allege "substantial assistance" by alleging that Bear: (1) over-extended margin credit to the fund in violation of the margin regulations of the FED and the NYSE, as well as Bear's own institutional rules, (2) permitted the fund to violate the concentration limitations ordinarily applied by Bear, and (3) allowed the fund to continue trading instead of freezing the fund's account when it was required by regulations to do so. See Cromer Finance, 137 F.Supp.2d at 471.
[10] Claimants argue that Bear's position is not logically sound because Bear provided no evidence that the Panel knew that it had to find fraudulent intent. See Pl. Opp. at 33-34. Although fraudulent intent is not mentioned anywhere in the Award and Bear did not specifically inform the arbitrators of any fraudulent intent requirement in its post-hearing briefs, I will assume that the Panel knew that Claimants had to prove fraudulent intent based on the cases cited in the Award. See Award at 24 (citing Primavera Familienstifung v. Askin, 130 F. Supp. 2d 450, 507 (S.D.N.Y. 2001); Nigerian Nat'l Petroleum, 1999 WL 558141, at *7).
[11] Prior to the hearing, the Panel granted Bear's request for a subpoena duces tecum to Harrington, but Bear never availed itself of the opportunity to take his deposition. See Award at 6.
[12] As the Panel was surely aware, the Customer Agreement explicitly acknowledges the SEC's position when it states: "All transactions shall be subject to all applicable law and the rules and regulations of all federal, state and self-regulatory agencies ...." Ex. R-5.
[13] Bear relies on Schwarz to argue that the Customer Agreement and the Rule 382 Letter create a more limited relationship between Bear and Claimants than the Panel found. See Def. Mem. at 8-9. It notes that, in dismissing the complaint in Schwarz, the court pointed to the Customer Agreement and Rule 382 Letter to show how plaintiff had "expressly acknowledged his relationship, or lack thereof, with Bear Stearns." 1998 WL 672708, at *1. However, Schwarz is distinguishable. Whereas plaintiff in Schwarz only alleged that Bear cleared Baron's fraudulent transactions, here the Panel found that Bear's involvement in Baron's fraud went far beyond its performance of normal clearing functions.
[14] In RPR Clearing, the introductory broker gave the clearing firm forged change of address forms for plaintiffs' accounts, the clearing firm sent all statements to this false address, and the introductory broker was therefore able to loot plaintiffs' accounts without their knowledge. 1997 WL 460717, at *1. The arbitrators did not provide any rationale for their conclusion, but plaintiff argued that the clearing firm breached its duty of "ordinary care" by (1) not checking the signatures on the change of address forms against plaintiffs' authentic signatures, which the clearing firm possessed, and (2) not sending a copy of the change of address form to the investors' original address. Id. at *2.
[15] In Stander, plaintiff claimed that the clearing broker had a duty to inquire into the introductory firms' activities. See 730 F.Supp. at 1287. Although the court rejected plaintiff's argument under the particular circumstances of the case, it noted that the customer agreements between the clearing firm and the customer imposed reporting duties on the clearing firm. See id. at 1287 & n. 4. Moreover, the court suggested that the clearing firm may have had a duty to examine the introductory firm's activities if it had known or should have known that the authorizations giving the introductory firm power over trading in the customer's account were improper. See id. at 1287.
[16] Though not cited by Bear, Schwarz also suggests that a clearing firm has no duty of disclosure. Schwarz, 1998 WL 672708 at *2 ("a clearing broker owes no duty of disclosure to the clients of an introductory broker"); Schwarz, 698 N.Y.S.2d at 855 ("[D]efendants, as clearing brokers, had no duty to disclose to the introducing broker's clients ..."). However, as noted earlier, Schwarz is distinguishable because plaintiffs only alleged that Bear engaged in ordinary clearing functions.
[17] Assuming, arguendo, that Bear was under no duty to disclose Baron's commissions, this fact alone might not justify vacating the award. The fact of the matter is that Bear did disclose Baron's commissions. See C-1. Having made those disclosures, it was under a "duty of good faith and fair dealing" to do so honestly. As the Panel specifically found, the disclosures that Bear did make were "materially misleading," and "materially inaccurate." Award at 17-18.
[18] Bear does not contend that Claimants did not rely on Bear's misstatements or omissions.
[19] N.Y. C.P.L.R. § 7513 states: "Unless otherwise provided in the agreement to arbitrate, the arbitrators' expenses and fees, together with other expenses, not including attorneys' fees, incurred in the conduct of the arbitration, shall be paid as provided in the award." Id.
[20] While the Panel excluded the "quotes from depositions" that were contained in the Wells Submissions, see 4/26/01 Tr. at 51, it permitted Bear to quote sections of the Wells Submission that summarized and referenced the excluded testimony, see id. at 53-54. Counsel for Claimants argued it would be "really quite prejudiced by" allowing Bear to "refer to and quote from, the very depositions and trial transcripts [the Panel] ha[s] excluded." Id. at 53. In response, the Panel explained that it would accept that evidence but "regard those [references] for what they're worth," "take into account that Mr. Okin isn't here to testify," and give Bear's evidence "the weight to which it's entitled, taking all of that into consideration." Id. at 53-54. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1422776/ | 532 F.3d 567 (2008)
Henry David GRINTER, Plaintiff-Appellant,
v.
Chad KNIGHT, individually and in his official capacity as Sergeant, Kentucky State Penitentiary, et al., Defendants-Appellees.
No. 05-6755.
United States Court of Appeals, Sixth Circuit.
Submitted: February 7, 2008.
Decided and Filed: June 19, 2008.
*570 ON BRIEF: Henry David Grinter, Eddyville, Kentucky, pro se.
Before: NORRIS, BATCHELDER, and GIBBONS, Circuit Judges.
OPINION
JULIA SMITH GIBBONS, Circuit Judge.
A Kentucky prisoner proceeding pro se appeals the district court's order dismissing his civil rights action brought under 42 U.S.C. §§ 1981 and 1983 for violations of due process, equal protection, the Eighth Amendment, and the Fourteenth Amendment during a mandatory screening procedure before the complaint was served on the defendants. For the reasons set forth below, we affirm in part and reverse in part.
I.
Henry David Grinter filed a pro se complaint in which he sought relief pursuant to 42 U.S.C. §§ 1981 and 1983. He names the following persons as defendants in their individual and official capacities: (1) Sergeant Chad Knight of the Kentucky State Penitentiary, (2) Lieutenant and Adjustment Committee Chairman William Henderson of the Kentucky State Penitentiary, (3) Lieutenant and Adjustment Committee Member Jay R. Jones of the Kentucky State Penitentiary, (4) Case Worker and Adjustment Committee Member Steve Hern of the Kentucky State Penitentiary, (5) Warden Glenn Haeberlin of the Kentucky State Penitentiary, (6) Commissioner John D. Rees of the Kentucky State Penitentiary, (7) Lieutenant Joel Dunlap, head of Internal Affairs at the Kentucky State Penitentiary, (8) Lieutenant Will Thomas, Internal Affairs employee at the Kentucky State Penitentiary, and (9) Lieutenant Tim White of the Kentucky State Penitentiary. Grinter alleges his claims under 42 U.S.C. §§ 1981 and 1983 resulted from violations of his due process, equal protection, Eighth Amendment, and Fourteenth Amendment rights.
In his complaint, Grinter alleges that on January 3, 2003, Knight came to his cell to investigate an incident report that had been filed.[1] He alleges that Knight presented the report to him through a food opening in the door of Grinter's cell in the segregation unit and that Knight refused *571 to add witnesses to an incident report in response to his request. After that, Knight closed the slot and slipped a copy of the report under the door.
Grinter avers that a short time later, White and another guard dressed in full riot gear approached his cell without a nurse present. White ordered Grinter to remove his clothes, pinned him to the wall while Grinter's linens and personal property were removed, and placed him under four-point restraints.[2] Grinter remained in the restraints, shackled to his bed, for four hours and sustained cuts and bleeding.
Grinter alleges that the following day, January 4, 2003, he was issued a disciplinary report claiming he assaulted defendant Knight. The incident report detailing the January 3 incident, which was attached to the complaint, stated that Grinter wadded up and threw the incident report. The report also stated that Grinter struck Knight's left arm and that Knight had a "small red spot" on his wrist. According to the incident report, at a hearing several weeks later the adjustment committee found Grinter guilty. The report states, "Based on facts as stated by Sgt. Knight and [the] medical report from Nurse Roystor... Grinter did strike Sgt. Knight[,] causing a red spot on his left wrist." The adjustment committee assessed a non-restorable penalty of sixty days forfeiture of good time credits.
Grinter alleges that he was never provided a copy of any medical records, the testimony Nurse Roystor gave cannot be true because she did not witness the incident, and J. Belt's written statement regarding the incident is troubling. Plaintiff appealed to the warden and the state department of corrections but was unsuccessful.
The district court dismissed the claims against Rees, Haeberlin, Hern, Jones, Henderson, Thomas, and Dunlap and the due process claims against Knight and White for failure to state a claim upon which relief may be granted pursuant to 28 U.S.C. § 1915A(b). It dismissed the claims against the defendants, state employees, in their official capacities as claims against Kentucky which was immune from suit. It dismissed the substantive due process claims based upon the use of the four-point restraints, the challenge to the procedures used by the adjustment board, and the denial of good-time credits, finding no liberty interest present. Likewise, it dismissed the claims for failure to intervene in or overturn the finding of guilt, explaining that the defendants could not be named on the basis of their supervisory roles and that there was no liberty interest. The district court dismissed the § 1981 claim against Knight, holding that Knight, as a public official, cannot be sued under § 1981.
The district court dismissed Grinter's § 1983 claims for violation of his equal protection rights against defendant Knight and the Eighth Amendment excessive force claim against defendant White for failure to exhaust his administrative remedies pursuant to 42 U.S.C. § 1997e. At the direction of this court, the district court granted Grinter permission to file a late notice of appeal. This appeal followed.
II.
We review a district court's decision to dismiss under 28 U.S.C. §§ 1915(e), *572 1915A, and 42 U.S.C. § 1997e de novo. McGore v. Wrigglesworth, 114 F.3d 601, 604 (6th Cir.1997) (overruled on other grounds by Jones v. Bock, 549 U.S. 199, 127 S. Ct. 910, 918-19, 166 L. Ed. 2d 798 (2007)). The Prison Litigation Reform Act ("PLRA") requires district courts to screen and dismiss complaints that are frivolous or malicious, that fail to state a claim upon which relief may be granted, or that seek monetary relief from a defendant who is immune from such relief. 28 U.S.C. § 1915A(b).
III.
Section 1983 provides a private right of action for those persons subject to a deprivation of the "rights, privileges or immunities" guaranteed under the Constitution when that deprivation is effected by a person operating "under color of any statute, ordinance, regulation, custom, or usage" of a governmental entity. 42 U.S.C. § 1983. "[T]he violation of a federally protected right" is necessary for there to be liability against a government official under § 1983. Schroder v. City of Fort Thomas, 412 F.3d 724, 727 (6th Cir.2005). In addition, the deprivation must be committed by a person acting under color of law. Street v. Corr. Corp. of Am., 102 F.3d 810, 814 (6th Cir.1996).
A. Due Process
We first turn to Grinter's due process claims. The district court dismissed Grinter's substantive due process claims for failure to state a claim. On appeal, Grinter appears to assert that the district court erred. Grinter argues that "the defendants did separately and jointly violate[ ] the substantive due process rights of the plaintiff."
i. Official Capacity
Grinter names the defendants to the § 1983 claim in both their individual and official capacities. The district court dismissed the claims against the defendants in their official capacities as barred by the Eleventh Amendment.
"[A] suit against a state official in his or her official capacity is not a suit against the official but rather is a suit against the official's office." Will v. Mich. Dep't of State Police, 491 U.S. 58, 71, 109 S. Ct. 2304, 105 L. Ed. 2d 45 (1989). The Eleventh Amendment bars suits brought in federal court against a state and its agencies unless the state has waived its sovereign immunity or consented to be sued in federal court. Id. at 66, 109 S. Ct. 2304. See also Abick v. Michigan, 803 F.2d 874, 876-77 (6th Cir.1986). All of the defendants are state employees and Kentucky has not waived its sovereign immunity. To the extent they are sued in their official capacities, the § 1983 claim fails.
ii. Individual Capacity
Grinter alleges his substantive due process rights were violated when he was placed under four-point restraints for four hours, when prison adjustment procedures were not followed at his disciplinary hearing, and when the adjustment committee did not comply with the Kentucky statute authorizing good-time credits. The district court dismissed each of these claims for failure to state a claim.
The Due Process Clause of the Fourteenth Amendment provides that a person may not be deprived of "life, liberty, or property, without due process of law." U.S. Const. Amend. XIV. "The doctrine that governmental deprivations of life, liberty or property are subject to limitations regardless of the adequacy of the procedures employed has come to be known as substantive due process." Bowers v. City of Flint, 325 F.3d 758, 763 (6th *573 Cir.2003) (citation omitted). "These limitations are meant to provide heightened protection against government interference with certain fundamental rights and liberty interests." Does v. Munoz, 507 F.3d 961, 964 (6th Cir.2007) (internal quotation marks and citations omitted). "However, identifying a new fundamental right subject to the protections of substantive due process is often an uphill battle, as the list of fundamental rights is short." Id. (internal citations and quotation marks omitted). A fundamental right must be "deeply rooted in this Nation's history and tradition," and "implicit in the concept of ordered liberty." Washington v. Glucksberg, 521 U.S. 702, 721, 117 S. Ct. 2258, 138 L. Ed. 2d 772 (1997) (internal quotation marks and citation omitted).
Prisoners have narrower liberty interests than other citizens as "lawful incarceration brings about the necessary withdrawal or limitation of many privileges and rights, a retraction justified by the considerations underlying our penal system." Sandin v. Conner, 515 U.S. 472, 485, 115 S. Ct. 2293, 132 L. Ed. 2d 418 (1995) (internal quotations and citation omitted). We "reach the question of what process is due only if the inmates establish a constitutionally protected liberty interest." Wilkinson v. Austin, 545 U.S. 209, 221, 125 S. Ct. 2384, 162 L. Ed. 2d 174 (2005). A liberty interest may arise from the Due Process Clause or a state regulation. Sandin, 515 U.S. at 487, 115 S. Ct. 2293.
iii. Four-Point Restraints
Grinter alleges a substantive due process violation against White because he was in four-point restraints for four hours and White did not wait for a nurse to arrive before placing Grinter in the restraints.
"The Due Process Clause standing alone confers no liberty interest in freedom from state action taken within the sentence imposed." Sandin, 515 U.S. at 480, 115 S. Ct. 2293 (quotation marks and citation omitted). "Discipline by prison officials in response to a wide range of misconduct falls within the expected perimeters of the sentence imposed by a court of law." Id. at 485, 115 S. Ct. 2293. "[T]he Constitution itself does not give rise to a liberty interest in avoiding transfer to more adverse conditions of confinement." Wilkinson, 545 U.S. at 221, 125 S. Ct. 2384.
In Sandin, the Supreme Court held that a prisoner's thirty-day confinement in disciplinary segregation was "within the range of confinement normally expected for one serving an indeterminate term of 30 years to life," Sandin, 515 U.S. at 487, 115 S. Ct. 2293, and did not "present a dramatic departure from the basic conditions of [the inmate's] sentence," id. at 485, 115 S. Ct. 2293. In contrast, in Wilkinson, the Supreme Court held that prisoners "have a liberty interest in avoiding assignment to [super-maximum security prison]." Wilkinson, 545 U.S. at 224, 125 S. Ct. 2384. We have held that a prisoner's designation as a member of a security threat group did not give rise to a liberty interest. Harbin-Bey v. Rutter, 420 F.3d 571, 577 (6th Cir.2005). We also held that we would not "find [ ] a liberty interest on the face of" a substance abuse regulation that banned most visitation for prisoners found guilty of two or more substance abuse violations. Bazzetta v. McGinnis, 430 F.3d 795, 802-03 (6th Cir.2005).[3]
The use of the four-point restraints and conditions in which they were administered the four-hour duration of *574 the period of restraint and the fastening of the restraints without a nurse present were expected adverse consequences of confinement. Grinter had been accused of hitting a prison guard, Knight, at the time he was placed in the restraints. Furthermore, prison officials entered his cell to conduct an investigation. Given the accusation and the presence of the officials in Grinter's cell, as explained above, there was no liberty interest in either freedom from four-point restraints for four hours or in applying the restraints only in the presence of a nurse because the restraints were not an "atypical and significant hardship" in prison life. Sandin, 515 U.S. at 484, 115 S. Ct. 2293.
The use of the restraints and the absence of a nurse pose a lesser hardship than the thirty-day assignment to solitary confinement in Sandin that the Court held did not infringe a liberty interest and are significantly less burdensome than the assignment to super-maximum security prison which was found not to infringe any liberty interest in Wilkinson. This situation is more analogous to banning visitors or designating prisoners as a threat, as in Bazzetta and Harbin-Bey, where we found there was no liberty interest. Thus, the Due Process Clause does not give rise to a liberty interest in freedom from four-point restraints or in having a nurse arrive before placing an inmate in the restraints.
A state may create a liberty interest through a law or regulation establishing freedom from restraint which "imposes atypical and significant hardship on the inmate in relation to the ordinary incidents of prison life." Sandin, 515 U.S. at 484, 115 S. Ct. 2293. Grinter has pointed to no Kentucky law or regulation that creates an interest in freedom from four-point restraints or in having a nurse present when such restraints are applied to a prisoner. Therefore, White did not violate the Due Process Clause by placing Grinter in four-point restraints for four hours or in attaching the restraints without a nurse present.
iv. Adjustment Procedures in the Disciplinary Hearing
Grinter alleges a substantive due process violation against Henderson, Jones, and Hern because they violated policy by failing to provide Grinter with a copy of a medical report, failed to question Dunlap and Thomas, failed to make J. Belt available for questioning, and found guilt without sufficient evidence.[4] The district court dismissed each of these claims.
The allegations of failing to provide a copy of a medical report, failing to question Dunlap and Thomas, and failing to make J. Belt available for questioning appear to allege that defendants failed to follow established procedures. Failing to follow proper procedures is insufficient to establish an infringement of a liberty interest. Olim v. Wakinekona, 461 U.S. 238, 250, 103 S. Ct. 1741, 75 L. Ed. 2d 813 (1983) ("Process is not an end in itself. Its constitutional purpose is to protect a substantive interest to which the individual has a legitimate claim of entitlement."). Thus, the substantive due process violation *575 claim fails because the failure to follow procedure and provide Grinter with a medical report, question Dunlap and Thomas, and make J. Belt available for questioning does not infringe a liberty interest.
Thus, even if Grinter had asserted a procedural due process claim against these defendants, it also would have failed. See Sweeton v. Brown, 27 F.3d 1162, 1165 (6th Cir.1994) (holding that due process does not require that parole authorities follow established procedure). These alleged procedural violations by Henderson, Jones, and Hern did not violate the Due Process Clause.
v. Compliance With the Statute Authorizing Good-Time Credits
Grinter alleges a substantive due process violation because Henderson, Jones, and Hern violated the Kentucky good-time credit statute, Kentucky Revised Statute § 197.045, denying him the ability to accumulate sixty days of good-time credits. Grinter had already forfeited 2400 days of good-time credit and avers he had no more good-time credit to forfeit at the time he was denied the possibility of accumulating sixty days of good-time credits. The statute provides in part, "The department may forfeit any good time previously earned by the prisoner or deny the prisoner the right to earn good time in any amount if during the term of imprisonment, a prisoner commits any offense or violates the rules of the institution." Ky.Rev.Stat. § 197.045(1).
As "the Due Process Clause itself does not create a liberty interest in credit for good behavior," Sandin, 515 U.S. at 477, 115 S. Ct. 2293, the question is whether the Kentucky statute creates such an interest. A Kentucky inmate "possesses no inherent constitutional right ... to accumulate good time credits." Hopewell v. Berry, No. 89-5332, 889 F.2d 1087 (table), 1989 WL 137177, at *1 (6th Cir. Nov.15, 1989) (citing Wolff v. McDonnell, 418 U.S. 539, 557, 94 S. Ct. 2963, 41 L. Ed. 2d 935 (1974)). Furthermore, "[p]rison officials clearly have discretion under state law to deny a prisoner future good time." Id. (citing Ky.Rev.Stat. § 197.045(1)). As there is no right to accumulate good-time credits, Henderson, Jones, and Hern did not commit a constitutional violation. Grinter's substantive due process rights were not violated because of his inability to accumulate good-time credits.
vi. Supervisory or Administrative Liability
The district court dismissed the claims against Haeberlin, Rees, Dunlap, and Thomas for multiple reasons including that Grinter cannot maintain a claim against these defendants in their supervisory capacities.
In his complaint, Grinter alleges that Warden Haeberlin and Commissioner Rees violated his due process rights by acting in a supervisory capacity and allowing their employees to violate Grinter's rights and for affirming the finding of guilt. "Because § 1983 liability cannot be imposed under a theory of respondeat superior, proof of personal involvement is required for a supervisor to incur personal liability." Miller v. Calhoun County, 408 F.3d 803, 817 n. 3 (6th Cir.2005). "At a minimum, a § 1983 plaintiff must show that a supervisory official at least implicitly authorized, approved or knowingly acquiesced in the unconstitutional conduct of the offending subordinate." Bellamy v. Bradley, 729 F.2d 416, 421 (6th Cir.1984). Grinter has not alleged that Haeberlin and Rees committed any actual acts, nor has he averred that they acquiesced in the conduct of their employees.
*576 Grinter also alleges that Internal Affairs Officers Dunlap and Thomas failed to intervene when Grinter informed them in writing that Knight's accusations were false. If Grinter is alleging that they were acting in a supervisory capacity, the claim fails. See Bellamy, 729 F.2d at 421. Furthermore, if the allegation is brought against Dunlap and Thomas for actions they committed for failing to intervene, the claim also fails. The "denial of administrative grievances or the failure to act" by prison officials does not subject supervisors to liability under § 1983. Shehee v. Luttrell, 199 F.3d 295, 300 (6th Cir.1999). To the extent Grinter is alleging that he was denied administrative appeals, he fails to state a claim because "an expectation of receiving process is not, without more, a liberty interest protected by the Due Process Clause." Olim, 461 U.S. at 250 n. 12, 103 S. Ct. 1741. We affirm the dismissal of the claims against Haeberlin, Rees, Dunlap, and Thomas.
In conclusion, for the reasons explained above, we affirm the dismissal of Grinter's due process claims against all defendants named in these claims.
B. Equal Protection Under § 1981
Grinter asserts an equal protection claim against Knight in his official and individual capacities under § 1981 for race discrimination. The district court dismissed this equal protection claim for failure to state a claim.[5] Grinter alleges in his complaint that "Defendant Knight subjected [him] to cruel [and] unusual punishment for no reason other than he does not like `black inmates.'"
Section 1981 provides that "[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts." 42 U.S.C. § 1981(a). The statute defines "make and enforce contracts" to include the "making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship." 42 U.S.C. § 1981(b). The statute elaborates, "The rights protected by this section are protected against impairment by nongovernmental discrimination and impairment under color of State law." 42 U.S.C. § 1981(c).
Section 1981 is unavailable to Grinter as a vehicle to pursue a damages claim against Knight in his official capacity. "[T]he express `action at law' provided by § 1983 for the `deprivation of any rights, privileges, or immunities secured by the Constitution and laws,' provides the exclusive federal damages remedy for the violation of the rights guaranteed by § 1981" when the claim is asserted against a state actor in his official capacity. Jett v. Dallas Indep. Sch. Dist., 491 U.S. 701, 735, 109 S. Ct. 2702, 105 L. Ed. 2d 598 (1989). Jett continues to control following amendments to § 1981 to add subsection (c) in 1991. Nothing about the amendments suggests that Congress's intent was to overrule Jett.[6] A panel of this court assumed *577 without discussion that the amendments did not overrule Jett as applied to state actors sued in their official capacities. McCrary v. Ohio Dep't of Human Servs., No. 99-3597, 229 F.3d 1153 (table), 2000 WL 1140750, at *2 (6th Cir. Aug.8, 2000) (concluding that "Congress intended that the explicit remedial provisions of § 1983 be controlling in the context of actions seeking equitable relief against state actors alleging violation of their rights under § 1981"). Other circuits concur. See, e.g., Pittman v. Oregon Employment Dep't, 509 F.3d 1065, 1074 (9th Cir.2007) ("[W]e hold that § 1981 does not contain a cause of action against states."); Oden v. Oktibbeha County, 246 F.3d 458, 463-64 (5th Cir. 2001); Butts v. County of Volusia, 222 F.3d 891, 894 (11th Cir.2000); Dennis v. County of Fairfax, 55 F.3d 151, 156 n. 1 (4th Cir.1995); Williams v. Little Rock Mun. Water Works, 21 F.3d 218, 224 (8th Cir.1994).
Because Jett remains in force, consequently, § 1983 provides an exclusive remedy for violations against state actors sued in their official capacities. An official capacity lawsuit against Knight, a state actor, for constitutional violations, such as race discrimination, cannot be brought under § 1981.
Furthermore, Grinter fails to state a claim against Knight in his individual capacity.[7] Grinter alleges Knight subjected him to cruel and unusual punishment because of his race. Grinter, who is pro se, is held to a less stringent pleading standard than a party with an attorney. Haines v. Kerner, 404 U.S. 519, 520, 92 S. Ct. 594, 30 L. Ed. 2d 652 (1972). Despite this, "more than bare assertions of legal conclusions is ordinarily required to satisfy federal notice pleading requirements." Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir.1988). See also Kamppi v. Ghee, 208 F.3d 213 (table), 2000 WL 303018, at *1 (6th Cir. May 14, 2000) ("Thus, the less stringent standard for pro se plaintiffs does not compel the courts to conjure up unpleaded facts to support conclusory allegations.") As Grinter pleads a legal conclusion without surrounding facts to support the conclusion stated in this claim, he fails to state a claim. We affirm the dismissal of the § 1981 claim.
C. Failure to Exhaust Administrative Remedies
The district court dismissed Grinter's Eighth Amendment excessive force and equal protection race discrimination claims for failure to exhaust administrative remedies. On appeal, Grinter argues that he had exhausted his administrative remedies as to all claims at the time he filed the complaint.
Prisoners must exhaust their administrative remedies before challenging prison conditions. 42 U.S.C. § 1997e. "There is no question that exhaustion is mandatory under the PLRA and that unexhausted claims cannot be brought in court." Jones v. Bock, 127 S.Ct. at 918-19. "Failure to exhaust is an affirmative defense *578 under the PLRA, and [ ] inmates are not required to specially plead or demonstrate exhaustion in their complaints." Id. at 921.[8],[9]
Grinter alleges that defendant White used excessive force in applying the four-point restraints in violation of the Eighth Amendment. He also alleges that defendant Knight discriminated against him because of his race in violation of his equal protection rights. The district court summarily dismissed both of these claims because of Grinter's failure to plead or demonstrate that he had exhausted his administrative remedies. While the district court followed our precedent at the time it ruled in dismissing these claims at the screening stage on exhaustion grounds, Jones overruled these cases and changed the law. Under Jones, because exhaustion is an affirmative defense, a claim may not be dismissed at the screening stage for failure to plead or attach exhibits with proof of exhaustion. We reverse the dismissal of these claims for failure to exhaust administrative remedies and remand the case for further proceedings in light of Jones. See, e.g., Dotson v. Corr. Med. Servs., 253 Fed.Appx. 536, 537-38 (6th Cir. 2007) (remanding case to the district court with instructions to evaluate claims prematurely dismissed under Jones and listing cases remanding pursuant to Jones).
IV.
For the foregoing reasons, we affirm in part and reverse in part the judgment of the district court.
NOTES
[1] The incident report is not specifically identified in the complaint.
[2] Placing an inmate under four-point restraints involves shackling the inmate's hands and feet to the four corners of his bed.
[3] While some of these cases discuss procedural, rather than substantive, due process, they are relevant to the question of when liberty interests arise for incarcerated prisoners.
[4] Grinter offered no allegations or argument in support of his claim that there was insufficient evidence to support a finding of guilt. "[I]t is a settled appellate rule that issues adverted to in a perfunctory manner, unaccompanied by some effort at developed argumentation, are deemed waived." United States v. Johnson, 440 F.3d 832, 846 (6th Cir.2006) (citation omitted). Grinter has provided no argument or allegations in support of this argument either in the district court or before this court and has waived it. See also Rogers v. Howes, 64 Fed.Appx. 450, 455 (6th Cir.2003) ("The mere assertion by the petitioner that there was insufficient evidence, without more, cannot support a finding of deprivation of due process.") (internal quotation marks and citation omitted).
[5] In the complaint, in addition to the specific allegation against defendant Knight, Grinter alleges "defendants" violated his "equal rights" in violation of § 1981. "This court has adopted the requirement that a plaintiff allege with particularity all material facts to be relied upon when asserting that a governmental official has violated a constitutional right." Terrance v. Northville Reg'l Psychiatric Hosp., 286 F.3d 834, 842 (6th Cir.2002). Such "conclusory, unsupported statements" are "insufficient to state a claim." Dellis v. Corr. Corp. of Am., 257 F.3d 508, 511 (6th Cir.2001).
[6] The new language states in relevant part, "The rights protected by this section are protected against impairment by nongovernmental discrimination and impairment under color of State law." 42 U.S.C. § 1981(c). This language creates a right, but not a remedy, and therefore shows no Congressional intent to overrule Jett. See Butts v. County of Volusia, 222 F.3d 891, 894 (11th Cir.2000) ("[T]he section creates a right that private or state actors may violate but does not itself create a remedy for that violation.").
[7] We may affirm a district court for any reason, including a reason not considered by the district court. Dismas Charities, Inc. v. U.S. Dep't of Justice, 401 F.3d 666, 677 (6th Cir. 2005).
[8] Jones v. Bock overruled Brown v. Toombs, 139 F.3d 1102, 1103-04 (6th Cir. 1998) (holding that the prisoner has the burden of demonstrating he has exhausted his administrative remedies in his complaint), Burton v. Jones, 321 F.3d 569, 574 (6th Cir.2003) (holding that the prisoner must exhaust his administrative remedies as to each defendant later sued), and Jones Bey v. Johnson, 407 F.3d 801, 807 (6th Cir.2005) (holding that the PLRA requires "total exhaustion" where an entire action should be dismissed if one claim is not properly exhausted). 549 U.S. 199, 127 S.Ct. at 918-26.
[9] Furthermore, "exhaustion is not per se inadequate simply because an individual later sued was not named in the grievances." Id. at 923. Finally, if a complaint contains claims that are exhausted and claims that are not exhausted, the district court should proceed with the exhausted claims while dismissing the claims that are not exhausted and should not dismiss the complaint in its entirety. Id. at 923-26. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540390/ | 379 Pa. Super. 390 (1988)
550 A.2d 213
COMMONWEALTH of Pennsylvania, Appellee,
v.
Dorothy FINLEY, Appellant.
Supreme Court of Pennsylvania.
Argued February 17, 1988.
Filed October 31, 1988.
*391 Catherine M. Harper, Philadelphia, for appellant.
Ann C. Lebowitz, Assistant District Attorney, Philadelphia, for Com., appellee.
Before BROSKY, WIEAND, McEWEN, OLSZEWSKI, BECK, TAMILIA, KELLY, POPOVICH and JOHNSON, JJ.
*392 POPOVICH, Judge:
This case is on remand from the United States Supreme Court,[1] which, in reversing a three-judge panel of this Court,[2] concluded that federal constitutional law did not require that Anders v. California, 386 U.S. 738, 87 S. Ct. 1396, 18 L. Ed. 2d 493 (1967), be made applicable to collateral proceedings under the Post Conviction Hearing Act (PCHA).[3]
We perceive our role now to be one of assessing whether PCHA counsel's "no-merit" letter and the PCHA court's independent review of the evidence in light of the pro se PCHA request for relief comport with Finley's entitlement to effective counsel under Pennsylvania law so as to sanction the withdrawal of PCHA counsel.
Our task is facilitated by the pronouncement in Commonwealth v. Turner, 518 Pa. 491, 544 A.2d 927 (1988), wherein our Supreme Court "clarified", and for all intents and purposes established, the procedures to be followed henceforth under Pennsylvania law when it comes to the allowance of withdrawal of appointed or privately-retained counsel in collateral proceedings, be it in a PCHA context, "in a trial or appellate court." Id., 518 Pa. at 495, 544 A.2d at 929.
Of interest to us is that the Turner Court made specific reference to Superior Court's panel decision in Commonwealth v. Finley, supra at note 2, and our attempt to fashion a procedural formula which adopted the federal standard of Anders to collateral proceedings wherein PCHA counsel sought to withdraw, and its reversal by the United States Supreme Court in Pennsylvania v. Finley, 481 U.S. 551, 107 S. Ct. 1990, 95 L. Ed. 2d 539 (1987).
As is herein relevant, our Supreme Court endorsed the PCHA court's independent review of the record as a followup to counsel's "no-merit" letter itemizing his/her in-depth *393 examination of the case and the reasons for concluding that the petition was meritless. No further inquiry, notification to the petitioner or a finding that the claims of the petitioner were "wholly frivolous" was deemed necessary.
Rather, "`an independent review of the record by competent counsel. . . .'" was all the petitioner was entitled to receive under state law, at least according to the Majority of the United States Supreme Court. See Turner, supra, 518 Pa. at 494, 544 A.2d at 928, quoting Pennsylvania v. Finley, supra, 481 U.S. at 558, 107 S.Ct. at 1995, 95 L.Ed.2d at 548. This view has been adopted by our highest Court in its holding that the actions of counsel and the PCHA court in Commonwealth v. Finley, 330 Pa.Super. 313, 479 A.2d 568 (1984) (Rowley, J. dissenting), rev'd sub nom Pennsylvania v. Finley, 481 U.S. 551, 107 S. Ct. 1990, 95 L. Ed. 2d 539 (1987), in other words the case which is before us now for review, were proper in ensuring the petitioner's right to effective representation. More particularly, the "independent review" necessary to assure a withdrawal request by PCHA counsel required proof of:
1) A "no-merit" letter by PCHA counsel detailing the nature and extent of his review;
2) The "no merit" letter by PCHA counsel listing each issue the petitioner wished to have reviewed;
3) The PCHA counsel's "explanation", in the "no-merit" letter, of why the petitioner's issues were meritless;
4) The PCHA court conducting its own independent review of the record; and
5) The PCHA court agreeing with counsel that the petition was meritless.[4]
*394 Once counsel for the petitioner determines that the issues raised under the PCHA are "meritless", and the PCHA court concurs, counsel will be permitted to withdraw and the petitioner may proceed on his own or with the aid of private counsel to pursue a review of the ruling entered, if he/she so wishes. See Turner, supra.
Instantly, inasmuch as our review is of facts which already have been (explicitly) addressed by the Court in Turner, and found to be consonant with effective representation on the strength of counsel's and the PCHA court's actions in Commonwealth v. Finley, supra, the course for us to pursue is clearly lit. Accordingly, we are in agreement with the actions taken by PCHA counsel below and the PCHA court's affirmance of the same.
Order affirmed.
WIEAND, J., files a concurring opinion joined by OLSZEWSKI, J.
KELLY, J., files a concurring and dissenting opinion.
WIEAND, Judge, concurring:
I concur in the decision of the majority to affirm the order of the trial court which dismissed appellant's P.C.H.A. petition without hearing.
Dorothy Finley was tried non-jury and was found guilty of murder of the second degree, robbery, weapons offenses, and criminal conspiracy. The judgment of sentence was affirmed by the Supreme Court of Pennsylvania. See: Commonwealth v. Finley, 477 Pa. 211, 383 A.2d 898 (1978). Finley then filed a P.C.H.A. petition, which the trial court dismissed without a hearing and without appointing counsel. The Supreme Court of Pennsylvania, on appeal, remanded with instructions to the P.C.H.A. court to determine whether Finley was indigent and, if so, to appoint counsel. See: Commonwealth v. Finley, 497 Pa. 332, 440 A.2d 1183 (1981).
*395 The succeeding proceedings were described by the P.C. H.A. court as follows:
Following the above-mentioned remand by our Supreme Court, court-appointed counsel . . . reviewed the notes of testimony, Quarter Sessions file, issues of fact and law forwarded by Defendant herself, spoke with Defendant, conducted his own review for contentions which only a trained legal mind would discover, and concluded that no arguably meritorious issues existed. He then sought advice from this Court.
Counsel was instructed that he must take his client as he finds her; that the mere fact of having been appointed to represent a pro se Petitioner could not guarantee the existence of arguable contentions which might entitle the Defendant to post-conviction relief; that acceptance of the responsibility of a court-appointment in no way requires that he "find" an issue (e.g., manufacture an issue or present an issue not arguably meritorious); and that he must proceed as a responsible advocate and exercise his best professional judgment.
Counsel was instructed that where he had completed a comprehensive review of the entire record and the applicable law, and had interviewed Defendant and concluded that the record was devoid of arguably meritorious contentions, counsel should write this Court in letter form detailing not only the nature and extent of his review, but also listing each issue Defendant herself wished to have raised, followed by an explanation why those issues were meritless. At that point, this Court would conduct its own independent review and, if our conclusions coincided with counsel's, the Petition would be dismissed without a hearing and Defendant would be apprised of her appellate rights.
Here, this procedure was followed and the Petition was dismissed without a hearing. Counsel was relieved with new counsel appointed to prosecute the instant appeal.
On appeal by new counsel, a panel of this Court, having accepted an argument advanced by appellant, held that *396 P.C.H.A. counsel had been ineffective for failing to follow the requirements set forth in Anders v. California, 386 U.S. 738, 87 S. Ct. 1396, 18 L. Ed. 2d 493 (1967). The Commonwealth filed a petition for allocatur, which was granted by the Supreme Court of Pennsylvania. Subsequently, however, the Supreme Court dismissed the appeal as having been improvidently granted. See: Commonwealth v. Finley, 510 Pa. 304, 507 A.2d 822 (1986). Certiorari was then granted by the United States Supreme Court.
In Pennsylvania v. Finley, 481 U.S. 551, 107 S. Ct. 1990, 95 L. Ed. 2d 539 (1987), the Supreme Court of the United States held that the Anders decision, which had been based on the constitutional right to appointed counsel as established in Douglas v. California, 372 U.S. 353, 83 S. Ct. 814, 9 L. Ed. 2d 811 (1963), is not applicable to collateral attacks on convictions. Where a state chooses, nevertheless, to provide appointed counsel for the purpose of assisting an indigent criminal launch a collateral attack on his conviction, the United States Constitution does not dictate the form which such assistance must take. Therefore, the judgment of the Superior Court was reversed and the matter remanded for further proceedings.
Finley's right to appointed counsel in P.C.H.A. proceedings rests upon Pa.R.Crim.P. 1503[1] and 1504.[2] Neither *397 these rules nor any other criminal rule imposes upon appointed counsel a duty to proceed in the manner directed by Anders.
Finley has been convicted and, therefore, is no longer protected by the presumption of innocence. Consequently, the burden is on her in a collateral attack on her conviction to show that her conviction was invalid. See: 42 Pa.C.S. § 9543. The lawyer who represents her in collateral proceedings, whether retained or appointed, "has no duty, indeed no right, to pester a court with frivolous arguments, which is to say arguments that cannot conceivably persuade the court, so if he believes in good faith that there are no. . . arguments that he can make on his client's behalf he is honor-bound to so advise the court and seek leave to withdraw as counsel." McCoy v. Court of Appeals of Wisconsin, District 1, ___ U.S. ___, ___, 108 S. Ct. 1895, 1901, 100 L. Ed. 2d 440, 452 (1988), quoting United States v. Edwards, 777 F.2d 364, 365 (7th Cir. 1985). When retained counsel concludes that a collateral attack via P.C.H.A. petition would be frivolous, he or she has a duty to inform the client that it would be a waste of money for the client and unethical for the lawyer to pursue it. When appointed counsel comes to the same conclusion, he or she also has an obligation not to pursue the collateral attack. "Appointed counsel, however, is presented with a dilemma because withdrawal is not possible without leave of court, and advising the court of counsel's opinion that the [collateral attack] is frivolous would appear to conflict with the advocate's duty to his client. It is well settled, however, that this dilemma must be resolved by informing the court of counsel's conclusion." McCoy v. Court of Appeals of Wisconsin, District 1, supra, ___ U.S. at ___, 108 S.Ct. at 1901, 100 L.Ed.2d at 452. As the Supreme Court of the United States explained in Polk County v. Dodson, 454 U.S. 312, 102 S. Ct. 445, 70 L. Ed. 2d 509 (1981),
[Appellant's] argument assumes that a private lawyer would have borne no professional obligation to refuse to prosecute a frivolous appeal. This is error. In claiming *398 that a public defender is peculiarly subject to divided loyalties, [appellant] confuses a lawyer's ethical obligations to the judicial system with an allegiance to the adversary interests of the State in a criminal prosecution. Although a defense attorney has a duty to advance all colorable claims and defenses, the canons of professional ethics impose limits on permissible advocacy. It is the obligation of any lawyer whether privately retained or publicly appointed not to clog the courts with frivolous motions or appeals. [Appellant] has no legitimate complaint that his lawyer refused to do so.
Id. at 323, 102 S.Ct. at 452-53, 70 L.Ed.2d at 519-520 (footnote omitted).
Every P.C.H.A. lawyer, whether privately retained or appointed by the court, has essentially the same professional responsibility. He or she must communicate with the client, examine the record, research the law, and identify arguments which can be pursued via collateral attack. In so doing, counsel must serve the best interests of the client. If, after such an evaluation, counsel comes to the conclusion that a collateral attack is "wholly frivolous," he may inform the court and seek to withdraw. McCoy v. Court of Appeals of Wisconsin, District 1, supra, ___ U.S. at ___, 108 S.Ct. at 1901, 100 L.Ed.2d at 452.
In the instant case, appointed counsel consulted with his client, examined the client's allegations of error, reviewed the record to determine whether those allegations of error or other arguments could be pursued, and concluded that there were no arguably meritorious issues which could be advanced. Counsel thereupon notified the court by letter that appellant had no meritorious argument. The P.C.H.A. court then made an independent review of the record and also concluded that there were no meritorious arguments to support a collateral attack on appellant's conviction. The court, therefore, dismissed the P.C.H.A. petition without a hearing.
On appeal to a three judge panel of this Court from the P.C.H.A. court's order, appellant argued only that prior *399 P.C.H.A. counsel had been ineffective because he "failed to file an amended P.C.H.A. petition or a brief on behalf of his client and chose instead to outline for the court reasons why a P.C.H.A. petition would be meritless." Statement of Questions Presented in Appellant's original brief. Upon remand by the United States Supreme Court and reargument before this Court, sitting en banc, appellant filed a supplemental brief in which her argument was summarized and entitled as follows:
Appellant was denied the effective assistance of court-appointed PCHA counsel that she was entitled to under both Pennsylvania law and the remand order of the Pennsylvania Supreme Court when court-appointed counsel filed a "no merit" letter with the PCHA court instead of following the Anders procedure.
This issue has been properly raised on appeal, for this is the first opportunity to do so at which appellant has not been represented by counsel who is alleged to have been ineffective. See: Commonwealth v. Payne, 327 Pa.Super. 139, 143, 475 A.2d 137, 139 (1984); Commonwealth v. Moore, 321 Pa.Super. 442, 448-449 n. 1, 468 A.2d 791, 794 n. 1 (1983).
Appellant's argument, however, is lacking in merit.[3] In Commonwealth v. Turner, 518 Pa. 491, 544 A.2d 927 (1988), the Supreme Court said:
Under Pennsylvania law, where the PCHA petitioner's right to counsel is established by rule of this Court, Pa.R.Crim.P. 1503, 1504, we hold that the procedure followed in the Finley case accorded the PCHA petitioner all the protection incorporated in the right to appointed counsel in collateral proceedings under the PCHA. Thus, the implication by Superior Court that the requirements of Anders and [Commonwealth v.] McClendon supra [495 Pa. 467, 434 A.2d 1185 (1981)], governed the withdrawal of counsel in this case is erroneous. When, in the *400 exercise of his professional judgment, counsel determines that the issues raised under the PCHA are meritless, and when the PCHA court concurs, counsel will be permitted to withdraw and the petitioner may proceed pro se, or by privately retained counsel, or not at all. The same procedure should be followed at any stage of the collateral proceedings, whether in a trial or appellate court. Inasmuch as the United States Supreme Court decided in Pennsylvania v. Finley, supra, that the federal constitutional considerations underlying the tortuous procedures of Anders do not apply under the PCHA, we deem these less rigid requirements for withdrawal of counsel to satisfy Pennsylvania law in collateral attacks on criminal convictions.
Id., 518 Pa. at 495, 544 A.2d at 928-29.
Therefore, I concur in the decision of the majority to affirm the order of the trial court. However, I do not join what appears to be an attempt by the majority to use the facts of the instant case to formulate a five step procedure to be followed in the future by counsel appointed to represent an indigent defendant who seeks to pursue a nonmeritorious collateral attack on a conviction. It is enough in this case that P.C.H.A. counsel provided effective professional assistance and that appellant's P.C.H.A. petition was properly dismissed.
KELLY, Judge, concurring and dissenting:
In light of our Supreme Court's unequivocal statement that "the procedures followed in the Finley case accorded the PCHA petitioner all the protection incorporated into the right to appointed counsel in collateral proceedings under the PCHA," our disposition of this appeal is a foregone conclusion. See Commonwealth v. Turner, 518 Pa. 491, 495, 544 A.2d 927, 928 (1988).
I nonetheless dissent from that portion of the majority opinion which suggests that counsel seeking to withdraw in future PCHA appeals will be required to explain why petitioner's issues were meritless. It is true that neither *401 federal nor Pennsylvania law precludes court-appointed counsel from including in his Finley letter accompanying his motion to withdraw as counsel an explanation of the absence of merit in the petitioner's issues. See McCoy v. Court of Appeals, 486 U.S. ___, 108 S. Ct. 1895, 100 L. Ed. 2d 440 (1988); Commonwealth v. McClendon, 495 Pa. 467, 434 A.2d 1185 (1981). It is quite a different thing, however, to suggest that such an explanation is required. Our Supreme Court has not promulgated a rule like that at issue in McCoy (which explicitly required such an explanation).
While Turner permits substitution of a Finley letter for an Anders brief, I find nothing in Turner to require inclusion of such an explanation, or indeed to preclude continued disapproval of a counsel's usurpation of the prosecutorial function and "sandbagging" of his client by including in a Finley letter a gratuitous explanation of the absence of merit of his client's issues. Cf. Commonwealth v. Jones, 451 Pa. 69, 75, 301 A.2d 811, 815 (1973); Commonwealth v. Green, 355 Pa.Super. 451, 460, 513 A.2d 1008, 1012 (1986); Commonwealth v. Brockington, 268 Pa.Super. 54, 58, 407 A.2d 433, 435 (1979).
If the petitioner's issues are truly frivolous that fact will be apparent and counsel's explanation will do nothing to enhance judicial review of the motion to withdraw or the appeal, yet it may do much to undermine the appearance of fairness which counsel's original appointment was intended to communicate to the petitioner and to the community as a whole. While actual prejudice to the accused does not arise from such an explanation, a distinct and unnecessary appearance of unfairness does.
Consequently, though I am inclined to agree with Judge Wieand that the promulgation of a rule for future cases is unnecessary to the disposition of this case and beyond the function of this Court, in response to the suggestion of the majority regarding Turner's implications for future cases, I note that I would definitely not construe Turner to require that a Finley letter contain an explanation of "why petitioner's issues were meritless."
NOTES
[1] Pennsylvania v. Finley, 481 U.S. 551, 107 S. Ct. 1990, 95 L. Ed. 2d 539 (1987).
[2] Commonwealth v. Finley, 330 Pa.Super. 313, 479 A.2d 568 (1984) (Rowley, J. dissenting).
[3] 42 Pa.C.S. § 9541 et seq.
[4] As made mention of by the Turner Court, the procedures referred to therein are to embrace all proceedings in which (appointed or privately-retained) counsel seeks to withdraw. It necessarily follows that the initial court before whom the request to withdraw is pleaded would logically be the tribunal making the ruling. Cf. Commonwealth v. Brady, 510 Pa. 336, 508 A.2d 286 (1986) (Trial court is to determine whether double jeopardy claim is meritorious; presence of frivolous claim renders order denying motion to dismiss interlocutory and appellate review of the same must await completion of trial). This assessment, as always, would be subject to appellate scrutiny to assure that the object of the withdrawal request complies with the strictures of the law, as was clarified in Turner, supra.
[1] Pa.R.Crim.P. 1503 is as follows:
Appointment of Counsel
(a) Except as provided in Rule 1504, when an unrepresented petitioner satisfies the court that he is unable to procure counsel, the court shall appoint counsel to represent him. The court, on its own motion, shall appoint counsel to represent a petitioner whenever the interests of justice require it.
(b) Where counsel has been appointed, such appointment shall be effective until final judgment, including any proceedings upon appeal from a denial of collateral relief.
[2] Pa.R.Crim.P. 1504 is as follows:
Summary Dispositions
Appointment of counsel shall not be necessary and petitions may be disposed of summarily when a previous petition involving the same issue or issues has been finally determined adversely to the petitioner and he either was afforded the opportunity to have counsel appointed or was represented by counsel in proceedings thereon.
[3] Whether P.C.H.A. counsel can be said to have been ineffective for failing to identify and assert a specific defect in the proceeding leading up to appellant's conviction is not before this Court, and with respect thereto no opinion is expressed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1430135/ | 436 F. Supp. 1072 (1977)
In the Matter of MULTIPONICS INCORPORATED, Debtor.
No. 71-218.
United States District Court, E. D. Louisiana, Section "C".
July 13, 1977.
*1073 *1074 Peter J. Butler, New Orleans, La., for William W. Herpel, Trustee.
George J. Wade, Lansing R. Palmer, Shearman & Sterling, New York City, William M. Meyers, Stephen T. Victory, Liskow & Lewis, New Orleans, La., for Citibank, N.A., Indenture Trustee.
George W. Pigman, Chaffe, McCall, Phillips, Toler & Sarpy, New Orleans, La., Thad Grundy, Hutcheson & Grundy, Houston, Tex., and George A. Kimball, Jr., Peter A. Feringa, Jr., New York City, for Machinery Rental, Inc. and Carl Biehl.
David L. Stone, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, La., for William J. Casey.
Carl J. Schumacher, Jr., New Orleans, La., for Alfred J. Moran.
ALVIN B. RUBIN, District Judge:
Citibank is the trustee under an indenture dated October 15, 1968, between it and Multiponics. Pursuant to the indenture, Multiponics issued $3,500,000 in 7½% subordinated debentures, which are due October 1, 1983. Citibank retained Shearman & Sterling of New York, and Liskow & Lewis of New Orleans, to advise and represent it generally in connection with Multiponics' Chapter X reorganization proceeding. These counsel have participated and continue to participate actively in the reorganization proceeding. In addition, in the fall of 1973, Citibank retained, as special counsel on the law of the State of Arkansas, the firm of Smith, Williams, Friday, Eldredge & Clark, Little Rock, Arkansas.
Citibank now seeks reimbursement for services rendered by counsel and for necessary disbursements incurred in rendering such services during the reorganization proceedings. While various applications for interim allowances have been filed, for reasons set forth in my opinion dated July 1, 1977 with respect to the reorganization trustee's fees, I will consider the total allowance for the entire proceeding.
The total amount sought is $576,123.25 in counsels' fees and costs. The fees of the trustee, trustee's counsel, and all other reorganization expenses and all of the claims of unsecured creditors must be satisfied out of a fund amounting to $2,308,314. From this fund the following administrative expenses have been allowed, or are likely to be allowed:
Trustee $ 135,000.00
Attorney for trustee 300,000.00
Auditor (not yet considered;
amount sought) 58,256.09
____________
$ 493,256.09
The claims of unsecured creditors amount to a total of approximately $600,000; after this come the claims of Citibank's clients, $3,500,000; and, then, there are claims amounting to $3,200,000 which have been subordinated but are, nevertheless, due. Thus the funds on hand, after paying these administrative expenses, about $1,815,000, (less the amount allotted to Citibank), will satisfy only a fraction of the total claims.
Some of the services rendered by Citibank benefited only the debenture holders. Others were of benefit to the reorganization trustee or the reorganization estate. They were rendered over a period of six years and, as directed by the Court, Citibank has diligently attempted to determine the amounts of time its counsel spent in various aspects of this lengthy proceeding.
Citibank's counsel have throughout been able and diligent. Although this case was *1075 assigned to other judges prior to me, the services rendered after the case was allotted to me in 1976 have in every respect been of the highest quality. My duties with respect to the estate require me to comment on the amount of the claim, and to approve only a fraction of the sum sought as a charge against the estate, but these comments are in no way intended to qualify the praise I have already expressed.
I.
In 1938 Congress considered several bills to amend the Securities Act of 1933, which provided for regulation of trust indentures, to increase the responsibilities of indenture trustees, especially where the obligor on the debentures entered insolvency proceedings. These bills resulted in the passage of the Trust Indenture Act of 1939, 15 U.S.C. § 77aaa, et seq., (the "Act").
To provide more adequate protection for debenture holders with respect to issuers who became insolvent, the Act requires every qualified indenture[1] to impose certain duties on an indenture trustee in the event of the obligor's default under the terms of the indenture, for example, by the commencement of a reorganization proceeding. Section 315(c) of the Trust Indenture Act of 1939, 15 U.S.C. § 77ooo (c), in particular, requires indentures to provide (and this October 15, 1968, indenture does provide) that, upon the obligor's default, as defined in the indenture, the trustee is to exercise:
. . . such of the rights and powers vested in it by such indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
Accordingly, Citibank was required to act in accordance with the "prudent man" standard. Citibank conducted an independent and vigorous investigation into the reasons for the debtor's collapse. As a direct result of those efforts, the reorganization trustee was directed to bring an action against the former officers and directors of the debtor. A trial resulted in which counsel for the trustee acted as trial counsel, but Citibank's counsel played a major role in preparing for the trial and attended throughout; both Citibank's New Orleans counsel and New York counsel were in attendance. As a result of the trial, the claims of those officers and directors and the entities controlled by them were subordinated to the claims of the debenture holders and the trade creditors. Citibank's active participation in preparation for the trial was necessary and was of assistance to the trustee's counsel. But I do not believe that the personal attendance at the trial of New York counsel was required, and I believe that, throughout this case, in an effort to satisfy its duties to the debenture holders, Citibank rendered services far beyond the amount that benefited the reorganization trustee.
Citibank's initial vigorous representation of the debenture holders did alter the course of the proceeding in its earlier stages. Citibank objected to the claims that were eventually subordinated and, in the face of continuous opposition by other creditors, pressed for a speedy hearing on its objections. Judge Christenberry upheld Citibank's standing to object and granted the requested hearing. When that hearing was later consolidated for trial with the reorganization trustee's plenary action, Citibank was prepared to prove its case. Nevertheless, counsel for the reorganization trustee had a duty to act as lead trial counsel, and he, in fact, conducted the bulk of the examination of witnesses. Citibank's counsel assisted only in a relatively minor way in the examination of witnesses; they did introduce the majority of documents into evidence in what was, in large part, a "document" case, but these had been prepared and marshalled in advance of the trial.
In other facets of the reorganization, Citibank monitored the proceedings and participated actively in objecting to the claims of certain secured creditors whose claims, if *1076 sustained, would have seriously depleted the estate funds available for distribution to the debenture holders and other creditors.
II.
The indenture trustee is not a creditor, did not risk its own funds and is not reaping the rewards of any investment in an issuer. It is in the service business and provides services for a fee. Accordingly, and in keeping with the policy articulated in Section 315(c) of the Trust Indenture Act of 1939, 15 U.S.C. § 77ooo(c), that indenture trustees take an aggressive role in Chapter X proceedings, Congress included in its revision of the Bankruptcy Act a new Section 242, which provides:
The judge may allow reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred in connection with the administration of an estate in a proceeding under this chapter . . .
(1) by indenture trustees . . .
(3) by the attorneys or agents for any of the foregoing . . .
11 U.S.C. § 642.
Unlike claimants mentioned in Section 243, 11 U.S.C. § 643, those creditors and stockholder representatives specified in Section 242 need not show that their services are "beneficial to" the administration of the estate. Congress acknowledged that indenture trustees benefit the reorganization of an estate by their very participation under fiduciary standards. This does not mean, however, that Section 242 creditors are given carte blanche. They are to be reimbursed only for "proper costs and expenses incurred in connection with the administration."
The indenture trustee is, of course, free to seek in its contract with the obligor and the debenture holders additional provisions that would give it some promise of reimbursement for its expenses and compensation for those services not compensable from the estate. Typically, indentures provide that such reimbursement and payment shall, in the first instance, be made by the obligor. If payment is not made by the obligor, the indenture trustee has a lien on any moneys held by it for the account of the debenture holders (except those held in trust for payment of principal and interest upon the debentures), and has in addition a lien on all moneys collected by the indenture trustee from the obligor's estate for the benefit of the debenture holders.
The 1938 amendments go beyond prior standards and permit the allowance of costs not only for services that benefit the estate, but also for proper costs in connection with administration. However, it is implicit in the text of Section 242 that the reorganization estate is not responsible for services that are purely of benefit to the debenture holding creditors. Pre-amendment Section 242 cases had denied compensation for services held to be duplicative of the reorganization trustee's efforts, and some post-1938 cases did appear to articulate the same rule. See, e. g., Dickinson Industrial Site v. Cowan, 1940, 309 U.S. 382, 60 S. Ct. 595, 84 L. Ed. 819; In re Porto Rican American Tobacco Co., 2d Cir. 1941, 117 F.2d 599; In re Prudence Bonds Corp., 2d Cir. 1941, 122 F.2d 258. Thus, in Dickinson, the Court said:
The history of fees in corporate reorganizations contains many sordid chapters. One of the purposes of § 77B was to place those fees under more effective control. Buttressing that control was § 77B(c)(9) which, together with former § 24(b), made appeals from compensation orders discretionary with the appellate court. We should not depart from that policy in absence of a clear expression from Congress of its desire for a change. Fee claimants are either officers of the court or fiduciaries, such as members of committees, whose claims for allowance from the estate are based only on service rendered to and benefits received by the estate. (Emphasis supplied)
But, as set forth in Collier on Bankruptcy, the test under Section 242, as amended
. . . should not be so narrowly applied as it was under former § 77B. Nor *1077 is the test quite the same as it is in ordinary bankruptcy. Committees, individual creditors and stockholders, and other parties in interest may in the course of the reorganization perform valuable services in connection with the administration of the estate, apart from the plan, and this is recognized by §§ 242 and 243. In addition, activities which benefit the estate are not to be restricted merely to those which relate to the successful consummation of a plan, as was largely the case under § 77B. . . . This serves to insure the vigorous representation of all security holders and the protection of minority groups. Some courts, nevertheless, still display a tendency to find no compensable benefit where there is what is termed a `duplication of services' and to use this broadly as a basis for refusing allowances. While it is true that in a particular case there may be unnecessary duplication which would not be compensated or reimbursed, yet the courts should be wary lest reliance on the rule, particularly undiscriminating as applied under former § 77B, discourage the participation by minority groups and individuals which Chapter X invites. (Emphasis supplied)
6A W. Collier, Bankruptcy ¶ 13.02 at pp. 913-16 (14th Ed. 1972).
Various types of activities have been undertaken by Citibank as indenture trustee, some clearly beneficial to the estate, such as the investigation of the pre-petition activities of the corporate insiders, and others primarily of benefit to the debenture holders, such as the monitoring function and the advice rendered by the indenture trustee to the debenture holders. These services to debenture holders are services for which the issuer contracted, but it does not follow that they are to be paid for by the estate of the debtor. Such services are not rendered under the supervision of the bankruptcy court. No application is made to it for advance approval; it has no power to regulate their scope. The indenture trustee alone determines what shall be done and how much of it is required. It does whatever it deems necessary to protect the debenture holders. Whether and to what extent it should be paid is a matter between it and the debenture holders.
Services that are solely or primarily for the benefit of creditors are not proper costs to the estate even under Section 242. As suggested by Collier, the estate should repay "valuable services in connection with the administration of the estate apart from the plan" (emphasis supplied) as well as services that benefit the estate. The proper tests is that adopted in In re Yale Express System, Inc., S.D.N.Y. 1968, 281 F. Supp. 76, which found the services that were compensable those that were "reasonably necessary for administration and protection of the trust." 281 F.Supp. at 79.
Even in respect to those services, the indenture trustee has a duty to minimize expenses. If advice and services of a nature available only in New York are required, then the indenture trustee should seek services there and pay the going New York rate for them. But where competent and reliable counsel can be found at a lower rate in the forum of the reorganization court, and hourly charges, travel expense and other costs can be minimized by employing local counsel, it is the duty of the indenture trustee to employ local counsel so as to minimize expenses. If it chooses not to do so, then it is the duty of the court to charge the estate only with the expense that would have been incurred for services of a kind and quality reasonably necessary.
I have considered all of the factors set forth in the opinion with respect to the reorganization trustee's fee because they are equally applicable here. I have considered also the amount of assets on hand and the extent the services rendered either benefited the estate or were proper costs in its administration. Under these tests, the amount that will be recognized as due Citibank from the estate is $150,000 total, to include services and expenses.
NOTES
[1] For reasons that do not affect this opinion, the indenture issue was never qualified. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1991904/ | 348 Pa. Super. 17 (1985)
501 A.2d 277
Albert J. AIKENS, Richard J. Aikens, Clifford M. Aikens, Michael J. Alloe, Helen Arble, Harold E. Bailey, Eugene Baker, Martha Kay Baker, Donna J. Banyas, Fred Barton, Michael D. Bateman, Dennis Beldin, George Benec, John D. Benec, Reginald Bethune, John Bey, Harold John Blakely, Benjamin Brown, Jr., James P. Bucci, Ronald J. Bure, Alice Burgett, Sigmonda Catalone, Eiljah Chapman, Chea Chhim, Richard Chop, Edward D. Collington, Glenn Connell, Juanita E. Connor, Annabelle Cooper, Thelma A. Cox, David Creighton, Jesse Cummings, Robert E. Cummings, Robert Earl Cummings, Jr., Eddie Cunningham, Cheryl Delucia, Samuel L. Demark, Claudino T. Devito, Maureen Disiena, Dennis T. Donaldson, William R. Dow, Lois F. Eckenroad, Ronald Farren, Michael G. Felton, Jr., Don Fetsick, Richard T. Fetsick, Thomas L. Fetsick, James R. Fields, Jean M. Fields, John R. Finnigan, Ozzie W. Fletcher, Patricia Focht, Robert L. Gay, Ellen Goldsmith, Bryan K. Goodrow, James D. Gregory, Sandra Gregory, Dale Griffith, James Grovanz, David Hallawell, John Harden, Elyah Harrier, Mackina Harrier, Harry D. Hart, Charles J. Hartman, Jr., Paul E. Haviland, Jack A. Helsel, Kiem Hoang, Stephen L. Irwin, Sylvia V. Ives, James L. Jackson, Ada Johnson, Doris A. Johnson, Maxine D. Johnson, Edna S. Jordan, Paul J. Kamats, Marcel L. Kanewski, David Allen Keller, Delores Keslar, Bernard C. Kinner, Susan Kline, Darryl Kountz, Nicholas Krul, Leo J. Kurp, Frank Lamanna, Earl E. Lanious, Alex Lapinski, Alexander Lapinski, Jr., Joyce A. Lee, Harry M. Lindsey, Jr., Sara L. Lucas, William Lynch, Lawrence C. Macklin, Harry E. Mansfield, Wayne L. Mapp, Frederick C. Marshall, Victoria L. Marshall, Joseph N. Martis, Stephen A. Maszle, Eugene E. McAdams, Carl A. McCourt, Vivian McFall, Raymond McFeaters, Martha Miller, Ethel Milton, James Milton, Gerald W. Moate, Joyce Moore, Linda K. Moore, Roselie Moore, May Moua, Patrick J. Mullen, Alfred M. Neenan, Phat Nguren, Roger Nichols, Thomas M. Nowakowski, Thomas E. Oliver, Terry J. O'Neill, William H. Pennington, Dennis Pesock, Ricky L. Purchell, William L. Putt, Robert C. Ribich, James R. Richards, Robert S. Ridley, Yvonne Rose, Thomas L. Rossman, Sr., Clarence E. Sabin, Donald L. Schorr, Samuel L. Seabolt, Jayanti K. Shah, Thomas Shirley, Gary Wayne Skowron, Franklin R. Smalls, Jack T. Smith, Norman Smith, Stephen L. Snyder, Frank Staszak, Jr., Charlotte Stevens, Howard Stuart, Linda A. Stuart, Joseph C. Studer, Joseph Szewoow, Janet Tartaglia, John Teates, Arnold J. Thomas, Timothy A. Vargo, Cyril Waddington, Joseph W. Walczak, Jr., Robert R. Walker, Steven Wheatley, Alexander Whitaker, Frank G. Wolfanger, John M. Yahnite, Donald Yoder, Bernard R. Zikefoose, Boa Pham Phuoc, Ronald R. Zimmerman, Lillie L. Beasley, Robert J. Yaremko, Benjamin F. Williams, Frank J. Lach, Leroy Brown, Alfred E. Stunkey, Rita M. Glasser, Hoa Duc Pham, Baqphuoc Pham, Wilhelminia Jo Peterson, Martin J. Doherty, Roy F. Titchenell, Joseph W. Mills, William F. Lynch, Joseph Kossarth and Tony C. Doan, Appellants,
v.
BALTIMORE AND OHIO RAILROAD COMPANY, A Corporation, and its Parent, Chessie System, Inc., and Pittsburgh and Lake Erie Railroad Company, Appellees.
Supreme Court of Pennsylvania.
Argued September 12, 1985.
Filed November 29, 1985.
*19 Michele M. Lally, Pittsburgh, for appellants.
Theresa Homisak, Pittsburgh, for appellees.
Before OLSZEWSKI, POPOVICH and MONTGOMERY, JJ.
OLSZEWSKI, Judge:
This appeal follows an order by the Court of Common Pleas of Allegheny County, Civil Division, which granted judgment on the pleadings to the appellees and dismissed appellants' complaint. Appellants, employees of the Motor Coils Manufacturing Company, Inc., brought suit seeking damages for lost wages, alleging that appellees' negligence caused a train derailment which damaged the Motor Coils plant. As a result of the derailment, production at the plant was curtailed and appellants suffered loss of work and wages. Appellants did not suffer personal injury or property damage from the derailment.
On appeal, the appellants raise two issues. First, appellants argue that Pennsylvania should recognize a cause of *20 action to compensate a party suffering purely economic loss, absent any direct physical injury or property damage, as a result of the negligence of another party. We find this argument to be without merit.
The general rule is stated in the Restatement (Second) of Torts Sec. 766C:
Negligent Interference with Contract or Prospective Contractual Relation. One is not liable to another for pecuniary harm not deriving from physical harm to the other, if that harm results from the actor's negligently
(a) causing a third person not to perform a contract with the other, or
(b) interfering with the other's performance of his contract or making the performance more expensive or burdensome, or
(c) interfering with the other's acquiring a contractual relation with a third person.
Thus, recovery for purely economic loss occasioned by tortious interference with contract or economic advantage is not available under a negligence theory. Local Joint Executive Board of Las Vegas v. Stern, 98 Nev. 409, 651 P.2d 637 (1982). A cause of action exists in this situation only if the tortious interference was intentional or involved parties in a special relationship to one another. See Petition of S.C. Loveland, Inc., 170 F. Supp. 786 (E.D.Pa. 1959); W. Prosser, Handbook of the Law of Torts Sec. 130 (4th Ed. 1971).
The roots of this well-established rule reach back to the United States Supreme Court decision of Robins Dry Dock and Repair Company v. Flint, 275 U.S. 303, 48 S. Ct. 134, 72 L. Ed. 290 (1927). Writing for the Court, Mr. Justice Holmes stated:
(A)s a general rule, at least, a tort to the person or property of one man does not make the tort-feasor liable to another merely because the injured person was under a contract with that other unknown to the doer of the wrong. The law does not spread its protection so far. *21 275 U.S. at 309, 48 S. Ct. at 135, 72 L.Ed. at 292. Therefore, negligent harm to economic advantage alone is too remote for recovery under a negligence theory. The reason a plaintiff cannot recover stems from the fact that the negligent actor has no knowledge of the contract or prospective relation and thus has no reason to foresee any harm to the plaintiff's interest. See General Foods Corp. v. United States, 448 F. Supp. 111 (D.Md. 1978); Just's, Inc. v. Arrington Construction Company, 99 Idaho 462, 583 P.2d 997 (1978); Stevenson v. East Ohio Gas Co., 73 N.E.2d 200 (Ohio App. 1946).
Recently, the Georgia Court of Appeals was faced with a factual setting quite similar to the case at bar. In Willis v. Georgia Northern Railway Company, 169 Ga. App. 743, 314 S.E.2d 919 (1984), the appellants were employees of a plant which was damaged when eight loaded railcars owned by the appellee railroad broke free and rolled into the plant. The plant employees sued the railroad for lost wages. The Georgia Court held that the employees' right to wages existed by virtue of their relationship with the plant and not the railroad. Thus, loss of wages was not a probable consequence of the railroad's negligence and the damages claimed were too remote. Id. We find this reasoning persuasive.
Finally, we note that allowance of a cause of action for negligent interference with economic advantage would create an undue burden upon industrial freedom of action, and would create a disproportion between the large amount of damages that might be recovered and the extent of the defendant's fault. See Restatement (Second) of Torts Sec. 766C, comment a (1979). To allow a cause of action for negligent cause of purely economic loss would be to open the door to every person in the economic chain of the negligent person or business to bring a cause of action. Such an outstanding burden is clearly inappropriate and a danger to our economic system.
Accordingly, we decline appellants' invitation to adopt the reasoning of the California Supreme Court in *22 J'Aire Corp. v. Gregory, 24 Cal. 3d 799, 157 Cal. Rptr. 407, 598 P.2d 60 (1979), and to extend negligence liability to embrace purely economic loss. Such an extension would clearly lead to problems in consistency and foreseeability, and could be harmful in scope. Instead, we adopt the majority rule of the Restatement (Second) of Torts Sec. 766C, and hold that no cause of action exists for negligence that causes only economic loss.
Appellants' second argument is that the trial court erred in granting appellees' motion for judgment on the pleadings because there were genuine issues of material fact in dispute between the parties. We note that judgment on the pleadings can be awarded on the basis that the appellants failed to state a cause of action. Enoch v. Food Fair Stores, Inc., 232 Pa.Super. 1, 331 A.2d 912, 914 (1974). If appellants attempt to recover on a theory which is not recognized as a matter of law, a grant of judgment on the pleadings is proper. Id. In such case, a trial would surely be a "fruitless exercise." Keil v. Good, 467 Pa. 317, 356 A.2d 768, 769 (1976). Given this Court's finding today that no cause of action exists for negligence which results in only economic loss, judgment on the pleadings is proper, and appellants' arguments are meritless.
Order affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2206454/ | 413 Mich. 371 (1982)
319 N.W.2d 537
PEOPLE
v.
WESTON
Docket No. 65995.
Supreme Court of Michigan.
Decided May 25, 1982.
Frank J. Kelley, Attorney General, Louis J. Caruso, Solicitor General, Robert L. Kaczmarek, Prosecuting Attorney, and Kay F. Pearson, Assistant Prosecuting Attorney, for the people.
Nora J. Pasman, Assistant State Appellate Defender, for defendant.
PER CURIAM:
MCL 766.4; MSA 28.922 requires that a magistrate "set a date for a preliminary examination not exceeding 12 days" after the day on which a person charged with a crime is brought before the magistrate. There is no question in this case that the date set was more than 12 days after the defendant appeared in the district court. The magistrate was therefore required to discharge the defendant without prejudice to the prosecutor's right to later initiate an action against him.
I
The defendant was arrested on September 4, 1978, and charged with armed robbery[1] and possession of a firearm during the commission of a felony.[2] He appeared before the district judge on *373 September 6, and the preliminary examination was scheduled for September 20, 1978, fourteen days later. It was adjourned until October 4, 1978. At the beginning of the examination on that date, defense counsel said:
"Defense is ready, your Honor. I would however like to point out to the court that preliminary examination in this matter was originally scheduled on September 20, 1978, the matter was adjourned by the court. This was not at the request of Mr. West, and [sic, he?] would have preferred to proceed under the 12-day rule."
The defendant was nevertheless bound over on both charges. The felony-firearm charge was dismissed by stipulation before trial. A jury subsequently found the defendant guilty of armed robbery.
The defendant continued his challenge to the scheduling of the preliminary examination in the Court of Appeals. That Court found no error requiring reversal because "we are not persuaded that defendant suffered any prejudice due to the delay". After the defendant filed a request for review[3] in this Court, we issued an order directing the prosecutor to show "why the defendant's conviction should not be reversed because of the delay in conducting the preliminary examination". The prosecutor's response and a reply by the defendant are now before us.
There is no explanation on the record why the preliminary examination was not initially scheduled until the 14th day or why it was adjourned *374 for an additional 14 days.[4] The defendant was incarcerated during the entire period.
II
MCL 766.4; MSA 28.922 provides:
"The magistrate before whom any person is brought on a charge of having committed a felony shall set a day for a preliminary examination not exceeding 12 days thereafter, at which time a magistrate shall examine the complainant and the witnesses in support of the prosecution, on oath in the presence of the accused, in regard to the offense charged and in regard to any other matters connected with the charge which the magistrate considers pertinent."[5]
The legislative significance attached to a prompt preliminary examination is underscored by the strict limitation on any delay contained in MCL 766.7; MSA 28.925:
"An adjournment, continuance, or delay of a preliminary examination shall not be granted by a magistrate except for good cause shown. A magistrate shall not adjourn, continue, or delay the examination of any cause by the consent of the prosecution and accused unless in his discretion it shall clearly appear by a sufficient showing to the magistrate to be entered upon the record that the reasons for such consent are founded upon strict necessity and that the examination of the cause cannot then be had, or a manifest injustice will be done. An action on the part of the magistrate in *375 adjourning or continuing any case, shall not cause the magistrate to lose jurisdiction of the case."
The examining magistrate is to bring the preliminary examination "to a final determination without delay except as it may be necessary to secure to the accused a fair and impartial examination". MCL 766.1; MSA 28.919.
We have not previously addressed this issue. The Court of Appeals has developed the principle that noncompliance with MCL 766.4; MSA 28.922 is not error requiring reversal unless the defendant can show prejudice from the delay. Despite its repeated application,[6] none of the cases provide a reasoned basis for the "no prejudice/no reversible error" rule. One of the earlier cases[7] cited People v Donald D Williams, 2 Mich. App. 91; 138 NW2d 498 (1965), but Williams discussed prejudice in the context of denial of a speedy trial claim. The analysis of a speedy trial issue in which the relief granted is the defendant's discharge and a bar to further prosecution[8] is far different from the analysis here in which the relief to be granted is the defendant's discharge without a bar to further prosecution.[9] Another of the early Court of Appeals cases[10] relied on the miscarriage of justice *376 statute.[11] We are unable to apply this more general statute in the face of an unqualified statutory command that the examination be held within 12 days.
A preliminary examination functions, in part, as a screening device to insure that there is a basis for holding a defendant to face a criminal charge.[12] A defendant against whom there is insufficient evidence to proceed should be cleared and released as soon as possible. The notion that a presumptively innocent defendant should remain in custody until a convenient time arrives for the magistrate to conduct the preliminary examination is exactly what the Legislature precluded in MCL 766.1; MSA 28.919.
The failure to comply with the statute governing the holding of the preliminary examination entitles the defendant to his discharge. Since literal enforcement of the statute "does not affect the integrity of the fact-finding process",[13] we give the decision prospective effect; it applies to this case and to a defendant arraigned on a felony arrest warrant after the date on which this opinion is filed.
In lieu of granting leave to appeal, pursuant to GCR 1963, 853.2(4), we reverse the defendant's conviction and order his discharge from custody, without prejudice to the prosecutor's right to reinstate a prosecution against him.
COLEMAN, C.J., and KAVANAGH, WILLIAMS, LEVIN, FITZGERALD, RYAN, and BLAIR MOODY, JR., JJ., concurred.
NOTES
[1] MCL 750.529; MSA 28.797.
[2] MCL 750.227b; MSA 28.424(2).
[3] 400 Mich. lxvii.
[4] The prosecutor has provided an extra-record affidavit of the 70th District Court assignment clerk asserting that the court's records show that all judges "were conducting jury trials" during the period September 19-22, 1978. This affidavit is of questionable value. People v Robinson, 390 Mich. 629, 632, fn 1; 213 NW2d 106 (1973).
[5] The 12-day period was expanded from the former time of 10 days by 1970 PA 213.
[6] See, e.g., People v Wickham, 13 Mich. App. 650; 164 NW2d 681 (1968); People v Linscott, 14 Mich. App. 334; 165 NW2d 514 (1968); People v Spalding, 17 Mich. App. 73; 169 NW2d 163 (1969); People v Grasty, 21 Mich. App. 106; 174 NW2d 860 (1970); People v Munn, 25 Mich. App. 165; 181 NW2d 28 (1970); People v Connors, 27 Mich. App. 47; 183 NW2d 348 (1970); People v Robinson, 41 Mich. App. 259; 199 NW2d 878 (1972); People v Pulley, 37 Mich. App. 715; 195 NW2d 283 (1972); People v Bersine, 48 Mich. App. 295; 210 NW2d 501 (1973); People v Haines, 105 Mich. App. 213; 306 NW2d 455 (1981).
[7] Spalding, supra, 17 Mich. App. 76.
[8] Strunk v United States, 412 U.S. 434; 93 S. Ct. 2260; 37 L. Ed. 2d 56 (1973).
[9] See, e.g., United States v Gogarty, 533 F2d 93, 95 (CA 2, 1976).
[10] Grasty, supra, 21 Mich. App. 107.
[11] MCL 769.26; MSA 28.1096.
[12] See, e.g., People v Duncan, 388 Mich. 489, 501; 201 NW2d 629 (1972).
[13] People v Young, 410 Mich. 363, 367; 301 NW2d 803 (1981). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1862825/ | 326 B.R. 441 (2005)
In re Raymond L. WOODCOCK, Debtor.
Raymond L. Woodcock, Plaintiff-Appellant,
v.
U.S. Department of Education, Defendant-Appellee.
No. 04-6079WM.
United States Bankruptcy Appellate Panel of the Eighth Circuit.
Submitted: March 1, 2005.
Filed: March 21, 2005.
*442 *443 *444 Raymond Woodcock, Columbia, Missouri, pro se.
E. Eugene Harrison, Kansas City, Missouri, for appellee.
Before KRESSEL, Chief Judge, SCHERMER and MAHONEY, Bankruptcy Judges.
KRESSEL, Chief Judge.
The debtor, Raymond L. Woodcock, appeals from the judgment of the bankruptcy court[1] denying his motion for relief from a judgment. Because we conclude that the bankruptcy court did not abuse its discretion, we affirm.
BACKGROUND
Woodcock obtained $20,000 in Stafford student loans from Chemical Bank to attend law school at Columbia University. The loans were guaranteed by New York State Higher Education Services Corporation. There were four loans of $5,000 each, evidenced by four promissory notes executed by Woodcock on September 24, 1979, May 21, 1980, June 16, 1981, and April 7, 1982.
On April 21, 1992, Woodcock filed bankruptcy under Chapter 7 of the Bankruptcy Code in the District of Colorado. In August of 1992, Woodcock brought an adversary proceeding seeking to determine the dischargeability of his student loan debts. In January of 1993, the United States Bankruptcy Court for the District of Colorado ruled that Woodcock's student loans were not dischargeable under 11 U.S.C. § 523(a)(8). Woodcock filed a motion for reconsideration which was denied. He then appealed to the United States District Court for the District of Colorado. On February 17, 1994, the district court affirmed. Woodcock then appealed to the Tenth Circuit Court of Appeals. On January 6, 1995, the Tenth Circuit affirmed the decision of the district court, holding that the loans would not pose an undue hardship for the debtor, but remanded the case to the bankruptcy court for a determination of whether the NYSHESC had suspended the debtor's repayment period, thus affecting discharge under 11 U.S.C. § 523(a)(8)(A).[2] Woodcock then filed a petition for certiorari with the U.S. Supreme Court as to the undue hardship determination. On October 2, 1995, the Supreme Court denied his petition.
On May 17, 1995, Woodcock filed a motion in the bankruptcy court for summary judgment as to the suspension issue. The bankruptcy court granted Woodcock's summary judgment in part, holding that his fourth loan exceeded the maximum period and was, therefore subject to discharge. The bankruptcy court otherwise denied Woodcock's motion, holding that there were applicable suspensions of repayment on his first three loans and excepting the loans from discharge. Woodcock appealed to the district court again. The district court denied his motion for a change of venue and dismissed the appeal *445 for failure to prosecute. Woodcock appealed this decision to the Tenth Circuit Court of Appeals, which reversed and remanded based on the failure of the district court to state the reasons for dismissal. On September 18, 1997, on remand, the district court affirmed the order of the bankruptcy court denying discharge on the three remaining student loans. Woodcock appealed this decision to the Tenth Circuit and that court, on June 22, 1998, affirmed. Woodcock filed another petition for certiorari and on January 11, 1999, the Supreme Court denied the petition.
Woodcock defaulted on his student loan obligations to NYSHEC, and it filed a claim for assignment with the U.S. Department of Education. On June 13, 2001 and July 26, 2001, Woodcock's student loans were assigned to the U.S. Department of Education.
On April 27, 2001, Woodcock filed a motion to reopen the adversary proceeding. On April 5, 2002, he filed a "Motion to Discharge Debts to Specific Parties." Since it was now the holder of the student loans, the U.S. Department of Education moved to be substituted as the defendant in the adversary proceeding. On May 20, 2002, the U.S. Bankruptcy Court for the District of Colorado held a hearing on the motions. In a September 18, 2002 order, the bankruptcy court reopened the adversary proceeding, substituted the U.S. Department of Education as the defendant and granted Woodcock's motion to transfer venue to the U.S. Bankruptcy Court for the Western District of Missouri. The court, however, did not address Woodcock's motion to discharge debts, leaving that motion for the Missouri court.
After transfer of the case, on February 27, 2003, the U.S. Department of Education filed a motion to dismiss the reopened adversary proceeding, arguing that principles of res judicata required dismissal.[3] On June 12, 2003, the United States Bankruptcy Court for the Western District of Missouri issued an amended order to show cause why the case should not be dismissed for lack of subject matter jurisdiction. On July 7, 2003, Woodcock filed a response.
On July 28, 2003, the bankruptcy court entered an order of dismissal, finding that Woodcock's response did not adequately address the jurisdictional question. On August 4, 2003, Woodcock filed a motion to alter or amend the judgment, and requested that the court allow him to pursue an independent action or seek relief under Rule 60(b). On August 13, 2003, the bankruptcy court stated that it had no jurisdiction and denied Woodcock's motion. Woodcock appealed from the July 28 and the August 13, 2003 orders. We held that the bankruptcy court has jurisdiction and reversed the dismissal. Woodcock v. U.S. Dept. of Educ. (In re Woodcock), 301 B.R. 530 (8th Cir. BAP 2003).
After our reversal of the dismissal, the bankruptcy court was faced with a myriad of motions. In a series of orders dated October 6, 2004, the bankruptcy court denied Woodcock's motion to discharge debts as to specific parties, his motion for a determination of dischargeability, his motion to reopen and motion for summary judgment, his motion for reconsideration of the order of substitution, and his motion for sanctions. It also denied the Department of Education's motion to strike *446 Woodcock's motion for summary judgment.
Lastly, on October 6, 2004, the bankruptcy court entered a lengthy, detailed opinion in which it denied Woodcock's request for relief from the final judgment and his motion for summary judgment. Woodcock v. U.S. Dept. of Educ. (In re Woodcock), 315 B.R. 487 (Bankr.W.D.Mo.2004). The clerk entered a judgment to that effect on the same day. Woodcock appeals from this judgment.
STANDARD OF REVIEW
We view the bankruptcy court's decision to deny motions under Fed.R.Civ.P. 60 for an abuse of discretion. Browder v. Director, Dep't of Corrections, 434 U.S. 257, 263 n. 7, 98 S.Ct. 556, 54 L.Ed.2d 521 (1978); Printed Media Serv., Inc. v. Solna Web, Inc., 11 F.3d 838, 842 (8th Cir.1993).
DISCUSSION
While cast in the rubric of Rule 60, at bottom, all of Woodcock's arguments boil down to claims that the Colorado bankruptcy court got it wrong. It was wrong because it misunderstood the facts, or it was wrong because it misapplied the law, or it was wrong because it did not have all of the facts, or, most fundamentally, its decision that excepting Woodcock's student loans from his discharge would not constitute an undue hardship turns out, in hindsight, to have been wrong. Woodcock even backhandedly attacks the bankruptcy judge's character by referring to a newspaper article about the Tenth Circuit's decision not to reappoint her. These mistakes all were, could have been, and certainly should have been the subject of appeals. They are not proper grounds for a collateral attack at this late juncture.
Having said this, we turn, as the bankruptcy court did, to address the particular arguments made by Woodcock, although in less detail, because the bankruptcy court has effectively and appropriately disposed of each one.
Federal Rule of Civil Procedure 60(b)
Rule 60(b) of the Federal Rules of Civil Procedure is made applicable to bankruptcy proceedings under Federal Rule of Bankruptcy Procedure 9024. A Rule 60(b) motion will only be granted "upon an adequate showing of exceptional circumstances" Paige v. Sandbulte, 917 F.2d 1108 (8th Cir.1990). It is used only sparingly with an intent to preserve "the delicate balance between the sanctity of final judgments . . . and the incessant command of the court's conscience that justice be done in light of all the facts" Rosebud Sioux Tribe v. A & P Steel, Inc., 733 F.2d 509, 515 (8th Cir.1984) quoting, Bankers Mortgage Co. v. U.S., 423 F.2d 73, 77 (5th Cir.1970). It is used sparingly when the issues have been carefully analyzed and a judgment has been rendered. In re DEF Invs., Inc., 186 B.R. 671, 682 (Bankr.D.Minn.1995).
Rule 60(b)(3)
Woodcock has apparently abandoned his argument under Rule 60(b)(3), which is just as well. Under Rule 60(b)(3), a court may relieve a party from a final judgement for "fraud, misrepresentation, or other misconduct of an adverse party." Fed.R.Civ.P. 60(b)(6). A motion under this rule is however, time barred if it is not "made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken." Fed.R.Civ.P. 60(b).
The Bankruptcy Court for the District of Colorado issued an order on Woodcock's motion for summary judgment on February 9, 1996. The District Court affirmed *447 the bankruptcy court's order on September 18, 1997. The Tenth Circuit entered its order affirming the district court on June 22, 1998. Finally the Supreme Court denied Woodcock's petition on January 11, 1999.
Woodcock filed the motion to reopen the case on April 27, 2001, more than two years after the latest order. No matter how you compute it, this is well beyond the one year time limitation allowed for seeking relief under Rule 60(b)(3).
Rule 60(b)(5)
Woodcock seeks relief under Rule 60(b)(5). Rule 60(b)(5) provides that a court may relieve a party from a final judgment or order if "it is no longer equitable that the judgment should have prospective application." Fed.R.Civ.P. 60(b)(5). Generally relief is granted only when "new and unforeseen conditions" cause "extreme and unexpected hardship" so that the "decree is oppressive." Assoc. of Retarded Citizens of North Dakota v. Sinner, 942 F.2d 1235, 1239 (8th Cir.1991) quoting U.S. v. City of Fort Smith, 760 F.2d 231, 233 (8th Cir.1985).
Woodcock's argument may be summarized as a complaint that the Colorado bankruptcy court incorrectly estimated the debtor's reasonably reliable future financial resources when doing a dischargeability analysis for undue hardship under 11 U.S.C. § 523(a)(8).
11 U.S.C. § 523(a)(8) provides an exception for "an educational benefit overpayment or loan made . . . unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependants." At the time of the Colorado bankruptcy court's decision, the Tenth Circuit had not adopted a test for determining undue hardship under 11 U.S.C. § 523(a)(8). In the Tenth Circuit, undue hardship was something more than inconvenience or doing without luxuries, it should be based on an inability to earn and not simply a reduced living standard. Educ. Credit Management Corp. v. Polleys, 356 F.3d 1302, 1306 (10th Cir.2004). The Tenth Circuit has since adopted the Brunner test. Id. at 1309.
The Colorado bankruptcy court and the Tenth Circuit did analyze Woodcock's circumstances and took into account his ability to obtain and retain employment to determine his reasonably reliable future financial condition. The Colorado Bankruptcy Court noted that Woodcock graduated from Columbia Law School in 1982 and later received his Masters in Business Administration from Columbia University in 1983 and appears to be a "very capable, articulate and highly educated young man." Based on that information the court concluded that the debtor had the ability to pay his loans with future income.
The fact that Woodcock's economic circumstances have not improved does not provide an opportunity for him to collaterally attack a final judgment. This amounts to nothing more than an argument that the Colorado court was wrong. However, its determination was based on his ability to earn, not necessarily a prediction that he would. The bankruptcy court made a determination of undue hardship based on information given to it at the time of discharge. The determination of dischargeability is best made at the time of discharge. Bender v. Educ. Credit Management Corp. (In re Bender), 368 F.3d 846 (8th Cir.2004). Determination of an undue hardship is an inherently discretionary one that takes into account the circumstances at the relevant time. Id. at 848.
We agree with the bankruptcy court that Woodcock is not entitled to relief under Rule 60(b)(5).
*448 Rule 60(b)(6)
Woodcock argues that he is entitled to relief under Rule 60(b)(6) because a fraud was perpetrated on the court. Rule 60(b)(6) allows a court, upon a motion, to "relieve a party from a final judgement, order or proceeding . . . [for] any other reason justifying relief from the operation of the judgment." There is no time limitation on requests for relief brought under this subsection. Fed.R.Civ.P. 60(b)(6). However, relief under Rule 60(b)(6) will only be granted in extraordinary cases. Hepper v. Adams County, 133 F.3d 1094, 1096 (8th Cir.1998). Use of subsection 6 is not a means by which a party may avoid the time limitation placed upon subsections 1, 2, and 3. Middleton v. McDonald, 388 F.3d 614, 616 (8th Cir.2004).
Fraud on the court is "characterized as a scheme to interfere with the judicial machinery performing the task of impartial adjudication, as by preventing the opposing party from fairly presenting his case or defense." Landscape Properties, Inc. v. Vogel, 46 F.3d 1416, 1422 (8th Cir.1995). A finding of fraud on the court is justified only in the most egregious misconduct directed to the court itself. Greiner v. City of Champlin, 152 F.3d 787, 789 (8th Cir.1998). The standard for fraud on the court is distinct from the mere general fraud standard of Rule 60(b)(3). Id.
The Ninth Circuit has defined fraud on the court as a species of fraud that "defiles the court itself . . . so that the judicial machinery can not perform in the usual manner". The court goes on to say that fraud, without more, should have redress under a motion pursuant to Rule 60(b)(3). Toscano v. C.I.R., 441 F.2d 930, 933 (9th Cir.1971). Woodcock's allegations against the parties to the adversary proceeding do not begin to approach this standard.
Fraud on the court does not seem to be grounds for relief under 60(b)(6). Fraud on the court appears in the savings clause of the rule that "does not limit the power of the court to entertain an independent action . . . to relieve a party . . . for fraud on the court" Fed.R.Civ.P. 60(b). The Eighth Circuit in Greiner, 152 F.3d at 788-789 indicates that fraud on the court is a separate equitable action and not grounds for relief under Rule 60(b). "The appellants therefore bring this independent action in reliance on the savings clause in Rule 60(b), which states that Rule 60(b) does not preempt a court's power to entertain an action for fraud on the court." Greiner, 152 F.3d at 788-789.
As the Missouri bankruptcy court makes clear, Woodcock's argument about fraud and misrepresentation are covered by Rule 60(b)(3) and barred by the one year time limit of Rule 60(b). His claims do not amount to a fraud on the court and are not grounds for relief under Rule 60(b)(6).
Woodcock also argues that providing him relief under his current motion would save him the time and expense of filing bankruptcy again in the Western District of Missouri. He argues that this court grant him relief in the interests of judicial economy. We do not address this argument but note we are bound by precedent in the Eighth Circuit which saves relief under Rule 60(b) for exceptional circumstances, which Woodcock has not met.
CONCLUSION
For the reasons stated above, we conclude that the bankruptcy court did not abuse its discretion and we affirm the Bankruptcy Court's judgment denying relief under Federal Rule of Civil Procedure 60(b).
NOTES
[1] The Honorable Dennis R. Dow, United States Bankruptcy Judge for the Western District of Missouri.
[2] Under 11 U.S.C. § 523(a)(8)(A), applicable to this proceeding, a discharge under 11 U.S.C. § 727 discharged an individual debtor from any debt for an educational loan if such loan first became due more than five years (exclusive of any applicable suspension of the repayment period) before the date of filing the petition. Thus, "dischargeability turned on the critical factor of whether there [were] `any applicable suspension[s] of the repayment period . . .'" Woodcock v. Chem. Bank (In re Woodcock), 45 F.3d 363, 367 (10th Cir.1995) (quoting Huber v. Marine Midland Bank, N.A. (In re Huber), 169 B.R. 82 (Bankr.W.D.N.Y.1994)).
[3] In our earlier opinion, we expressed our doubt that the Department of Education really wanted the adversary proceeding dismissed after all this time. In subsequent proceedings, the bankruptcy court treated the Department of Education's motion as an objection to Woodcock's motion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2313472/ | 956 A.2d 386 (2008)
403 N.J. Super. 58
In the Matter of Kenneth R. MARTINEZ.
No. A-0090-07T2.
Superior Court of New Jersey, Appellate Division.
Argued September 8, 2008.
Decided September 30, 2008.
*387 Craig S. Gumpel, Livingston, argued the cause for appellant Kenneth R. Martinez (Fox and Fox, LLP, attorneys; Mr. Gumpel, of counsel and on the brief; Benjamin Benson, on the brief).
Sean D. Dias argued, Lyndhurst, the cause for respondent City of Passaic (Scarinci & Hollenbeck, LLC, attorneys; Mr. Dias, of counsel and on the brief).
*388 Lisa Dorio Ruch, Deputy Attorney General, argued the cause for respondent Merit System Board (Anne Milgram, Attorney General, attorney; Pamela N. Ullman, Deputy Attorney General, on the statement in lieu of brief).
Before Judges CARCHMAN, R.B. COLEMAN and SABATINO.
The opinion of the court was delivered by SABATINO, J.A.D.
Kenneth R. Martinez, a Fire Captain in the City of Passaic ("the City"), appeals a final agency decision of the Merit System Board ("the Board") dated July 27, 2007. The Board's decision rejected Martinez's challenge to the promotion of another Fire Captain over him to Deputy Fire Chief, despite that other individual's lack of the requisite prior time-in-grade as a Captain. We affirm the Board's decision in part, vacate it in part, and remand the matter for further administrative action consistent with this opinion.
I.
Appellant Martinez has been employed in the City's Fire Department since 1990. He presently is one of several Captains in the Department. The rank of Captain is below the rank of Deputy Fire Chief.
On December 1, 2005, the City announced that a civil service examination would be administered for promotion to Deputy Fire Chief. For eligibility purposes, the promotional examination had a "closing date" of February 28, 2006.
According to the pertinent civil service criteria, an applicant must serve at least one year at the Captain's rank, as of the closing date, in order to be eligible to sit for the Deputy Chief examination.[1] It is undisputed that Martinez had accumulated more than a year of such continuous service as a Captain as of February 28, 2006, and therefore was eligible to take the Deputy Chief examination.
After submitting timely applications, Martinez and others in the Department sat for the Deputy Chief promotional examination on March 30, 2006.[2] The exams were then scored. Based on that scoring, Martinez was ranked first among the eligible non-veterans who took the examination. A promotional list reflecting that ranking, listing Martinez first, was promulgated by the State Department of Personnel on June 22, 2006.
On February 1, 2007, the City's incumbent Fire Chief retired. He was replaced as Chief by Deputy Chief Patrick Trentacost. Trentacost's elevation to Chief thus created a vacancy in the title of Deputy Chief. The following day, February 2, Trentacost issued an internal memorandum temporarily designating Martinez as Acting Deputy Chief "until further notice." Martinez assumed those duties for about two months. The City did not, however, take any action to make Martinez's promotion permanent.
As it turned out, the reason that Martinez was not appointed Deputy Chief was because the City was separately arranging for another candidate, Captain Christopher Szczygiel, to receive the promotion. The *389 relevant circumstances involving Szczygiel are as follows.
As of 2004, Szczygiel held the rank of Lieutenant within the Department. That same year, Szczygiel was ranked second on a promotional list for Captain. When vacancies in the Captain's rank were filled from that list, the City bypassed Szczygiel and instead appointed several lower-ranked individuals.[3] These events led Szczygiel to challenge his bypass in adversarial proceedings. Specifically, Szczygiel filed an administrative appeal before the Merit System Board, as well as a civil action in the Law Division against the City, the Mayor, and various other individuals. While those litigation matters were pending, Szczygiel was eventually elevated to Captain on April 11, 2005.
When the announcement for the Deputy Chief examination was circulated in December 2005, Szczygiel decided to pursue the promotion and sit for the test. He did so even though he had only been a Captain since April 2005 and would not have the one-year-in-grade qualification mandated by N.J.A.C. 4A:4-2.6(a)(1) as of the exam's February 28, 2006 closing date. Nonetheless, Szczygiel sat for the March 2006 exam with the other test-takers, including Martinez, while he continued to seek relief in litigation. Szczygiel's exam was not graded, however, pending the outcome of his lawsuit and related administrative appeal.
As a result of negotiations between Szczygiel and the City, a settlement of his litigation was attained in the latter part of 2006. Among other things, the proposed settlement terms included an agreement by the City to grant Szczygiel retroactive Captain status, effective as of June 25, 2004. That retroactive relief, in turn, would make Szczygiel eligible for promotion to Deputy Chief, because he now would be deemed to have accumulated more than one year of service as Captain before the promotional exam's closing date of February 28, 2006. Additionally, the City agreed to pay Szczygiel and his wife a substantial sum of money, inclusive of counsel fees, to resolve the claims raised in the litigation.[4] Before the end of 2006, the Board was advised of the pendency of the settlement between Szczygiel and the City. The Board was asked by those parties to ratify the settlement. Counsel did not furnish the Board with a copy of a written settlement agreement, or a draft agreement. Instead, counsel advised the Board of some, but not all, of the terms of the anticipated settlement.
Significantly, Martinez was not contemporaneously notified of the proposed settlement between the City and Szczygiel. Nor, apparently, were the other candidates on the Deputy Chief promotional list notified.[5] The Board entertained the proposed *390 settlement without any notice to Martinez, even though he was clearly and directly affected by it.
On January 31, 2007, the Board issued a final decision, approving the proposed settlement terms that the parties had disclosed to it. In that decision, I/M/O Christopher Szczygiel, Fire Captain, MSB Docket Nos. 2005-1345 and 2006-3165, the Board found "good cause" to "relax the provisions of N.J.A.C. 4A:4-2.6(a)(1) and accept the time [Szczygiel] served as Fire Captain after the closing date to satisfy the one-year-in-grade requirement and make him eligible for the Deputy Fire Chief [promotional] examination."[6] The Board further ordered that Szczygiel's results for the Deputy Chief exam "be scored as soon as possible and that if he passes, his name be immediately added to the eligible list." Perhaps sensing that the Board's disposition might be cited in other situations, the Board's decision in Szczygiel expressly indicated that:
It is noted that this remedy [of relaxing the one-year-in-grade requirement] is limited to the unique facts of this case and does not provide precedent in any other matter.
Although it was not disclosed at the time to the Board, the negotiated settlement terms went beyond simply recognizing additional service time for Szczygiel as a Captain and thereby would allow him to compete for the Deputy Chief position. In fact, the settlement further provided that Szczygiel would be guaranteed an appointment to Deputy Chief, so long as his exam grade, once it was scored by the Department of Personnel, proved to be higher than that of anyone else who sat for the exam.
A written settlement agreement memorializing the settlement terms was signed by the parties on March 22, 2007. It specifies in paragraph 1(a) that:
a. With Plaintiff Christopher Szczygiel's pending Deputy Chief promotional examination having been graded by the New Jersey Department of Personnel, if Plaintiff ranks first on the Deputy Chief's list, the City shall request that the list be certified confirming that Christopher Szczygiel is ranked # 1 on the list and Christopher Szczygiel shall be promoted to the position of Deputy Chief within 72 hours of receipt by the City of the certified list and upon receipt of this fully executed Confidential Settlement Agreement and Release resolving any and all claims between the parties.
[Emphasis added.]
However, if Szczygiel's exam score turned out to be in second place or lower, then he would not be guaranteed the promotion, and normal appointment procedures would be followed. This proviso, again one not contemporaneously disclosed to the Board before its approval in January 2007, appears in paragraph 1(b) of the agreement:
b. If Plaintiff Christopher Szczygiel does not rank first on the next Deputy Chief's list, then any future promotion shall be in accordance with New Jersey Department of Personnel Rules and *391 Regulations and be within the sole administrative discretion of the City of Passaic Appointing Authority.
[Emphasis added.]
The settlement also assured Szczygiel, if he was promoted to Deputy Chief because he scored first on the exam, that his promotion would be permanent. It further assured that he would remain in that title for at least 180 days, absent good cause for his removal. These assurances are set forth in paragraph 1(c):
c. If Plaintiff Christopher Szczygiel is promoted to the position of Deputy Chief as per paragraph 1(a) of the within agreement, Christopher Szczygiel will be deemed a permanent Deputy Chief in accordance with the rules and regulations of the Department of Personnel and he shall remain in the appointed position for a minimum of 180 days. Notwithstanding the foregoing, Plaintiff Christopher Szczygiel can be removed from the position of Deputy Chief "for cause" in accordance with the rules and regulations of the Department of Personnel.
Following the Board's approval of the settlement, the Department of Personnel graded Szczygiel's exam and determined that he had scored higher than all other candidates. It then generated a new promotional list for Deputy Chief ranking Szczygiel first, and placing Martinez second.
Consequently, the City appointed Szczygiel Deputy Chief on or about April 1, 2007. At the same time, Martinez was removed as Acting Deputy Chief and was returned to the Captain's rank. The Department of Personnel denied Martinez's emergent application to stay Szczygiel's appointment, pending further proceedings. As a result of the settlement and its implementation, Szczygiel's civil action in the Law Division was dismissed.[7]
These events prompted Martinez to file the present administrative appeal with the Board. Although Martinez was unable to obtain a copy of the settlement agreement from the Board (which did not possess it), he eventually obtained a copy in August 2007 through a formal request that he tendered upon the City under the Open Public Records Act, N.J.S.A. 47:1A-1 to -13.
In his administrative appeal, Martinez raised several arguments. Among other things, he contended that the Board's ratification of the settlement, and the City's actions in guaranteeing Szczygiel the appointment if his exam placed first, violated the long-standing "Rule of Three" principle of New Jersey civil service law, as well as the Merit and Fitness Clause in Article VII, sec. 1, para. 2 of the State Constitution.
Martinez further argued that the Board's waiver of the one-year-in-grade requirement for Szczygiel violated the express terms of two Consent Decrees entered *392 into between the United States Department of Justice, the State Department of Personnel, and twelve New Jersey municipalities, including the City of Passaic. The Consent Decrees, which were successively issued by the United States District Court for the District of New Jersey in 1980 and 1990, were designed to remedy alleged discrimination against Hispanics and other minorities in the hiring and promotion of fire personnel in those localities.
Martinez, who is Hispanic and therefore within the class protected by the Consent Decrees, emphasizes that paragraph 7(b) of the 1980 Consent Decree specifically requires that:
The time-in-grade requirement for applicants for each fire department's first level supervisory rank, i.e., Lieutenant or Captain, shall be no more than three years; the time-in-grade requirement for applicants for each higher rank shall be one year.
[Emphasis added.]
Martinez contends that the Board and the City improperly deviated from this requirement, without receiving the permission of the Department of Justice or from the United States District Court that issued the Decree.
Martinez also raised various other claims, including contentions (1) that the actions of the City and the Department of Personnel were arbitrary and capricious; (2) that he had been improperly directed to serve as Acting Deputy Chief without a permanent appointment; (3) that he was improperly deprived of timely notice of the Szczygiel settlement; (4) that the civil service actions violated public policy; and (5) raising other arguments challenging the bona fides of Szczygiel's promotion.
Martinez's administrative appeal was joined by Fire Captain Joseph Cajzer,[8] who had been ranked third on the promotional list. Their arguments were endorsed by the Passaic County Fire Officers Association, which also appeared before the Board through counsel.
The City opposed Martinez's administrative appeal, contending that it had the prerogative to settle the litigation with Szczygiel on terms of its choosing. Those terms included the relaxation of the one-year-in-grade requirement, pursuant to the so-called "relaxation rule" of N.J.A.C. 4A:1-1.2(c). The City argued that there was "good cause" under N.J.A.C. 4A:1-1.2(c) to relax the service time requirement, and that, moreover, Martinez lacked standing under New Jersey law to challenge that decision. The City likewise argued that Martinez lacked standing to enforce the 1980 Consent Decree.
Szczygiel, represented by counsel, also participated in Martinez's administrative appeal. He likewise argued that Martinez lacked standing to attack his settlement with the City. Szczygiel further asserted that the City possessed the discretion, with the acquiescence of the Department of Personnel, to confer upon him retroactive seniority as a means of settling his bypass lawsuit. Further, Szczygiel emphasized that under the Rule of Three,[9] the City had the right to choose him over Martinez among the three highest-scoring test-takers.
In its July 27, 2007 final agency decision, the Board rejected Martinez's challenge. As a preliminary matter, the Board agreed with Martinez that he has standing under state law to challenge the grant of retroactive seniority to Szczygiel, and thereby Szczygiel's eligibility to take the Deputy *393 Chief examination. The Board recognized, in this regard, that those actions regarding Szczygiel did "impact the appellant's [Martinez's] opportunities for promotion."
On the merits, however, the Board disagreed with Martinez that Szczygiel's appointment should be set aside. Noting that there is a general public policy favoring the settlement of lawsuits, the Board found it unnecessary to explore whether the bypass claims that Szczygiel had brought against the City were or were not justified. The Board simply found that "it can be logically reasoned that Szczygiel's assertion that he was improperly bypassed must have some merit for the appointing authority to settle in the manner that it did."
The Board rejected Martinez's claim that the City was obligated to fill the Deputy Chief position promptly when it became vacant in February 2007. The Board observed that nothing in the law requires an appointing authority to fill all of its budgeted positions. Moreover, the Department of Personnel would have added Szczygiel's name to the promotional list after the Board had rendered its decision in I/M/O Szczygiel on January 31, 2007, which was one day before the Deputy Chief position became vacant.
Additionally, the Board rejected Martinez's contention that his designation as "Acting" Deputy Chief warranted his permanent appointment to that job title. The Board recognized that there is no legal designation of an "acting" appointment within the merit system rules, which instead only include the denominations of "regular," "conditional," "provisional," "interim," "temporary" and "emergency" appointments. See N.J.S.A. 11A:4-13. The fact that Martinez performed the Deputy Chief's functions for two months in an unauthorized "acting" capacity did not foreclose the City from carrying out its obligations under the settlement and selecting Szczygiel for the post.[10]
The Board additionally found that there was "good cause" in Szczygiel's case to authorize the relaxation of the one-year-in-grade requirement at the Captain's rank. As described by the Board, such good cause included "the agreement of the parties" to the Szczygiel litigation and "Szczygiel's actual service as a Fire Captain" for the "one year and ten months" preceding his elevation to Deputy Chief. In this regard, the Board did recognize that "the acceptance of experience after the [exam] closing date is uncommon in public safety eligibility appeals." Even so, "it has been a longstanding practice by the Board, when the circumstances warrant, to accept such [post-closing] experience."
As to Martinez's claim that the City's actions aiding Szczygiel violated the Rule of Three, the Board reasoned that no such violation occurred here because "Szczygiel is the number one ranked eligible [candidate] and no higher ranked eligibles [were] bypassed for appointment." The Board emphasized that none of the persons on the promotional list, including Martinez, had a vested right to an appointment. According to the Board, "[t]he only interest that results from placement on an eligible list is that the candidate will be considered for an applicable position so long as the eligible list remains in force."
Lastly, the Board concluded that awarding Szczygiel additional service time credit at the Captain's rank did not violate the 1980 Consent Decree. The Board reasoned that if Szczygiel had not been bypassed *394 by the City while he was a Lieutenant, he would have accumulated more than a year at the Captain's rank and satisfied the requirements of the Decree. In light of the wrongful bypass claims asserted in Szczygiel's litigation, the Board "found a sufficient basis to relax [the] rule and accept Szczygiel's experience after the closing date of the examination." The Board endeavored to "make Szczygiel whole and put him in the same position he would have been in if not for the bypass." Construed in this light, the Board asserted that it had not offended the Decree by relaxing the one-year-in-grade requirement. Instead, the Board had simply "accepted Szczygiel's experience gained after the closing date," which put him beyond the one-year milestone.
Martinez's appeal ensued. The City opposes the appeal, along with the Board, which submitted a statement in lieu of brief advocating that we affirm the decision and defer to the Board's expertise within the technical field of civil service law.[11]
II.
Article VII, sec. 1, para. 2 of our State Constitution prescribes that, except for hiring preferences awarded to military veterans, appointments and promotions in the civil service of the State's political subdivisions "shall be made according to merit and fitness to be ascertained, as far as practicable, by examination, which, as far as practicable, shall be competitive[.]" N.J. Const. art. VII, § 1, ¶ 2; see also Newark Superior Officers Ass'n v. City of Newark, 98 N.J. 212, 232, 486 A.2d 305 (1985). This cornerstone principle of merit-based appointments is embodied in the Civil Service Act, N.J.S.A. 11A:4-1 to -16.
One of the central and time-honored facets of the Civil Service Act is what is known as the "Rule of Three." Pursuant to the statutes, after a civil service examination has been administered by the Department of Personnel, the Commissioner "shall certify the three eligibles who have received the highest ranking on an open competitive or promotional list against the first provisional or vacancy." N.J.S.A. 11A:4-8. "A certification that contains the names of at least three interested eligibles shall be complete and a regular appointment shall be made from among those eligibles." Ibid.; see also N.J.A.C. 4A:4-4.8. In essence, the appointing authority must select from one of the top three candidates ranked on the list.
The purpose of the Rule of Three is to provide the appointing authority with a limited degree of discretion in the selection of a candidate for a civil service position. Nunan v. N.J. Dept. of Personnel, 244 N.J.Super. 494, 497, 582 A.2d 1266 (App. Div.1990) certif. denied, 126 N.J. 335, 598 A.2d 892 (1991); Schroder v. Kiss, 74 N.J.Super. 229, 239, 181 A.2d 41 (App.Div. 1962). The dual legislative objectives served by the Rule are to "ensur[e] appointments based on merit as determined by competitive examinations while [still] affording the appointing authority some discretion to accommodate other merit criteria." Gallagher v. Mayor and Council of the Town of Irvington, 190 N.J.Super. 394, 399, 463 A.2d 969 (App.Div.1983) (emphasis added). See also In re Crowley, 193 N.J.Super. 197, 206, 214, 473 A.2d 90 (App.Div.1984) (explaining the Rule of Three).
The Rule of Three, while permitting "a broad exercise of discretion," also operates *395 to narrow that discretion. In re Hruska, 375 N.J.Super. 202, 210, 867 A.2d 479 (App.Div.2005); see also Terry v. Mercer County Bd. of Chosen Freeholders, 86 N.J. 141, 430 A.2d 194 (1981). As the Supreme Court instructed in Terry, "the discretion of government to hire is not absolute." Terry, 86 N.J. at 150, 43 A.2d 194. "`[O]ther important criteria in governmental employment practices' are still relevant." Hruska, supra, 375 N.J.Super. at 210, 867 A.2d 479 (quoting Terry, supra, 86 N.J. at 150, 430 A.2d 194).
Here, Szczygiel became one of the top three ranked candidates for Deputy Chief in March 2007 as a result of the Board's relaxation of the usual one-year-in-grade requirement of N.J.A.C. 4A:4-2.6(a)(1). The relaxation was authorized pursuant to the "good cause" standard of N.J.A.C. 4A:1-1.2(c).
More specifically, N.J.A.C. 4A:1-1.2 provides that the Commissioner of the Department of Personnel or the Merit System Board "may relax [the civil service] rules for good cause in a particular situation, on notice to affected parties, in order to effectuate the purposes of Title 11A [the civil service statutes]." See N.J.A.C. 4A:1-1.2. The multiple policies underlying Title 11A are enumerated at N.J.S.A. 11A:1-2. Those policies include a commitment (a) "to select and advance employees on the basis of their relative knowledge, skills and abilities;" (b) "to provide public officials with appropriate appointment, supervisory and other personnel authority to execute properly their constitutional and statutory responsibilities;" (c) "to encourage and reward meritorious performance" and "to retain and separate employees on the basis of the adequacy of their performance;" (d) "to ensure equal employment opportunity at all levels of the public service;" and (e) "to protect career public employees from political coercion" and "to ensure the recognition of such bargaining and other rights ... pursuant to other statutes and the collective negotiations law." N.J.S.A. 11A:1-2(a) through (e).
Otherwise stated, the Civil Service Act, as codified in Title 11A, was adopted in order to, among other things, "maintain stability and continuity" in public employment. Aparin v. County of Gloucester, 345 N.J.Super. 41, 55, 783 A.2d 271 (Law Div.2000), aff'd, 345 N.J.Super. 24, 783 A.2d 260 (App.Div.2001). See also Connors v. City of Bayonne, 36 N.J.Super. 390, 396, 116 A.2d 48 (App.Div.), certif. denied, 19 N.J. 362, 117 A.2d 203 (1955). We examine the Board's relaxation of the one-year-in-grade requirement concerning Szczygiel with these objectives in mind.
Despite Szczygiel's tenure of only about ten months as Captain between April 2005 and the February 2006 exam closing date, the Board found good cause to allow him to compete for the Deputy Chief position, because the City allegedly had wrongfully delayed his progress from the rank of Lieutenant to Captain. That wrongful bypass allegation, which the City denied, was never litigated to conclusion.
We agree with the City and the Board that the City did not have to await a formal adjudication of the bypass claims in order to justify an accommodation to Szczygiel. As the Board's final decision correctly recognized, our judicial system strongly favors settlements. See, e.g., Nolan v. Lee Ho, 120 N.J. 465, 577 A.2d 143 (1990); Brown v. Pica, 360 N.J.Super. 565, 823 A.2d 899 (Law Div.2001), appeal dismissed, 360 N.J.Super. 490, 823 A.2d 854 (App.Div.2003). The City had a legitimate interest in curtailing litigation costs and obtaining repose in the Szczygiel matter. Although we do not know the details of Szczygiel's bypass claims and cannot comment on the overall merits of the settlement, including the City's payment of a *396 substantial amount of money, we are satisfied that the Board was free to consider that settlement as a factor in its assessment of good cause.
Apart from the settlement, the Board also was entitled to give weight to the fact that Szczygiel was only about six weeks short of meeting the one-year time-in-service requirement in the Captain's title. The Board also was permitted to recognize that Szczygiel more than surpassed that one-year mark in the interval between the exam closing date in February 2006 and his actual appointment in April 2007.
In sum, as a matter of state law, Martinez has failed to demonstrate that the Board acted either arbitrarily or capriciously in relaxing the service time requirement for Szczygiel, and in granting him a corresponding period of retroactive seniority. Absent such a demonstration of capriciousness, an administrative agency's exercise of discretion is ordinarily sustained on appeal. Aqua Beach Condo. Ass'n v. Dep't of Cmty. Affairs, 186 N.J. 5, 16, 890 A.2d 922 (2006); Burris v. Police Dep't, Twp. of W. Orange, 338 N.J.Super. 493, 496, 769 A.2d 1112 (App.Div.2001).
State law aside, Martinez contends that the City and the Board transgressed the 1980 Consent Decree by not strictly enforcing the one-year-in-grade requirement. We are mindful that the Consent Decree, which remains in force today, is a remedial instrument aimed at eradicating alleged patterns of discrimination against persons of color in the hiring and promotion of firefighters. Courts have recognized "a strong public interest in preserving and enforcing the delicate settlement embodied in the 1980 Consent Decree." United States v. New Jersey, 37 F.Supp.2d 373, 374 (D.N.J.1999). We are likewise cognizant that Martinez, as a Hispanic minority, is a member of the class of public employees that the Decree is designed to protect.
Paragraph 7(b) of the 1980 Consent Decree plainly states that the one-year-in-grade requirement governing applicants for job titles "for each higher rank" above Lieutenant or Captain "shall be one year." The Decree contains no exceptions to that mandate. The Board reasons that the Decree is inapplicable here, because Szczygiel accumulated more than a year of service time as Captain after the exam closing date.
We do not share the Board's confidence that the 1980 Consent Decree lacks some bearing on the merits of this case. Nor are we certain that the Decree impliedly authorizes a waiver of the service time requirement for good cause under state law, or that the United States Department of Justice would consent to a waiver of the requirement as to Szczygiel, a non-minority. We also find significant that the Board has in the past required the acquiescence of the Department of Justice to a deviation from the terms of the Decree.
That being stated, the question of compliance with the 1980 Consent Decree, a federal edict, is best reserved for the Department of Justice and the United States District Court. We shall not attempt here to presume the intentions of the federal government, or to try to interpret the Decree or ascertain its rigidity. Such issues instead should be sorted out, if anywhere, in a federal tribunal.
We were informed at oral argument by the City's attorney that the Department of Justice has made inquiry into this matter, and that counsel furnished the Department with copies of relevant documents. Although the Justice Department has not yet asserted a position in this matter or attempted to restrain or undo Szczygiel's promotion and retroactive seniority, we cannot assume that the Department's inaction *397 thus far means anything. Consequently, we affirm the Board's waiver of the one-year-in-grade requirement as to Szczygiel under N.J.A.C. 4A:1-1.2, without prejudice to the possibility that the United States may object to that disposition and seek appropriate remedies in federal court. The federal compliance issue is therefore not resolved here, but instead reserved for potential action by the Department of Justice and the United States District Court.[12]
We now turn to the facet of the Szczygiel settlement that guaranteed Szczygiel would receive the promotion to Deputy Chief, so long as he scored first on the promotional exam. We find this aspect of the settlement troublesome, for several reasons. First, the Board was never informed of the guarantee prior to its January 31, 2007 final determination of Martinez's appeal. Second, the guarantee was not contemporaneously disclosed to Martinez, who had every right to expect when he applied for the job and sat for the examination that the normal selection processes under the Rule of Three would be observed. Instead, the guarantee was divulged to Martinez and the Board after-the-fact, essentially as a fait accompli.
Apart from these procedural shortcomings, the substance of the guarantee is also problematic. As we have already noted, the Rule of Three is designed to channel the exercise of discretion of appointing authorities in selecting candidates from a ranked civil service list. We have serious doubts that the Legislature wished to allow municipalities to dispense with the Rule of Three and reach agreements with applicants guaranteeing them a position if they scored high enough on an exam. Such individualized guarantees run contrary to the objectives of the civil service system. The guarantee in this case, which is tied exclusively to the applicants' test scores, also deviates from the Rule of Three's aim to include "other merit criteria" in the selection process, independent of test scores. Gallagher, supra, 190 N.J.Super. at 399, 463 A.2d 969.
Although we ascribe no pernicious motives here to the City or any of its employees, we discern no legal authority for the guarantee extended to Szczygiel as part of his settlement. The City may well have misused the civil service process in the past in bypassing Szczygiel at the Captain's rank, but it went too far in trying to correct the situation by granting Szczygiel a score-dependent promotional guarantee to Deputy Chief.
The Board's July 27, 2007 final agency decision never passed upon the enforceability of the guarantee provision in the settlement. Indeed, at oral argument before us, the Deputy Attorney General confirmed that the Board did not know about the guarantee proviso until after it had already ratified the settlement conceptually in its January 31, 2007 decision in I/M/O Szczygiel.[13]
For these many reasons, we cannot on this record sustain or enforce the guarantee contained in the City's settlement with Szczygiel. Nor can we affirm the City's ensuing actions and the Board's final decision implementing that aspect of the settlement. We, therefore, sever that provision from the settlement, the remainder of *398 which remains enforceable. See Jacob v. Norris, McLaughlin & Marcus, 128 N.J. 10, 33, 607 A.2d 142 (1992) (courts have authority in certain situations to sever illegal provisions of an agreement and enforce the remainder). Likewise, we partially vacate the Board's final agency decision of July 2007, insofar as it may be read to impliedly approve of the guarantee and the City's implementation of that guarantee.
To remedy the problems stemming from the guarantee, and the City's unauthorized departure from the Rule of Three, we remand this matter to the Board and the Department of Personnel, for further administrative action consistent with this opinion. More specifically, we direct that the City, under the Department's supervision, repeat the final selection process for Deputy Chief, utilizing the normal Rule of Three procedures.
On remand, Szczygiel and Martinez shall remain among the top three candidates, and the City's current appointing officials are free to select either one of them as Deputy Chief, or the third name on the list. The selection must be based upon considerations of overall merit and fitness, including but definitely not limited to Szczygiel's test ranking. It may well be that the City will once again select Szczygiel, but it is no longer compelled to do so because of the settlement. The remand shall be completed within thirty days of this opinion.[14]
Government must "turn square corners." F.M.C. Stores Co. v. Borough of Morris Plains, 100 N.J. 418, 427, 495 A.2d 1313 (1985). "Its primary obligation is to comport itself with compunction and integrity, and in doing so government may have to forego the freedom of action that private citizens may employ in dealing with one another." Ibid. The City of Passaic was obligated to adhere to that tenet in the manner in which it appointed a Deputy Fire Chief. Although Kenneth R. Martinez ultimately may not be entitled to serve in that position for the City, he is entitled to a fair, open, and regular promotional process.
We have considered all of the remaining arguments presented by Martinez, and conclude that they lack sufficient merit to be discussed in the written opinion. R. 2:11-3(e)(1)(D) and (E).
Affirmed in part, vacated in part, and remanded. We do not retain jurisdiction.
NOTES
[1] See N.J.A.C. 4A:4-2.6(a)(1) ("Applicants for promotional examinations shall ... [h]ave one year of continuous permanent service for an aggregate of one year immediately preceding the closing date in a title or titles to which the examination is open.").
[2] Although this exam date does not appear in the record, counsel informed us of it at oral argument.
[3] The particular circumstances involving Szczygiel's bypass, and the City's reasons for bypassing him, are not explained in the present record.
[4] Although no party to this appeal has moved to seal any portion of the record, including the settlement agreement, we need not mention the precise settlement amount.
[5] Indeed, the written settlement agreement executed by the parties recites that it is "confidential" even though it involves public offices and the payment of public funds. The agreement also includes what is, in essence, a "gag order", specifying that the settling parties "will not talk about, discuss or consult with, advise, counsel or otherwise cooperate with or assist any employees or former employees of the City of Passaic and/or City of Passaic Fire Department in the pursuit of legal or administrative action against the City [and other named individuals], including but not limited to any action(s) in connection with any matters relating to ... Christopher Szczygiel's employment, unless compelled to do so by court order or lawful subpoena." (Emphasis added).
[6] The Board's method of granting Szczygiel sufficient in-service time as Captain varied from the method specified in the settlement agreement. The agreement, as we have already noted, called for Szczygiel to receive Captain status retroactive to June 25, 2004, and made no mention of Szczygiel's service as Captain after the February 28, 2006 exam closing date. The Board's final decision in Szczygiel, however, alludes to both "the retroactive date of seniority" as specified in the agreement, "and [Szczygiel's] service as Fire Captain for the past one year and ten months." These dual considerations led the Board to "accept the time [Szczygiel] served as Fire Captain after the closing date to satisfy the one-year-in-grade requirement[.]"
[7] There is no indication in the record that the Law Division ever conducted, or was ever asked to conduct, a fairness hearing concerning the settlement terms on notice to other parties affected by the settlement, including Martinez. See, e.g., Martin v. Wilks, 490 U.S. 755, 775-86, 109 S.Ct. 2180, 2191-97, 104 L.Ed.2d. 835, 853-59 (1989) (discussing the technique of a "fairness hearing" used to evaluate a proposed settlement of employment litigation involving numerous firefighters); Builders League of South Jersey, Inc. v. Gloucester County Utils. Auth., 386 N.J.Super. 462, 470-72, 902 A.2d 253 (App.Div.2006) (endorsing "fairness hearings" in various litigation contexts as a means to evaluate the reasonableness of settlements affecting numerous individuals). We do not hold that such a hearing was required in this case, although it may have obviated the present appeal.
[8] Cajzer has not pursued the appeal further to this court.
[9] See, infra, at pp. 72 to 73, 956 A.2d at 394 to 395.
[10] In its decision, the Board did caution the City from utilizing the "acting" designation in the future.
[11] Although Szczygiel was served with the notice of appeal, and had previously participated through his counsel in the administrative proceedings, he has chosen not to appear in this appeal.
[12] We presume that counsel in this case will promptly furnish an appropriate representative of the Justice Department, by way of update, with a copy of this opinion.
[13] The Board's unawareness of this material feature of the settlement would have been avoided if the Board had insisted on seeing a copy of the written settlement agreement, before it gave that settlement its seal of approval. We urge the Board to require such documentation in the future to guard against similar oversights.
[14] We recognize that this disposition places in jeopardy Szczygiel's promotion to Deputy Chief. However, we note that Szczygiel was served with Martinez's notice of appeal and chose not to file a brief or otherwise appear in this court. We do not comment on the hypothetical implications for Szczygiel's settlement with the City if, on remand, the City now chooses to promote Martinez or the other applicant ranked in the top three in lieu of Szczygiel. We trust that the City, the Department of Personnel, and the Board would be able to fashion an appropriate remedy if that situation occurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1759501/ | 635 So. 2d 1389 (1994)
In the Matter of the ESTATE OF Richard PETRICK, Deceased.
Alice Vann, Administratrix
v.
MISSISSIPPI NEUROSURGERY, P.A.
No. 92-CA-00680.
Supreme Court of Mississippi.
April 14, 1994.
*1390 Charles D. Easley, Jr., Easley Law Office, Columbus, for appellant.
P. Nelson Smith, Aubrey E. Nichols, Gholson Hicks Nichols & Ward, Columbus, for appellee.
Before PRATHER, P.J., and SULLIVAN and JAMES L. ROBERTS, Jr., JJ.
SULLIVAN, Justice, for the Court:
Richard Petrick died intestate on June 10, 1991, in Lowndes County, Mississippi. Alice Vann, Petrick's ex-wife, and also the mother, guardian, and next friend of Petrick's only minor child is the administratrix of the Petrick estate. Petrick died seized of personal property with a value believed to be approximately $32,000.
On August 5, 1991, Vann filed a Proof of Publication, which states that notice to potential creditors of the estate of Richard Petrick was published on July 3, 10, and 17, 1991, in The Commercial Dispatch. On September 4, 1991, Vann filed an Affidavit of Mailing stating that she had made reasonably diligent efforts to identify persons having claims against the Estate of Richard Petrick. In her affidavit, she listed creditors who received notice by mail. The list does not include Dr. Poche or Mississippi Neurosurgery, P.A., the appellee here. The list does include Prairie Anesthesia Associates and Golden Triangle Regional Medical Center. Vann's first notice by publication was not in compliance with Miss. Code Ann. § 91-7-145, as it was published prior to her filing her affidavit on September 27, 1991. She filed another Proof of Publication stating that notice to creditors was published on September 9, 16, and 23, 1991 in The Commercial Dispatch.
On January 7, 1992, Mississippi Neurosurgery, P.A. filed a Probate of Claim, asserting *1391 an interest against the Estate of Richard Petrick in the amount of $6,220.00 for medical work performed. Vann filed an Objection to Claim of Probate on April 24, 1992, asserting that the claim was untimely and therefore barred.
On June 4, 1992, Chancellor Robert L. Lancaster overruled Vann's objection and Mississippi Neurosurgery, P.A.'s probated claim was allowed as a valid claim against the estate.
The only issue to be decided by this Court is whether or not the chancellor erred in allowing the untimely filed claim of Mississippi Neurosurgery, P.A., as a valid claim against the Estate of Richard Petrick, Deceased.
FACTS
Beverly Chopin, the office manager of Mississippi Neurosurgery, P.A., testified that she is the custodian of billing records, including hospital records and care provided by the physicians, and takes care of insurance claims for Mississippi Neurosurgery, P.A. She testified that on May 28, 1991, Petrick was admitted to the Golden Triangle Regional Medical Center emergency room unconscious. Dr. Poche of Mississippi Neurosurgery, P.A., was on call and treated Petrick. Dr. Poche subsequently performed a craniotomy for an aneurysm. Chopin sent out a bill for those services on October 7, 1991, addressed to the Estate of Richard Petrick, 934 Yorkville RD South, requesting payment in the amount of $6,220.00. At the time of this billing the payment was 120 days past due. Chopin testified that since Petrick's surgery was in June, in accord with her company's policy, statements began to go out in July. She got no response from any billing until she began receiving returned mail in October.
Chopin testified that she spoke with Alice Vann upon learning through Boundary Health Care that the insurance checks for Petrick's hospital stay and medical services had been issued to Petrick. Boundary Health Care gave Chopin Vann's telephone number. Chopin called Vann and found out that Vann had received the Blue Cross payments for the partial cost of Petrick's care. This was approximately November 30, 1991. Chopin admitted that at this time she knew that the estate had been set up and that Vann was depositing checks into the estate account. Chopin said she never received notice from the estate that the insurance checks had been received, and did not file a claim against the estate until January 7, 1992. Chopin testified that although she reads The Commercial Dispatch, neither she nor anyone else at Mississippi Neurosurgery, P.A., saw the publication giving notice to creditors.
Alice Vann testified as an adverse witness that she was the administratrix of the estate of her ex-husband, and that she was aware that he went into the hospital in May, 1991. Vann did not know why Petrick was in the hospital, but she was aware that he died of a cerebral hemorrhage. Vann stated that Boundary Health Care and her lawyers made most of the inquiries to determine creditors. Vann thought she remembered the name of Dr. Poche, but she had never received an invoice for his services.
Vann testified she had no reason to call Mississippi Neurosurgery, P.A., or Dr. Poche's office to ask about any outstanding bills because she handled everything through Blue Cross through Boundary. Vann said that Boundary Health Care and two attorneys assured her that all billing had been taken care of and that everything had been paid. She did not personally check the break down of the billing nor did she look for individual invoices. She just knew the total amount for which the estate was responsible according to the lawyers and Boundary Health Care. Vann trusted that the estate attorney and her ex-husband's employer had been thorough in their search for potential creditors. When asked how GTR and the Anesthesiology group from GTR made it onto her affidavit, while Dr. Poche and Mississippi Neurosurgery, P.A., did not, Vann said she did not know the individual doctors *1392 who were involved. Vann testified that she did not personally send Mississippi Neurosurgery, P.A., notice to probate a claim, but believed that her lawyers did. Vann was unable to produce a document to that effect, however.
When Vann was asked, in reference to her affidavit, what reasonably diligent efforts she had made to ascertain creditors, she replied, "[y]ou would really have to talk to Boundary Health Care and GTR." Vann testified that she did not personally call every doctor at GTR, but she hired a lawyer to handle "all of that legal work." Vann testified that starting around June 20, 1991, she opened and read all of Petrick's mail and never found a bill from Mississippi Neurosurgery, P.A., or Dr. Poche. She did know that Dr. Poche was a neurosurgeon. Vann did not specifically remember talking with Chopin about a bill, but stated that whenever she was contacted regarding a bill, she requested that the interested party send an invoice and call the estate lawyer. Vann did testify that the estate attorney told her he had been contacted about outstanding medical bills, and said he had told those parties to file a claim. Vann concluded that she had done all that she could to ascertain creditors of Petrick's estate. Vann admitted that when talking about all her efforts to ascertain creditors, she really meant the efforts of Boundary Health Care and her lawyers.
LAW
Notice to creditors of estate, § 91-7-145, Miss. Code Ann. (Supp. 1993), effective from and after July 1, 1989, states in pertinent part:
(1) The executor or administrator shall make reasonably diligent efforts to identify persons having claims against the estate. Such executor or administrator shall mail a notice to persons so identified, at their last known address, informing them that a failure to have their claim probated and registered by the clerk of the court granting letters within the ninety (90) day period provided for in subsection (2) of this section will bar such claim.
(2) The executor or administrator shall file with the clerk of the court an affidavit stating that such executor or administrator has made reasonably diligent efforts to identify persons having claims against the estate and has given notice by mail as required in subsection (1) of this section to all persons so identified. Upon filing such affidavit, it shall be the duty of the executor or administrator to publish in some newspaper in the county a notice requiring all persons having claims against the estate to have the same probated and registered by the clerk of the court granting letters, within ninety (90) days, which notice shall state the time when the letters were granted and that a failure to probate and register for ninety (90) days will bar the claim. The notice shall be published for three (3) consecutive weeks, and proof of publication shall be filed with the clerk... .
This statute had been in effect nearly two years when Petrick died on June 10, 1991.
From a reading of this statute it is clear that an administratrix has four responsibilities: (1) she must make reasonably diligent efforts to ascertain creditors having claims against the estate and mail them notice of the 90 day period within which to file a claim; (2) she must file an affidavit stating that she has complied with the first subsection; (3) she must publish in some newspaper in the county a notice to creditors explaining that they have 90 days within which to file claims against the estate; and (4) she must file proof of publication with the clerk of court.
Under the statute, if Vann, through reasonably diligent efforts could have identified Mississippi Neurosurgery, P.A., as a "person" having a claim against the estate, she had the duty to mail notice prior to filing her affidavit, publishing notice in the paper, and filing proof of publication. In other words, if the creditor could have been ascertained through reasonably diligent efforts, mere publication in the newspaper in the county, absent notice by mail, does not comply with the mandates of the statute.
*1393 The statute does not specifically allow for notice by publication as a substitute for actual notice by mail; rather, notice by publication is a requirement in addition to providing creditors notice by mail. It stands to reason that the notice by publication requirement is to further ensure that those creditors who were served by mail are reminded of the time limit to file claims, as well as to give constructive notice to creditors who could not be ascertained through reasonably diligent efforts.
We are called upon to determine what constitutes "reasonably diligent efforts" for purposes of the statute, and at least to make a determination as to whether or not Vann, based on the facts of this case, was reasonably diligent in her efforts to ascertain creditors who might have claims against the Petrick estate.
The chancellor relied on the United States Supreme Court decision in Tulsa Professional Collection Services v. Pope, 485 U.S. 478, 108 S. Ct. 1340, 99 L. Ed. 2d 565 (1988), handed down the year preceding our legislative amendment of § 91-7-145, to reach the conclusion that Mississippi Neurosurgery P.A.'s untimely claim is valid against Petrick's estate. The chancellor found that Mississippi Neurosurgery, P.A., was a reasonably ascertainable creditor which did not receive actual notice that the non-claim statute had begun to run. Presumably, the chancellor determined, as did the United States Supreme Court in Pope, that the Due Process Clause of the Fourteenth Amendment of the United States Constitution required actual notice in this case.
It must be mentioned that the issue in Pope was different from the issue in this case in that, in Pope, the Oklahoma statute in question only required the executrix to give creditors notice by publication. Pope, 485 U.S. at 481, 108 S.Ct. at 1342. The Mississippi statute, enacted shortly after Pope, clearly requires an administratrix to give creditors who can be discovered through reasonably diligent efforts notice by mail and notice by publication. However, the issue of due process as fleshed out in the Pope case is relevant in resolving whether Vann's actions will suffice under the Mississippi statute, thus determining whether Mississippi Neurosurgery, P.A., will be deprived of its property interest in a claim against the Petrick estate. The question here is not whether the Mississippi statute survives due process scrutiny, but whether Vann's efforts meet the requirements of due process, as seen in the Pope case, and the language of § 91-7-145.
We spoke favorably of Pope in Caldwell v. Caldwell, 533 So. 2d 413 (Miss. 1988), stating that
it is well to call attention to the bench and bar to the decision of the United States Supreme Court of Tulsa Professional Collection Services v. Pope, 485 U.S. [478], 108 S. Ct. 1340, 99 L. Ed. 2d 565 (1988). At issue in the Pope case, supra, was whether Oklahoma's probate law providing for the barring of a creditor's claim complied with the Due Process Clause of the Fourteenth Amendment of the United States Constitution. In that case the decedent Pope died while a patient at a hospital. In due course the hospital assigned its claim for the decedent's last illness to Tulsa for collection, only to be denied payment by the executrix for failure to file its claim within the two month time period under Oklahoma probate law to file their claims following the estate's notice to creditors.
The executrix relied upon the substituted publication of notice rather than actual notice to creditors. The United States Supreme Court in Pope held, in summary form, the following:
[i]t was held that the Oklahoma nonclaim statute violated the due process clause of the Federal Constitution's Fourteenth Amendment, because, although the statute provided solely for publication by notice, due process required that actual notice be given to known or reasonably ascertainable creditors of the decedent by mail or other means as certain to insure actual notice, for (1) such a creditor's claim a cause *1394 of action against the estate for an unpaid bill was an intangible property interest protected by the due process clause; (2) the statute in question was not a self-executing statute of limitations; (3) instead, the pervasive and substantial involvement of the state probate court in the activation and operation of the statute's time bar constituted sufficient state action to implicate due process; (4) the statute could adversely affect a creditor's protected property interest by barring untimely claims and causing probate proceedings to extinguish such claims; and (5) although the state had a legitimate interest in the expeditious resolution of probate proceedings, (a) creditors had a substantial practical need for actual notice, (b) the required actual notice was not so cumbersome as to hinder unduly the dispatch with which probate proceedings are conducted, and (c) probate proceedings were not so different in kind as to require a different result from other analogous situations in which the pressing need to proceed expeditiously had been held not to justify less than actual notice.
Caldwell, 533 So.2d at 417-418. We find that (1) whether or not sufficient state interest exists; and (2) whether or not a protected property interest exists in this case to implicate the Due Process Clause of the Fourteenth Amendment of the United States Constitution, are questions subject to de novo review as questions of law. Myers v. Blair, 611 So. 2d 969, 971 (Miss. 1992). These are not questions of fact, subject to the manifest error/substantial evidence rules, as they are not determinable based on the credibility of witnesses at a hearing before the chancellor. Id.
The Due Process Clause of the Fourteenth Amendment is implicated in the present case. The instant case is very similar to the situation that existed in the Pope case. On the state action issue here, like in Pope, the state court is intimately involved throughout the probate proceedings. In fact, here, just as in Pope,
[t]he nonclaim statute becomes operative only after probate proceedings have been commenced in state court. The court must appoint the executor or executrix before notice, which triggers the time bar, can be given. Only after this court appointment is made does the statute provide for any notice... .
Id., 485 U.S. at 487, 108 S.Ct. at 1346. Furthermore, our courts are essential to the probate proceedings in that the administratrix may only validly publish notice in some newspaper, which triggers the 90 day limit to file a claim pursuant to § 91-7-145 and § 91-7-151, after filing an affidavit with the clerk of court stating that she has made reasonably diligent efforts to identify persons having claims against the estate and has given notice by mail as required in subsection (1) of § 91-7-145. Thus, the nonclaim statute is not a self-executing statute of limitations; rather, the role played by the chancery court, upon which the time bar is dependent, is sufficient state action to implicate the Fourteenth Amendment.
With regard to the question of whether or not Mississippi Neurosurgery, P.A.'s claim against the estate is a protected property interest, the Pope Court stated, "[a]ppellant's interest is an unsecured claim, a cause of action against the estate for an unpaid bill. Little doubt remains that such an intangible interest is property protected by the Fourteenth Amendment." Id., 485 U.S. at 485, 108 S.Ct. at 13. Therefore, as a matter of law, Mississippi Neurosurgery, P.A.'s claim against the Petrick estate is a property interest protected by the Fourteenth Amendment.
Once it is determined that the Due Process Clause of the Fourteenth Amendment of the United States Constitution is applicable to the issue at hand, it is necessary to review the chancellor's factual determination that Mississippi Neurosurgery, P.A., was a reasonably ascertainable creditor. We will not disturb the chancellor's findings so long as they are supported by substantial evidence in the record. Tedford v. Dempsey, 437 So. 2d 410, 417 (Miss. 1983).
*1395 We find that a "reasonably ascertainable creditor" is one who is discoverable through "reasonably diligent efforts," and therefore the chancellor's determination of the former is a finding as to the latter. However, even if we did not hold that those two concepts are synonymous, we would still presume that the chancellor made a finding that Vann did not exercise reasonably diligent efforts to identify persons having claims against the estate, as that would be a finding consistent with his judgment. Love v. Barnett, 611 So. 2d 205, 207 (Miss. 1992), citing Tedford.
The record supports the chancellor's finding. Vann knew Petrick was treated at GTR and that he died there. She also sent notice to GTR hospital and the anesthesiology group to file a claim, but failed to give notice to the treating physician, Dr. Poche, or Mississippi Neurosurgery, P.A. Furthermore, Vann testified that in actuality, she handed over her statutorily mandated responsibilities to her lawyers and Boundary Health Care. That is, by her own admission, she did not personally exercise any effort to discover persons having claims against the estate. Chopin, the office manager at Mississippi Neurosurgery, P.A., testified that she began sending invoices for the services rendered on behalf of Petrick in July, 1991. Chopin also stated that she personally contacted Vann in November regarding the outstanding bill, but that she never received notice of the time limit within which to file a claim. Therefore, the chancellor's determination that Mississippi Neurosurgery, P.A., was a reasonably ascertainable creditor, and that Vann did not exercise reasonably diligent efforts to discover Mississippi Neurosurgery, P.A., was not manifestly erroneous.
Vann's mere publication of notice, in light of the chancellor's correct determination that she could have reasonably ascertained Mississippi Neurosurgery, P.A., as a creditor, did not comply with the terms of the statute mandating notice by mail. Furthermore, the Due Process Clause of the Fourteenth Amendment of the United States Constitution is applicable, reinforcing the chancellor's conclusion that notice was insufficient in this case, thus the statutory time bar did not apply, and Mississippi Neurosurgery, P.A.'s untimely claim is valid against the estate of Richard Petrick. This assignment of error is without merit. We, therefore, affirm.
AFFIRMED.
HAWKINS, C.J., DAN M. LEE and PRATHER, P.JJ., and PITTMAN, BANKS, JAMES L. ROBERTS Jr. and SMITH, JJ., concur.
McRAE, J., concurs in results only. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1776023/ | 250 S.W.2d 883 (1952)
S. H. KRESS & CO. et al.
v.
SELPH et ux.
No. 4738.
Court of Civil Appeals of Texas, Beaumont.
May 1, 1952.
Rehearing Denied July 9, 1952.
*886 Marcus & Weller, Beaumont, for appellant.
Adams, Browne & Sample, Beaumont, for appellee.
WALKER, Justice.
Statement
This action is for damages for personal injuries sustained by Mrs. Ida Selph, one of the appellees, when she fell upon the floor of the store operated by S. H. Kress & Company, located in Beaumont, Texas. The plaintiffs are Mr. and Mrs. Selph and the defendants are S. H. Kress & Company and the manager of the store, H. H. Howe.
It is unnecessary to describe the parties' pleadings at this point. The cause was tried to a jury and in response to Special Issues the jury returned the following verdict: (Issue 1) Mrs. Selph slipped and fell in defendants' store on or about June 14, 1947. (Issue 2) Mrs. Selph slipped on a piece of candy in defendants' store. (Issue 3) When Mrs. Selph slipped and fell she sustained an injury to her body. (Issue 4) Said piece of candy "had been on the floor for a sufficient length of time for defendants' agents, servants and employees in the exercise of ordinary care to have discovered and removed same." (Issue *887 5) The "failure of defendants, their agents, servants and employees, to remove said piece of candy prior to Ida Selph's fall was a proximate cause" of Mrs. Selph's injuries. (Issue 6) Mrs. Selph "did not fail," prior to her fall, to keep a proper lookout as she proceeded out of the store. (Issues 7 and 8) These issues were conditioned upon an affirmative answer to Issue 6 and were unanswered. (Issue 8-A) "It was not the result of an unavoidable accident." (Issue 9) Plaintiffs' damages were assessed at $8,500.
On this verdict the trial court rendered judgment in behalf of the plaintiffs against the two defendants for $8,500 and the defendants have appealed from this judgment.
Opinion
Points 1, 2, 3, 4, 17, 24, and 25 assign error to the sufficiency of the evidence, either in law or in fact, to support the finding under Issue 4 that the candy which caused Mrs. Selph to fall had been on the floor of Kress' store long enough to have been discovered and removed had the defendants used proper care to make the floor reasonably safe for Kress' customers.
The jury could have answered this Special Issue favorably to the defendants but they did not, and we have, therefore, to consider only evidence which supports the finding made. This evidence may be summarized as follows:
On Saturday morning, June 14, 1947, at about 11 o'clock, Mrs. Ida Selph entered Kress' store to buy a balloon for her niece, a child about five years old, who accompanied her. The counter where balloons were sold abutted on the aisle which extended along the front of the counter where candy was sold. Mrs. Selph walked along the right hand side of this aisle to the balloon counter and made her purchase. She then walked back along the opposite side of this aisle toward the door, and at a place in front of the candy counter stepped upon a piece of candy with her right foot, and her foot slipped on the candy, and she fell to the floor.
She was assisted to her feet by a person nearby, and reported the incident immediately to the assistant manager of the store. According to Mrs. Selph, this person manifested no interest in what she had to say and after waiting a moment she left the store.
Mrs. Selph described the candy and the place where she fell as follows:
"Well, it was candy. There was quite a bit of it on the floor and it had been mashed and swept over; looked like it had been there for several days. * * *
"Q. How could you tell it had been swept over? A. Well, I have seen things like that on floors before.
"Q. Did it have the marks of a broom over it. A. Yes, sir. * * *
"Q. What color was it? A. Well, it was brown, dirty and looked like chocolate candy. * * * Well, on the floor it looked like chocolate candy mashed on the floor but the piece I slipped on, where my heel went through, there was some left on the side, and I looked to see what I slipped on, and so I looked on my shoe and pulled some off my shoe, and it was sticky like, a white substance underneath.
"Q. Was that the same substance that had the mark on the floor where you slipped? A. Yes, sir."
On cross-examination she gave some testimony to the same effect and testified also that she saw some other candy there. Thus: "I looked at it to see what I had slipped on; and then I began to see the other spots and pieces that were mashed on the floor." And further: the piece she slipped on "evidently was softer than the appearance of the other. * * * The other looked more packed down than this place where I had slipped.
"Q. Actually you do not know whether that piece of candy had been stepped on before you stepped on it or not, do you? A. Well, yes, you can tell, because it was stuck there on the floor and looked similar to the other pieces that was packed down on the floor.
"Q. That was after you stepped on it wasn't it? A. Yes. Well, I didn't step on the part that was left, because my heel hit and slipped."
*888 Subsequently: "Q. And after you got up did you inspect that particular area of the floor? A. I looked down at it and before I got up the first time I saw it was all over the floor and I saw the condition of whatever it was, had been stepped on and swept over."
Further: "Q. These other substances, I believe you say that you saw on the floor, they were of a different character, weren't they? A. Well, I suppose that they were of about the same; they looked like the spot that I had stepped on. I thought it was probably the same thing."
Mrs. Selph was 54 years old at the time of this occurrence. She was then a house-wife.
She testified: "Q. * * * in that period of time I suppose you have had lots of occasion to observe objects on the floor and sweep over them yourself? A. I certainly have, for I have worked at different places practically all my life. For the last few years my husband made me quit work." The aisle was paved with terrazzo. The surface was hard and smooth. In color it was light, but had brown spots in it.
The store was large, being 180 feet long by 50 feet wide.
Saturday was the busiest day of the week at this store. Mrs. Selph testified that "there were quite a few people in the store," and further, "there was quite a crowd in the store that morning and all the school children were gathered around the balloon counter." On Saturday, four clerks served the candy counter. Only two clerks worked there on other days. This counter seems to have been between 30 and 40 feet long, and three cash registers were placed on it for the use of the clerks working there. The photographs in evidence show the top of the counter covered with packages and bags of candy, and this was the practice when Mrs. Selph fell.
There was evidence that from time to time candy was found in the aisle before this counter. For instance, the porter testified: "* * * Beginning Monday night through Saturday night that floor is mopped and if there is any candy on the floor we have got a putty knife we carry in our pocket and scrape every piece of candy off. Very little accumulates there, because that is done all through the day not just at night; it is done through the day." There was other evidence to the same effect and Watts, who had supervision of this area of the store when Mrs. Selph fell testified: "Q. Do you all sell candy down there, brown candy and black candy, pink candy, white candy, different colors? A. Well, various colors, yes, sir."
There was much evidence concerning Kress' method of keeping the floor clean, and this evidence bears directly on the matter at issue.
The entire personnel of the store were instructed to watch for substances on the floor and to remove what they found or to have it removed. The defendant Howe, manager of the store, seems to have spent most of the day walking about over the store, and he endeavored to comply with these instructions. The assistant manager, Graham, supervised the back part of the store, and Watts, referred to as a "learner", supervised the front part of the store, where the candy counter was, and these two men constantly walked about the areas assigned to them. It was one of their duties to observe the condition of the floor, and Mr. Watts testified that he would pass by the candy counter at intervals "of between 10 or 15 minutes, according to how much business, how many people were in the store." Subordinate employees who supervised the activities of the sales clerks were stationed in the area and also had the same duty. It was also the business of the sales clerks to do this when they could, and the clerk in charge of the candy counter said she was often in the aisle before the counter.
Finally, there was the porter. On Friday night this employee swept and mopped the candy aisle and after he did so his work was inspected by the assistant manager and again the next morning by Mr. Howe, the manager, when he opened the store. According to the evidence the aisle must have been clean when the store opened on the Saturday morning when Mrs. Selph fell. Before 9 o'clock the porter *889 had other duties to perform, but at 9 o'clock in the morning the porter began to patrol the floor of the store with a broom and a dust pan looking for things on the floor. He also carried a putty knife with which he could remove substances which the broom would not remove. He went backward and forward between the front and back of the store, requiring some 30 to 45 minutes to go to the back and then return to the front, and Graham, the assistant manager, said that by the time Mrs. Selph fell the porter would have swept the area about the candy aisle three or four times. This routine was interrupted by the porter's lunch hour, which began at one P.M., and was interrupted once during the morning when the porter emptied the contents of the waste baskets provided for use of the clerks. He said: "* * * When I come down, well, I will probably make a round on the floor, but when the floor is clean then I will get the trash barrel and empty all the trash boxes; probably that will take 30 minutes and I will get my dust pan and start over on the floor."
According to the porter his broom was six inches wide and was three feet long. There was some testimony from Graham, the assistant manager, that the porter had two brooms; one of these was described as being a "hair type" broom and the other as being an ordinary household broom.
There was evidence that the porter had sometimes failed to remove candy from the aisle. Thus the defendant Howe, the manager, testified: "Q. Did you ever in the course of inspecting the floor after it had been mopped, have you ever found any pieces of candy or gum that are allowed to remain there? A. We have found small ones which we made the porter come back and clean up."
The floor of the aisle doubtless tended to conceal candy for, as we have stated, it had brown spots in it.
The defendant Howe, the manager, testified: "Q. If there was anything on the floor in the morning could you approximate how long it could remain on the floor without having been discovered? * * * A. Well, the porter makes his round on the average of 30 minutes and he would have picked it up. I am certain that in less than 30 minutes one of the supervisors working in that area would have seen it and had it removed."
Points 1, 2, 3, 4, 17, 24, and 25 are overruled.
The storekeeper's duty to his patron has been described as follows: "A storekeeper must exercise some care to see that his store is kept in a reasonably safe condition for his customers, even though he has no actual knowledge of any fact that would lead him to believe that a dangerous situation existed." R. E. Cox Dry Goods Co. v. Kellog, Tex.Civ.App., 145 S.W.2d 675, at page 677.
The measure of the time allowed the storekeeper to discover and remove substances on the floor of his store which are dangerous to his patrons is indicated by the following quotations. Thus, in R. E. Cox Dry Goods Co. v. Kellog, the court said, 145 S.W.2d at page 678: "* * * the jury was justified in concluding as it did not in view of the size of the store, the amount of trade carried on therein, and the frequency with which the aisle was used, together with all of the other circumstances in evidence, Cox did not exercise ordinary care to discover and remove the dangerous situation prior to Mrs. Kellog's injury." In Langley v. F. W. Woolworth Co., 47 R.I. 165, 131 A. 194, at page 196, the Supreme Court of Rhode Island stated: "We do not think that time alone (the reference is to time actually elapsed) can be made the test of constructive notice to a storekeeper of the dangerous condition of his floor. What may be a reasonable time within which to say he should have known of and removed the danger will vary with the nature of the business, the size of the store, the number of customers, the nature of the dangerous substance, its location, frequency of travel over it, the probability of stepping upon it, the opportunity to see and remove it, the location of the danger with reference to aisles and counters, the light in the store, how the substance came to be upon the floor, and other circumstances."
*890 Whether a dangerous substance has been upon the floor of the store long enough for it to have been discovered and removed before the plaintiff is injured had the storekeeper been exercising due care toward his patrons is a question of fact which may be proved by circumstances as are other facts, and the appearance and condition of the substance causing the plaintiff to fall and of the surrounding area of the floor may be significant circumstances. Thus, it is said by the annotator at 162 A.L.R. 955: "The nature of a defect or its condition may be such as to give rise to an inference that it has existed for a time sufficient to give constructive notice thereof to the proprietor of the premises." And see Crystal Palace, Inc. v. Nelson, Tex.Civ.App., 300 S.W. 183, and the comments on motion for rehearing in Safeway Stores, Inc. v. Miller, Tex.Civ. App., 110 S.W.2d 927. This rule has been applied in the following cases where the patron was caused to fall by a substance on the place where he had stepped: H. E. Butt Grocery Co. v. Johnson, Tex.Civ.App., 226 S.W.2d 501; Langley v. F. W. Woolworth Co., 47 R.I. 165, 131 A. 194; Scott v. Kline's, Mo.App., 284 S.W. 831; S. S. Kresge Co. v. Rankin, 4 Cir., 149 F.2d 934; Anjou v. Boston Elevated Ry. Co., 208 Mass. 273, 94 N.E. 386; Hudson v. F. W. Woolworth Co., 275 Mass. 469, 176 N.E. 188; Fournier v. New York, N. H. & H. R. R. Co., 286 Mass. 7, 189 N.E. 574, 92 A.L.R. 610; Foley v. F. W. Woolworth Co., 293 Mass. 232, 199 N.E. 739; Zanes v. Malden & Melrose Gas Light Co., 298 Mass. 569, 11 N.E.2d 498; Connair v. J. H. Beattie Co., 298 Mass. 550, 11 N.E.2d 499; Bavosi v. Interstate Theatres Corp., 307 Mass. 124, 29 N.E.2d 688; Berube v. Economy Gro. Stores, 315 Mass. 89, 51 N.E.2d 777. In the following cases, it was held that circumstances showed that the storekeeper put the substance on the floor; Campbell v. F. W. Woolworth Co., Tex. Civ.App., 16 S.W.2d 907, analyzed and reaffirmed by the same court in F. W. Woolworth Co. v. Goldston, Tex.Civ.App., 155 S.W.2d 830; S. H. Kress & Co. v. Hall, Tex.Civ.App., 154 S.W.2d 278.
The circumstances listed in our statement of proof support the finding under Issue 4. The candy on which Mrs. Selph stepped created a condition dangerous to the patrons of Kress' store and the defendants knew that candy might be found in this aisle at any time during the day. The candy was in a busy aisle, before a counter patronized by many people, and was open and apparent to view, and there were a number of people in the immediate vicinity whose constant duty it was to find and remove this candy and who had frequent opportunities to do so. The appearance of the candy showed that it had been trod upon by others, and that the porter had actually passed over it with his broom. We think that Mrs. Selph's testimony about the broom marks on the candy was competent proof. The mark of the broom is characteristic and Mrs. Selph was a housewife. The porter actually had a broom which he used throughout the day and the jury could have inferred from the testimony of witnesses other than Mrs. Selph that the porter actually passed along this aisle with his broom, performing his duty to clean the aisle, not long before Mrs. Selph fell. The porter had sometimes failed to remove candy in the past and thus he might well have failed to do so this time. The circumstances are as strong as those often held to support a finding of negligence on the storekeeper's part, as the decisions listed above show.
The jury were authorized to infer that Mrs. Selph's description of the candy she saw on the floor was intended to apply to all of the candy she saw at the place where she fell. Mrs. Selph did not see the candy before she stepped upon it, but this was only a circumstance indicating how long the candy had been on the floor. It does not conclusively show that the candy was placed on the floor after Mrs. Selph entered the store. The jury were authorized to conclude that a patron exercising due care for his own safety might well have failed to see the candy before he stepped upon it. Inconsistencies in Mrs. Selph's testimony raised only issues of fact for the jury. There was no inconsistency *891 between Mrs. Selph's statement that she actually stepped upon one piece of candy and her other statements that she saw other candy at the same place.
Point 5 reads: "There being no evidence that H. H. Howe, the manager of the Kress & Company store, was guilty of any act of misfeasance for which he would be personally responsible, the defendant, H. H. Howe, could not be held personally responsible for the alleged failure of defendant, Kress & Company, its agents, servants of employees, in failing to discover the alleged piece of candy in the exercise of ordinary care; therefore, the complaint did not state a cause of action against H. H. Howe, and it was an error to submit any issue to the jury and to render judgment against said defendant."
Howe was an employee of Kress, and in that capacity was the manager of the store when Mrs. Selph fell in the store. He had occupied this place for more than a year before Mrs. Selph fell and he had held it since.
Howe was charged with the operation of the store for Kress, and was the superior officer of all other employees of Kress' who worked in this store. He hired the porter. He testified: "Q. As I understand, you have as general manager authority to direct any part of the conduct of the business of the store? A. That's right."
One of Howe's duties was to maintain the floor of the store in condition safe for the use of Kress' patrons, and he performed this in person and also through the other employees working in the store, all of whom had been instructed to watch for things on the floor. Howe had been instructed by his own superior officers to keep the floor clean of dangerous substances; he had repeated these instructions to all other people working in this store; he continually engaged, day by day, in observing the condition of the floor; he inspected the candy aisle at night after the porter had mopped it, although the primary duty of making this inspection was the Assistant Manager's and this employee diligently performed it; and Howe inspected that aisle again in the morning when he opened the doors of the building.
Howe was intermediate in rank among the employees of Kress'. The officer next above him was stationed at Kansas City. This officer had authority to tell Howe what to do in the performance of Howe's duties, but Howe acted on his own responsibility when a superior was not undertaking to direct him. Doubtless Howe executed policies and recommendations relayed to him by this officer. Howe described his relationship to this official as follows:
"Q. But as far as Kress & Company is concerned, Mr. Howe, you are the man in control of those premises leased by Kress & Company, isn't that correct? You wouldn't tell me somebody else is in charge of those premises, would you, acting for Kress & Company? A. Well, we have a District Manager, who I am responsible to, and who comes to the store periodically and checks.
"Q. Would you say he is in charge of the premises? A. Well, I take orders from him. If he wants changes made, I make them. So far as the man being in charge of the building that we occupy throughout the day, I am responsible for it then. When he comes here, the orders he issues supersede mine and I do what he wants done.
"Q. Somebody has to be in charge of it? A. I am in charge of the store.
"Q. Kress has somebody in charge of it and I want to know who it is. A. I am in charge of the building occupied by Kress and Company."
There is no proof that Howe either knew that the candy was on the floor or that he had had any part in causing it to be there. The general competency of Howe's subordinates is not in issue.
Our discussion of Points 1, 2, 3, 4, 17, 24, and 25 shows what measures had been adopted to keep the floor of the store clean of dangerous substances.
Point 5 is sustained on the following grounds:
*892 A servant's liability in tort to a third person does not invariably depend upon a distinction between misfeasance and nonfeasance, if by nonfeasance is meant simply a servant's omission to do something which he had undertaken, in general, to do, in behalf of the master. Quoting from Harper on Torts, No. 299, p. 636 et seq.: "Some confusion has arisen in the cases respecting the servant's liability for negligence, the older view, supported by Story an founded upon a dictum of Lord Holt, holding the servant for malfeasance or misfeasance, but not for a mere nonfeasance. This notion rested apparently upon the view that the servant was obligated to affirmatively perform acts only to his master. The fallacy, of course, consists in assuming that the extent of the servant's affirmative duties is determined solely by his contract of service. By the sound view, his duties of care depend upon his relationship with the person threatened or harmed, and whenever he is brought into relation with third persons, whether as a result of his function as somebody's servant or not, so that he comes within the ordinary principles of negligence, his duties to such third persons are determined by the law of negligence and a breach thereof makes him liable. Whether a servant is liable for a nonfeasance will depend, therefore, on whether he has violated an affirmative obligation to the plaintiff imposed upon him by the law of negligence. The fact that he is a servant will have nothing to do with the question."
Statements in Labadie v. Hawley, 61 Tex. 177, indicate that an agent is not liable to a third party for an omission; but in that case the agent did not have control of the premises when the nuisance was created or while it existed; he did not participate in the creation or operation of the nuisance; and the facts recited in the opinion do not show that when he authorized the erection of the stove, he either knew or should have known that it would be a nuisance. Thus, if the agent did owe a duty to his master there is nothing to show that he owed one to the plaintiff. Statements distinguishing between liability for a servant's misfeasance and nonfeasance have been repeated in other decisions. See: Eastin & Knox v. Texas & P. Ry. Co., 99 Tex. 654, 92 S.W. 838; 2nd appeal sub nomine Texas & P. Ry. Co. v. Eastin & Knox, 100 Tex. 556, 102 S.W. 105; Montgomery v. Allis-Chalmers Mfg. Co., Tex.Civ.App., 164 S.W.2d 556; Seismic Explorations v. Dobray, Tex.Civ.App., 169 S.W.2d 739; Conrick v. Houston Civic Opera Ass'n, Tex.Civ.App., 99 S.W.2d 382; Dollar v. Lockney Supply Co., Tex.Civ.App., 164 S.W. 1076. But in the action of Eastin & Knox, the court does not define nonfeasance, and since the servant committed a misfeasance, the court's statements regarding nonfeasance were really dicta. In Montgomery's action, the facts recited in the opinion do not show that the "branch manager" owed the plaintiff a duty to correct the dangerous situation. He may or may not have been the custodian of the premises. Dollar v. Lockney Supply Co. and Conrick v. Opera Ass'n are not in point. And in Seismic Explorations v. Dobray, the Court of Civil Appeals seems to have determined Reynolds' liability by the nature of the duty he owed to the plaintiff.
However, any authority which statements in these opinions might otherwise have has been affected by the decision in Fox v. Dallas Hotel Co., 111 Tex. 461 at page 473 et seq., 240 S.W. 517. There the Hotel Company, which owned the building, had made a contract with a tenant to maintain the tenant's elevators, and the tenant's watchman was injured while rightfully attempting to operate one of these elevators. This machine the defendant had failed to keep in repair, and the court determined liability for this by inquiring whether the defendant owed the watchman a duty, not by a distinction between misfeasance and nonfeasance. But this distinction was before the court and we construe the decision as holding that an agent is liable to a third person if, under the law of negligence, he is charged with a duty toward that person, even though his conduct be omission rather than commission, nonfeasance rather than misfeasance. *893 There is much authority for this holding. See: 20 A.L.R. 97; 99 A.L.A. 408, and supplemental decisions; Ward v. Pullman Co., 131 Ky. 142, 114 S.W. 754, 25 L. R.A., N.S., 343; 3 C.J.S., Agency, § 221-a, p. 130, § 223, p. 134.
Thus we have to decide whether Howe owed Mrs. Selph a duty to remove the candy which caused her fall, and if he did, the nature and scope of this duty and whether he violated it. The existence or not of the duty depends, in the first instance, upon whether Howe had the required control of the premises. Thus in Fox v. Dallas Hotel Co., the court said of the defendant: "Having brought under its control a mechanical applicance, which was, or should have been, known to be attended by grave risks, defendant in error was under the specific, legal duty to exercise ordinary care to protect those for whose use the appliance was provided against the risks it foresaw or should have foreseen." 111 Tex. at page 473, 240 S.W. at page 520. Section 355 of the Restatement of Agency reads: "An agent who has the custody of land or chattels and who should realize that there is an undue risk that their condition will cause harm to the person, land, or chattels of other is subject to liability for such harm caused, during the continuance of his custody, by his failure to use care to take such reasonable precautions as he is authorized to take." Comment (a) thereunder reads in part: "One who is in complete control over either land or chattels is under the same duty to protect others from the condition of such things as is the possessor of land or chattels. * * * The custodian in complete charge is not excused from liability by the fact that he is acting for the benefit of another. He is subject to the same liability and has the same immunities as the possessor." Comment (b) reads in part: "If an agent has only a limited control over land or chattels he is subject to liability only to the extent that he is authorized to exercise such control." Section 387 of the Restatement of Torts reads: "An independent contractor or servant to whom the owner or possessor of land turns over the entire charge thereof is subject to the same liability for harm caused to others within or outside the land by his failure to exercise reasonable care to maintain the land in safe repair as though he were the possessor of the land." Comment (a) reads in part: "In order to create liability under the rule stated * * it is not necessary that the contractor be given the possession or occupation of the land or building. On the other hand, the contractor must have taken over the entire charge of the land or building."
These citations also show what degree of control of the premises the servant must have to be charged with a duty to maintain them. This servant must be the custodian, in complete charge and control of the premises, given the duty by the master to see that the particular defect does not exist and vested by the master with authority to correct this defect. However, the existence of a superior authority in another servant is consistent with such control and must, indeed, be implied if any servant of a corporation except the board of directors is to be held liable.
We hold that the testimony of Mr. Howe shows as a matter of law that he was the custodian and had this sort of control of the store, as regards the particular defect which caused Mrs. Selph's injury. The conclusion to which this leads is that Howe owed Mrs. Selph a duty to have the floor of the store in safe condition. This duty, of course, was only one to use due care; Howe's liability is in negligence.
The next question arising concerns the nature and scope of Howe's duty to use care. Was Howe's duty personal only or was it non-delegable? That is, was Howe vicariously liable for the negligent failure of a subordinate to remove the candy before Mrs. Selph fell? If the duty was personal Howe was not liable to plaintiff because he did not cause the candy to be on the floor and he did not know that the candy was there. The general competency of his subordinates is really not in issue, as we have said; but there is nothing in proof to show that any of them were incompetent and they seem to have been suitable persons. However, our discussion of defendants' *894 Points 1, 2, 3, 4, 17, 24, and 25 show that the jury could have found the porter and perhaps other subordinates to be negligent in failing to remove the candy before Mrs. Selph fell, and if Howe's duty was non-delegable he is liable for this negligence of his subordinates.
In such Texas cases as we have seen which hold the servant liable this question was not involved. Thus, in Fox v. Dallas Hotel Co. the defendant acted through servants of its own and seems, indeed, to have been an independent contractor. And in Kenney v. Lane, 9 Tex. Civ. App. 150, 36 S.W. 1063, the servant knew of the defect in time to have corrected it before the workman was injured and, being in control of the work, could have done this.
Generally a servant of Mr. Howe's rank is not liable for the negligence of a competent subordinate in which he did not participate, because the subordinate is the servant of the master and not of his superior officer. See: Ladonia Dry Goods Co. v. Conyers, Tex.Civ.App., 58 S.W. 967; Restatement of Agency, Sec. 358; 2 C.J.S., Agency, § 137-b, p. 1362; 3 C.J.S. Agency, § 222, p. 133; 61 A.L.R. 277. And see, in connection with this rule and with others to be mentioned: 49 A.L.R. 521 and 138 A.L. R. 1093, and supplemental decisions. In Malloy v. Fong, 37 Cal. 2d 356, 232 P.2d 241, at page 254, the Supreme Court of California said: "The doctrine of respondeat superior is not applicable to the relationship between a supervisor and his subordinate employees. The supervisor occupies an economic and legal position quite different from that of the employer. It is not the supervisor's work that is being performed, nor does he share in the profits which the employees' conduct is designed to produce. In the usual situation, furthermore, he like his subordinates, is a wage-earner, and he is seldom able to respond in damages to an appreciably greater extent than they. For these reasons, the law has shifted financial responsibility from the supervisor, who exercises immediate control, to the employer, who exercises ultimate control and for whose benefit the work is done." Whether historically correct or not this reasoning is cogent.
This general rule has been applied in behalf of the servant in custody of land, whose duty to the invitee has been regarded as personal, not as non-delegable. See: Bailey v. Zlotnik, 77 U.S.App.D.C. 84, 133 F.2d 35.
However, it seems to have been held by the Supreme Court of Missouri that the duty of the servant is non-delegable, and that the servant is liable for the negligent omission of his subordinate. Thus, in Stith v. J. J. Newberry Co., 336 Mo. 467, 79 S.W.2d 447, 455, the manager of the store was held liable to a person on the sidewalk who slipped upon an accumulation of ice on the walk, fell and was injured. This ice had formed from snow and water which had accumulated on the awning of the store, had melted and dripped upon the walk, and had frozen there. The Supreme Court of Missouri, in discussing the liability of Johnson, the manager, said: "Our first opinion holds, and we think properly so, on the authority of Orcutt v. Century Bldg. Co., 201 Mo. 424, 99 S.W. 1062, 8 L.R.A.,N.S., 929; * * * and many other cases, that, as it was the duty of defendant Johnson as manager of this store, both to his employer and to the public, to see to it that the awning over the sidewalk was kept and operated in a reasonably safe condition, he could not escape liability here on the ground that his negligence is one of nonfeasance instead of misfeasance. His position as manager of the store and business placed upon him the responsibility of properly handling and maintaining the awning. He had authority over the other employees, and should have kept the awning in a position and condition not likely to cause harm to pedestrians on the sidewalk either by his own efforts or through employees who were there to act under his orders. His duty in that respect was the same as that of his employer. `The person having charge of the building, whether as owner or agent or servant, ought to be responsible to third persons, on the theory that a duty to use proper care arises from such control.' 7 Labatt's Master and Servant, (2nd Ed.) p. 7974, #2586." In addition to the case of Orcutt v. Century Bldg. Co., see the following Missouri decisions: *895 Lambert v. Jones, 339 Mo. 677, 98 S.W.2d 752; Brown v. Yeckel, Earickson & Co., Mo.App., 129 S.W.2d 66. And see: concerning the Missouri rule: Franklin v. May Dept. Stores Co., D.C., 25 F. Supp. 735; Landreth v. Phillips Petroleum Co., D.C., 74 F. Supp. 801.
On the other hand, the Supreme Court of Alabama has held in Waters v. Anthony, 252 Ala. 244, 40 So. 2d 316, 319, that the liability of a theater manager for an injury to a patron from a defective seat was for the jury where the manager had adopted a particular method of performing his duty to keep the theater seats safe for patrons. The court said: "The evidence shows that Lackey was the active manager of the theater, and had charge of the physical condition of it, including seats and lights, and was engaged in the performance of his duties on that day. In doing so, he owed a patron of the theater a duty to exercise due care to have the seat used by her reasonably free from danger, and if he was negligent in this respect proximately causing injury to her, he and his employer were jointly liable." This, of course, is like the duty with which we have charged Mr. Howe. The court said further: "It was shown by his (Lackey's) evidence to be his custom to inspect the seats every Tuesday afternoon and to a certain extent every day. The theater was cleaned by a maid every day, and it was her duty if she found anything wrong with a seat to turn it down. And Lackey's custom was to go down the aisles every day and see if the maid had turned down any seats. But as manager of the theater in charge of the physical condition of the seats, it cannot be said that those were the only duties owing by him as to their safe condition. His custom in that regard was apparently his own plan, and prescribed by himself as manager in charge of the condition of the seats. He can not set up for himself a custom as the standard by which his duty is measured, and then contend that a diligent discharge of it was all he owed to the public. His recital of the custom of inspection used by him was evidently meant to rebut the evidence that the seat was defective, as the plaintiff contended. It was for the jury to say whether he discharged his duty in the matter of the physical conditions of the seats." In connection with the decision cited see: Sloss-Sheffield Steel & Iron Co. v. Wilkes, 231 Ala. 511, 165 So. 764, 109 A.L.R. 385; Prudential Ins. Co. v. Zeidler, 233 Ala. 328, 171 So. 634; Jones v. Tennessee Land Co., 234 Ala. 25, 173 So. 233, all by the Supreme Court of Alabama.
We construe this decision as holding that the manager of the theater discharged his duty of due care to the patron by having a proper and efficient method for the performance of his duty. (The competency of the subordinate was not involved, and the manager did nothing to cause the defect.) If the jury found him negligent, he would be liable for the maid's failure to notice the defect, but otherwise he would not. This holding seems intermediate between Bailey v. Zlotnick and Stith v. Newbury Co.
We adopt the Alabama court's rule of decision and hold that Howe's duty concerning the particular defect was not nondelegable in the sense that his master's was, and that the due care for Mrs. Selph's safety was required of him was exercised if he adopted proper measures to have the floor in safe condition. It seems unjust to extend Howe's liability further. He could not perform the duty in person; he was compelled by circumstances to delegate it to others; and it seems obvious that his employer expected and intended him to do so. The store was his master's, not his; and to hold him absolutely liable for a subordinate's negligent failure to remove the candy would subject him to his master's loss without his master's recompense. This store was large and the liability would be heavy. It may be that in other circumstances the intermediate servant's duty, because of the importance of its performance or for other reasons should be held nondelegable in the full sense of that word, (see the concluding sentence of comment (a), Sec. 355, Restatement of Agency) but we are not convinced that it should be here. The question is, which rule would best serve the public interest. The answer to be made is a controversial one, *896 but it seems to us that the public interest does not require an extension of Howe's duty and liability beyond that made here.
The ground of liability suggested by our conclusion was not submitted to the jury and it was therefore waived; but it seems to us that Howe had adopted proper methods for keeping the floor of the store clean. The system did not protect Mrs. Selph in this case, but Howe was not an insurer; his duty to Mrs. Selph was only to exercise due care.
In their counter-points 1, 2, 3, 4, and 8 the plaintiffs have assigned error to the order of the trial court striking, on defendants' exceptions, the following allegations of the petition: "And in connection with the foregoing plaintiffs would further show the Court that defendant Howe was the manager of said store and as such was in the sole and exclusive control of same for and in behalf of the defendant S. H. Kress and Company, and said defendant H. H. Howe determined the pay of employees in said store and assigned said employees to the various duties performed by them in said store, and, as manager of said store supervised the display of merchandise in said store, and passed by said candy counter frequently, and ordered the merchandise which was to be sold in said store, and determined what was to be purchased and sold, and controlled all of that portion of the premises leased by defendant Kress and Company, and defendant Howe's income from said business was determined upon a percentage of the sales made in said business and wholly depended upon the amount of sales in said business and the employees of said store were and are paid out of the proceeds of business done in said store, and that defendant H. H. Howe devoted all of his time in labor to said business and was not in any other business."
None of these allegations affect our conclusion about Howe's liability because even under these allegations Howe remains a servant; he is not a partner of Kress nor is he a member of a joint enterprise. No workable distinction between servants could be based on the way their pay was determined by the master.
Point 6 assigns as error that the verdict against the defendants Kress and Howe was joint, and that if Howe be discharged, then so must Kress be, under a common law rule that a joint verdict if set aside in part is wholly set aside. The common law rule referred to is discussed in Burton v. Roberson, 139 Tex. 562, 164 S.W.2d 524, 143 A.L.R. 1. The question before us is what judgment to render under Texas Rules of Civil Procedure, rule 434, and this Court may affirm a trial court's judgment against one defendant charged as a joint tortfeasor and reverse that judgment as to another defendant so charged. The liability of defendants charged as joint tortfeasors, as Kress and Howe were, is several as well as joint; and the record does not indicate that Howe's presence was harmful to Kress as co-defendant. Point 6 is overruled on the authority of Missouri K. & T. Ry. Co. v. Enos, 92 Tex. 577, 50 S.W. 928; Burton v. Roberson, supra; Waters v. Anthony, 256 Ala. 370, 54 So. 2d 589; 57 C.J.S., Master and Servant, § 619, p. 423, "Extent and limits of rule".
Points 7, 8, and 9 assign error to the action of the United States District Court in remanding this cause to the trial court, and to the action of the trial court in trying the cause.
There were two of these removal proceedings. The first was filed in the trial court, which granted a removal, and the second was filed in the United States District Court, and in each proceeding the United States Court remanded the cause to the trial court.
The orders of remand by the United States Court are final and the trial court did not err in trying the case on the merits. U.S.C.A., Title 28, § 1447(d); Bourget v. New England Tel. & Tel. Co., 97 N.H. 193, 84 A.2d 830; Western Union Tel. Co. v. Luck, 91 Tex. 178, at page 181, 41 S.W. 469; Mo.-Pac. R. R. Co. v. Fitzgerald, 160 U.S. 556, 16 S. Ct. 389, 40 L. Ed. 536; Metropolitan Casualty Ins. Co. v. Stevens, 312 U.S. 563, 61 S. Ct. 715, 85 L. Ed. 1044.
Point 10 assigns error to the trial court's order overruling defendants' *897 motion for a mistrial, which alleged that the juror Stephenson had entered the store during the trial and had viewed the aisle where Mrs. Selph fell. Stephenson said that he had entered the store about 4 o'clock in the afternoon to get a drink of water at a fountain there; that he had bought a package of candy at the candy counter; and that he had traversed the aisle on his way out of the store. He testified further:
"Q. Did you take a look at the floor while you were there? A. Well, not necessarily, no. * * *
"Q. You came out down that aisle, went to the candy counter, and bought some candy and went on out? A. Yes, sir.
"Q. Did you pay particular attention to the floors? A. I can't say I did.
"Q. Can you say you didn't? A. Well, I will say I was looking where I was walking. I certainly wouldn't have walked over a basket or anything in front of me."
The defendants put in evidence three excellent photographs of the aisle, showing the floor of the aisle, the candy counter and adjacent counters. That marked D-1 was taken at a point in the aisle which was a considerable distance from the door opening upon the street, and it shows the entire length of the aisle extending along the candy counter and other counters adjacent thereto, which lay farther from the street than the candy counter did. This picture shows the aisle extending to the door, shows the nature of the surface of the floor and the relative width of the aisle, shows the candy counter with packages of candy stacked upon it over its entire length, and shows the other counters in the store with the goods sold at these counters. The picture marked D-2 was taken at a point in the aisle facing toward the door but nearer the door, and it shows the entire length of the candy counter and also the aisle and the ends of counters across the aisle from the candy counter. This picture shows more clearly and in more detail matters shown in the picture D-1. The picture marked D-3 seems to have been taken from a point just inside the door. This picture shows the aisle running from the door toward the interior of the store and it shows the candy counters with stacks of bags of candy on it and most clearly of all the matters shown in the other two pictures. There was other evidence that the floor was of terrazzo, that it was hard and smooth and that it was of a light color with brown spots. There was also some evidence tending to show the approximate length of the candy counter aisle. Under the circumstances, the jury actually had before them so much of the information which Mr. Stephenson could have acquired while he was in the store that his conduct could not have caused the defendants any harm. It does not appear that Stephenson talked to other jurors about his trip to the store and Point 10 is overruled on the ground that it presents harmless error.
Under Points 11 to 14 error is assigned to statements by plaintiffs' counsel and by the trial court to the jurors Mouton and Stephenson, made while these two jurors were being questioned concerning their supposed entry of the store during the trial. Stephenson had gone into the store but Mouton had not. On Mouton's examination the following occurred:
"By Mr. Adams: Q. You understood that Kress and Company has filed a motion for mis-trial on the ground of your misconduct? * * *
"Mr. Weller: If the Court please, I object to counsel stating that. In other words I haven't said that Mr. Mouton did any misconduct. I merely asked him, based on information that was furnished me. I wouldn't want to do anything to embarrass Mr. Mouton, and I will ask the Court now to instruct Mr. Mouton that this matter is not to be discussed or considered in any way in his deliberations on this case.
"The Court: The Court will so instruct you, Mr. Mouton. All legal matters come the Court; the legal points involved come to the Court, and the Court submits the issues of fact to the jury. If you tell me you didn't go down there, I believe you. You can go back to the jury box. (Juror Mouton leaves room and Juror W. C. Stephenson enters.)
*898 "Mr. Adams: Your Honor, I think Mr. Weller ought in fairness to this gentleman, (reference is to Stephenson) to state to this gentleman what this hearing is about.
"The Court: There is a motion before the Court for mistrial, alleging that these parties went into the premises yesterday afternoon."
Later: "The Court: Mr. Stephenson, I am going to ask you not to discuss what was talked about to you in the presence of the rest of the jury or anyone else. Of course, as an attorney, he has a right to try to represent his client, and if they can show any misconduct, it is their privilege and their duty.
"Mr. Weller: If the Court please, I object to the Court's statement to the witness, and ask that the Court tell the witness we are merely trying to ascertain the facts regarding it.
"The Court: That's what I said; you are merely trying to do what you think is right.
"Mr. Weller: I ask the Court to instruct him not to discuss anything he may have seen.
"The Court: I do charge you again, not to consider anything in your deliberations except what has come to you from the witness stand, either in the form of oral testimony, or instruments introduced, and the Court's charge, which will be given you in writing."
Points 11 to 14, inclusive, are overruled. The trial court had the discretion to decide how these jurors would be examined, and it cannot have been error as a matter of law that the jurors were told the nature of the allegations made against them, at least of the statements to them were correct and were expressed in language which the jurors might be expected to understand. Considered as a whole, the matter seems adequately put to Jurors Mouton and Stephenson. Under the circumstances of this particular case the trial court did not owe the defendants any duty to conceal from the jurors the matter which was under investigation. The statements to Mouton and Stephenson did not deprive the defendants of any opportunity to properly and completely present the misconduct alleged by them or to fully investigate the facts.
The contention made under Points 15 and 16 is not entirely clear to us but as we construe defendants' argument the defendants are complaining of the trial court's refusal to limit the plaintiffs' proof about candy on the floor to the piece of candy on which Mrs. Selph slipped, and this argument is based on admissions made before trial which defendants construe as being statements that Mrs. Selph slipped on one piece of candy. Mrs. Selph at least so testified on trial, and we note that the charge to the jury was framed on the theory that she had slipped on a piece of candy. See Issues 2, 4, and 5 of the trial court's charge. Under these circumstances the jury could not have believed that Mrs. Selph slipped on anything else. However, proof that other candy was on the floor was not inconsistent with this testimony of Mrs. Selph's, and such proof was a relevant circumstance to be considered by the jury in determining whether the candy which caused Mrs. Selph to fall should have been discovered and removed before Mrs. Selph did fall. These points are overruled.
Points 18 and 19 repeat certain objections to the form of Special Issues 1 and 2 of the trial court's charge, which the trial court overruled. Issue 1 inquired whether Mrs. Selph fell "on or about June 14, 1947." Defendants say that proof was made on an event which occurred on June 14 at about 11 o'clock A.M., and that Issue 1 should have referred to this time and date, and because it did not, permitted the jury to speculate. Issue 2 mentions no date, but it was conditioned upon an affirmative answer to Issue 1, and defendants say that it assumed what was expressly stated in Issue 1. These points are overruled. There was only proof of one fall by Mrs. Selph and the jury could not have been misled. Furthermore, the issues were in accord with the proof actually made. Thus Mrs. Selph testified: "Q. Mrs. Selph did you have occasion to be in S. H. Kress & Company's store on or about June 14, of 1947? A. Yes, sir. I went in there to make a purchase." Defendants' *899 request No. 4 for admission by plaintiffs was: "On June 14, 1947 Mrs. Selph entered the Kress Store in Beaumont at the extreme north door on the Pearl Street side and walked down the extreme north aisle to the balloon counter." Plaintiffs replied: "Plaintiffs admit the truth of the statements set forth in paragraph 4 in said request, except plaintiffs say the date June 14, 1947 is correct to the best of their recollection."
Points 20 to 31, inclusive, repeat certain objections to Issue 4 and Point 39 brings forward an instruction which defendants asked be given with Issue 4.
Issue 4 and the jury's answer thereto were: "Do you find from a preponderance of the evidence that said piece of candy at the time plaintiff's wife, Ida Selph, slipped and fell had been on the floor for a sufficient length of time for defendants' agents, servants and employees in the exercise of ordinary care to have discovered and removed same? A. Yes."
These points are overruled, with the following comments:
(a) Under Point 20 defendants say that Issue 4 does not limit the jury to one piece of candy on which Mrs. Selph said that she had slipped.
The issue should not have been so limited. Mrs. Selph thought that she did slip on one piece of candy, but the jury could have found that this was with other candy, and that all of this candy had been on the floor long enough to have been discovered and removed had due care been used.
(b) Point 21 quotes the following objection: "(11c) Said issue as submitted does not give the jury any standard of care required of the defendants, or either of them, and permits the jury to set up its own standard of care which it would require of the defendants, or either of them." Point 22 reiterates a matter stated in Point 21. Point 31 quotes the following objection: "(11n) Said issue as submitted is vague and indefinite and allows the jury to speculate as to the length of time that said piece of candy remained on the floor of said store, if it did so remain and does not give the jury any guide as to the length of time that said candy might remain on the floor of said store without requiring the defendant to discover and remove same."
Issue 4 was good against these objections. See: Hopson v. Gulf Oil Corp., Tex.Civ. App., 237 S.W.2d 353, at page 356, et seq. "Ordinary care" was defined and no objection has been made to the definition. The inquiry submitted was the test of liability, and the language used stated this test with sufficient clearness, at least against the objections considered here.
Point 39 quotes the following special instruction, requested to be given with Issue 4 but refused: "In connection with special issue No. 4 you are instructed that in cases of the nature before you the storekeeper is not the insurer of the safety of his invited customers but he only owes them the duty to use ordinary care to keep and maintain his premises in a reasonable safe condition for their use. If a dangerous or unsafe condition existed by reason of one piece of candy on the floor this condition must have existed for such length of time prior to the occurrence that the storekeeper, his agents, servants or employees would or should have discovered it by the exercise of reasonable diligence, and the presumption is that the storekeeper exercised due care in the maintenance of its premises and did not permit the candy to remain on the floor a sufficient length of time to permit notice of its presence on the floor to be inferred." This instruction was properly refused.
Point 23 repeats the following objection: "(11d) Said issue as submitted submits a mixed question of law and fact to the jury and permits the jury to decide both the law and the facts of this case as to both defendants without at any time requiring the jury to find the fact as to how long said candy, if any, was on the floor of the store." It was not necessary for the jury to find exactly how long the candy had been on the floor, and Issue 4 did not submit a mixed question of law and fact, nor was it multiferous. The proof does not show exactly how long the candy was on the floor and we doubt that this fact could ever have *900 been proved. Whether the candy actually was on the floor had been previously submitted in Issue 2, and Issue 4 was conditioned upon an affirmative answer to Issue 2. Obviously, the prior finding under Issue 2 implied that the defendants had not removed the candy. Issue 4 was expressed in the form which the circumstances required. These comments also dispose of objections quoted in Point 27 and parts of 1 and 3 of Point 29.
(c) Points 26, 27 and parts 1 and 3 of Point 29 have been considered and are overruled.
(d) Point 28 repeats the following objection: "(11L) Said issue as submitted is erroneous in that it permits an affirmative answer to said issue even though the jury should find that H. H. Howe had no agents, servants or employees, and even though the jury should acquit him of negligence, thereby making it impossible for the defendant, H. H. Howe, or in the alternative the defendant, S. H. Kress and Company, to obtain a favorable finding on such issue."
Had the jury believed that Howe had no agents, servants or employees they must necessarily have answered the issue favorably to the defendants. The form of the issue puts a burden on the plaintiffs, not on the defendants.
The issue makes no inquiry about the personal negligence of Howe and the jury could not have convicted or acquitted him of negligence.
Point 29 (Part 2) repeats the following objection: "(2) It assumed that both the defendants, H. H. Howe and S. H. Kress and Company, had agents, servants and employees for whom each of them were individually responsible, whereas the undisputed evidence shows that H. H. Howe was only the manager of defendant's store and employed no agents, servants or employees." Point 30 reiterates that "the undisputed evidence shows that every one employed in said store was an employee of S. H. Kress and Company and * * * Howe was only the manager of said store."
The statements italicized are correct; but the defect pointed out was harmless to defendants. Issue 4 inquired only about the "agents, servants and employees" of the defendants; it did not inquire otherwise about Kress and it did not inquire about personal conduct of Howe. The proof showed as a matter of law, just as defendants say here, that Howe was only an intermediate servant, and that he had no "agents, servants or employees" of his own in the store. The jury must have construed the words "agents, servants and employees" as referring to the only ones mentioned in the proof, namely, Howe's subordinates, and therefore neither Howe nor Kress could have been harmed because the finding obviously referred to the conduct of these subordinates. Liability on the finding follows, or not, as a matter of law.
The form of Issue 4 is evidently based upon the legal theory that Howe and Kress were jointly liable for the failure to remove the candy, and that the subordinates were "agents" of both, and the jury must so have construed the issue.
Points 32 to 35, inclusive, assign error to Issue 5. Points 34 and 35 must be overruled because of holdings made respecting Issue 4. Point 32 repeats the following objection: "(12a) Said issue is not in conformity with the pleadings and there are no pleadings to support the submission of such issue." Both Issue 4 and Issue 5 were supported by the following allegations of negligence, which were alleged to be a proximate cause of Mrs. Selph's injuries: "(4) In allowing said slippery and greasy substance to remain upon said floor; (5) in failing to discover said slippery and greasy substance." In other allegations plaintiffs identified the substance causing Mrs. Selph to fall as candy or other greasy or slippery substance, but in their admissions and in their proof, and in the Special Issues submitted to the jury this substance was definitely identified as candy.
Point 33 repeats the following objection: "(12c) Said Special Issue No. 5 is not in conformity with the preceding issue, Special Issue No. 4, because it does not submit the issue as to whether the failure to discover said candy was a proximate *901 cause of plaintiff's alleged injuries." This objection is overruled.
In their argument under Points 32 and 33 the defendants refer to another variance between Issue 5 and Issue 4 but this variance was not complained of in the the trial court. It seems to us, on the merits, that this variance did no harm to the defendant Kress and whether it did harm to the defendant Howe is immaterial since we have held that he was not liable to the plaintiffs.
Point 36 repeats certain objection to Issue 7. It is overruled. Issue 7 was conditioned upon an affirmative answer to Issue 6 and it was not answered because the answer to Issue 6 was negative. Therefore the matters referred to in the objection quoted in Point 36 could not have done the defendants any harm since the jury never reached Issue 6. No assignment has been directed at Issue 6.
Points 37 and 38 repeat certain objection to Issue 9, which submitted the question of damages.
One element of damages submitted was the loss of capacity to work and earn money, and the objection quoted in Point 37 is that according to the proof, Mrs. Selph had been unemployed for a number of years and that the proof showed that she did not intend to enter employment. The proof showed, however, that Mrs. Selph did have the capacity to work and earn money, and she was so engaged when she was hurt; she testified that she had a boarder who paid her $20 per week and that she did this person's washing. We do not understand that the defendants' objected to the evidence concerning loss of capacity on the ground that it was too indefinite to support an award of damages, but we think that it was definite enough to support an award of some damages to the plaintiffs. Loss of or diminution of Mrs. Selph's capacity to work and earn money was compensable in damages whether this capacity was in point or not. Another element of damages submitted was for the pain and suffering of Mrs. Selph, and Point 38 repeats the objection that the evidence does not show that Mrs. Selph would experience future pain and suffering. However, there is evidence which would justify a finding that she would.
Points 40, 41 and 42 assign error to the trial court's refusal to submit special issues requested by the defendants. These points are overruled. The subject matter of the issues quoted in these points was specially pleaded by defendants as contributory negligence by Mrs. Selph. However, Issue 6 of the trial court's charge included the subject matter of all of these issues which defendants requested and the subject matter of Issue 6 was also specially pleaded by defendants as contributory negligence on the part of Mrs. Selph. Issue 6 was also a better statement of the question to be determined by the jury. Thus "failure to inspect the floor" (Requested Issue 5) was too narrow and put too great a burden on the plaintiffs. "Failure to see the candy" (Requested Issue 9) was not as definite as Issue 6 and the same criticism can be made of "failure to exercise ordinary care in walking" (Requested Issue 14). It seems to us that the form of requested Issue 14 is actually misleading. In determining whether Mrs. Selph was negligent regarding any of the matters referred to in these requested issues, it seems to us that the jury would have had to consider and be guided by their determination of the question actually put to the jury in Issue 5, because of the circumstances. Thus Mrs. Selph was expected by defendants to view and consider the merchandise upon the counters which she passed; this merchandise was put there to distract her attention from other things. The jury also could have inferred that other persons were in the aisle and their presence would also affect Mrs. Selph's actions.
Point 43 assigns error to the trial court's refusal to submit defendants' requested Issue 9 reading: "What length of time, if any, do you find from a preponderance of the evidence that the piece of candy upon which the said Ida Selph slipped, if you have found that she did slip, remained on the floor of defendants' store?" This point is overruled. The defendants did not *902 plead the subject matter of this requested issue as a defense and the matter inquired about was immaterial. The jury could not have answered the issue, in fact. The proof does not show exactly how long the candy had been on the floor before Mrs. Selph stepped upon it, although for reasons stated at the beginning of this opinion we think that the jury could have found that this candy had been passed over by the porter and that an exercise of due care by the defendant Kress would have resulted in the removal of the candy before Mrs. Selph arrived at it.
Point 44 assigns error to the trial court's refusal to permit defendants to show by Mrs. Selph that she declined to submit to an examination by a physician of the defendants' choice. This point is overruled. The parties' lawyers had previously stipulated in open court defendants had, in due time, requested such an examination and that the plaintiff had denied the request.
Under Point 45 defendants say that the award of $8,500 damages was excessive. We have considered the evidence and overrule the point.
Points 46 and 47 are overruled. There was evidence from which the trial court could have found that the misconduct of the jury alleged by the defendants did not occur, and since no findings have been filed, we must assume that the trial court so found.
These comments adjudicate the points of error filed by the defendants. The plaintiffs have filed a series of counterpoints which assign error to the trial court's order sustaining special exceptions to certain allegations made by them against the defendant Howe. We have previously disposed of counter-points 1, 2, 3, 4, and 8 in our discussion of defendants' Point 5. As regards the matters alleged against Howe, which are referred to in these counter-points, these were not material except as evidence tending to show that Mr. Howe controlled the store and the business conducted in the store, and these facts were proven by Mr. Howe's own testimony. As regards counter-points 5, 6, 7, and 9 the striking of the allegations excepted to by the defendants did the plaintiffs no harm. There is no evidence that the candy which Mrs. Selph stepped upon came from the top of the candy counter. Rather, since no wrapping or bag is mentioned in the proof, the inference is that some purchaser dropped the candy. There is no evidence that unwrapped candy was displayed on the top of the candy counter, and the photographs in evidence show nothing but candy in containers.
The judgment against S. H. Kress and Company is affirmed, but that against H. H. Howe is reversed and judgment is here rendered in his favor, that plaintiffs take nothing against him.
On Motions for Rehearing
The appeal is before us on motions for rehearing by both plaintiffs and defendants.
Defendants' motion has been considered and the same is overruled.
Plaintiffs' motion is also overruled. We add these comments: Plaintiffs have cited the decisions in Smith v. Henger, 148 Tex. 456, 226 S.W.2d 425, 20 A.L.R. 2d 853, W. P. Carmichael Co. v. Miller, Tex.Civ.App., 178 S.W. 976 and Cornett v. Hardy, tex. Civ.App., 241 S.W.2d 186. None of these decisions is in point on the facts as respects the defendant Howe's liability. Henger was not the kind of servant that Howe was. Howe was neither the owner nor the occupant of land; he was an intermediate servant of the occupant. Henger's case seems to be like Fox v. Dallas Hotel Company, 111 Tex. 461, 240 S.W. 517. In Miller's case the foreman sent the workman into the dangerous situation; and in Hardy's case the servant knew of the dangerous condition of the wheel when he requested the plaintiff to put air into the tire. In Lane v. Fair Stores, Inc., Tex., 243 S.W.2d 683 the servant was not a party to the suit.
We agree with plaintiffs that if they could show that the candy on which Mrs. Selph stepped had come from the top of the candy case, then the defendant Howe might be liable for negligence incidental to the way and manner in which candy was displayed on the top of the case. However, *903 the proof rules out liability on the part of Howe under plaintiffs' allegations Nos. 7 and 8 in paragraph 6 of the amended petition, to which the trial court sustained defendants' exceptions 9(L) and 9(M). The proof shows that Howe did not stack or place the candy and that the people who did this were not his servants or his agents. Allegation No. 10 in paragraph 6 of the amended petition, to which the trial court sustained exception 9(O) might be of some significance, but the particular allegation was incomplete in the respect pointed out in exception 9(O), and this exception was good. This matter of stacking candy had been set out as negligence in a preceding paragraph of the petition, namely, paragraph 4 of Article 4 of the amended petition; but exceptions 5(a) and 5(b) were sustained to this paragraph, and the trial court was authorized to test the sufficiency of allegation 6(10) by the terms of that allegation alone. We note that error has not been assigned to the trial court's action in sustaining exceptions 5(a) and 5(b). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2334354/ | 483 F. Supp. 2d 830 (2007)
CARDIOVENTION, INC., a Delaware corporation, Plaintiff,
v.
MEDTRONIC, INC., a Minnesota corporation, Defendant.
Civil No. 04-2669 (MJD/AJB).
United States District Court, D. Minnesota.
March 20, 2007.
*831 *832 *833 Courtland C. Merrill, Joseph W. Anthony, Richard T. Ostlund, and Norman J. *834 Baer, Anthony Ostlund & Baer, Minneapolis, MN, for Plaintiff.
Alain M. Baudry, Haley N. Schaffer, Mary R. Vasaly, William Z. Pentelovitch, and Emily M. Rome, Maslon Edelman Borman & Brand, LLP, Minneapolis, MN, and David R. Fairbairn, Kinney & Lange, PA, Minneapolis, MN, for Defendant.
MEMORANDUM OF LAW
DAVIS, District Judge.
I. INTRODUCTION
This matter is before the Court on fifteen motions in limine. Trial is scheduled to begin on March 19, 2007. The Court heard oral argument on March 16, 2007. Also on that date, the Court issued its Order ruling on those motions and dismissing Count III, Unfair Competition. The Court's March 16, 2007, Order stated that a Memorandum of Law explaining its decisions would follow. Accordingly, the Court issues the following Memorandum of Law.
II. CHOICE OF LAW
The Confidential Disclosure Agreement ("CDA") between Medtronic and CardioVention provides that the "Agreement shall be governed by the laws of the State of California." (CDA ¶ 8.) As to CardioVention's misappropriation of trade secrets claim, the parties agree that there is no discernible difference between California and Minnesota law, as both states have adopted the Uniform Trade Secret Act. The Court includes both states' laws in analyzing the misappropriation claim.
III. DISCUSSION
A. Count III: Unfair Competition
In its Statement of the Case, Medtronic attacks the validity of Count III, Unfair Competition. At oral argument, CardioVention represented that it is not asserting a claim for unfair competition under the California statute, Cal. Bus. & Prof.Code § 17200. Instead, it only asserts common law unfair competition. Thus, the Court must examine the validity of CardioVention's common law unfair competition claim under California and Minnesota law.
"[U]nder Minnesota law, [u]nfair competition is not a tort with specific elements, but rather, it describes a general category of torts which courts recognize for the protection of commercial interests." LensCrafters, Inc. v. Vision World, Inc., 943 F. Supp. 1481, 1490 (D.Minn.1996) (citation omitted). "[A] common law unfair competition claim must identify the underlying tort which is the basis for [the claim]. Moreover, if the underlying tort is duplicative of another Count of the Complaint, the claim for unfair competition cannot stand." Id. (citation omitted). CardioVention bases its unfair competition claim on the other tort claims in the Complaint, and thus, it must be dismissed as duplicative.
CardioVention asserts that there is no difference between Minnesota and California law on unfair competition. Under this reasoning, the unfair competition claim under California common law cannot survive. Moreover, "[t]he [California] common law tort of unfair competition is generally thought to be synonymous with the act of `passing off `one's goods as those of another and requires a showing of competitive injury." Smith & Hawken, Ltd. v. Gardendance, Inc., No. C04-1664 SBA, 2004 WL 2496163, at *3 n. 1 (N.D.Cal. Nov.5, 2004) (unpublished) (citation omitted). There is no assertion that Medtronic passed off its goods as those of CardioVention. To the extent that a California common law unfair competition claim could be based on misappropriation, that claim is duplicative of CardioVention's misappropriation of trade secrets claim and, as under Minnesota law, must be dismissed.
*835 For these reasons, the Court dismisses Count III, Unfair Competition.
B. Plaintiff CardioVention's Motions in Limine
1. Motion in Limine to Exclude Evidence or Argument about Its Public Disclosure of Information after Medtronic's Misappropriation [Docket No. 300]
CardioVention argues that the Court should exclude evidence that CardioVention publicly disclosed evidence about CORx in 2002 and 2003, after Medtronic allegedly started misappropriating its trade secrets.
CardioVention is correct that information that become publicly available after the time of the misappropriation is irrelevant to the existence of a trade secret at the time of the misappropriation. B. Braun Med., Inc. v. Rogers, 163 Fed.Appx. 500, 505-06 (9th Cir.2006) (unpublished) (holding that, under California law, "[t]he state of industrial knowledge after the alleged misappropriation is irrelevant to determining whether a trade secret existed at the time of the alleged misappropriation."). However, the parties do not agree on when Medtronic allegedly used CardioVention's information in a manner prohibited by the parties' agreement, so evidence of CardioVention's disclosures after 2001 may be relevant to the determination of whether the information constituted a trade secret at the time of the use. See Stutz Motor Car of Am., Inc. v. Reebok Int'l, Ltd., 909 F. Supp. 1353, 1359 (C.D.Cal.1995) ("[I]t is clear that an unprotected disclosure of the holder's secret terminates the existence of the trade secret.") (citations omitted), aff'd Nos. 96-1062, 96-1083, 1997 WL 258883 (Fed.Cir. May 16, 1997) (unpublished). Additionally, the parties' CDA exempts Medtronic from having to maintain as confidential "any information that is or becomes generally available to the public through no fault of Medtronic." (CDA ¶ 3(a).)
During the jury instruction charge conference, the parties can argue how best to instruct the jury regarding public disclosures occurring after misappropriation.
2. Motion in Limine to Exclude Evidence or Argument About Its Shareholders [Docket No. 302]
CardioVention seeks to bar evidence that its shareholders are "owners" of this action because they are funding this litigation; about the shareholders' financial condition; and that its shareholders should have invested additional funds into CardioVention to mitigate the damages caused by Medtronic.
At CardioVention's request, the Court will instruct the jury that CardioVention, not its shareholders, owns this litigation. See United States v. Sain, 141 F.3d 463, 474 (3d Cir.1998) ("[A corporation] is a separate legal entity, with an existence independent of individuals who compose it. A corporation is not in reality a person, but the law regards it as distinct and separate from the individual stockholders. It has a real existence with rights and liabilities as a separate legal entity.") (citations omitted).
However, the remainder of CardioVention's motion is denied. The fact that CardioVention's three main shareholders have a direct financial interest in the outcome of the case is relevant to their credibility as trial witnesses. See, e.g., Crowe v. Bolduc, 334 F.3d 124, 132 (1st Cir.2003) (stating that evidence that a trial witness has a financial incentive in the outcome of the trial is "classic evidence of bias, which is routinely permitted on cross-examination"). Additionally, any witnesses who testify under the "witness incentive program" are likewise subject to *836 cross examination regarding their financial interest in the outcome of this litigation.
Although CardioVention's shareholders had no duty to invest additional funds in CardioVention to mitigate damages, their decision to not invest is relevant to causation and valuation. For instance, Medtronic argues that the fact that the shareholders could have but did not invest in CardioVention in 2003 because, due to the Gremel patents, CardioVention could not block Medtronic from competing, shows that Medtronic's development of the Resting Heart did not cause damage to CardioVention. Also, other potential investors may have been influenced to not invest in Round D on the grounds that CardioVention's own shareholders did not have enough confidence to invest additional money into CardioVention. Medtronic also argues that if CardioVention's own shareholders refused to invest in CardioVention in 2003, despite their financial ability to do so, then CardioVention could not have really been worth hundreds of millions of dollars in 2003.
Finally, evidence regarding CardioVention's shareholders' financial worth is relevant to whether they declined to invest in CardioVention despite a financial ability to do so or whether their decision was influence by their financial situation.
For these reasons, CardioVention's motion is denied.
3. Motion in Limine to Exclude Argument Suggesting That the Gremel Patents Permit Misappropriation [Docket No. 303]
CardioVention requests that the Court bar argument that the Gremel patents give Medtronic the affirmative right to make and use the system disclosed in those patents. CardioVention argues that Medtronic's ownership of the Gremel patents grants them the right to exclude others from making or using the patented invention but does not give Medtronic the affirmative right to make and use the system disclosed in the patents, particularly when that system contains trade secrets stolen from CardioVention. CardioVention asserts that Medtronic's proposed jury instruction No. 29 falsely asserts that Medtronic owns a right to make, use, and improve the CPB system disclosed in the Gremel patent.
This issue is properly addressed during the jury instruction charge conference. At that time, the parties can fully argue the law that should be given to the jury. However, based on the parties' request for guidance during opening statements, the Court preliminarily grants CardioVention's motion until the jury instruction charge conference.
The Court instructs the parties that a patent grants the patentee "the right to exclude others from making, using, offering for sale, or selling the invention." 35 U.S.C. § 154(a)(1). "A patent is not the grant of a right to make or use or sell. It does not, directly or indirectly, imply any such right. It grants only the right to exclude others." Atlas Powder Co. v. E.I. du Pont De Nemours & Co., 750 F.2d 1569, 1580 (Fed.Cir.1984) (citation omitted).
As the Atlas court explained, if a plaintiff patented A + B + C and the defendant patents the improvement A+ B + C + D, the defendant is liable to the plaintiff for any use or sale of the improvement because it infringes plaintiff's claim to A+ B + C. Id. The parties are not permitted to argue that a patent grants the patent holder the affirmative right to use, develop, and manufacture the inventions contained in the patent. This ruling does not affect Medtronic's ability to offer the Gremel patents to attempt to show its knowledge of technology before it received CardioVention's trade secrets.
*837 4. Motion in Limine to Exclude Evidence or Argument About Unrelated Litigation [Docket No. 305]
CardioVention moves to exclude evidence of the lawsuit related to the death of Lawrence Zuercher. The parties dispute whether Zuercher's death, the Zuercher litigation, and the surrounding publicity adversely affected CardioVention's revenues and investors' decisions to invest in Round D.
CardioVention argues that evidence of the Zuercher litigation is irrelevant and highly prejudicial. It further asserts that Datascope's failure to acquire CardioVention is not relevant to the claims remaining in this lawsuit because CardioVention does not claim damages stemming from the loss of acquisition by Datascope. It argues that only Datascope's valuation of CardioVention is relevant to its damage claim in order to determine CardioVention's fair market value.
CardioVention also argues that any of the evidence's probative value is substantially outweighed by the danger of unfair prejudice because evidence of a widow's allegation of the wrongful death of her husband is inflammatory. It also claims that introduction of evidence of the Zuercher litigation will create a trial within a trial because CardioVention will have to respond with evidence explaining the litigation and its effect on CardioVention's business.
Medtronic asserts that the Zuercher litigation is relevant to show that Medtronic's alleged misappropriation of CardioVention's trade secrets did not cause CardioVention's damages the Zuercher litigation did. It argues that the litigation was a material factor in Datascope's decision not to purchase CardioVention. Medtronic states that its damages expert will testify that patient death must be considered in assessing CardioVention's repeated inability to meet projections and to survive. Medtronic also claims that the Zuercher evidence is relevant to show that Medtronic's 2001 projections about the potential success of CORx are undermined by subsequent litigation.
The Court denies CardioVention's motion. Evidence of the Zuercher litigation is highly relevant to the issue of damages causation. Also, Datascope's decision not to buy CardioVention, which may have been partly motivated by the Zuercher litigation, is relevant if CardioVention plans to introduce evidence of Datascope's valuation of CardioVention because that valuation may have decreased after the Zuercher lawsuit. This strong probative value is not outweighed by any danger of unfair prejudice. There is no danger of a trial within a trial because evidence of the Zuercher litigation is not admissible to prove that the CORx is defective and caused Zuercher's death. Rather, the evidence is only admissible to show how the Zuercher litigation affected the sales of CORx and investment in CardioVention.
5. Motion in Limine to Exclude Evidence Withheld from Discovery [Docket No. 307]
During discovery, Medtronic instructed witnesses not to answer certain deposition questions that it claimed required disclosure of privileged information. CardioVention asserts that Medtronic is now attempting to offer evidence regarding the same subject matter at trial. At oral argument, Medtronic represented that it will not offer evidence for which it previously claimed privilege. Evidence for which it did not claim privilege, even if related to the same subject matter, is, of course, admissible, unless excluded under some other Rule of Evidence. Due Medtronic's representation, CardioVention's motion is denied as moot.
*838 C. Defendant Medtronic's Motions
1. Motion in Limine No. 1: Excluding Any Evidence or Argument that Medtronic Stole or Copied the Venous Pull Circuit from Jorge Ojito [Docket No. 279]
Medtronic requests that the Court exclude testimony by CardioVention witness Jorge Ojito that Medtronic engineer Roger Elgas copied the Gremel invention from Ojito's Venous Pull Circuit. Ojito admits that the Venous Pull Circuit was in the public domain and was neither CardioVention's confidential information nor its trade secret.
Medtronic asserts that this evidence is irrelevant because Elgas left Medtronic in 1999 and had no involvement with CardioVention's disclosures to Medtronic in 2001 or with Medtronic's development of the Resting Heart. It argues that whether or not he copied information put into the public domain by Ojito does not make it more or less probable that a different group of Medtronic engineers later misappropriated CardioVention's confidential information.
CardioVention argues that Medtronic intends to introduce evidence regarding the Gremel patents to show that its product development was not based upon what it learned from CardioVention, but from its own Gremel patents. CardioVention claims that evidence that Elgas copied the Venous Pull Circuit refutes Medtronic's argument that it had already researched and developed active air removal because it shows Medtronic's lack of development experience, demonstrating that it had to rely on CardioVention's trade secrets, not Elgas's work, to create the Resting Heart System.
The Court has dismissed all claims in which the validity of the Gremel patent was an element. The issue of whether Medtronic copied the Gremel patents from Ojito is a side-issue that is minimally relevant to this case, particularly in light of the fact that CardioVention is not permitted to argue that the Gremel patents are invalid and that Ojito admits his work was in the public domain. Furthermore, any probative value to the evidence is substantially outweighed by the danger of unfair prejudice from the jury viewing Medtronic as a repeat thief of inventions, of misleading the jury into believing that the validity of the Gremel patents is an issue in this case, and of waste of time because introduction of evidence related to Ojito will entail a mini-trial regarding whether Medtronic did, in fact, copy from Ojito.
2. Motion in Limine No. 2: Excluding Any Evidence or Argument Related to CardioVention's Dismissed Claims [Docket No. 282]
Medtronic moves to exclude evidence related to the validity of the Gremel patents because the Court has dismissed all such claims. The evidence falls into three areas: 1) evidence that the Gremel patents are invalid, that Medtronic offered or refused to offer CardioVention a covenant not to sue, or that Medtronic threatened to enforce its patent rights against CardioVention; 2) evidence that Medtronic committed inequitable conduct before the United States Patent and Trademark Office ("USPTO"); or 3) argument that Medtronic should be held liable because its Gremel patents interfered with CardioVention's efforts to obtain financing or that Medtronic used its Gremel patents to destroy CardioVention's business.
The Court has already dismissed all claims related to the validity of the Gremel patents. The validity of those patents is no longer an issue in this case. Any evidence or argument that Medtronic should be liable because its patents interfered with CardioVention's attempts to raise financing or because Medtronic threatened CardioVention with patent infringement would be a collateral attack on the Court's *839 summary judgment ruling. Similarly, any evidence related to CardioVention's claim that Medtronic acted inequitably before the USPTO is prohibited. In its April 24, 2006, Order, the Court rejected CardioVention's theory that Medtronic's Gremel patents tortiously interfered with its attempt to raise outside financing because the theory "amounts to an `impermissible alternative state law remedy for inequitable conduct before the PTO.'" (Apr. 24, 2006 Order at 17 (citation omitted).)
The Court concludes that CardioVention's attempt to submit evidence of its investigation and conclusion that the Gremel patents were invalid presents the strong danger of becoming a collateral attack on the Court's partial summary judgment ruling. Furthermore, to the extent that this evidence may have some relevance to explain decisions by potential Round D investors, that slight probative value is substantially outweighed by the danger of confusion and misleading the jury. This evidence would lead the jury into the side-issue of an analysis of the actual validity of the Gremel patents an issue the Court has already determined that it is without jurisdiction to entertain.
The Court does hold that CardioVention may introduce evidence of Medtronic's alleged refusal to issue a transferable covenant not to sue to CardioVention because this evidence may have some relevance to investors' decisions to not invest in Round D and has little danger of unfair prejudice, confusion, or misleading the jury because it is consistent with the validity of the Gremel patents.
3. Motion in Limine No. 3: Excluding Any Evidence or Argument Related to the Resting Heart Patent Applications Filed in 2003 [Docket No. 285]
Medtronic requests that the Court exclude any evidence or argument that suggests that the five Medtronic patent applications relating to it Resting Heart System contain CardioVention's confidential or trade secret information. It claims this evidence has no probative value because it filed the Resting Heart provisional applications after CardioVention's own patent applications were published in August 2002. Thus, no CardioVention confidential or trade secret information existed by the time Medtronic filed its patent applications on the Resting Heart System.
CardioVention asserts that the Resting Heart patent files demonstrate the similarity between the Resting Heart System and the CORx. It notes that evidence of Medtronic's access to CardioVention's trade secrets combined with evidence of the similarity between Medtronic's product and CardioVention's trade secrets can establish misappropriation of trade secrets. See Leggett & Platt, Inc. v. Hickory Springs Mfg. Co., 285 F.3d 1353, 1361 (Fed.Cir. 2002) (noting that, under Illinois law, "access and similarity-may support a trade secret misappropriation claim").
CardioVention asserts that if Medtronic had started from a "blank slate," instead of copying CardioVention's trade secrets, the Resting Heart development would not have been completed until much later. CardioVention argues that it is irrelevant that Medtronic applied for the Resting Heart patents after CardioVention's Stringer patent was published in August 2002, because although Medtronic could have used information that was publicly available in 2002, it actually began misappropriating CardioVention's trade secrets in 2001, before anything about the CORx was publicly disclosed. See, e.g., Cherne Indus., Inc. v. Grounds & Assocs., Inc., 278 N.W.2d 81, 90 (Minn.1979) (holding that, under Minnesota law, claim for misappropriation was sufficient when, although information was available from a *840 public source, defendant may have relied on confidential information earlier).
Evidence regarding the Resting Heart patents is admissible to show damages to the extent that CardioVention argues that Medtronic's misappropriation in 2001 gave it the head-start necessary to develop the Resting Heart System as quickly as it did. However, evidence that the USPTO initially rejected some of the claims is excluded, as discussed below with regard to Medtronic's Motion in Limine No. 7.
4. Motion in Limine No. 4: Excluding Any Evidence or Argument Concerning Medtronic's Listing CORx as a Predicate Device on the Resting Heart 510(k) Application to the FDA [Docket No. 288]
Medtronic requests that the Court exclude any evidence concerning its listing CORx as a predicate device on the Resting Heart 510(k) application to the FDA. "510(k) notifications are submittals of engineering and clinical information which are provided to the FDA to permit that agency to assess the safety and effectiveness of a new product with regard to a predicate product which is already on the market." Sunrise Med. HHG, Inc. v. AirSep Corp., 95 F. Supp. 2d 348, 405 (W.D.Pa.2000) (footnote omitted). In the 510(k) context, substantial equivalence means that the proposed device has the same intended use as the predicate device and that it either has the same technological characteristics as the predicate device or is as safe and effective as the predicate device. 21 C.F.R. § 807.100(b).
CardioVention asserts that Medtronic's 510(k) submission to the FDA is relevant because it lists CardioVention's CORx as a "predicate device" and characterizes it as "substantially equivalent" to the Resting Heart. CardioVention claims this admission is relevant to the degree of similarity between the Resting Heart and CORx, which is probative with regard to its misappropriation claim.
Courts have repeatedly refused to allow FDA 510(k) notification of substantial equivalence as admission of infringement in patent cases. See, e.g., Sunrise Med. HHG, Inc., 95 F.Supp.2d at 405-06; Univ. of Fla. Research Foundation, Inc. v. Orthovita, Inc., No. 1:96-CARDIOVENTION-82-MMP, 1998 WL 34007129, at *23 n. 23 (N.D.Fla. Apr.20, 1998) (unpublished) ("[T]he Court cannot use the FDA 510(k) notification in considering infringement by equivalence, since in addition to comparing the commercial embodiment of the '046 patentee's invention, instead of the patent claims, . . . the FDA filing is controlled by a separate regulatory scheme.") (citation omitted).
Admission of the 510(k) evidence would be misleading and unfairly prejudicial to Medtronic. It would also cause undue delay and a waste of time because the parties would litigate the meaning of the FDA regulatory system and the difference between that and the standards for the claims before the jury. The parties would likely submit both expert and lay testimony on this issue, complicating the trial.
The Court grant Medtronic's motion. The fact that Medtronic admitted that the CORx and the Resting Heart were substantially equivalent, as the term is defined in the FDA 510(k) context, is not the same as whether they are substantially equivalent in the trade secret context. The 510(k) application has minimal relevance because the parties already agree that the CORx and the Resting Heart System have the same intended use, and so the 510(k) application merely asserts that the CORx and the Resting Heart System either share some of the same technological characteristics or that the Resting Heart is as safe and effective as the CORx. This is not relevant to whether they are similar for *841 purposes of the misappropriation claim. Even if the notification is some slight evidence of similarity between the CORx and the Resting Heart, this relevance is substantially outweighed by the danger of confusion, of misleading the jury, of undue delay, and of waste of time.
5. Motion in Limine No. 5: Excluding Any Evidence or Argument Concerning Medtronic's Alleged Use of CardioVention's Public Marketing Slides [Docket No. 291]
Medtronic admits that, in a May 2002 meeting, it presented slides that contained marketing materials from a Power-Point CardioVention had previously given to Medtronic. This occurred after CORx was first sold in the United States. CardioVention claims that the slides were obtained directly from CardioVention in confidence in 2001, and Medtronic removed all references to CardioVention, added a Medtronic logo, and presented the slides to potential customers as its own. CardioVention also claims that Medtronic used portions of CardioVention's Power-Point presentations in 2001 to prepare a product to compete with CardioVention. Medtronic asserts that evidence of its use of CardioVention's public marketing slides is irrelevant because those slides were not CardioVention's confidential information in May 2002.
Medtronic's alleged use of the slides in 2001 is relevant to CardioVention's misappropriation claim because CardioVention alleges that the information in the slides constituted trade secrets at that time. Medtronic's alleged use of the slides in May 2002 is relevant because the fact that Medtronic copied CardioVention's Power-Point is probative of the similarity between the Resting Heart and CORx, which is relevant to CardioVention's misappropriation claim. Because this evidence is relevant, Medtronic's motion is denied.
6. Motion in Limine No. 6: Excluding CardioVention from Claiming Information It Failed to Designate as Confidential Constituted Trade Secrets or Confidential Information [Docket No. 294]
a. Background
Medtronic requests that the Court exclude CardioVention from claiming that information it failed to designate under the CDA as confidential constituted a trade secret or confidential information. The CDA defined "Confidential Information" to include only information that was reduced to writing and stamped "confidential" or was so identified in writing within thirty days after disclosure. (CDA 112.) Medtronic asserts that CardioVention did not properly designate any 2001 information as confidential in writing, except for its business plan.
b. Misappropriation Claim
Medtronic argues that a document that was not market "confidential" in accordance with the CDA cannot form the basis for a breach of contract claim or a misappropriation of trade secrets claim.
CardioVention counters that some courts have held that documents not marked as confidential in accordance with the parties' agreement can still constitute a trade secret if there is other evidence that the information had been subject to reasonable measures to keep it confidential. See, e.g., Diomed, Inc. v. Vascular Solutions, Inc., 417 F. Supp. 2d 137, 145 (D.Mass.2006) (holding that, under Minnesota law, defendant's duty of confidentiality extended beyond scope of parties' confidentiality agreement); Nw. Airlines v. Am. Airlines, 853 F. Supp. 1110, 1115-16 (D.Minn.1994) (holding that documents not marked confidential could still be trade secrets when other evidence demonstrated employees had reason to know employer *842 intended to keep that type of information confidential).
c. Breach of Contract Claim
CardioVention admits that it can succeed on its claim that Medtronic breached the CDA only if CardioVention met its own obligations under the CDA. Some courts have held that, under Minnesota law, the failure to follow the procedure for designating a document as confidential under a non-disclosure agreement defeats a claim for breach of that agreement. Diomed, Inc. v. Vascular Solutions, Inc., 417 F. Supp. 2d 137, 141 (D.Mass.2006). However, CardioVention asserts that it signaled its intent to keep information confidential in a manner other than stamping "confidential" on a document.
d. Conclusion
The question of whether CardioVention can succeed on a breach of contract or misappropriation claim for the information that it gave to Medtronic under the CDA but failed to designate as confidential is a dispositive motion, rather than a motion in limine. See Kimball v. RJ Reynolds Tobacco Co., No. C03-664JLR, 2006 WL 1148506, at *1-*2 (W.D.Wash. Apr.26, 2006) (unpublished) (refusing to decide motions in limine that were really veiled dispositive motions brought days before trial). For this reason, Medtronic's motion is denied.
7. Motion in Limine No. 7: Excluding Evidence that the United States Patent and Trademark Office Issued Interim Rejections of Certain Claims of Medtronic Patents Relating to the Resting Heart System Technology [Docket No. 334]
In Medtronic's patent applications describing various features of the Resting Heart System, it cited known prior art, including CardioVention's allegations in this litigation. The USPTO issued notice of allowances on four of the five applications. As to the fifth application, its status is currently listed as "Allowed Notice of Allowance Not Yet Mailed." However, during the examination process, the Patent Examiner preliminarily rejected a least some of the claims as anticipated or obvious in light of the various prior art Medtronic cited. Medtronic has filed continuation applications for four of the applications to pursue the claims that the Examiner preliminarily concluded were not available over prior art. The USPTO has not yet issued any interim or final decisions on the continuation applications.
Medtronic moves for the Court to exclude any evidence or argument that the USPTO issued interim rejections of certain claims of Medtronic patents relating to the Resting Heart System technology or of communications with the USPTO concerning the claims. It asserts that interim USPTO actions are irrelevant. It claims that the Examiner's initial rejection of certain Medtronic patent claims as obvious or anticipated in light of published CardioVention patents or other prior art does not make it more or less probable that Medtronic used CardioVention's confidential information in formulating patent claims describing its technology. It claims such rejections are a normal part of the patent application process.
CardioVention argues that, in order to prove that Medtronic misappropriated its trade secrets, it will show the similarity between its trade secrets and Medtronic's product. See Leggett & Platt, Inc. v. Hickory Springs Mfg. Co., 285 F.3d 1353, 1361 (Fed.Cir.2002) (noting that, under Illinois law, "access and similarity-may support a trade secret misappropriation claim"). CardioVention asserts that the Examiner's determination that the similarities between what Medtronic claimed to *843 have invented and what CardioVention invented were so great that Medtronic's claims were rejected is relevant to CardioVention's misappropriation claim. CardioVention also claims that the related summary of interviews between the Examiner and Medtronic's representative supports CardioVention's contention that CORx and Resting Heart are more similar than they are dissimilar.
The Court concludes that this evidence is inadmissible under Federal Rule of Evidence 403. Although the interim USPTO decision may be minimally relevant to similarity, that relevance is substantially outweighed by unfair prejudice, undue delay, and waste of time. Evidence of interim USPTO actions are unduly prejudicial because 1) the jury may think that Medtronic acted improperly in trying to obtain broad patent protection; Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 874 (Fed.Cir.1988) (noting that "there is nothing improper, illegal or inequitable in filing a patent application for the purpose of obtaining a right to exclude a known competitor's product from the market"); 2) the jury may mistakenly believe that a government agency has determined that the claims in the applications are based on CardioVention's confidential information; Everest Capital Ltd. v. Everest Funds Mgmt., L.L.C., 393 F.3d 755, 764 (8th Cir.2005) (holding that trial court did not abuse discretion in excluding tentative Trademark Office notice because it was a "tentative opinion" and "the agency opinion had the potential to unfairly prejudice the defendants if the jury mistakenly viewed it as an official government position on the critical confusion issue that the jury had to decide"); and 3) admission of nonfinal USPTO proceedings will waste time and distract from the key issues in the lawsuit. 3M Innovative Props. Co. v. Dupont Dow Elastomers LLC, No. 03-3364 MJD/AJB, 2005 WL 2216317, at *2 (D.Minn. Sept.8, 2005) (unpublished) (granting stay of patent infringement case pending completion of reexamination proceeding, in part, because "admission of evidence of an incomplete reexamination would have low probative value, would distract from the core issues in the case, and would be highly prejudicial") (citations omitted).
Furthermore, admission of this minimally probative evidence would result in undue delay and a waste of time because the parties would spend significant time addressing the USPTO process, frequency of initial claim rejections, and the difference between the claims that were rejected, those that were allowed, and the prior art. Therefore, Medtronic's motion is granted.
8. Motion in Limine No. 8: Excluding Evidence Related to the Performer CPB [Docket No. 347]
Medtronic moves to exclude CardioVention from introducing evidence or argument regarding Medtronic's Performer CPB, a new part of the Resting Heart System, introduced in 2006. It argues that CardioVention has never asserted any claims related to the Performer CPB or indicated that the Performer CPB is relevant to this lawsuit. Also, CardioVention did not identify the Performer CPB in its Complaint, in responses to Medtronic's discovery requests, in its trade secret allegations, or in its expert reports.
CardioVention claims that the Performer CPB is the latest rendition of the Resting Heart System. It asserts that the Performer CPB is relevant because it demonstrates the manner in which Medtronic is currently using the information that it misappropriated from CardioVention and is part of the overall story of misappropriation. Also, CardioVention accuses Medtronic of failing to mention the *844 Performer CPB in response to discovery requests.
The Court grants Medtronic's motion to exclude evidence of the Performer CPB because this evidence too attenuated from CardioVention's allegations of misappropriation occurring in 2001 to be relevant to CardioVention's remaining claims. Additionally, any probative value is substantially outweighed by concerns of waste of time and undue delay. Allowance of this evidence would create an new mini-trial involving a product that was not previously mentioned in this case. Finally, CardioVention has not previously disclosed its intent to use this evidence.
9. Motion in Limine No. 9: Motion to Exclude Trade Secrets Not Identified by CardioVention [Docket No. 354]
A party alleging a misappropriation cause of action must first prove the existence of a trade secret. Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 897 (Minn.1983). In order to successfully seek protection of a trade secret, a plaintiff must identify the trade secret with sufficient specificity so that appropriate relief may be granted. Porous Media Corp. v. Midland Brake, Inc., 187 F.R.D. 598, 600 (D.Minn.1999) ("Failure to identify the trade secrets with sufficient specificity renders the Court powerless to enforce any trade secret claim.") (citations omitted).
In order to proceed with trial and in order for the Court to be able to correctly instruct the jury, CardioVention must specify precisely what items of information constitute the trade secrets that Medtronic allegedly misappropriated. Thus, the Court orders CardioVention to submit a specific, clear, detailed, and precise list of the trade secrets at issue in this case.
10. Motion in Limine No. 10: Motion Regarding Expert Witnesses [Docket No. 358]
a. Standard
The admissibility of expert testimony is governed by Federal Rule of Evidence 702. The proponent of the testimony has the burden to show by a preponderance of the evidence that the testimony is admissible under Rule 702. Lauzon v. Senco Prods., Inc., 270 F.3d 681, 686 (8th Cir.2001). Under the Rule:
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, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.
Fed.R.Evid. 702.
"Under the framework developed in Daubert, trial courts must serve as gatekeepers to insure that proffered expert testimony is both relevant and reliable. Trial courts are given broad discretion in fulfilling this gatekeeping role. . . ." Wagner v. Hesston Corp., 450 F.3d 756, 758 (8th Cir.2006) (citations omitted). The proposed testimony must be useful to the factfinder; the expert witness must be qualified; and the proposed evidence must be reliable. Lauzon, 270 F.3d at 686.
As a general rule, the factual basis of an expert opinion goes to the credibility of the testimony, not the admissibility, and it is up to the opposing party to examine the factual basis for the opinion in cross-examination. Only if the expert's opinion is so fundamentally unsupported *845 that it can offer no assistance to the jury must such testimony be excluded.
Bonner v. ISP Techs., Inc., 259 F.3d 924, 929-30 (8th Cir.2001) (citation omitted).
In this motion, Medtronic challenges three of CardioVention's damages experts: Donald A. Gorowsky, Richard M. Ferrari, and John L. Heath.
b. Donald A. Gorowsky
i. Introduction
Donald A. Gorowsky is a Certified Public Accountant and licensed attorney, who has submitted two expert reports analyzing CardioVention's damages under the misappropriation of trade secrets claim and the breach of contract claim.
In the First Gorowsky Report, dated July 14, 2005, Gorowsky states that Medtronic had not yet produced the data needed to determine damages. In the Second Gorowsky Report, dated May 15, 2006, Gorowsky sets forth three opinions: A, B, and C. In Opinion A, Gorowsky estimates that Medtronic has been unjustly enriched by reduced research and development ("R & D") spending of $462,000 to $852,000 as a result of its misuse of CardioVention's trade secrets. In Opinion B, Gorowsky opines that Medtronic has been unjustly enriched by $48 million to $127 million from higher perfusion product revenues and related profits as a result of its misuse of CardioVention's trade secrets. Opinion C states that CardioVention suffered loss of business value damages ranging from a low of $25 to $32 million, to a high of $75 to $115 million.
ii. Whether Gorowsky's Proposed Testimony Is Legally Inadmissible
Medtronic argues that Opinions B and C must be excluded because they are "contrary to law." As to Opinion B, Medtronic argues that the appropriate measure of unjust enrichment damages in a trade secret misappropriation case is the profits generated by the defendant's sale of products incorporating the misappropriated trade secret. Medtronic argues that although the First Gorowsky Report uses this model, the Second Gorowsky Report employs a theory that quantifies damages based on sales of Medtronic's existing perfusion line of products, which do not incorporate any of CardioVention's alleged trade secrets. Opinion B is based on the assumption that Medtronic generated "excess profits" from not having to compete with CardioVention.
As to Opinion C, Medtronic argues that there is no precedent for allowing a plaintiff in a trade secret misappropriation case to recover unjust enrichment damages constituting the entire business value of a company.
The Court concludes that Gorowsky's Opinion B is legally sufficient. The Minnesota Uniform Trade Secrets Act provides that damages for misappropriation of a trade secret "can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss." Minn.Stat. § 325C.03(a). Although unjust enrichment is typically measured by profits gained from the sale of the product containing the trade secret, courts have considered cost savings and increased productivity resulting from use of the trade secret. See, e.g., Bourns, Inc. v. Raychem Corp., 331 F.3d 704, 709-10 (9th Cir.2003) (holding that award of unjust enrichment damages can be based on development cost savings); Children's Broad. Corp. v. Walt Disney Co., No. Civ. 3-96-907, 2002 WL 1858759, at *3 (D.Minn. Aug.12, 2002) (upholding verdict when jury approximated the value of the removal of competitive uncertainty and risk as part of its damages calculation for trade secret misappropriation).
*846 The Court holds that Opinion C is legally sufficient. Courts have recognized that a plaintiffs actual damages can be measured by the value of the loss of the secret to the plaintiff under the circumstances. See, e.g., Precision Plating & Metal Finishing, Inc. v. Martin-Marietta Corp., 435 F.2d 1262, 1263-64 (5th Cir. 1970) (upholding calculation of damages according to investment value of misappropriated trade secret, where defendant's actions caused complete destruction of the trade secret); Basic Chems., Inc. v. Benson, 251 N.W.2d 220, 233 (Iowa 1977) (holding that proper measure of plaintiffs damages due to misappropriation of trade secrets, as well as from other acts of unfair competition, included reference to the value of the plaintiffs business).
iii. Whether Gorowsky's Testimony Should Be Excluded as Factually Inadmissible
Medtronic argues that Opinions B and C are also factually infirm because 30 CardioVention changed its position from asserting that it lost financing because of Medtronic's patents, to asserting that investors abandoned it because of Medtronic's alleged misappropriation of trade secrets. Medtronic also objects to CardioVention's assertion that if it had obtained financing it would have produced a product that would have competed not only with Resting Heart, but with Medtronic's entire cardiac perfusion line. This conclusion is too speculative, Medtronic argues, and is based on a product that had no track record of sales, faced significant market resistance, and is contradicted by the record of actual sales of Resting Heart.
The Court concludes that Gorowsky's testimony should not be excluded due to these alleged factual flaws. Medtronic's attacks on the foundation of Gorowsky's opinion go to the weight, not the admissibility, of his testimony. Sphere Drake Ins. PLC v. Trisko, 226 F.3d 951, 955 (8th Cir.2000). "[I]t is up to the opposing party to examine the factual basis for the opinion in cross-examination." Larson v. Kempker, 414 F.3d 936, 941 (8th Cir.2005) (citation omitted). The expert's testimony must be excluded "only if an expert's opinion is so fundamentally unsupported that it can offer no assistance to the jury." Id. (citation omitted).
iv. Whether the Testimony Should Be Excluded as Untimely
Medtronic argues that Models B and C were not disclosed during the period for production of expert reports, which were due July 15, 2005, pursuant to Court order. Thus, according to Medtronic, the Second Report is ten months late. Medtronic argues that it will be prejudiced by the inclusion of this testimony because it cannot pursue discovery to show that misappropriation did not cause CardioVention's losses.
The parties stipulated that Gorowsky could produce a supplemental report after receiving certain discovery from Medtronic. Gorowsky could not the know what damages theories would be pursued without knowing how Medtronic was unjustly enriched. Gorowsky's First Report explains that he is waiting for documents to calculate the damages to CardioVention caused by Medtronic's misappropriation of trade secrets. His Second Report is not untimely.
The Court denies Medtronic's motion to exclude Gorowsky's testimony. However, to the extent that his opinion is based on the excluded testimony of Richard Ferrari, that portion of Gorowsky's opinion is excluded.
*847 c. Richard M. Ferrari
Ferrari was a CEO and entrepreneur for 20 years before entering the venture capital industry. He is a co-founder of De Novo Ventures, a venture capital firm specializing in medical and bio-tech start-ups.
Ferrari would provide an opinion of CardioVention's value if it had succeeded with the Series D financing and of the effect of an adverse intellectual property review during the course of due diligence for purposes of securing Series D financing. Ferrari's report states: "Specifically, I have been asked to opine regarding CardioVention's ability to obtain venture capital funding following the discovery of CardioVention's potential infringement of patents owned by a competitor in the same industry during Series D financing."
The Court excludes Ferrari's testimony because it is based on claims and theories of recovery that have been dismissed by the Court. His opinion is not relevant to the claims remaining for trial.
d. John L. Heath
Heath considers various valuation methods to estimate the fair market value of CardioVention. Although his opinion was also provided in conjunction with claims that no longer remain in this case, the Court concludes that his valuation opinion does have relevance apart from his conclusions regarding the patent claims.
Medtronic also argues that Health's testimony should be excluded because he has an undisclosed financial interest in the outcome of the litigation. Health's interest in the Brenner Group and the possibility of a "success fee" go to the weight to be given his opinion, not to the admissibility of his opinion. See, e.g., Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456, 1465 (Fed.Cir.1998) ("[A]} witness's pecuniary interest in the outcome of a case goes to the probative weight of testimony, not its admissibility.") (citation omitted). The Court denies Medtronic's motion to exclude Heath's testimony.
IV. CONCLUSION
For the foregoing reasons, the Court issued its Order dated March 16, 2007 [Docket No. 392]. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2339575/ | 97 F. Supp. 2d 913 (2000)
HERITAGE MUTUAL INSURANCE COMPANY, Plaintiff, Counter-Defendant,
v.
ADVANCED POLYMER TECHNOLOGY, INC., Leo J. Leblanc, and Environ Products, Inc., Defendants, Counter-Plaintiffs.
No. IP96-0542-C-B/S.
United States District Court, S.D. Indiana, Indianapolis Division.
May 16, 2000.
*914 *915 Jeffrey A. Doty, Kightlinger & Gray, Indianapolis, IN.
Thomas W. Conklin, Conklin Murphy & Conklin, Chicago, IL.
John David Hoover, Johnson Smith Pence Densborn Wright & Heath, Indianapolis, IN.
Dwight D. Lueck, Barnes & Thornburg, Indianapolis, IN.
Jeremy T. Ross, Schiffman & Ross, Philadelphia, PA.
ENTRY DECLARING THAT PLAINTIFF HAS NO DUTY TO DEFEND DEFENDANTS
BARKER, Chief Judge.
This case represents another installment in the ongoing debate about the meaning of "advertising injury," a popular phrase used to describe a type of insurance coverage provided in standard versions of commercial general liability insurance policies issued since the 1970's. Plaintiff, Heritage Mutual Insurance Company ("Heritage"), filed a complaint seeking a declaratory judgment that it has no duty to defend or to indemnify its insureds, Defendants Advanced Polymer Technology, Inc. ("APT"), and Leo J. LeBlanc ("LeBlanc"), in an underlying action brought against APT and LeBlanc by Environ Products, Inc. ("Environ"), in the United States District Court for the Eastern District of Pennsylvania. APT has counterclaimed, seeking a declaration that Environ's complaint in the underlying action contains allegations of *916 advertising injury, thereby triggering Heritage's duty to defend and to indemnify it in the underlying action.
On March 25, 1998, we denied APT's motion for partial summary judgment, in which APT maintained that Heritage had a duty to defend it in the Environ action because, in APT's view, Environ had alleged an advertising injury within the meaning of the Heritage-APT policy. We denied APT's motion because even if we assumed that initial coverage was proper under the policy, issues of material fact remained as to the "first publication" exclusion in the policy, which excludes coverage for advertising injury arising out of material whose first publication took place before the beginning of the policy period. In November 1998, Heritage moved for summary judgment, which we denied with respect to APT on February 1, 1999.[1] At issue in that motion was the rather narrow matter of whether the first publication exclusion prevented coverage for any alleged advertising injury, although we noted that the initial coverage issue, namely whether Environ had alleged an advertising injury within the meaning of the Heritage-APT policy, had not been briefed by the parties in those submissions and had yet to be determined.
On May 17, 1999, this action proceeded to a one-day bench trial. The parties eventually submitted their post-trial briefs, which included arguments on both the initial coverage issue and the first publication exclusion. After thoroughly considering the issues advanced in those submissions, we conclude that Heritage has no duty to defend APT in the underlying action filed by Environ since its complaint definitively fails to contain allegations that APT committed an advertising injury offense enumerated in the Heritage-APT policy.
Background
APT produces underground, secondarily-contained flexible piping systems that include a flexible inner supply pipe and an outer secondary containment pipe. The piping systems are mainly utilized by entities in the petroleum industry, such as gasoline filling stations, to transport fuel safely from storage tanks to fuel dispensers. APT was insured by Heritage from April 4, 1993 through April 4, 1994, and Heritage renewed the policy through April 4, 1995. See Pl.Ex. 10. The policy at issue here, known as the Commercial General Liability ("CGL") form, represents a 1986 version written by the Insurance Services Organization ("ISO"), a for-profit private trade organization that generates standard insurance forms for use by its clients, mainly insurance companies.[2]See Trial Tr. at 108-09. While some insurers may alter the forms they receive from ISO and tailor the standard language based upon the unique coverages requested by their insureds, insurers often adopt the ISO forms verbatim. In this case, APT falls within the latter camp, having lifted the language in the insurance policy at issue here directly from the 1986 version of ISO's CGL form.
Coverage "B" of the CGL policy, entitled "Personal and Advertising Injury Liability," *917 provided in its "Insuring" clause that Heritage would insure APT and LeBlanc for any "advertising injury caused by an offense committed in the course of advertising [APT's] goods, products or services," provided that the offense was committed during the policy period. Pl.Ex. 10 at 3/9. The policy separately defined "advertising injury" as injury arising out of one or more of the following offenses:
(a) oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;
(b) oral or written publication of material that violates a person's right of privacy;
(c) misappropriation of advertising ideas or style of doing business; or
(d) infringement of copyright, title or slogan.
Id. at 7/9. The policy does not define "misappropriation of advertising ideas or style or doing business" or "infringement of copyright, title or slogan."
One of the policy's coverage exclusions, the "first publication" exclusion, provides that insurance coverage does not apply to "advertising injury ... [a]rising out of oral or written publication of material whose first publication took place before the beginning of the policy period." Id. at 3/9 ("exclusions" to advertising and personal injury).
Each annual policy that APT purchased provided that Heritage would pay any sums that APT became legally obligated to pay as damages because of any advertising injury to which the coverage applied, limited to $1,000,000 per person or organization. Additionally, the policy established Heritage's "duty to defend any suit seeking those damages." Id. (emphasis in original).
On November 17, 1995, Environ filed a seven-count complaint in the Eastern District of Pennsylvania against APT and LeBlanc (the underlying action), essentially alleging that APT stole its underground piping product and infringed certain claims of its patent. See Def. Ex. 21 (Environ Compl.). Specifically, Environ alleged patent infringement (count I), induced and contributory patent infringement (count II), federal unfair competition in violation of the Lanham Trademark Act (count III), state unfair competition based on the same allegations as the previous count of federal unfair competition (count IV), conversion (count V), unjust enrichment (count VI), and breach of fiduciary duty (count VII). APT tendered the defense to Heritage, who denied coverage after a series of communications with APT and declined to defend APT against Environ's allegations. At last update by the parties, the underlying litigation between Environ and APT was ongoing. One issue in that action, the question of inventorship, has been appealed to the Federal Circuit, although we have not been informed on the status of that particular matter. The parties agree that regardless of the resolution of the inventorship issue, the remaining aspects of that litigation remain pending in the Eastern District of Pennsylvania. In other words, APT's actual liability in the underlying action has not been established, a fact that explains why the parties essentially have treated this action as a duty to defend case, as do we.
On April 19, 1996, Heritage filed a request for declaratory judgment in this court, seeking a declaration that it has no duty to defend or to indemnify APT or LeBlanc in the Environ action, and APT counterclaimed. After denying the parties' separate summary judgment motions on fairly narrow grounds, the parties adduced additional factual evidence during a one-day bench trial, which evidence pertained mainly to the first publication exclusion, although the parties were free to submit evidence on initial coverage issues as well. The parties eventually submitted their post-trial briefs on all the legal issues that they considered pertinent to the resolution of this case. We now proceed to *918 address the contentions developed by the parties in those submissions.
Discussion
Applicable Indiana Insurance Law
As a federal court sitting in diversity, we must evaluate Indiana law as it pertains to this dispute. See Colip v. Clare, 26 F.3d 712, 714 (7th Cir.1994). Heritage and APT agree that our analysis is governed by Indiana's substantive law. See Pl. Post-Trial Br. at 9; Def. Trial Br. at 15; Def. Supp. Trial Brief (hereinafter "Def. Post-Trial Br.") at 1. Under Indiana law, a contract for insurance is subject to the same rules of interpretation as are other contracts. See USA Life One Ins. Co. v. Nuckolls, 682 N.E.2d 534, 537-38 (Ind.1997). The interpretation is "primarily a question of law for the court, even if the policy contains an ambiguity needing resolution." Id. (quoting Tate v. Secura Ins., 587 N.E.2d 665, 668 (Ind.1992)). The insured is required to prove that her claims fall within the coverage provision of her policy, but the insurer bears the burden of proving specific exclusions or limitations to policy coverage. See Erie Ins. Group. v. Sear Corp., 102 F.3d 889, 892 (7th Cir.1996) (applying Indiana law). The insurer's duty to defend, which is broader than its duty to indemnify, is determined by the nature of the claim in the underlying complaint, not its merits. See Ticor Title Ins. Co. v. FFCA/IIP 1988 Prop. Co., 898 F. Supp. 633, 638 (N.D.Ind.1995) (applying Indiana law). An insurer must defend an action even if only a small portion of the conduct alleged in the complaint falls within the scope of the insurance policy. See Curtis-Universal, Inc. v. Sheboygan Emergency Med. Servs., Inc., 43 F.3d 1119, 1122 (7th Cir.1994).
The primary purpose in the construction of contracts is to ascertain and give effect to the mutual intention of the parties. See Hutchinson, Shockey, Erley & Co. v. Evansville-Vanderburgh County Bldg. Auth., 644 N.E.2d 1228, 1231 (Ind. 1994). The intentions of the parties to a contract are to be determined by the "four corners" of the document. See Plumlee v. Monroe Guar. Ins. Co., 655 N.E.2d 350, 355 (Ind.Ct.App.1995). If the insurance policy is clear and unambiguous, then it should be given its plain and ordinary meaning without resorting to extrinsic evidence. See Nuckolls, 682 N.E.2d at 53738; Stout v. Kokomo Manor Apartments, 677 N.E.2d 1060, 1064 (Ind.Ct.App.1997). An unambiguous policy must be enforced according to its terms, even those which limit the insurer's liability. See Sans v. Monticello Ins. Co., 676 N.E.2d 1099, 1101-02 (Ind.Ct.App.1997). When an insurance contract contains an ambiguity, it should be strictly construed against the insurance company. Id. An ambiguity does not arise merely because the two parties proffer differing interpretations of the policy language. Id. (citing Lexington Ins. Co. v. American Healthcare Providers, 621 N.E.2d 332, 336 (Ind.Ct.App. 1993)). Rather, the policy is ambiguous only if "reasonably intelligent persons would differ as to its meaning." Id.; see National Ben Franklin Ins. Co. of Illinois v. Calumet Testing Servs., Inc., No. 983934, 1999 WL 594926, at *4 (7th Cir. Aug. 6, 1999) (applying Indiana law). When an insurance company has failed to clearly exclude that which the insured attempted to protect against, a court must construe the ambiguous contract to further the policy's basic purpose of indemnity. Id. Yet, when the underlying factual basis of the complaint, even if proved true, would not result in liability under the insurance policy, the insurance company can properly refuse to defend. See Wayne Township Bd. of Sch. Comm'rs v. Indiana Ins. Co., 650 N.E.2d 1205, 1208 (Ind.Ct.App.1995).
APT Has Failed To Demonstrate That Environ's Allegations In The Underlying Action Qualify As An Advertising Injury Offense Within The Meaning Of The Coverage Provisions Of The Heritage-APT Policy
A. Environ's Allegations In The Underlying Action
An insurer's duty to defend necessarily depends upon the allegations, including the *919 facts alleged, in the underlying complaint, so we begin our analysis with a close examination of Environ's complaint. See, e.g., Federal Ins. Co. v. Stroh Brewing Co., 127 F.3d 563, 566 (7th Cir.1997) (applying Indiana law). In Count I, "patent infringement," Environ alleges that APT willfully infringed claims 29 and 31 of its '896 patent, which issued on March 29, 1994, and claims 1,3,4, 6 and 24 of its '130 patent, which issued on June 18, 1996. Environ specifically alleges that "APT is selling underground containment chambers and underground flexible coaxial pipe for use in secondary containment systems" that infringe certain claims of its patents. See Def. Ex. 21 (Environ Compl. ¶ 18) (emphasis added). As evidence that APT had actually sold the allegedly infringing chambers and piping, Environ attached two APT advertising brochures, with one brochure dated 1995 and the other brochure dated August 1, 1993. Environ does not complain about the contents of or depictions in the actual advertisements.
In Count II, "induced and contributory patent infringement," Environ incorporates all previous allegations and adds that APT has induced patent infringement, in addition to contributing to infringement by making and selling the piping products. Id. ¶¶ 21-30.
In Count III, "federal unfair competition" under the Lanham Act, Environ contends that Leo LeBlanc unfairly competed with it by wrongfully appropriating confidential information, including the flexible, coaxial pipe for secondary containment of hazardous fluids. Id. ¶¶ 33-34. Environ then complains that both APT and LeBlanc unfairly competed with it by misappropriating its alleged invention and by filing an application for a patent on the piping product.[3]Id. ¶¶ 34-35. Environ also claims that APT made "false and misleading statements as to the creation or ownership" of the piping product "in its application for a patent." Id. (emphasis added). These alleged false or misleading statements in APT's patent application, according to Environ, constituted false descriptions and designations of origin and risked influencing investment or purchasing decisions. Id. As we noted in our second summary judgment entry, the parties have not contended that the patent application constituted an advertisement or an item "in the course of advertising" as required by the Heritage-APT policy.[4]
Environ's complaint alludes to the substantive content of APT's advertisements for the first time in paragraph 40 of Count III, in which Environ alleges that "Defendant APT's marketing of its POLY-TECH piping system as `patent pending' creates a cloud over the ownership of the Invention, thereby discouraging investment in or purchase of the Invention from Environ. Environ has suffered injury or a likelihood of injury in terms of the loss of clearly understood *920 title to the Invention." Id. ¶ 40. Although Environ refers to "marketing," not advertising, a conceptual distinction that has proved dispositive in other cases (see Westowne Shoes, Inc. v. City Ins. Co., No. 95-2328, 1996 WL 175084, at *3-4 (7th Cir. Apr. 11, 1996)), our liberal reading of the complaint in APT's favor yields the reasonable conclusion that Environ is at least implicitly referring to the two APT advertisements that it referenced in Count I of the complaint. Those two advertisements contain the phrase "patent pending," albeit in such an unobtrusive manner as to cast considerable doubt on use of the phrase as a promotional tool. Nonetheless, we take note that Environ's principle allegation involving advertising pertains to APT's use of the phrase "patent pending" in its marketing materials.
The remaining counts are all brought under state law. Count IV of Environ's complaint, unfair competition, is predicated on the identical facts as Count III, which it incorporates by reference. In Count V, conversion, Environ contends that Leo LeBlanc converted Environ's confidential information by wrongfully using the information "in a patent application to attempt to obtain a patent on the Invention, all to LeBlanc's and APT's gain." Id. ¶ 53. In Count VI, unjust enrichment, Environ claims that APT has unfairly used confidential information for profit and enrichment "at the expense of Environ, the rightful owner of the Invention." Id. ¶ 59. In Count VII, breach of fiduciary duty, Environ contends that LeBlanc breached a fiduciary duty to Environ by misappropriating proprietary information that he obtained while a member of Environ's Board of Directors in the early 1990's, prior to the dissolution of Webb's and LeBlanc's professional relationship. Finally, in one of its fifteen prayers for relief, Environ requests that APT be ordered "to recall for destruction, and deliver up to Environ for destruction, all promotional materials, advertisements, and other communications bearing thereon any representations that are or may be false or misleading concerning the ownership of the Invention." Id. ¶ (E).
B. APT Fails To Demonstrate That Environ's Allegations Trigger Heritage's Duty To Defend Under Any "Advertising Injury" Offense Enumerated In The Policy
The Heritage-APT policy applies to "advertising injury caused by an offense committed in the course of advertising [APT's] goods, products or services." Pl.Ex. 10 at 3/9 (italics in original). Therefore, APT's putative duty to defend depends upon (1) the existence of allegations that fall within one of the four categories of offenses in the policy that define "advertising injury," and (2) the demonstration that the given advertising injury offense occurred in the course of advertising APT's goods, products or services. APT, the insured, bears the burden of demonstrating that the allegations in Environ's complaint could fall within the coverage provisions of the Heritage-APT policy, although Heritage, the insurer, has the burden to prove the applicability of any exclusions, such as the first publication exclusion. See Erie Ins. Group v. Sear Corp., supra, 102 F.3d 889, 892, 893 (7th Cir.1996) (applying Indiana law).
Before we consider the specific coverage provisions in the Heritage-APT policy, we pause to highlight the specific nature of the offenses that define advertising injury, even though the advertising injury coverage appears in a comprehensive general liability insurance form. The insurance policy provides coverage for the following advertising injury offenses, and only these offenses: (a) oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; (b) oral or written publication of material that violates a person's right of privacy; (c) misappropriation of advertising ideas or style of doing business; or (d) infringement of copyright, title or slogan. While *921 Heritage and APT both agreed that these types of advertising-related risks would be insured, APT did not purchase coverage for all allegations of injury somehow relating to advertising. Thus, Environ's mere use of such words as "marketing" and "advertisements" in its complaint, and its attachment of advertisements under Count I, reveals little in and of itself. See United Nat'l Ins. Co. v. SST Fitness Corp., 182 F.3d 447, 450 (6th Cir.1999) (finding that insurance policy used "advertising" in a specific, not general, sense; therefore, use of "advertises" in the underlying complaint alone did not trigger the insurer's duty to defend). The touchstone for determining whether Environ has alleged an advertising injury is the enumerated offenses in the policy, for Heritage insured only those risks, no more, no less.
We also note that although substantive Indiana law governs this dispute, neither the Supreme Court of Indiana nor its court of appeals has addressed the meaning and scope of the advertising injury coverage and exclusion provisions at issue in this case. Yet, armed both with the contract principles that Indiana courts have adopted to analyze insurance policies and with the robust corpus of state and federal decisions from other jurisdictions interpreting similar provisions, we are sufficiently (although surely not ideally) informed to predict how Indiana's highest court would resolve this case.
1. Infringement of copyright, title or slogan
APT contends that the allegations in Environ's complaint potentially fall within the offense of "infringement of ... title." APT broadly defines "title" to include ownership, specifically "an established or recognized right to something," which would include ownership of intellectual property such as patents. Def. Post-Trial Br. at 20 (quoting Random House Unabridged Dictionary (2d ed.1993)). Therefore, APT concludes that the "patent claims" in the Environ complaint, including "at least the induced infringement claims against APT," qualify as infringement of "title."[5] APT also asserts that the federal unfair competition claim in Count III triggers Heritage's duty to defend because Environ uses the word "title" in that Count. APT reasons that because Environ claimed that APT's marketing of the piping product as "patent pending" created a "cloud over the ownership" of the piping product, thereby causing the "loss of clearly *922 understood title to the Invention," Environ's definition of title corresponds to the meaning of "title" in the policy. APT also contends without explanation that the state unfair competition claim in Count IV falls within the advertising injury offense of infringement of title.[6]See Def. Trial Br. at 3, 17; Def. Post-Trial Br. at 19-20; Def. Resp. Pl. Post-Trial Br. at 6.
Heritage rejoins that the word "title," as used in the context of this specific policy, refers not to ownership generally, but rather to a name or designation given to a work of art or other publishable material. Heritage concludes that because Environ and APT designate their respective products by completely different names, and since Environ has not alleged that APT misappropriated the name of Environ's piping product, it has no duty to defend under the "infringement of ... title" offense. See Pl. Post-Trial Br. at 14-15. We agree with Heritage, and find that the term, "title," as examined in the context of this particular insurance policy, unambiguously refers to the concept of name, such as a name of a literary or artistic work, rather than to general ownership of an invention or other thing.
We are not unaware that dictionaries attribute multiple meanings to the word "title." Title has been defined as "an identifying name given to a book, play, motion picture, musical composition, or work of art." American Heritage Dictionary (2d College ed.1991); see Palmer v. Truck Ins. Exchange, 21 Cal. 4th 1109, 1116 n. 5, 90 *923 Cal.Rptr.2d 647, 988 P.2d 568 (Cal.1999) (collecting dictionary definitions of title, concluding that in the context of the unique policy language at issue in that case, title "can only mean the name of a literary or artistic work."). A strictly legal interpretation of the word, title, can be found in Black's Law Dictionary (7th ed.1999): "[t]he union of all elements (as ownership, possession, and custody) constituting the legal right to control and dispose of property." Hence, we view it as a fruitless exercise to attempt to ascertain the clear meaning of a word without resorting to the context and contours of the entire insurance policy in which it appears. See NationsCredit Commercial Corp. v. Grauel Enters., Inc., 703 N.E.2d 1072, 1076 (Ind.Ct.App.1998) ("When determining whether a contract is ambiguous, a court must view the contract as a whole and not in discrete units."); Keystone Square Shopping Ctr. Co. v. Marsh Supermarkets, Inc., 459 N.E.2d 420, 422 (Ind.Ct. App.1984) ("In general a contract is considered as a whole so as to give effect to all its provisions without narrowly concentrating upon some clause or language taken out of context.").
Initially, we find that "infringement of ... title" cannot reasonably be construed to include Environ's claims for direct and induced patent infringement. First, and perhaps most strikingly, had the parties intended for advertising injury to apply to patent infringement, they easily could have included such language in the four sub-part paragraphs of the definition of "advertising injury." We find it implausible that the parties would have intended that direct and induced patent infringement would be covered under the policy without expressly listing those offenses in the phrase "infringement of copyright, title or slogan." Direct and induced patent infringement claims can hardly be considered a nominal or obscure aspect of infringement law. On the contrary, in the context of expressly listing three types of infringement coverage, the parties' failure to even mention patent infringement, ostensibly one of the most important coverages for companies in the business of inventing and selling products, speaks volumes about their intent not to provide coverage for such an offense. See, e.g., U.S. Test, Inc. v. NDE Envtl. Corp., 196 F.3d 1376, 1381 (Fed. Cir.1999) (finding it "unequivocally clear from the plain language" of the definition of advertising injury that patent infringement was not covered under the policy; noting that the word "patent" was noticeably absent from a list of other "forms of intellectual property infringement, namely copyright").
Moreover, the presence of the word "title" in the context of "copyright" and "slogan" supports the conclusion that title refers unambiguously to the name of a book, film, or other literary or artistic work. See Curtis-Universal, 43 F.3d at 1124 ("A word sometimes picks up meanings from its neighbors."). First, several courts have recognized that title, when defined as a name of a work, logically compliments the definition of copyright in the phrase "infringement of copyright, title or slogan." See, e.g., Palmer, 21 Cal.4th at 1117 n. 8, 90 Cal. Rptr. 2d 647, 988 P.2d 568 ("Adopting this definition of `title' [as the name of a literary or artistic work] also gives effect to each term in the coverage clause ... because the name of a literary or artistic work is not protectible by copyright."); see also 37 C.F.R. § 202.1(a) (1999) (listing examples of material not subject to copyright, including "[w]ords and short phrases such as names, titles, and slogans; ..."). Because a title of a work is similar to the type of information protected by copyright law, but for its brevity, it strikes us as a plain and natural reading of "infringement of copyright, title or slogan" to define title as a non-copyrightable title of a book, film, or other literary or artistic work. See ShoLodge, Inc. v. Travelers Indem. Co. of Illinois, 168 F.3d 256, 259 (6th Cir.1999) (finding the term "title" not ambiguous under similar policy language and defining title in identical fashion).
*924 Second, if we define title specifically as a short name of a work, as opposed to general ownership, or as APT defines it, "an established or recognized right to something," then the words copyright, title and slogan all share the same inherent quality: they directly involve a form of expression, yet they retain distinct meanings. Cf. Curtis-Universal, 43 F.3d at 1123-24 (expressing reluctance to expand "unfair competition" in a prior version of the CGL advertising injury policy to include business torts that fall beyond the type of torts, such as copyright infringement, that are mainly concerned with "harmful speech in various forms"; defining title, in dicta, as titles "presumably of books, songs, products, services, and so forth"). A copyright is a property right in an original work of authorship, such as a literary, musical, artistic, photographic, or film work, fixed in any tangible medium of expression, giving the holder the exclusive right to reproduce, adapt, distribute, perform, and display the work. See, e.g., 17 U.S.C. §§ 102, 106. A slogan is a brief, striking phrase used in advertising or promotion. See, e.g., Webster's Third New International Dictionary (unabridged 1993). And title, defined as a name of a work, and not so broadly as a "right to something," melds naturally with copyright and slogan in implicating a form of expression, which yields some explanation for the presence of these terms in an advertising injury insurance policy.
Approached from a different conceptual framework, defining title as broadly as "an established or recognized right to something" would overwhelm the definitions of copyright and slogan, rendering them superfluous. Copyrights and slogans represent property rights that may also be infringed, or in APT's vernacular, they are "something" in which one may establish or recognize a right. See Precision Automation, Inc. v. West American Ins. Co., No. 99-35184, 1999 WL 1073819, at *3 (9th Cir. Nov. 24, 1999) (finding that a broad reading of title as a property right would render the terms copyright and slogan superfluous since "[c]opyrights and trademarked slogans are property rights that can be infringed"); Zurich Ins. Co. v. Sunclipse, Inc., 85 F. Supp. 2d 842, 855 (N.D.Ill.2000) ("If indeed `title' referred to ownership in property, then the words `copyright' and `slogan' would be rendered superfluous."). APT's definition of title would swallow two other perfectly valid and operative terms in the Heritage-APT policy, a result at odds with Indiana's rules of contract construction. See Samar, Inc. v. Hofferth, 726 N.E.2d 1286, 1290 (Ind.Ct.App.2000) ("[A] contract [must] be read as a whole, and the language construed so as not to render any words, phrases, or terms ineffective or meaningless."). As we have said, the parties easily could have included patent infringement in the category of infringement offenses if they intended advertising coverage to be so broad, but clearly they did not.
We are not alone in concluding that "infringement of ... title" refers to a name of a work (not ownership of "something," such as a patent), thereby excluding coverage under an advertising injury insurance policy for claims of direct or induced patent infringement. A host of federal and state courts have so held, typically employing some aspect of the analysis we have explicated above. See, e.g., U.S. Test, 196 F.3d at 1381 ("We concur with the reasoning of several other courts that have construed the term `title,' when grouped with the terms `slogan' and `copyright,' to mean `name,' e.g., the name of a literary or artistic work, as opposed to the ownership of an invention."); Owens-Brockway Glass Container, Inc. v. International Ins. Co., 884 F. Supp. 363, 368 (E.D.Cal.1995) (same), aff'd, 94 F.3d 652, 1996 WL 445082 (9th Cir.1996) (affirming district court's "well reasoned opinion"); ShoLodge, 168 F.3d at 259 (6th Cir.) ("[T]he term `title' is not ambiguous and [] it does not include service marks ... [i]n ordinary use, the word `title' generally refers to the non-copyrightable title of a book, film, or other literary or artistic *925 work."); Callas Enters., Inc. v. Travelers Indemnity Co. of America, 193 F.3d 952, 957 (8th Cir.1999) (same; agreeing with Sixth Circuit's interpretation of "title" as "natural, reasonable, and unforced"); Precision Automation, 1999 WL 1073819, at *2-3 (9th Cir.) (similar); Atlantic Mut. Ins. Co. v. Brotech Corp., 857 F. Supp. 423, 429 (E.D.Pa.1994) ("[T]he term `title' refers to a distinctive name or designation used to identify a literary or artistic work."), aff'd, 60 F.3d 813 (3rd Cir.1995); Zurich, 85 F.Supp.2d at 855 (N.D.Ill.) (rejecting definition of title as ownership of property); Gencor Indus., Inc. v. Wausau Underwriters Ins. Co., 857 F. Supp. 1560, 1564 (M.D.Fla.1994) ("It is even more absurd to suggest that the phrase `infringement of ... title,' ... encompasses patent infringement or inducement to infringe. Basic common sense dictates that if these policies covered any form of patent infringement, the word `patent' would appear in the quoted `infringement' clauses."); Mez Indus., Inc. v. Pacific Nat'l Ins. Co., 76 Cal. App. 4th 856, 874-75, 90 Cal. Rptr. 2d 721 (Cal.Ct.App.1999); Maxconn Inc. v. Truck Ins. Exchange, 74 Cal. App. 4th 1267, 1275-76, 88 Cal. Rptr. 2d 750 (Cal.App.1999).
In conjunction with these cases and for the reasons discussed previously, we conclude that the term "title" in the Heritage-APT policy unambiguously refers to a name of a work, such as a non-copyrightable title of a book, film, or other literary or artistic work, and accordingly find that it does not encompass claims for direct or induced patent infringement.
Further, we perceive no merit in APT's contention that Environ's use of the word "title" in Count III of the underlying complaint triggers Heritage's duty to defend. Environ clearly referred to ownership rights with its reference to title (e.g. "creating a cloud over the ownership of the Invention"), a definition that, as we have explained, is inconsistent with the plain meaning of title as that term is used in the specific context of the Heritage-APT policy. Moreover, Heritage points out that Environ and APT do not designate their respective piping products by the same or similar names. In any event, Environ never alleges in either its federal or state unfair competition counts, or anywhere in the complaint for that matter, that APT infringed the name, or "title," of its piping product. Therefore, we find that the allegations and facts alleged in Environ's complaint fail to engage Heritage's duty to defend under the "infringement of ... title" offense in the policy.
2. Misappropriation of advertising ideas or style of doing business
APT contends that the two advertisements attached to Environ's complaint under Count I (patent infringement) demonstrate that APT is alleged to have misappropriated Environ's "advertising ideas." APT also resorts to extrinsic evidence to argue that the previous version of the CGL policy (the 1976 version) included coverage for piracy and unfair competition, two offenses that, although now deleted from the Heritage-APT policy, nestle themselves within the "style of doing business" offense. See Def. Post-Trial Br. at 12-13, 20-21; Def. Resp. to Pl. Post-Trial Br. at 5. Thus, APT claims that Environ's patent infringement and unfair competition counts are covered under the "misappropriation of advertising ideas or style of doing business" offenses.
Heritage responds that Environ never alleged that APT misappropriated Environ's advertising ideas or comprehensive style or manner by which it operated its business. See Pl. Post-Trial Br. at 13-14; Pl. Resp. Def. Supp. Trial Br. at 3-4. Heritage also contends that APT's comparisons of advertisements published by Environ and APT are irrelevant to the "misappropriation of advertising ideas" offense in the absence of any allegations by Environ regarding the purported similarity in advertising. Upon careful consideration of Environ's allegations in light of *926 the policy's language, we conclude that APT has failed to demonstrate that Environ's allegations even potentially trigger coverage under the "misappropriation of advertising ideas or style of doing business" advertising injury offenses.
APT does not attempt to define the phrase "misappropriation of advertising ideas or style of doing business," but Environ's allegations fall outside its rubric even if we read the phrase in its broadest sense. The phrase clearly incorporates two offenses, misappropriation of advertising ideas and misappropriation of style of doing business. While APT is silent on potential definitions, various courts have directly addressed the question, often disagreeing about the breadth of "misappropriation." Some courts define the term narrowly and technically to track the common-law tort of misappropriation (see Advance Watch Co. v. Kemper Nat'l Ins. Co., 99 F.3d 795, 802 (6th Cir.1996)), while others define the term generally and in its lay sense to mean "to take wrongfully." See Winklevoss Consultants, Inc. v. Federal Ins. Co., 991 F. Supp. 1024, 1037-38 (N.D.Ill.1998) (citing Lebas Fashion Imports v. ITT Hartford Ins. Group, 50 Cal. App. 4th 548, 561, 59 Cal. Rptr. 2d 36 (Cal. Ct.App.1996)). However, even if we adopt the broadest sense of misappropriation ("to take wrongfully") in the context of "adverting idea" (never mind "style of doing business" for the moment) and combine it with the Seventh Circuit's definition of advertising ("active solicitation of business," see Erie Insurance Group, supra), we have, as the court in Winklevoss described, the following definition of "misappropriation of advertising ideas": the insured wrongfully took an idea about the solicitation of business. See Winklevoss, 991 F.Supp. at 1038; Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 748 (3rd Cir.1999) (approvingly citing the Winklevoss definition of advertising idea). We consider this definition an unstrained and plain reading of the language in the Heritage-APT policy, as well as one that favors the insured. See also Zurich Ins. Co. v. Sunclipse, Inc., supra, 85 F. Supp. 2d 842, 854 (N.D.Ill.2000) (recognizing misappropriation of an advertising idea to mean "the wrongful taking of the manner in which another advertises its goods or services") (internal quotations and citations omitted); Atlantic Mut. Ins. Co. v. Badger Med. Supply Co., 191 Wis. 2d 229, 528 N.W.2d 486, 490 (Ct.App.1995) (defining advertising idea as "an idea calling public attention to a product or business, especially by proclaiming desirable qualities so as to increase sales or patronage").
This broad definition provides no solace for APT, however, since Environ's complaint fails to even hint at APT's wrongful taking of any Environ idea about how to solicit business or advertise the piping product. The only Environ allegation relating to advertising is found in paragraph 40 of its complaint (Count III, federal unfair competition), where Environ claim that APT's "marketing of its POLYTECH piping system as `patent pending' creates a cloud over the ownership of the Invention." Def. Ex. 21 (Environ Compl. ¶ 40). This allegation is void of any reference to Environ's ideas on how to solicit business, nor does it mention APT improperly taking such an idea.
The Third Circuit recently considered a case noticeably similar to the one at bar, concluding that the allegations in the underlying complaint against the insured did not fall within the advertising injury offense of "misappropriation of advertising ideas." See Frog, Switch & Mfg. Co., Inc. v. Travelers Ins. Co., 193 F.3d 742, 748 (3rd Cir.1999). In Frog, Switch, the insured sought a declaration that its insurer had a duty to defend it against a lawsuit brought by a competitor for theft of trade secrets, unfair competition and reverse passing off under the Lanham Act. In the underlying complaint, the plaintiff alleged that the insured had used misappropriated trade secrets and confidential information, including drawings and prints related to a dipper bucket product, to enter the dipper *927 bucket product market. The plaintiff further alleged that the insured launched a widespread promotional campaign, in which the insured both falsely represented that it had developed a new and revolutionary design for dipper bucket parts and components and falsely depicted a dipper bucket with the insured's logo. Id. at 745. The plaintiff contended that the insured's actions misled consumers into believing that the plaintiff's bucket products could be replicated, produced and sold by the insured. The plaintiff also claimed that the buckets the insured advertised were made using the stolen drawings, a form of "reverse passing off," according to the plaintiff. Id.
Chief Judge Becker, writing for a unanimous court, concluded that the insurer had no duty to defend the insured since the plaintiff's unfair competition and Lanham Act claims did not qualify as allegations of misappropriation of advertising ideas or style of doing business. He reasoned that "the allegation that [the insured] engaged in unfair competition by misappropriating trade secrets relating to manufacture of a product line does not allege misappropriation of advertising ideas or styles of doing business as such." Id. at 748. He concluded that the insured's alleged misappropriation of the bucket design, as well as its alleged advertising lies about the bucket design's origin, did not qualify as allegations that the insured took an idea about advertising. Id.
We find the persuasive reasoning in Frog, Switch applicable here, and similarly consider the allegations in Environ's unfair competition, conversion, and other counts insufficient to give rise to APT's duty to defend under the "misappropriation of advertising ideas" offense in the Heritage-APT policy. Environ simply does not claim that it ever used the phrase "patent pending" as an advertising idea, that it ever considered "patent pending" an idea for soliciting business, or that the piping product that APT allegedly took was inherently an idea on how to advertise. Rather, Environ alleged that APT unfairly competed with it by stealing its product and claiming the piping as its own, a distinctly different claim from alleging that APT took an idea about how to solicit business or advertise the underground piping product. See Applied Bolting Tech. Prods., Inc. v. United States Fidelity & Guar. Co., 942 F. Supp. 1029, 1034 (E.D.Pa. 1996) (distinguishing between advertising falsely and taking an advertising idea), aff'd, 118 F.3d 1574 (3rd Cir.1997); Frog, Switch, 193 F.3d at 749 (citing Applied Bolting).
Oddly, the only argument that APT advances in respect to the "advertising idea" offense completely ignores the language of the complaint itself. Perhaps sensing that Environ never alluded to misappropriation of an advertising idea, APT resorts to having its expert compare Environ's advertisements of its piping product to the two APT advertisements attached to Environ's complaint. APT then claims that because, in its view, the advertisements are similar in some respects, Heritage's duty to defend is triggered under the "advertising idea" offense. However, this argument lacks an essential element any allegation by Environ that APT has absconded with certain aspects of its advertising. In fact, Environ neither mentions its own advertisements nor compares them in any respect to APT's advertising. APT attempts to manufacture an "advertising idea" offense from thin air, an effort we reject in the absence of any allegations from Environ to that effect.
Next, in regard to the "misappropriation of ... style of doing business" offense, APT has not attempted to define the phrase, to argue that it is ambiguous, or to suggest that Environ has contended that APT took its overall "style" of operating its business. This failure alone forecloses any claim that Heritage owes APT a duty to defend based on that offense, especially in light of APT's burden to demonstrate the existence of advertising injury coverage in the first instance. Nonetheless, lest *928 we leave any stone unturned, we independently have not located any allegation in Environ's complaint that potentially would qualify under that offense.
As for the definition of "style of doing business," we concur with the vast majority of courts that have ascribed to the phrase a plain and working meaning when it is read in context a style of doing business is a "company's comprehensive manner of operating its business." See, e.g., Novell, Inc. v. Federal Ins. Co., 141 F.3d 983, 987 (10th Cir.1998) (recognizing some variation in defining the phrase "style of doing business" in the 1986 CGL policy, but noting that "[m]ost [courts] seem to agree that the phrase `style of doing business' unambiguously refers to `a company's comprehensive manner of operating its business'") (collecting authorities); Applied Bolting, 942 F.Supp. at 1034 (holding that style of doing business refers to a company's comprehensive manner of operating or conducting its business) (collecting similar authorities), aff'd, (3rd Cir.); St. Paul Fire & Marine Ins. Co. v. Advanced Interventional Sys., Inc., 824 F. Supp. 583, 585 (E.D.Va.1993) (same definition), aff'd, 21 F.3d 424, 1994 WL 118029 (4th Cir.1994); Atlantic Mut. Ins. Co. v. Badger Med. Supply Co., supra, 191 Wis. 2d 229, 528 N.W.2d 486, 490 (Ct.App. 1995) (same definition and agreeing that the phrase may include distinctive sales techniques); Advance Watch, 99 F.3d at 801-02 (6th Cir.) (agreeing with the court's analysis in Badger); Elcom Techs., Inc. v. Hartford Ins. Co. of the Midwest, 991 F. Supp. 1294, 1297 (D.Utah 1997) (same definition and finding that "acts by one company might amount to a comprehensive manner of operating its business while the same acts by another company may only be considered representations to the public about the company's product or service"); American States Ins. Co. v. Vortherms, 5 S.W.3d 538, 543 (Mo.Ct.App.1999) (same definition); Fluoroware, Inc. v. Chubb Group of Ins. Cos., 545 N.W.2d 678, 682 (Minn.Ct.App.1996) (same definition); cf. Winklevoss, 991 F.Supp. at 1039.
Other courts have adopted slightly more specific variants of this general meaning, but the basic connotations of those definitions remain largely the same. See, e.g., Frog, Switch, 193 F.3d at 749-50 (finding that style of doing business refers to "a plan for interacting with consumers and getting their business," and recognizing that copying a particular product fails to constitute copying an overall style of doing business); Owens-Brockway Glass, 884 F.Supp. at 369 (defining the phrase as the "outward appearance or signature of a business"), aff'd, 94 F.3d 652, 1996 WL 445082 (9th Cir.).
Most courts have equated the phrase "misappropriation of ... style of doing business" to trade dress infringement since, for example, a business' total image and comprehensive style of doing business could become inherently distinct and recognizable.[7]See, e.g., Fluoroware, 545 N.W.2d at 683. Yet, other courts (as we alluded to earlier) have refused to read misappropriation beyond its technical, narrow sense, finding that the phrase cannot include trademark or trade dress infringement. Compare, e.g., Dogloo, Inc. v. Northern Ins. Co. of New York, 907 F. Supp. 1383, 1389-90 (C.D.Cal.1995) (holding that trade dress infringement claim, in which insured was expressly alleged to have misappropriated and advertised *929 the unique configuration of a dome-shaped dog house, could constitute the offense of misappropriating a style of doing business) with Atlantic Mutual. Ins. Co. v. Badger, 528 N.W.2d at 490 (finding that misappropriation of style of doing business was distinct from trade dress infringement since trade dress infringement requires a likelihood of confusion, while the tort of misappropriation the narrow definition of misappropriation has no such confusion requirement); see Novell, 141 F.3d at 987 (comparing various courts' approaches to trade dress infringement in connection with "misappropriation of style of doing business," concluding that none of the allegations in the underlying plaintiff's unfair competition and other counts fell under any definition of "style of doing business"); Frog, Switch, 193 F.3d at 749 (even assuming trademark and trade dress qualified as a "style of doing business," the underlying plaintiff's allegations of unfair competition and reverse passing off of a dipper bucket design did not entail a claim for infringement of trademark or trade dress).
This divergence in case law on some aspects of the trade dress issue is irrelevant here, however, since Environ has not alleged a claim for trademark or trade dress infringement. Moreover, none of Environ's allegations fall within any of the slight variations of the definition of wrongfully taking a "style of doing business" that we have described. The only Environ allegation even tangentially implicating advertising is its claim that APT used the "patent pending" designation in its marketing materials. While we can imagine scenarios in which the physical appearance of a company's marquee product is so inherently distinctive and widely adopted by the company that the product itself reflects the company's comprehensive manner of operating its business, those types of allegations are not before us now, nor does APT suggest that they are.
Significantly, Environ says nothing about the depictions in the two APT advertisements, nor does it contend that APT's depictions reflected its comprehensive style of operating its company. Neither Environ, in its complaint, nor APT, in its briefs, informs us about the nature of Environ's overall business, the number of products that Environ produces, whether the piping product in APT's advertisement represents Environ's marquee product or overall signature, whether the depicted product reflects Environ's plan for interacting with consumers and getting their business, or how Environ generally operates its business and presents itself to the public. Environ's mere allegation of APT's use of the phrase "patent pending" may reflect Environ's concern that APT was attempting to secure rights over aspects of one product that Environ believed that it owned, but we have nothing before us to draw the conclusion that Environ alleged that APT wrongfully took its comprehensive method of operating its business (whatever the nature of that business may be). See Frog, Switch, 193 F.3d at 749-50 (finding that the underlying plaintiff alleged that insured copied a particular product line that might have been attractive to customers, but that plaintiff failed to allege that the insured copied a style of doing business); St. Paul Fire & Marine, 824 F.Supp. at 585 (noting that stealing patents used in the manufacture of a single device "does not even approach the showing of pervasive similarity in the overall manner of doing business that courts have previously recognized as necessary to prove misappropriation of a `style of doing business'"), aff'd, (4th Cir.).
Instead of directly addressing the "style of doing business" language in the policy, APT attempts an end-run around its ordinary meaning by drawing upon extrinsic evidence to find coverage under that offense. APT asserts that the phrase actually includes the offenses of "piracy" and "unfair competition," two terms that were eliminated from the 1986 CGL policy when it replaced its predecessor, the 1976 version. While we need not, and cannot, rely on extrinsic evidence in the face of *930 what we have determined as unambiguous policy language (see Samar, 726 N.E.2d at 1290), we will briefly explain why this argument would fail even if an ambiguity existed.
APT relies upon its expert to conclude that the 1986 CGL policy revision was not intended to change the scope of coverage for advertising injury provided in the 1976 CGL policy.[8] Therefore, according to APT, the elimination of the terms piracy and unfair competition, and the concomitant addition of the phrase "misappropriation of advertising ideas or style of doing business," must mean that the latter phrase equates to the former terms.[9] APT then reasons that regardless of what the phrase "misappropriation of advertising ideas or style of doing business" actually says, its definition really tracks the broadest meanings of piracy and unfair competition. Thus, APT concludes that piracy and unfair competition encompass Environ's patent infringement[10] and unfair competition claims, thereby triggering Heritage's duty to defend under the "misappropriation of advertising ideas or style of doing business" offenses.
We find this argument specious for a number of reasons, only one of which we need elaborate upon here. APT's contention expands the meaning of piracy and unfair competition as if an advertising injury policy never existed, while ignoring that the change actually reflects that those terms likely had very narrow meanings in the old policy. See Curtis-Universal, 43 F.3d at 1123 (interpreting the unfair competition language in the pre-1986 CGL policy; finding that the "broad interpretation of [unfair competition] cannot be right for the insurance policy in our case. It would turn insurance against liability for `advertising injury' into insurance against liability for antitrust violations"); Westowne *931 Shoes, Inc. v. City Ins. Co., No. 95-2328, 1996 WL 175084, at *3 (7th Cir. Apr. 11, 1996) (addressing language in the pre-1986 CGL policy and recognizing the impulse to interpret "unfair competition" narrowly in light of the word advertising, rather than broadly as the modern law of business torts might allow); Fluoroware, 545 N.W.2d at 683 (interpreting piracy in pre-1986 CGL policy and concluding that piracy did not include patent infringement; holding that "[i]n the context of policies written to protect against claims of advertising injury, piracy means misappropriation or plagiarism found in the elements of the advertisement itselfin its text form, logo, or picturesrather than in the product being advertised") (internal citations and quotation omitted). Hence, in the 1976 CGL policy, unfair competition and piracy that involved the taking of an advertising idea or style of doing business likely was covered, while, for instance, unfair competition involving antitrust violations was not. Id. In other words, assuming arguendo that there was no change in the scope of advertising injury coverage in the 1976 and 1986 CGL policies, the alteration of policy language in the 1986 policy says more about the limited meanings of unfair competition and piracy in the old policy than it does about a broad definition of the two "misappropriation" offenses in the new policy. Of course, this entire discussion turns a blind eye to the fact that equating "misappropriation of advertising ideas or style of doing business" to "unfair competition" and "piracy" ignores the obvious reality that those two terms no longer appear in the 1986 CGL policy.
Ultimately, APT's collateral attempt to envelop the broad definitions of piracy and unfair competition within the "misappropriation of advertising ideas of style of doing business" umbrella must failthe offenses simply do not appear in the policy language and, to the extent that any remnants of their narrow meanings may remain in the policy, they are reflected in the unambiguous language as it now exists. In addition to the absence of any argument from APT regarding the definition or interpretation of the actual language "misappropriation of ... style of doing business," we have independently reviewed Environ's allegations and find them to fall outside the plain meaning of this offense. Accordingly, Heritage has no duty to defend APT under either offense of the "misappropriation of advertising ideas of style of doing business" coverage provision.
3. Disparagement and invasion of privacy offenses
APT claims in abbreviated fashion that Environ's allegations fall within the remaining two categories of advertising injury offenses: "[o]ral or written publication of material that ... disparages a person's or organization's goods, products or services," and "[o]ral or written publication of material that violates a person's right of privacy." See Def. Resp. Pl. Post-Trial Br. at 3-5; Pl.Ex. 10.[11]
As for the disparagement offense, APT contends that Environ, in the underlying complaint, alleged that APT disparaged Environ's goods or products by claiming (again in ¶ 40) that "APT's marketing of its POLY-TECH piping system as `patent pending' creates a cloud over the ownership of the Invention... [causing] injury in terms of the loss of clearly understood title to the Invention." Def. Ex. 21. We disagree. APT neglects to define "material ... that disparages ... goods, products or services," but we do not consider the plain and ordinary meaning of the word "disparage" particularly difficult to discern. *932 Black's Law Dictionary (7th ed.1999) defines disparage as "[t]o dishonor (something or someone) by comparison" or "[t]o unjustly discredit or detract from the reputation of (another's property, product, or business)." The American Heritage Dictionary (2d college ed.1991) defines the term as "[t]o speak of as unimportant or small; belittle" or "to reduce in esteem or rank." Webster's Third New International Dictionary (unabridged 1993) similarly defines disparage as "to lower in esteem or reputation" or "to speak slightingly of." Likewise, under Indiana law, disparage has been defined as to "lower in esteem; discredit." See Indiana Ins. Co. v. North Vermillion Community Sch. Corp., 665 N.E.2d 630, 635 (Ind.Ct.App.1996) (holding that insurer's duty to defend was triggered under personal injury disparagement clause where underlying plaintiff alleged that insured injured him by damaging his good reputation in the community and by harassing, embarrassing, and subjecting him to ridicule and humiliation by others) (citing Webster's New World Dictionary (3rd ed.1988)). Hence, we look to Environ's allegations to determine if it alleged that APT denigrated, discredited or belittled Environ's products in the course of advertising.
Environ's only allegation involving advertising involves APT's use of the phrase "patent pending" in its advertisements, which Environ believes clouds ownership of the invention. As we have said, one of Environ's central claims is that APT stole aspects of its piping product, eventually advertising the product as its own. Importantly, Environ never contends that APT's advertisements mention Environ, compare the products of the respective companies, or discredit or denigrate Environ's piping products. Nor does Environ claim that APT advertised its product under Environ's name or label. In fact, APT's advertisements never refer to Environ or any other competitor. While Environ surely complains that APT improperly made off with its product, Environ simply fails to claim that APT said anything negative about its piping, which negative connotation is, after all, the essence of disparagement. The insured's lack of any direct reference to a competitor's goods or products repeatedly has compelled courts to find that the underlying plaintiff has not alleged an advertising injury under this disparagement offense. See Frog, Switch, 193 F.3d at 748 (underlying plaintiff's claims of reverse passing off and unfair competition did not constitute disparagement of the underlying plaintiff's product; "nothing in the [the underlying plaintiff's] complaints alleged that [the insured] said anything disparaging about [the plaintiff's] products"); U.S. Test, 196 F.3d at 1382 (underlying counter-plaintiff alleged that the insured improperly solicited customers by claiming that its allegedly infringing product did not, in fact, infringe the counter-plaintiff's patents; court found that counter-plaintiff's allegations were "legally inadequate to constitute disparagement, as there is no allegation that [the insured] falsely denigrated [the counter-plaintiff's] products"); Zurich, 85 F.Supp.2d at 847, 855-56 (underlying plaintiff alleged that insured misappropriated trade secrets, developed a competing product and sold the stolen competing product instead of the plaintiff's original product; court found that although plaintiff alleged that insured developed and sold the stolen product to the plaintiff's customers and therefore treated the plaintiff's original product unfairly, the plaintiffs did not allege that the insured made false or misleading statements about the plaintiff's products); Winklevoss, 991 F.Supp. at 1039-40 ("There is nothing in the complaint to suggest that [the insured] said anything at all about [the underlying plaintiff]let alone anything negative and misleadingor did anything other than promote its own product.").[12]
*933 While we believe that some direct reference to the competitor's product is necessary to fall within the plain meaning of "disparage," we also do not view Environ's allegations as resulting in a reasonable claim of implied disparagement either. The phrase "patent pending" signifies nothing about the quality or state of Environ's product, as the phrase means exactly what it saysa patent is pending. This case might be different if APT had advertised that it actually owned a patent and then claimed that Environ's products infringed APT's patent, but we have none of these allegations before us. That example of disparagement may not be direct, as APT would not have said anything about the actual nature of Environ's product (e.g. the product is of inferior quality or functions poorly), but the disparagement could be by implication since APT would be claiming that Environ products infringed the one and only valid patent on the product. See W. PAGE KEETON ET AL., PROSSER AND KEETON ON THE LAW OF TORTS, § 128, at 966-67 (5th ed.1984) (describing the disparagement tort as an injurious falsehood, recognizing the above example of disparagement by implication, and noting the requirement that the disparaging statement be false). Even in the unlikely event that consumers would somehow connect APT's advertised product with Environ's product (to which APT's advertisements do not refer, let alone discredit), the phrase "patent pending" does not equate to saying by implication that Environ's products are inferior, that the claims in APT's patent application are equivalent to the claims in Environ's patent, or that Environ's patent is invalid. On the contrary, patent applications often do not mature into valid patents, and simply filing such applications confers absolutely no legal rights to a product whatsoever. The Federal Circuit has explicated this long-standing observation:
A `patent pending' notice gives one no notice whatsoever. It is not even a guarantee that an application has been filed. Filing an application is no guarantee any patent will issue and a very substantial percentage of applications never result in patents. What the scope of claims in patents that do issue will be is something totally unforeseeable.
State Industries, Inc. v. A.O. Smith Corp., 751 F.2d 1226, 1236 (Fed.Cir.1985); Schwebel v. Bothe, 40 F. 478 (E.D.Mo. 1889) ("`Patent applied for,' did not signify that the article was then and there protected by letters patent. It conveyed no such representation to the public... [p]atents are applied for on many articles that are never granted. Perhaps as many applications for patents are denied as are granted."); cf. Micro Chemical, Inc. v. Great Plains Chem., Co., 194 F.3d 1250, 1261 (Fed.Cir.1999) ("Pre-issuance activities alone cannot establish inducement to infringe."); 35 U.S.C. § 154(a) (rights flowing from a patent grant shall "begin[] on the date on which the patent issues"); Michael A. Shimokaji, "Inducement and Contributory Infringement Theories to Regulate Pre-Patent Issuance Activity," 37 IDEA: J.L. & Tech. 571, 542 (1997).
In addition to the lack of direct or implied disparagement, we find a further, independent reason why Environ's allegations regarding APT's marketing do not qualify as an advertising injury offense. Environ never alleges an essential component of a disparagement claim, namely, that APT made a false statement in the course of advertising. Cf. Kitco, Inc. v. Corporation For General Trade, 706 N.E.2d 581, 587 (Ind.Ct.App.1999) ("In order to recover in an action for defamation, that which caused the alleged defamation must be both false and defamatory."); Prosser and Keeton, § 128, at 967-68. The only statement relating to advertising about which Environ complains, "patent pending," was not false at all. Cf. 35 U.S.C. § 292 (false marking statute) (penalizing *934 false marking of patents in advertising and noting that whoever advertises a product as "patent applied for" or "patent pending" is liable for false marking if "no application has been made, or if made, is not pending"). In fact, that statement was accurate and truthful in light of APT's having filed a patent application in March 1992 that was still pending when APT published those advertisements. See Wayne Township Bd. of Sch. Comm'rs v. Indiana Ins. Co., 650 N.E.2d 1205, 1208 (Ind.Ct.App.1995) (holding that when the underlying factual basis of the complaint, even if proved true, would not result in liability under the insurance policy, the insurer can properly refuse to defend). Environ clearly is displeased that APT both filed a patent application (albeit well before Environ's patent issued) for a product that it claims it owns and advertised that product as "patent pending." But that fact does not translate into allegations that APT's advertisements contain false and discrediting representations about Environ's products. Nothing about the two APT advertisements attached to Count I of Environ's complaint has been alleged to be false. In the end, we simply cannot reasonably conclude that Environ's allegation that APT marketed its product as "patent pending" constitutes a claim of disparagement within the plain meaning of the Heritage-APT policy.
As a final matter, APT claims that Environ's allegations qualify under the advertising injury offense "[o]ral and written publication of material that violates a person's right of privacy." Pl.Ex. 10 at 7/9 (emphasis added); see Def. Resp. Pl. Post-Trial Br. at 4-5. We find this contention unavailing for three reasons. First, Environ never expressly or implicitly refers to a violation of the right of privacy and APT fails to identify or explain under which branch of the tort Environ's allegations supposedly fall. See Doe v. Methodist Hosp., 690 N.E.2d 681, 687-91 (Ind.1997) (explaining four categories of invasion of privacy tort and expressing hesitance to ever impose liability under the Indiana Constitution for truthful statements). Second, we take note that "[n]ot one case has ever held that trade secret misappropriation falls within [this] covered offense," nor does APT cite such authority. Winklevoss, 991 F.Supp. at 1040. Finally, the insurance policy's coverage for invasion of the right of privacy, by its own terms, applies only to a "person's," not an "organization's," right of privacy. The policy distinguishes between person and organization in at least two different locations: (1) in the immediately preceding advertising injury offense, which provides coverage for material that "slanders or libels a person or organization or disparages a person's or organization's goods ...," and (2) in the clause providing for an advertising injury coverage limit in the amount of $1,000,000 per "Any One Person or Organization."
APT, of course, is an organization, a fact disqualifying it for potential coverage under this advertising injury offense. APT contends that Indiana's insurance statute defines a corporation as an artificial person. Maybe so, but we need not resort to such extrinsic sources where the meaning of the policy language is plain on its face. Yet, even if we adopted this definition, it would render the term "organization" mere surplusage, a result at odds with Indiana's rules of contract construction, for every corporation, association and partnership (see I.C. § 27-1-2-3(h)), the vast majority of "organizations" seeking CGL insurance coverage, would be covered under the term "person."[13] Therefore, we conclude that Environ's allegations fail to trigger Heritage's duty to defend under the *935 "right of privacy" advertising injury offense in the Heritage-APT policy.
Overall, APT has failed to demonstrate that any of the allegations in Environ's complaint fall within the meaning of the four categories of advertising injury offenses enumerated in the Heritage-APT policy. Hence, as predicted under Indiana law, we find that Heritage has no duty to defend APT against Environ's allegations in the underlying Pennsylvania action.[14]
Judicial Admissions/Bad Faith/Loss in Progress
The parties advance a number of final issues that warrant some discussion. First, APT claims that Heritage judicially admitted (in Heritage's November 2, 1998, motion for summary judgment) that Environ's allegations fall within the advertising injury coverage grant in the policy.[15]See Def. Trial Br. at 19; Post-Trial Br. at 21-22. Heritage did no such thing. See Solon v. Gary Community Sch. Corp., 180 F.3d 844, 858 (7th Cir.1999) ("Judicial admissions are formal concessions in the pleadings ... A judicial admission is conclusive, unless the court allows it to be withdrawn."). While Heritage predicated that particular summary judgment motion on the first publication exclusion, it did not unequivocally abandon its initial coverage position that Environ's allegations fell outside the policy's advertising injury offenses. See Medcom Holding Co. v. Baxter Travenol Lab., Inc., 106 F.3d 1388, 1404 (7th Cir.1997) (citing authority requiring judicial admissions to be deliberate, clear and unequivocal statements). Moreover, it becomes obvious that when the "admission" is read in the context of the brief in which it appears and in light of Heritage's Reply, the coverage issue was still quite in controversy. See Heritage Reply Br. at 1, 5 n.1 (arguing that patent infringement did not constitute advertising injury in the first instance). We expressly noted at two locations in our summary judgment entry that we were assuming for purposes of that entry only that Environ's allegations qualified as an advertising injury, recognizing that the parties would no doubt argue the initial coverage position if the case survived to trial. See Court's February 1, 1999, Entry at 8 n.1, 19 n.2. Accordingly, we find that Heritage did not formally concede the initial coverage question.
Next, both parties attempt to raise new defenses and claims that they neither identified in their original complaints and answers nor developed in any substantive fashion until after trial. APT moves to amend its counter-claim to conform to the evidence adduced at trial, claiming that Heritage denied coverage in bad faith by not sufficiently investigating APT's claim. See Def. Br. Support Mot. Amend Counter-Claim at 2. Heritage invokes the "loss in progress" doctrine for the first time in its post-trial brief, contending that any alleged advertising injury existed before inception of the Heritage-APT policy and continued into the policy period, relieving Heritage of any duty to defend.
As for APT's bad faith contention, it has not only been delinquently raised (a fact we identified in our pre-trial rulings as the argument precipitously surfaced before trial) but it also was not tried expressly or *936 impliedly by Heritage. More importantly, the claim itself lacks merit. Under Indiana law, "the lack of diligent investigation alone is not sufficient to support an award" for bad faith. Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 520 (Ind.1993); Worth v. Tamarack American, 47 F. Supp. 2d 1087, 1102 (S.D.Ind.1999) (summarizing Indiana law), aff'd, 210 F.3d 377, 2000 WL 101227 (7th Cir.2000). "[A] good faith dispute about ... whether the insured has a valid claim at all will not supply the ground for a recovery in tort for the breach of the obligation to exercise good faith ... even if it is ultimately determined that the insurer breached its contract." Erie, 622 N.E.2d at 520. An insurer may be considered to have acted in bad faith where it "denies liability knowing that there is no rational, principled basis for doing so." Id. Yet, poor judgment or negligence do not amount to bad faith since the "additional element of conscious wrongdoing must also be present." Colley v. Indiana Farmers Mut. Ins. Group, 691 N.E.2d 1259, 1261 (Ind.Ct.App.1998).
The evidence adduced at trial comes nowhere close to demonstrating that Heritage engaged in a negligent denial of APT's claim, much less that Heritage engaged in the requisite conscious wrongdoing when denying coverage. While it is apparent that some of Heritage's employees did not possess institutional knowledge about ISO's drafting history (an unsurprising fact given much of its "secret" nature), and that they could endeavor to learn more about ISO's CGL form policies, Heritage did promptly retain coverage counsel upon receiving APT's tender of defense. APT's December 18, 1995, letter requesting coverage included Environ's summons and complaint in the underlying action. See Def. Ex. 2. Within approximately one month of receiving that letter, Heritage's coverage counsel responded with a denial of coverage, detailing the insurance provisions at issue and discussing the nature of Environ's allegations in the underlying lawsuit. See Def. Ex 3. Specifically, coverage counsel explained that Environ's patent infringement claims did not constitute an advertising injury within the meaning of the policy and that Environ failed to allege that APT disparaged Environ's products. Id. Coverage counsel also requested that if APT believed that any further information would influence the coverage decision, it should forward that information for consideration. Id. On February 27, 1996, APT responded by letter to the initial denial of coverage, reiterating its position and citing legal authority in support of its tendered defense. See Def. Ex. 4. On March 11, 1996, Heritage's coverage counsel again responded in writing, disputing the holdings of the authority cited by APT, reasserting the absence of coverage based on Environ's allegations, disagreeing with APT's choice of law position, and again declining to assume APT's defense. See Def. Ex. 5.
In light of these facts, Heritage's conduct strikes us as sufficiently reasonable under the circumstances of this case, and, as it turns out, correct as a matter of legal contract interpretation. Heritage retained coverage counsel, who clearly examined the insurance policy provisions at issue, the allegations in the underlying complaint, and the legal authority offered by the insured in support of its coverage position. The reasons supplied for denial of coverage were rational and understandable given the core documents driving the litigation and the legal principles that we have identified in this entry. The facts presented at trial fail to raise even an inference that Heritage acted in bad faith and engaged in conscious wrongdoing, and they certainly fail to prove that proposition by a preponderance of the evidence. Accordingly, we DENY APT's motion to amend its counter-claim. Alternatively, since we have considered the merits of the bad faith claim in affording APT the benefit of the doubt, we find in Heritage's favor.
*937 Finally, Heritage's "loss in progress" argument constitutes an affirmative defense that it delinquently raised for the first time in its post-trial brief, so we shall not consider it further, although the issue is moot in any event. See Stonehenge Engineering Corp. v. Employers Ins. of Wausau, 201 F.3d 296, 302 (4th Cir.2000).
Conclusion
For the reasons discussed, we predict that if Indiana's highest court had resolved this case, it would have determined that Heritage has no duty to defend its insured, APT, in the underlying action brought against APT in the Eastern District of Pennsylvania. The allegations in Environ's underlying complaint fail to trigger Heritage's duty to defend under any of the advertising injury offenses in the Heritage-APT CGL policy. Also, APT's motion to amend its counter-claim to conform to the evidence is DENIED.
JUDGMENT
As explained in the accompanying Entry in the above-named cause, judgment is hereby entered in favor of Plaintiff, Heritage Mutual Insurance Company, and against Defendants, Advanced Polymer Technology, Inc., Leo J. LeBlanc, and Environ Products, Inc. Each party shall bear their own costs.
NOTES
[1] We granted Heritage's motion in respect to defendant Leo J. LeBlanc, finding that the insurance policy did not include coverage for LeBlanc as an individual insured separate from APT itself. Defendant Environ technically remains a party to this action, although it stands on the periphery of this insurance coverage dispute and has not actively participated in this litigation. See Def. APT's Trial Brief at 4 n.2 ("Environ's position is as a nominal defendant. Environ is not expected to participate at trial. It has agreed to be bound by the determination of this matter.").
[2] ISO periodically revises and clarifies the coverage offered by its standard insurance forms and alters, deletes or adds language accordingly. For instance, the 1986 version of the CGL form replaced the 1976 version, and the 1986 version has been modified as well, such as by the 1998 ISO CGL policy form. See Trial Tr. at 109, 116-17. Each unique version of the CGL has spawned considerable litigation over the scope of its coverage and exclusion provisions, with the 1986 version being no exception.
[3] As background, Michael Webb (affiliated with Environ) and Leo LeBlanc (affiliated with a company known as EBW) joined forces in 1991 to form APT. Webb and LeBlanc worked together in developing piping products in the early 1990s before agreeing to part professional company, with APT remaining in control of EBW. Webb eventually filed a patent application for a piping product on March 25, 1992, which ultimately issued on March 29, 1994 (the '896 patent at issue in the underlying action). LeBlanc and his partner, Andrew Youngs, also filed their patent application on a piping product in March 1992, within days of Webb's application. See Trial Tr. at 27-28, 32. The LeBlanc/Youngs application and its continuations in part apparently are still pending before the Patent and Trademark Office, and we express no opinion on the similarity or dissimilarity between the piping systems described in the Webb and LeBlanc/Young patent applications.
[4] Even if APT had argued that its patent application was an action taken in the course of advertising its products as required by the policy, that argument would fail. Our circuit has interpreted the phrase "in the course of advertising" to refer unambiguously to "active solicitation of business" and "actual, affirmative self-promotion" of goods or services, categories into which a patent application filed with the PTO cannot reasonably be collapsed. See Erie Ins. Group, 102 F.3d at 894.
[5] We will assume without deciding that direct and induced patent infringement offenses could occur in the course of advertising, although courts routinely have concluded that injury from direct patent infringement does not have a causal connection to advertising injury. See, e.g., SST Fitness Corp., 182 F.3d at 451 (6th Cir.) (patent infringement occurs by making, using or selling a patented invention, not by advertising it; "the advertising activities must cause the injury not merely expose it") (internal quotations omitted) (quoting Simply Fresh Fruit, Inc. v. Continental Ins. Co., 94 F.3d 1219, 1222-23 (9th Cir. 1996)). Yet, it does strike us as plausible that induced patent infringement may occur in the course of advertising, although an induced infringement claim is still predicated on underlying direct infringement by the induced actor. We also note that effective January 1, 1996, after the relevant dates of the policies at issue here and thus immaterial to this case, Congress modified the definition of patent infringement to include "offers to sell," a change that at least one court has found relevant to deciding whether patent infringement is the type of offense that could occur in the course of advertising. See Everett Assocs., Inc. v. Transcontinental Ins. Co., 57 F. Supp. 2d 874, 881 (N.D.Cal.1999); 35 U.S.C. § 271(a) ("Whoever without authority makes, uses, [offers to sell], or sells any patented invention, ... during the term of the patent therefor, infringes the patent") (bracketed language effective January 1, 1996). Of course, even if direct and induced patent infringement are the types of offenses that could occur in the course of advertising, the essential inquiry remains whether those claims fall within one of the specific, predicate advertising injury offenses in the Heritage-APT policy. See Tradesoft Tech., Inc. v. Franklin Mutual Ins. Co., 329 N.J.Super. 137, 746 A.2d 1078, 1085-86 (App.Div.2000) (disagreeing with Everett and finding that patent infringement claims after the 1996 amendments did not fall within predicate advertising injury offenses).
[6] In construing the arguments advanced by APT, we have considered the three submissions it filed in conjunction with trial: APT's 27-page trial brief, its 27-page "Supplemental Trial Brief," which essentially is its post-trial brief (and we have referred to it as such in this entry), and its 13-page "Response to Heritage's `Post-Trial Brief.'" On the second page of its post-trial brief, APT recognized that the issues at trial covered the questions of basic coverage, exclusions and damages. In addition to the 67-pages of briefing it dedicated to these issues, APT attempts to "incorporate by reference" into its briefs the 59-page, single-spaced report (121 footnotes) of its expert witness, David Gauntlett, despite our repeated admonitions during and before trial that Gauntlett's legal opinions and analysis were unnecessary and irrelevant to our ultimate decision. Thus, for a multitude of reasons, we decline to consider APT's tendered expert report in any respect, except for pages 16-17, which relate to an immaterial factual comparison of advertisements (discussed in the text, infra). See Def. Post-Trial Br. at 13.
First, we stated before trial when ruling on motions in limine that Gauntlett would be permitted to testify as a fact witness only, without offering legal opinions or authority. We expressly noted that if APT elected to utilize the legal arguments in the expert report, it could utilize Gauntlett's "legal views," "spin on authorities," and "legal conclusions" by writing its own post-trial brief (or hiring him to do it). Trial Tr. 5-6; 148-49. We also noted during trial that the legal analysis ran "warp and woof" through the expert report, such that redacting the report would make it non-sensical. Id. at 168. We allowed APT to attempt to offer specific portions of the report during post-trial briefing, at which point we would make further rulings. As demonstrated in APT's post-trial brief, APT clearly understood our ruling that its expert's legal opinions and analysis would not be admitted in evidence. See Def. Post-Trial Br. at 2 n.1. Yet, APT attempts to circumvent this ruling by requesting that we consider the expert report, in its entirety, not as "evidence," but as "legal argument," which is the precise reason why we refused to consider it as "evidence." Second, we refuse to consider the expert report because it fails to comply with form and length requirements of our local rules. See S.D. Ind. L.R. 5.1 (double spacing requirement); L.R. 7.1 (length restrictions). Third, the content of the report, which clearly is an oft-used piece of work that has been employed in litigation in other jurisdictions and (slightly) tailored to the facts of this case under Indiana law, diverges markedly at times from the arguments raised by APT in its own briefings. Fourth, even if we considered the contentions and authority cited in the report, a considerable amount of which we have located and analyzed independently, our conclusion in this case would not change. Ultimately, APT's counsel has had ample opportunity in its three trial submissions to advocate on APT's behalf, to advance arguments and to cite authority that it deems most relevant to our decision-making. And while APT's submissions are not a model of organization, we have afforded it the benefit of the doubt when determining whether it has advanced certain arguments, however superficial or undeveloped they may be.
[7] For example, a restaurant's comprehensive manner of operating its business could involve such items as the type of cuisine served, the configuration and outward appearance of the restaurant, the quality or speed of service provided (e.g. fast-food vs. dine-in), any thematic aspect of the dining experience (e.g. employees clad in Mexican garb, serving food and alcoholic beverages during a movie or dinner theater), or other unique attributes that contribute to the overall business identity. A single product in a product line could be a unique selection on the menu or a type of drink. Likewise, an example of an advertising idea could be an innovative television commercial designed to publicize a new menu selection (e.g. Taco Bell's advertising concept of a Spanish-speaking chihuahau endorsing new products).
[8] APT's expert refers to an ISO circular to conclude that ISO did not intend to change the scope of advertising injury coverage when it modified the 1986 CGL policy. He testified that the changes in language to the 1986 CGL policy were motivated, in part, by a desire to simplify the policy language to "plain English." The expert also based his opinions on "secret" ISO drafting history and conversations with an individual involved in the drafting of the 1986 policy (that individual did not testify) sources which, while germane to any conclusions he reached, provide us little incentive to place much weight on his opinions even if they were relevant.
[9] Several courts have refused to consider such coverage arguments based on extrinsic evidence where the language of the policy is unambiguous. See, e.g., SST Fitness Corp., 182 F.3d at 450 n. 1 (6th Cir.); Mez Indus., Inc., 76 Cal.App.4th at 872 n. 15, 90 Cal. Rptr. 2d 721; cf. Curtis-Universal, 43 F.3d at 1123 ("It would be odd if an insured had to do legal history to figure out the scope of its insurance coverage.").
[10] As we have mentioned, APT has not advanced an argument directly predicated on an interpretation of the language "misappropriation of ... style of doing business," such as by claiming that Environ's patent infringement claims qualify as an allegation that APT misappropriated Environ's style of doing business. (APT's only patent infringement contention under this offense is an indirect claim that patent infringement is a type of piracy or unfair competition, which in turn is a subset of the style of doing business offense.) However, even if APT did assert a direct claim that patent infringement was tantamount to misappropriation of style of doing business, it would fail. We agree with the many courts that have concluded that direct and induced patent infringement fails to qualify under the offense of "misappropriation of ... style of doing business." See, e.g., St. Paul Fire & Marine, 824 F.Supp. at 586, 587 ("[I]t is nonsense to suppose that if the parties had intended the insurance policy in question to cover [direct and induced] patent infringement claims, the policy would explicitly cover infringements of `copyright, title or slogan,' but then include patent infringement, sub silentio, in a different provision, by reference to `unauthorized taking of ... [the] style of doing business'"), aff'd (4th Cir); Mez Indus., 76 Cal.App.4th at 872-73, 90 Cal. Rptr. 2d 721; Tradesoft, 329 N.J.Super. at 150-51, 746 A.2d 1078; Gencor, 857 F.Supp. at 1564; Owens-Brockway Glass, 884 F.Supp. at 367, 369, aff'd, (9th Cir.). In any event, as we explained above, we have considered Environ's specific allegations in the context of the unambiguous language of the two "misappropriation" offenses and have concluded that Environ has not alleged a "misappropriation" offense.
[11] In its post-trial brief, APT does not discuss the disparagement or invasion of privacy offenses, except for stating in a footnote that it had discussed the elements of those offenses in its trial brief. See Def. Post-Trial Br. at 21 n.12. However, APT also failed to analyze or develop these claims in its trial brief, which leaves APT's response to Heritage's post-trial brief, where APT at least specifically mentions the offenses, although without much development of the issues.
[12] APT contends that under certain Lanham Act claims, a direct comparison between products is unnecessary to prove such claims. Perhaps so, but those cases neither involve the tort of disparagement nor address the specific disparagement language in the type of advertising injury CGL policies at issue in this case.
[13] Moreover, this definition runs afoul of the traditional notion that the right of privacy attaches to individuals, much like the Fourth Amendment's protections apply to "people" and "persons." Cf. L. TRIBE, AMERICAN CONSTITUTIONAL LAW 775-76 (2d ed.1988) (explaining that the right of privacy partially derives from the penumbra of the Fourth Amendment).
[14] Given our conclusion that APT has not demonstrated that Environ's allegations trigger Heritage's duty to defend under one of the four categories of advertising injury offenses in the Heritage-APT policy, we need not consider whether Heritage has proven that the first publication exclusion bars coverage.
[15] The alleged "admission" that APT cites out of context reads, "As discussed further below, Environ's allegations fall within the scope only of the personal injury or advertising injury liability coverage contained within the Heritage policies." Heritage's Br. Support Summ. J. at 2 (introductory paragraph). When one examines the same subject matter when "discussed further below," it becomes clear that Heritage made this statement to emphasize that only advertising injury coverage was at issueas opposed to the "bodily injury/property damage" provisions that also existed in the policy. Id. at 9. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1226305/ | 547 F.3d 607 (2008)
FEDNAV, LIMITED; Canadian Forest Navigation Company, Limited; Nicholson Terminal and Dock Company; Shipping Federation of Canada; American Great Lakes Ports Association; Seaway Great Lakes Trade Association; United States Great Lakes Shipping Association; Baffin Investments, Limited; Canfornav, Incorporated, Plaintiffs-Appellants,
v.
Steven E. CHESTER, Director of the Michigan Department of Environmental Quality; Michael Cox, Attorney General for the State of Michigan, Defendants-Appellees,
Michigan United Conservation Clubs; National Wildlife Federation; Natural Resources Defense Counsel, Incorporated; Alliance for the Great Lakes, Intervenors-Appellees.
No. 07-2083.
United States Court of Appeals, Sixth Circuit.
Argued: September 15, 2008.
Decided and Filed: November 21, 2008.
*609 ARGUED: Norman Chester Ankers, Honigman, Miller, Schwartz & Cohn, Detroit, Michigan, for Appellants. Shannon W. Fisk, Natural Resources Defense Council, Chicago, Illinois, Robert P. Reichel, Office of the Michigan Attorney General, Lansing, Michigan, for Appellees. ON BRIEF: Norman Chester Ankers, Honigman, Miller, Schwartz & Cohn, Detroit, Michigan, for Appellants. Shannon W. Fisk, Natural Resources Defense Council, Chicago, Illinois, Robert P. Reichel, Office of the Michigan Attorney General, Lansing, Michigan, Neil S. Kagan, National Wildlife Federation, Ann Arbor, Michigan, Christopher E. Tracy, Howard & Howard, Kalamazoo, Michigan, for Appellees. Noah D. Hall, Law Office, Ann Arbor, Michigan, Amy L. Kullenberg, Mashantucket, Connecticut, Robert B. *610 Roche, Office of the Minnesota Attorney General, St. Paul, Minnesota, for Amici Curiae.
Before: GILMAN, KETHLEDGE, and ALARCÓN, Circuit Judges.[*]
OPINION
KETHLEDGE, Circuit Judge.
Plaintiffsa coalition of shipping companies, non-profit shipping associations, a port terminal and dock operator, and a port associationappeal the district court's dismissal of their constitutional challenges to the so-called Michigan Ballast Water Statute, Mich. Comp. Laws § 324.3112(6), and the regulations promulgated pursuant thereto. We hold that Plaintiffs lack standing to challenge one portion of the statute, and reject their arguments as to its remainder. We therefore affirm.
I.
A.
Congress passed the Nonindigenous Aquatic Nuisance Prevention and Control Act of 1990, 16 U.S.C. § 4701 et seq. ("NANPCA"), to combat the problem of aquatic nuisance species ("ANS") in United States waters. See 16 U.S.C. § 4701(b)(1) (1994). ANS are "nonindigenous species that threaten[] the diversity or abundance of native species or the ecological stability of infested waters, or commercial, agricultural, aquacultural or recreational waters dependent on such waters." Id. § 4702(1).
In NANPCA, Congress found that "the discharge of untreated water [from] the ballast tanks of vessels ... results in unintentional introductions of" ANS. Id. § 4701(a)(1). Some oceangoing vessels take on ballast water in foreign harbors to maintain trim, draft, and stability of the vessel when not carrying a full load of cargo. Appellants' Br. at 7. This ballast water "may inadvertently contain aquatic organisms, which are then released when the ballast is discharged in another port." Id. at 8-9. In most cases, these organisms die, but in some they thrive in their new environment in the absence of natural predators. Id. In those cases the organisms "may compete with or prey upon native species of plants, fish, and wildlife, may carry diseases or parasites that affect native species, and may disrupt the aquatic environment and economy of affected near-shore areas." 16 U.S.C. § 4701(a)(2).
One such organism is the zebra mussel, which was introduced into the Great Lakes via discharged ballast water in the 1980s. Id. § 4701(3). "In June 1988, this small bivalve mollusk, native to the Black, Azov, and Caspian Seas in [E]astern Europe, was discovered on the Canadian side of Lake Saint Clair in the Great Lakes." 58 Fed.Reg. 18330, 18330 (Apr. 8, 1993). It has since spread throughout the Great Lakes. Congress estimated in 1990 that "the potential economic disruption to communities affected by the zebra mussel due to its colonization of water pipes, boat hulls and other hard surfaces" could reach $5 billion by the year 2000. 16 U.S.C. § 4701(4). Moreover, "[a]s a filter-feeding organism, [the zebra mussel] removes vast quantities of microscopic organisms from the water, the same organisms that fish larvae and young fish rely upon for their food supply." 58 Fed.Reg. at 18330.
NANPCA's purpose, therefore, was "to prevent unintentional introduction and dispersal *611 of nonindigenous species into waters of the United States through ballast water management and other requirements." Id. § 4701(b)(1). To that end, NANPCA required the Coast Guard to "issue regulations to prevent the introduction and spread of aquatic nuisance species into the Great Lakes through the ballast water of vessels." Id. § 4711(b)(1).
The Coast Guard issued such regulations on May 10, 1993. The regulations require vessels traveling to the Great Lakes and carrying ballast water from beyond the exclusive economic zone ("EEZ")[1] to employ one of three "ballast water management practices": (1) carry out an exchange of ballast water on the waters beyond the EEZ to achieve a minimum ballast water salinity level of thirty parts per thousand; (2) retain the ballast water onboard the vessel; or (3) use an alternative environmentally sound method of ballast-water management that has been approved by the Coast Guard. 33 C.F.R. § 151.1510(a) (2008).
With respect to the saltwater ballast-exchange method, the Coast Guard explained that
[c]urrently, the most practical method of helping to protect the Great Lakes from foreign organisms that may exist in discharged ballast water is the exchange of ballast water in the open ocean, beyond the continental shelf. Water in the open ocean contains organisms that are adapted to the physical, chemical, and biological conditions (such as high salinity) of the ocean. These organisms will not, or are unlikely to, survive if introduced into a freshwater system.
58 Fed.Reg. at 18330.
The Coast Guard acknowledged the existence of other possible methods, including "discharging ballast water to reception facilities ashore, heating or chemically treating ballast water, disinfecting ballast water with ultraviolet light, depriving ballast water of oxygen, installing filters, and modifying vessel design." Id. But the Coast Guard said there was, at that time, "a lack of research and practical experience on the cost, safety, effectiveness, and environmental impact of these methods." Id. The Coast Guard has not approved any alternative ballast-water-treatment methods since 1993.
On October 26, 1996, Congress reauthorized and amended NANPCA by enacting the National Invasive Species Act of 1996 ("NISA"), 16 U.S.C. § 4701 et seq. In NISA, Congress noted the continuing problem of ANS and found that "if preventative management measures are not taken nationwide to prevent and control unintentionally introduced nonindigenous aquatic species in a timely manner, further introductions and infestations of species that are as destructive as, or more destructive than, the zebra mussel ... may occur." 16 U.S.C. § 4701(a)(13). Congress also found that "resolving the problems associated with aquatic nuisance species will require the participation and cooperation of the Federal Government and State governments, and investment in the development of prevention technologies." Id. § 4701(15).
NISA directed the Coast Guard to implement voluntary national guidelines for ballast-water management in the waters of the United States. If the Coast Guard deemed compliance with the voluntary guidelines inadequate, NISA authorized the Coast Guard to convert the voluntary guidelines into mandatory regulations. 16 U.S.C. § 4711(f). The Coast Guard did *612 precisely that between 1999 and 2004, promulgating mandatory national regulations for ballast-water management. Those national regulations did not change the 1993 Great Lakes-specific regulations, however, except that vessels equipped with ballast tanks entering the Great Lakes are now required to comply with certain recordkeeping and reporting requirements. 33 C.F.R. § 151.2041.
This case ultimately arises from the fact that the Coast Guard's ballast-water regulations contain, for lack of a better term, a loophole. To wit, none of the Coast Guard's ballast-water requirementsneither the 1993 Great-Lakes regulations nor the 2004 national regulations (except for the recordkeeping and reporting requirements)apply to vessels that declare they have "no ballast on board," so-called "NOBOBs." See 33 C.F.R. § 151.1502 (Great Lakes regulations apply to "each vessel that carries ballast water"); 69 Fed.Reg. 44952, 44955 (July 28, 2004) ("our final rule for mandatory [ballast-water management for U.S. waters] does not address NOBOBs"). The Coast Guard explains that NOBOBs are often fully loaded with cargo, and consequently cannot safely conduct a full ballast-water exchange at sea. See 70 Fed.Reg. 51831, 51832 (August 31, 2005). Importantly, however, the Coast Guard acknowledges:
NOBOBs have the potential to carry [ANS] in their empty tanks via residual ballast water and/or accumulated sediment. Once NOBOBs enter the Great Lakes, discharge some or all of their cargo and take on ballast water, this water mixes with the residual water and sediment and if this mixed ballast water is subsequently discharged into the Great Lakes, may provide a mechanism for [ANS] to enter the Great Lakes.
Id. (emphasis added).
Recognizing this threat, the Coast Guard announced in 2004 that it "is in the process of establishing ballast-water-discharge standards and evaluating shipboard treatment technologies." 69 Fed.Reg. 44952, 44955. The Coast Guard also stated that "[b]allast water discharge standards will be the subject of future rulemaking." Id. In the four years since, however, the Coast Guard has not done any further rulemaking regarding ballast-water discharge standards.
What the Coast Guard has done in the meantimeon August 31, 2005is to issue "best management practices" for NOBOBs. These practices encourage NOBOBs to conduct either a mid-ocean ballast-water exchange or a "saltwater flushing of their empty ballast water tanks" prior to entering the Great Lakes. 70 Fed.Reg. 51831, 51835. Whether NOBOBs adopt these practices, however, is entirely up to them. Id.
Thus, to summarize, the Coast Guard's ballast-water regulations applicable to the Great Lakes have remained essentially unchanged since 1993. Vessels entering the Great Lakes carrying ballast water from outside the EEZ must either conduct a mid-ocean ballast-water exchange before discharging ballast water into the Great Lakes, or retain their ballast water. NOBOB vessels are essentially unregulated with respect to their ballast-water practices. They are thus free to take on ballast water in the Great Lakes, mix it with any sediment or residual water in their tanks, and then discharge the mixture into the Great Lakes.
B.
Michigan took action to address the problem of ANS in 2005. Specifically, Michigan amended its Natural Resources and Environmental Protection Act, Mich. *613 Comp. Laws § 324.101 et seq., to require all vessels "engaging in port operations in" Michigan to obtain a permit from the state. Mich. Comp. Laws § 324.3112(6) (the "Ballast Water Statute"). The Ballast Water Statute provides:
Beginning January 1, 2007, all oceangoing vessels engaging in port operations in this state shall obtain a permit from the department. The department shall issue a permit for an oceangoing vessel only if the applicant can demonstrate that the oceangoing vessel will not discharge aquatic nuisance species or if the oceangoing vessel discharges ballast water or other waste or waste effluent, that the operator of the vessel will utilize environmentally sound technology and methods, as determined by the [Michigan Department of Environmental Quality], that can be used to prevent the discharge of aquatic nuisance species.
Id.
Pursuant to this provision, the Michigan Department of Environmental Quality ("MDEQ") issued a "Ballast Water Control General Permit" ("General Permit") in 2006. All oceangoing vessels are required to purchase a General Permit before engaging in port operations in Michigan. To obtain a General Permit, a vessel operator is required to fill out a three-page application and pay a $75 application fee and a $150 annual fee. Id. § 324.3120. The General Permit authorizes the vessel to engage in port operations in Michigan through January 1, 2012, so long as the vessel complies with the requirements of the General Permit.
To comply with the General Permit, all vessels must submit notification reports to the MDEQ at least twenty-four hours prior to engaging in port operations in Michigan. Each report must include, among other things, the vessel's name, port destination, the date and type of its last ballast-water-management practice (e.g., ballast-water exchange or saltwater flushing), and the total volume or weight of ballast water on board the vessel.
Other reporting requirements depend on whether the vessel will discharge ballast water in Michigan. Vessels that will not discharge ballast water are required to include in the notification report a "certification that ballast water will not be discharged into the waters of the state." Vessels that will discharge are authorized to do so only if they first treat their ballast water with one of four methods specified in the General Permit. Those are: (1) hypochlorite treatment, (2) chlorine dioxide treatment, (3) ultraviolet light radiation treatment preceded by suspended solids removal, or (4) deoxygenation treatment. The requirements for each treatment method are detailed in the General Permit.
C.
On March 15, 2007, Plaintiffs sued Steven Chester, director of the MDEQ, and Michael Cox, Attorney General for the state of Michigan, in the United States District Court for the Eastern District of Michigan. Plaintiffs sought an injunction against enforcement of the Ballast-Water Statute and a declaration that it is unconstitutional. Specifically, they claimed that the Statute is preempted by federal law and that it violates the Commerce Clause, the Due Process Clause of the Fourteenth Amendment, and various provisions of the Michigan constitution.
Plaintiffs thereafter filed a motion for summary judgment. Defendants opposed the motion, and themselves moved to dismiss the complaint. Then, by stipulation, the district court added the National Resources Defense Council, Inc., Michigan United Conservation Clubs, Alliance for the Great Lakes, and the National Wildlife *614 Federation as intervening-party defendants in the case. The intervening defendants joined in the other defendants' positions with respect to the pending motions.
The district court thereafter held oral argument on those motions. On August 15, 2007, the court denied Plaintiffs' motion for summary judgment, granted Defendants' motion to dismiss the complaint, and dismissed Plaintiffs' complaint with prejudice. See Fednav v. Chester, 505 F. Supp. 2d 381 (E.D.Mich.2007).
This appeal followed.[2]
II.
A.
We review de novo the district court's dismissal of Plaintiffs' complaint for failure to state a claim. Lambert v. Hartman, 517 F.3d 433, 438-39 (2008).
B.
"We have an obligation to assure ourselves of litigants' standing under Article III." DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 340, 126 S. Ct. 1854, 164 L. Ed. 2d 589 (2006) (internal quotation marks omitted). That assurance, as shown below, is hard to come by here.
1.
Standing has three elements. "First, the plaintiff must have suffered an `injury in fact'an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992) (internal citations and quotation marks omitted). Second, the injury must be "fairly traceable to the challenged action of the defendant." Id. (internal alterations omitted). Third, it must be likely that the injury will be "redressed by a favorable decision." Id. at 561, 112 S. Ct. 2130.
Each of these elements "must be supported in the same way as any other matter on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of the litigation." Id. Here, Plaintiffs' complaint was dismissed at the pleading stage. In determining each Plaintiff's standing, therefore, "we must accept as true all material allegations of the complaint[.]" Warth v. Seldin, 422 U.S. 490, 501, 95 S. Ct. 2197, 45 L. Ed. 2d 343 (1975).
Our determination of standing is both plaintiff- and provision-specific. That one plaintiff has standing to assert a particular claim does not mean that all of them do. See Allen v. Wright, 468 U.S. 737, 752, 104 S. Ct. 3315, 82 L. Ed. 2d 556 (1984) ("the standing inquiry requires careful judicial examination of a complaint's allegations to ascertain whether the particular plaintiff is entitled to an adjudication of the particular claims asserted") (emphasis added); Nat'l Rifle Ass'n of America v. Magaw, 132 F.3d 272, 278 (6th Cir.1997) ("Because we believe that each group of plaintiffs presents different concerns in regard to the doctrine[] of standing ... we will treat each group separately"). Moreover, that a plaintiff has standing to challenge one of a statute's provisions does not mean the plaintiff has standing to challenge all of them; "[s]tanding is not dispensed in gross." Lewis v. Casey, 518 U.S. 343, 358, 116 S. Ct. 2174, 135 L. Ed. 2d 606 (1996).
2.
Here, we have multiple plaintiffs. They include four shipping companies: Fednav, *615 Limited, Canadian Forest Navigation Company, Limited, Baffin Investments, Limited, and Canfornav, Incorporated (the "Shipping Companies"). They include three shipping associations: the Shipping Federation of Canada, the Seaway Great Lakes Trade Association, and the United States Great Lakes Shipping Association (the "Shipping Associations"). They also include a port terminal, Nicholson Terminal and Dock Company ("Nicholson"), and a port association, The American Great Lakes Ports Association (the "Ports Association").
Each of these Plaintiffs seeks, in this Court at least, to challenge two distinct provisions of the Michigan Ballast Water Statute. First, they challenge the statute's requirement that all "oceangoing vessels engaging in port operations in" Michigan obtain a permit (the "permit requirement"). Mich. Comp. Laws § 324.3112(6). Second, they challenge the requirementapplicable only to oceangoing vessels that discharge ballast water in Michiganthat they employ a treatment system approved by the MDEQ as a safe and effective means of preventing the discharge of ANS (the "treatment requirement"). Id. We must determine, therefore, whether each Plaintiff has standing to challenge each of these requirements.
a.
We first consider each Plaintiff's standing to challenge the permit requirement.
Each of the Shipping Companies alleges that its "[o]ceangoing vessels ... are required to procure permits from the MDEQ under the Ballast Water Statute and are subject to, and affected by, its regulatory scheme." Compl. ¶¶ 3, 4, 10, 11. Those permits cost money, so each of the Shipping Companies has alleged an injury in fact resulting from the permit requirement. Thus, at this stage of the case at least, each of them has standing to challenge that requirement.
The same is true for the Shipping Associations. These Plaintiffs do not allege that they themselves have purchased, or will purchase, permits pursuant to the Statute. But they do allege that their members must do so. Their standing thus depends on principles of associational standing. An association has standing to assert claims on behalf of its members if (1) the associations' members "would otherwise have standing to sue in their own right"; (2) the interests the association seeks to protect in the case are "germane" to the association's purpose; and (3) "neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit." Hunt v. Washington State Apple Adver. Comm'n, 432 U.S. 333, 343, 97 S. Ct. 2434, 53 L. Ed. 2d 383 (1977).
Each of the Shipping Associations meets this test. First, each Association has shown that its members would have standing to challenge the permit requirement in their own right because its members own vessels that are required to purchase permits. Second, each has shown that the interests it seeks to protect in this case are germane to its purposewhich for each Association is "to promote the interests of its shipowner and agent members in maritime transportation and international trade." Compl. ¶¶ 6, 8, 9. Third, none of the Associations' claims or their requested reliefan injunction binding the Michigan Defendants, and a declaratory judgmentrequire the participation of their members in the lawsuit. The Associations do not, for example, seek individualized damages that only a member could obtain. Hunt, 432 U.S. at 343, 97 S. Ct. 2434. Each of the Shipping Associations therefore has standing to challenge the permit requirement.
*616 But Nicholson and the Ports Association do not. Nicholson alleges that "[o]ceangoing vessels that use or intend to use [its] stevedoring, dock and warehousing services or facilities are required to procure permits from the Michigan Department of Environmental Quality under the Ballast Water Statute and are subject to, and affected by, its regulatory scheme as described above." Compl. ¶ 5. This is an allegation that Nicholson's customers are injured by the permit requirement, not that Nicholson itself is. And Nicholson otherwise does not attempt to allege that it has itself suffered an injury in fact as a result of the permit requirement. It therefore lacks standing to challenge the requirement. Lujan, 504 U.S. at 560, 112 S. Ct. 2130.
Similarly, the Ports Association alleges that "[o]ceangoing vessels intending or wanting to use the facilities" of its members "are required to procure permits from the Michigan Department of Environmental Quality under the Ballast Water Statute and are subject to, and affected by, its regulatory scheme as described above." Compl. ¶ 7. The Ports Association thus seeks to challenge the permit requirement on the grounds that it has members that operate port facilities that in turn have customers that are required to purchase permits under the Ballast Water Statute. An allegation so gossamer cannot nearly support the weight that Lujan places upon it. Like its members, therefore, the Ports Association lacks standing to challenge the permit requirement.
b.
We next consider each Plaintiff's standing to challenge the treatment requirement. Pursuant to this requirement, all oceangoing vessels that discharge ballast water in MichiganNOBOB or not must treat their ballast water prior to discharge. See Mich. Comp. Laws § 324.3112(6). Treatment systems, like permits, obviously cost money; and it is undisputed here that the systems Michigan requires cost upwards of a half-million dollars per vessel. It should have been easy, then, for a Plaintiff that is actually harmed by this requirement to allege an injury in fact. A Shipping Company could allege, for example, that, because of the treatment requirement, it has spent money to install a treatment system on one of its ships.
But no Plaintiff makes any such allegation in the complaint. The complaint is bereft of any allegation that any of the Plaintiffs has spent a single dollar, or otherwise been harmed, because of the treatment requirement. Instead, Plaintiffs allege the following:
The overwhelming majority of the oceangoing vessels owned, controlled, operated, represented by or using the services or facilities of plaintiffs and those of the members of the associations who are named plaintiffs (a) do not discharge ballast water into waters of the state of Michigan and (b) do not, in particular, discharge ballast waters containing aquatic invasive species.
Compl. ¶ 14 (emphasis added).
This simply does not amount to an allegation of injury in fact. What the paragraph does say is that the "overwhelming majority" of Plaintiffs' vessels lack even the predicate for being subject toand thus potentially harmed bythe treatment requirement; namely, that they discharge ballast water in Michigan. Indeed, in an affidavit attached to Plaintiffs' motion for summary judgment, a Fednav "senior officer" makes the point even more strongly:
Virtually all of the oceangoing vessels owned or operated by Fednav and, to the rest of my knowledge, the other plaintiffs[,] do not discharge any ballast *617 water whatsoever in Michigan. They come to Michigan to discharge cargo, and consequently to take on cargo.
(Emphasis added).
Thus we know that, not only the overwhelming majority, but "virtually all" of Plaintiffs' ships do not discharge ballast water in Michigan. And to the extent that Plaintiffs do not so discharge, they are not even subject to the treatment requirement, much less harmed by it. Plaintiffs themselves contended in the district court that "[t]he four methods the state outlines for cleansing a vessel's ballast water do not, and cannot, apply to a vessel that does not even discharge ballast water within the Great Lakes." What paragraph 14 of the complaint does say, then, does nothing to advance the cause of any Plaintiff's standing.
But Plaintiffs argue that standing is conferred by what the paragraph does not say. To wit, that because the "overwhelming majority" of their vessels do not discharge ballast water in Michigan, there must be a few that do. We reject that argument for at least two reasons. First, the negative implication upon which Plaintiffs now relythat some of their vessels do discharge ballast water in Michigan would not, without more, confer standing to challenge the treatment requirement. Merely discharging ballast water in Michigan does not constitute an injury in fact, to a Shipping Company at least. To them, discharge itself is not a harm at all, much less one caused by the treatment requirement. Only "actual or imminent" compliance with the requirement could potentially harm any of these Plaintiffs. Lujan, 504 U.S. at 560, 112 S. Ct. 2130. And none of them have remotely alleged that they have taken any action, much less an injurious one, in compliance with the treatment requirement. The complaint is conspicuously silent on that point.
Second, and more fundamentally, we simply will not strain to construe the complaint to say by negative implication what it very simply could have said directly. Were it otherwise, the law of standing would become even more difficult than it already is. We instead hold fast to the "long-settled principle that standing cannot be inferred argumentatively from averments in the pleadings, but rather must affirmatively appear in the record." F/W PBS v. City of Dallas, 493 U.S. 215, 231, 110 S. Ct. 596, 107 L. Ed. 2d 603 (1990) (internal citations and quotation marks omitted).
Plaintiffs also argue, with respect to standing, that the complaint describes the treatment requirementthus implying that it harms them. The complaint does indeed describe that requirement succinctly. See Compl. ¶ 18. But the allegation upon which Plaintiffs rely is a description of the Statute, not their ships. And "the mere existence of a statute, which may or may not ever be applied to plaintiffs, is not sufficient" to confer standing on any Plaintiff. Magaw, 132 F.3d at 293. Plaintiffs must instead take the next step, and put themselves on record, by alleging not only that the treatment requirement exists, but also that they are harmed by it. None of them has done that here.
Finally, it is true that each Plaintiffs alleges that it is "subject to, and affected by, [the Ballast Water Statute's] regulatory scheme as described above." Compl. ¶¶ 3-11. For several reasons, however, that allegation does not amount to an allegation of injury in fact caused by the treatment requirement. First, the Statute's "regulatory scheme" includes not only the treatment requirement, but the permit requirement as well. And the Shipping Companies and Associations cannot avoid the rule set forth in Cunonamely, that a plaintiff cannot "by virtue of his standing *618 to challenge one government action, challenge other governmental actions that did not injure him"by referring to regulatory actions in gross. Cuno, 547 U.S. 332, 353 n. 5, 126 S. Ct. 1854, 164 L. Ed. 2d 589 (2006); see also Lewis, 518 U.S. at 358, 116 S. Ct. 2174. Second, Plaintiffs' allegation is only that they are affected by the Statute's "regulatory scheme as described above" and what is "described above," by our reading, pertains primarily if not entirely to the permit requirement. See Compl. ¶ 2. Third, a mere allegation that a plaintiff is "affected" by governmental action does not amount to an allegation of injury in fact. There are plenty of effects that do not rise to the level of legal harm; and a plaintiff must therefore tell us what the effect is in order to allege an injury in fact. See Sierra Club v. Morton, 405 U.S. 727, 735 n. 8, 92 S. Ct. 1361, 31 L. Ed. 2d 636 (1972) (allegation that plaintiff's "interests would be vitally affected by the acts hereinafter described" did not confer standing absent an allegation as to how they were so affected); compare Magaw, 132 F.3d at 281 (plaintiffs' allegations that the challenged Act "forc[ed] them to `stop production,' `decline work,'" and "`redesign and relabel products'" satisfied element of injury in fact).
The reality is that Plaintiffs' allegationsand thus, their allegations of harmare directed at the permit requirement, not the treatment one. See Compl. ¶ 2 ("The Ballast Water Statute imposes regulations which have the purpose and effect of requiring oceangoing vessels which do not discharge ballast water containing aquatic invasive species to nevertheless procure permits from the Michigan Department of Environmental Quality"); ¶ 18 ("the Ballast Water Statute requires oceangoing vessels to procure a permit even if they do not discharge ballast waters") (emphasis in original); ¶ 22 (the statute "require[s] owners and operators of oceangoing vessels to procure permits to operate even if they do not discharge ballast water containing aquatic invasive species"). As one Defendant observes, "[i]n essence, instead of alleging that they are harmed by the Ballast [Water] Statute because they have to use new treatment technology or methods, [Plaintiffs] asserted that they are harmed precisely because they do not undertake the actiondischarging ballast into Michigan's waters that would require them to do so." Supplemental Br. of the Natural Resources Defense Council at 3 (emphasis added).
The only claims over which we have jurisdiction, then, are those of the Shipping Companies and the Shipping Associations (hereinafter, "Plaintiffs") with respect to the permit requirement.
C.
1.
Plaintiffs claim the permit requirement is preempted by federal law. Preemption can be express or implied. Express preemption occurs when Congress "explicitly state[s]" that it intends a statute to have that effect. Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S. Ct. 1305, 51 L. Ed. 2d 604 (1977). Implied preemption comes in two forms, field and conflict preemption. Field preemption occurs when "the scheme of federal regulation is sufficiently comprehensive to make reasonable the inference that Congress `left no room' for supplementary state regulation." Ohio Mfrs. Assoc. v. City of Akron, 801 F.2d 824, 828 (6th Cir.1986) (quoting Hillsborough County, Fla. v. Automated Medical Labs., Inc., 471 U.S. 707, 713, 105 S. Ct. 2371, 85 L. Ed. 2d 714 (1985)). Field preemption also occurs when an "Act of Congress ... touch[es] a field in which the federal interest is so dominant that the federal system will be assumed to preclude *619 enforcement of state laws on the same subject." Ray v. Atlantic Richfield Co., 435 U.S. 151, 157, 98 S. Ct. 988, 55 L. Ed. 2d 179 (1978). Conflict preemption occurs when a provision of state law "actually conflicts with federal law." City of Akron, 801 F.2d at 828.
It is undisputed that there is no express preemption here. Congress did not expressly state in NANPCA or NISA that it intended to preempt state law. Federal law will only preempt the permit requirement, therefore, if Congress has occupied the field in which the permit requirement falls, or if the requirement actually conflicts with federal law. We examine each type of implied preemption in turn.
a.
Plaintiffs argue that the permit requirement is subject to field preemption. Specifically, they contend that "two pertinent [federal] statutes"NISA and NANPCA leave no room for enforcement of the Ballast Water Statute. Appellants' Br. at 38. Before addressing that contention directly, however, we must do two things: first, define the relevant field; and second, determine whether, as the district court held, that field is one in which state regulation is affirmatively preserved by means of NISA's "savings clause."
NISA neatly defines the relevant field in this case. NISA's purpose is "to prevent unintentional introduction and dispersal of nonindigenous species into waters of the United States through ballast water management and other requirements." 16 U.S.C. § 4701(b)(1). Under the structure of the statute, this purpose encompasses two distinct fields: first, the "prevention" of ANS introduction into the Great Lakes, which includes measures "to minimize the risk of introduction of aquatic nuisance species," id. § 4722(c)(1) (emphasis added); and second, the "control" of ANS dispersal after introduction, which includes measures such as "eradication of infestations, reductions of populations, development of means of adapting human activities and public facilities to accommodate infestations, and prevention of the spread of aquatic nuisance species from infested areas." Id. § 4722(e)(1) (emphasis added).
The Ballast Water Statute falls in the field of ANS prevention. The Statute seeks to prevent introduction of ANS into Michigan waters; it says nothing about controlling them after introduction. See Mich. Comp. Laws § 324.3112(6). Hence, this fieldthe prevention of ANS introductionis the relevant one for our preemption analysis.
We next consider whether NISA's savings clause preserves state regulation in this field. The clause states: "Nothing in this chapter shall affect the authority of any State or political subdivision thereof to adopt or enforce control measures for aquatic species, or diminish or affect the jurisdiction of any State over species of fish and wildlife." 16 U.S.C. § 4725. The district court held that the clause saved the Ballast Water Statute from preemption, reasoning that "[t]he saving clause alone makes it difficult to comprehend that Congress intended to occupy this entire field[.]" Fednav, 505 F.Supp.2d at 394.
We respectfully disagree. The savings clause concerns a different field than the one at issue here. As Plaintiffs persuasively point out, the clause preserves only state authority to "adopt or enforce control measures[.]" 16 U.S.C. § 4725 (emphasis added). The clause is silent as to prevention measures. These, as discussed above, are terms of art in NISA. And because the savings clause preserves only state authority to adopt ANS control measures, it is inapposite to the question whether Congress *620 intended to preempt the field of ANS prevention measures.
So we now turn to that question. In doing so, we are guided by the "oft-repeated" principle that Congress' intent is the "ultimate touchstone in every preemption case." Medtronic, Inc. v. Lohr, 518 U.S. 470, 485, 116 S. Ct. 2240, 135 L. Ed. 2d 700 (1996). "In deciding whether a federal law pre-empts a state statute, our task is to ascertain Congress' intent in enacting the federal statute at issue." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 95, 103 S. Ct. 2890, 77 L. Ed. 2d 490 (1983).
Implied preemption being precisely thatimpliedCongress's intent to preempt is often divined inferentially, by measuring the comprehensiveness of federal legislation in the field, or by assessing the dominance of the federal interests reflected in that legislation. See supra at Section II.C.1. But those are not the only means of divining Congressional intent. There may be cases whereeven absent the direct means of express preemption, on the one hand, or an applicable savings clause, on the othera statute's text indirectly reveals whether Congress intended its rules to be exclusive in a particular field.
This is such a case. The trail starts with NISA's statement that "resolving the problems associated with aquatic nuisance species will require the participation and cooperation of the Federal Government and State governments." 16 U.S.C. § 4701(15). Thus we know that states canand indeed musthave a role with respect to ANS "problems"; the question, then, is whether that role is limited to ANS "control," or extends also to "prevention."
Other sections of NISA provide an answer to that question. In § 4723entitled, sensibly enough, "Regional coordination"Congress ordered the creation of a "Great Lakes panel" to "coordinate, where possible, aquatic nuisance species program activities in the Great Lakes region that are not conducted pursuant to this chapter." Id. § 4723(a)(1)(D). The term "[a]quatic nuisance species program activities" is defined by § 4722 to include not only ANS "control" measures, see § 4722(e), but also ANS "[p]revention" measures "to minimize the risk of introduction of aquatic nuisance species to waters of the United States. Id. § 4722(c)." Thus we know that Congress contemplated ANS prevention measures "in the Great Lakes region that are not conducted pursuant to this chapter." Id. § 4723(a)(1)(D) (emphasis added).
That leaves only the question whether the reference to ANS prevention measures "not conducted pursuant to this chapter" includes measures conducted by the states. For several reasons, we believe that it does. First, the federal statutes addressing the problem of ANSnamely, NISA and NANPCAof course fall within NISA's "chapter." That suggests that the entities conducting the activities referenced in § 4723(a)(1)(D) are acting pursuant to state, rather than federal, authority. Second, the activities are to be "coordinate[d]" by a "Great Lakes panel" that includes representatives of "State and local agencies[.]" Id. § 4723(a)(1). Given that state agencies typically do not "coordinate" the activities of federal agencies, this language too suggests that the referenced activities are conducted by the states.
NISA's next section makes this conclusion inescapable. That section invites (but does not require) state governors to submit "state aquatic nuisance species management plans," id. § 4724, to a "Task Force" comprised of senior federal officials, including the Commandant of the Coast Guard, the Secretary of Agriculture, and the Director of the United States Fish *621 and Wildlife Service. Id. § 4721. These plans should, among other things, "identify and describe State and local programs for environmentally sound prevention and control of the target aquatic nuisance species." Id. § 4724(a)(2)(A) (emphasis added). That reference standing alone makes clear that Congress intended for state ANS prevention measures to continue after the enactment of NISA.
Moreover, if the Task Force approves a state's plan, the state is eligible to receive grants from the United States Fish and Wildlife Service. Id. § 4722(b)(1). Thus, not only does NISA make clear that state ANS prevention measures are permissible; it actually expresses a conditional willingness to pay for them.
NISA's text thus reveals that Congress expressly contemplated ANS prevention measuresin the "Great Lakes region" no less, id. § 4723(a)(1)(D)that are conducted by the states. Indeed, it encourages them. Federal law therefore does not preempt the field of ANS prevention measures.
It bears mention that the Coast Guard which is the agency administering NISA, see 16 U.S.C. §§ 4711(b)(1), 4702(12) agrees with our conclusion. The Coast Guard stated in 2004 that
the congressional mandate is clearly for a Federal-State cooperative regime in combating the introduction of [ANS] into U.S. waters from ship's [sic] ballast tanks. This makes it unlikely that preemption, which would necessitate consultation with the States under Executive Order 13132, will occur.
69 Fed.Reg. 32864, 32868 (emphasis added). Moreover, in response to comments requesting that the Coast Guard coordinate its ballast-water-management program with state programs to "eliminate duplicative reporting requirements," the Coast Guard expressly stated that "each State is authorized under NISA to develop their own regulations if they feel that Federal regulations are not stringent enough." Id. at 32865 (emphasis added). That is precisely what Michigan has done here.
In 2005, the Coast Guard reiterated its position that NISA does not preempt state ANS prevention measures. Specifically, in response to a commentsimilar to Plaintiffs' complaints herethat "a federal approach to preventing invasions in the Great Lakes is needed whereas a State-by-State piece-meal approach is not," the Coast Guard responded:
The Coast Guard agrees that a federal approach is more amenable than a patch-work of state NOBOB management programs.... However, NISA does allow for states to develop their own [ANS] prevention measures.
70 Fed.Reg. 51831, 51832 (emphasis added). That is an unequivocal recognition that NISA does not preempt the field of ANS prevention. And the Coast Guard made that recognition notwithstanding the same policy objections that Plaintiffs make here.
Plaintiffs assert that the Coast Guard had earlier taken a contrary view. Specifically, in promulgating its 1993 Great Lakes regulationswhich required oceangoing vessels carrying ballast water from beyond the EEZ either to conduct a saltwater ballast-water exchange or to retain their ballast waterthe Coast Guard made the following statement, under the heading, "Federalism":
Standardizing the minimum requirements for vessels entering the Great Lakes after operating in waters beyond the EEZ is necessary to effectively help prevent additional introductions of nonindigenous species. Therefore, the Coast Guard intends this rule to *622 preempt State and local regulations that are inconsistent with the requirements of this rule.
58 Fed.Reg. 18330, 18333 (emphasis added).
Contrary to Plaintiffs' contention, however, this statement envisions a conflict-preemption regime, not a field-preemption one. The statement actually implies that the Coast Guard interprets NISA to allow state ANS prevention regulation. Indeed, the whole predicate of this statement is that states can impose additional prevention requirements on vessels entering the Great Lakes, so long as those requirements are not "inconsistent with" the Coast Guard's own "minimum" requirements. Thus, contrary to Plaintiffs' assertion, this statement is entirely consistent with the Coast Guard's later statements that NISA does not preempt the field of ANS prevention.
Plaintiffs also argue that the federal interest in "international maritime regulation" supports a finding of field preemption here. Appellants' Br. at 37. It is true, as Plaintiffs point out, that the Supreme Court emphasized the federal interest in "national and international maritime commerce" in United States v. Locke, 529 U.S. 89, 108, 120 S. Ct. 1135, 146 L. Ed. 2d 69 (2000). But the Locke Court discussed that interest primarily in holding that "in this area there is no beginning assumption that concurrent regulation by the State is a valid exercise of its police powers." Id. Accordingly, we have not applied any such "beginning assumption" in favor of preserving state regulatory power here.
What Locke does not do is convert a statutory inquiry into a metaphysical one. Plaintiffs essentially argue that certain aspects of maritime commerce are inherently federal and thus not subject to state regulation of any kind. And they cite various passages from Locke in support of that argument. Plaintiffs fail to recognize, however, that the passages they cite from Lockeconcerning, for example, "tanker" operation and staffing, and "tanker" design and construction, Appellants' Br. at 43, 46are themselves based on a federal statute, namely, the Ports and Waterways Safety Act of 1972 ("PWSA"). Thus, contrary to Plaintiffs' implication, the issue in Locke was not whether, in the nature of things, maritime regulation is somehow inherently federal. The issue instead was "the scope of appropriate local regulation under the PWSA[.]" Locke, 529 U.S. at 108, 120 S. Ct. 1135 (emphasis added). Accordingly, Locke held that "Title II of the PWSA"and not some abstract federal interest in maritime regulation establishes a field preemption regime with respect to "the `design, construction, alteration, repair, maintenance, operation, equipping, personnel qualification, and manning' of tanker vessels." Id. at 112, 120 S. Ct. 1135 (quoting 46 U.S.C. § 3703(a)) (emphasis added).
The problem with Plaintiffs' argument, then, is that it is unmoored to any federal statute. No one contends that the PWSA applies here. The PWSA "applies to a tank vessel[,]" 46 U.S.C. § 3702(a), which is in turn defined to "mean[] a vessel that is constructed or adapted to carry, or that carries, oil or hazardous material in bulk as cargo or cargo residue[.]" 46 U.S.C. § 2101(39) (emphasis added). None of the Plaintiffs allege that its ships include oil tankers, or that the PWSA otherwise applies in this case.[3] Consequently, Locke's specific holdings regarding the PWSA's preemptive effect upon various aspects of tanker regulation are simply inapposite in *623 this case. Plaintiffs have identified no federal interest that supports a finding that Congress intended to preempt the field of ANS prevention.
b.
"Even where Congress has not completely displaced state regulation in a specific area, state law is nullified to the extent that it actually conflicts with federal law." Hillsborough County, 471 U.S. at 713, 105 S. Ct. 2371. Conflict preemption occurs when either (1) "compliance with both federal and state regulation is a physical impossibility," Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83 S. Ct. 1210, 10 L. Ed. 2d 248 (1963); or (2) the state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 85 L. Ed. 581 (1941).
Here, it is not physically impossible to comply with both Michigan's permit requirement and NISA. Pursuant to the permit requirement, owners of "oceangoing vessels engaged in port operations" in Michigan must pay $225 in fees and fill out several forms. Mich. Comp. Laws § 324.3112(6). None of those things is impossible.
Nor does the Ballast Water Statute "stand[] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines, 312 U.S. at 67, 61 S. Ct. 399. NISA's purpose is "to prevent unintentional introduction and dispersal of nonindigenous species into waters of the United States through ballast water management and other requirements." 16 U.S.C. § 4701(b)(1). That purpose is shared, not obstructed, by the Ballast Water Statute. The Statute furthers that purpose by requiring vessel owners to provide information to the MDEQ regarding their ballast-water practices. Vessels that do not discharge ballast water in Michigan must provide a certification to that effect. Vessels that will discharge ballast water must submit information such as the date of their last ballast discharge, the origin of their ballast water, and the volume of their proposed discharge. None of this obstructs NISA's purposes in the least.
The permit requirement does not conflict with NISA or the Coast Guard's regulations promulgated pursuant to it. The requirement therefore is not preempted by federal law.
D.
Plaintiffs claim the Ballast Water Statute violates the so-called "dormant" Commerce Clause because, they say, the Statute burdens interstate commerce. It is undisputedbefore this Court at least that the Ballast Water Statute does not "favor in-state economic interests over out-of-state interests." Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 579, 106 S. Ct. 2080, 90 L. Ed. 2d 552 (1986). It instead imposes its burdens evenhandedly. Statutes that so impose their burdens "will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S. Ct. 844, 25 L. Ed. 2d 174 (1970).
The Ballast Water Statute need not provide a perfect solution to the problem of ANS in order to pass this test. Plaintiffs conceded in the district court that "[i]nvasive species pose a serious threat to the ecosystem," and are "an acute problem which must be solved." See also Appellants' Br. at 9 ("non-indigenous species may disrupt the local aquatic ecosystem, killing or displacing native fish and plant life"). Moreover, as noted above, Congress predicted in 1990 thatwholly apart *624 from ecological harmeconomic harm from the zebra mussel alone could total $5 billion by the year 2000. 16 U.S.C. § 4701(4). Thus, to the extent the permit requirement even marginally reduces the problem of ANS introduction, its local benefits would be very large.
In contrast, the burdens imposed by the permit requirementan application fee of $75, a yearly fee of $150, and the completion of a few formsare de minimis. See Ferndale Labs., Inc. v. Cavendish, 79 F.3d 488, 495 (6th Cir.1996) (rejecting a Commerce Clause challenge to an Ohio statute requiring all wholesalers of prescription drugs to fill out a two-page registration application and pay a $100 annual fee, because, inter alia, "[w]e do not consider the $100 fee a burden").
The district court therefore held that Plaintiffs could not, under any circumstances, show that the permit requirement's burdens clearly exceeded its benefits. Plaintiffs argue, however, that the issues of benefit and burden are factual in nature, and that they should be permitted to develop a record on those issues before their claim is adjudicated.
We need not await that factual development to affirm the dismissal of Plaintiffs' claim. Indeed, there is no need to conduct the Pike balancing at all. The reason, as explained below, is that the Commerce Clause has not been dormant here.
The Commerce-Clause power belongs to Congress, not the courts. The purpose of the dormant Commerce-Clause doctrine is to "safeguard[] Congress' latent power from encroachment by the several States." Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 154, 102 S. Ct. 894, 71 L. Ed. 2d 21 (1982). Accordingly, "we only engage in [dormant Commerce-Clause] review when Congress has not acted or purported to act." Id. "Once Congress acts, courts are not free to review state taxes or other regulation under the dormant Commerce Clause." Id.
NISA was an exercise of Congress's power under the Commerce Clause. And in enacting NISA, as shown above, Congress expressly contemplated, and indeed encouraged, state participation in ANS prevention measures. We would lose our constitutional bearings if we were to hold that the Commerce Clause, in its dormancy, strikes down state regulation that Congress, in actively exercising its power under the Clause, expressly contemplated. We therefore affirm the dismissal of this claim.
E.
Only Plaintiffs' substantive due process claim remains. Plaintiffs argue that, "[b]y purporting to require owners and operators of oceangoing vessels to procure permits to operate even if they do not discharge ballast water containing aquatic nuisance species ... [,] the Ballast Water Statute deprives plaintiffs of their property without due process of law in contravention of the Fourteenth Amendment of the United States Constitution." Compl. ¶ 22.
It is undisputed that the permit requirement is subject only to rational-basis review. Accordingly, the permit requirement "need only be rationally related to a legitimate government purpose" to be upheld. Thompson v. Ashe, 250 F.3d 399, 407 (6th Cir.2001). This test is "highly deferential; courts hold statutes unconstitutional under this standard of review only in rare or exceptional circumstances." Doe v. Michigan Dept. of State Police, 490 F.3d 491, 501 (6th Cir.2007). "[A]ny conceivable legitimate governmental interest" will do, 37712, Inc. v. Ohio Dept. of Liquor Control, 113 F.3d 614, 620 (6th Cir.1997) (emphasis added); and even then it is constitutionally *625 irrelevant whether the conceivable interest actually underlay the enactment of the challenged provision. Cf. Doe v. Wigginton, 21 F.3d 733, 740 (6th Cir.1994) (citing United States R.R. Ret. Bd. v. Fritz, 449 U.S. 166, 179, 101 S. Ct. 453, 66 L. Ed. 2d 368 (1980)).
Here, Michigan has a legitimate state interest in protecting its waters from further introductions of ANS from ballast-water discharges by oceangoing vessels. The permit requirement is rationally related to advancing that interest: it requires vessels to provide the MDEQ with information regarding their ballast water and ballast-water-management practices, thereby allowing the MDEQ to monitor compliance with its requirements. And it requires vessels that say they will not discharge ballast water in Michigan to certify that fact, which may make them more inclined to do as they say, since a false certification is a felony. See Mich. Comp. Laws § 324.3115(c)(2). All of this conceivably could reduce the introduction of new ANS into Michigan waters. The permit requirement therefore does not violate Plaintiffs' substantive due process rights.
III.
Michigan, for undisputedly legitimate reasons, has enacted legislation of a type expressly contemplated by Congress. We have no basis to disrupt the result of those democratic processes. The August 15, 2007 order of the district court is affirmed.
NOTES
[*] The Honorable Arthur L. Alarcón, Circuit Judge of the United States Court of Appeals for the Ninth Circuit, sitting by designation.
[1] The EEZ is "the area established by Presidential Proclamation Number 5030 ... which extends from the base line of the territorial sea of the United States seaward 200 [nautical] miles." 33 C.F.R. § 151.1504.
[2] Plaintiffs have not appealed the dismissal of their state-law claims.
[3] We therefore express no view as to whether any aspect of the Ballast Water Statute would be preempted as applied to oil tankers that are themselves subject to the PWSA. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535435/ | 212 B.R. 276 (1997)
In re Andrew T. CALLENDER, Debtor.
Forrest R. ROBINSON and Norma Robinson, Plaintiffs,
v.
Andrew T. CALLENDER, Defendant.
Bankruptcy No. GG95-82904, Adversary No. 97-88158.
United States Bankruptcy Court, W.D. Michigan.
August 26, 1997.
*277 *278 Kevin Abraham Rynbrandt, Grand Rapids, MI, for Plaintiffs.
John A. Potter, Grand Rapids, MI, for Defendant.
OPINION GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT BASED UPON COLLATERAL ESTOPPEL
JAMES D. GREGG, Bankruptcy Judge.
I. PROCEDURAL HISTORY AND FACTUAL BACKGROUND.
A. Introduction.
Forrest and Norma Robinson, "Plaintiffs" or "Creditors", have filed this adversary proceeding against Andrew T. Callender, "Debtor" or "Defendant" seeking to establish that a debt arising from a prior state court judgment be excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(A). The Plaintiffs have filed a Motion for Summary Judgment in which they contend that the prior state court judgment should be given collateral estoppel effect, and that they are entitled to judgment as a matter of law.
The Supreme Court has instructed that only "honest but unfortunate" debtors should be afforded a "fresh start" in bankruptcy. Grogan v. Garner, 498 U.S. 279, 287, 111 S. Ct. 654, 659, 112 L. Ed. 2d 755 (1991). For its part, Congress has created various exceptions to the bankruptcy discharge, including one for debts obtained by "false pretenses, false representation, or actual fraud. . . ." See 11 U.S.C. § 523(a)(2)(A). The so-called fraudulent debt exception, as with the others enumerated in Section 523, is to be strictly construed in favor of the debtor. Gleason v. Thaw, 236 U.S. 558, 562, 35 S. Ct. 287, 289, 59 L. Ed. 717 (1915); Manufacturer's Hanover Trust Co. v. Ward (In re Ward), 857 F.2d 1082, 1083 (6th Cir.1988). The Plaintiffs bear the burden of persuasion, and they must prove every element of their case by a preponderance of the evidence. Grogan, supra, 498 U.S. at 291, 111 S.Ct. at 661.
B. Jurisdiction.
This court has jurisdiction over the bankruptcy case and this adversary proceeding. 28 U.S.C. § 1334; Local Rule 57 (W.D.Mich.) (cases and proceedings referred to bankruptcy court). This adversary proceeding is a core proceeding. 28 U.S.C. § 157(b)(2)(I).
C. Undisputed Facts.
The relevant facts are enumerated as follows:
1. The Creditors-Plaintiffs filed a complaint against the Debtor-Defendant in Montcalm County Circuit Court for the State of Michigan on or about May 13, 1993. See Plaintiffs' Brief, Ex. A.
2. In the state court action, the Defendant's attorney filed an appearance and an answer May 26, 1993. See Plaintiffs' Brief, Ex. B.
*279 3. The Defendant and/or his counsel participated in discovery, including depositions and a pre-trial conference. See Plaintiffs' Brief, Ex. C.
4. The Defendant filed a chapter 13 bankruptcy on January 12, 1994, one day before trial was scheduled to commence in state court.
5. The Defendant's chapter 13 case was dismissed on July 5, 1994, for failure to make payments and the state court action was resumed.
6. The Defendant was served with various notices of discovery and trial dates in the continued state court action. See Plaintiffs' Brief, Ex. E.
7. Notwithstanding proper notice, the Defendant failed to appear for trial in state court on June 1, 1995; and consequently, a default judgment was entered against him by the state court judge on all counts. See Plaintiffs' Brief, Ex. F.
8. The Defendant filed his second chapter 13 case on June 9, 1995, which was subsequently converted to a chapter 7 case on December 16, 1996.
9. The Plaintiffs filed this adversary proceeding seeking nondischargeability of the state court judgment on March 24, 1997.
10. The Defendant filed his answer in this adversary proceeding on April 16, 1997.
11. The Plaintiffs filed their motion for summary judgment on July 7, 1997, asserting that the state court judgment is nondischargeable based on collateral estoppel.
II. DISCUSSION.
A. Summary Judgment Standards.
Rule 7056 of the Federal Rules of Bankruptcy Procedure incorporates by reference Rule 56 of the Federal Rules of Civil Procedure which provides in part:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.
FED. R. CIV. P. 56(c).
The party moving for summary judgment bears the initial responsibility of informing the court of the basis of the motion and identifying those portions of the record which demonstrate the absence of a material issue of fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552-53, 91 L. Ed. 2d 265 (1986). Once the moving party has met its initial burden, the nonmoving party must come forward with specific facts showing that there is a genuine issue of material fact on which the nonmoving party will bear the burden of proof at trial. FED. R. CIV. P. 56(e); Celotex, 477 U.S. at 322-24, 106 S.Ct. at 2552-53. If, after adequate discovery, the party bearing the burden of proof establishes uncontested facts and is entitled to relief, summary judgment is appropriate.
B. General Principles of Full Faith and Credit.
Article IV, section 1 of the United States Constitution requires that "full faith and credit" be given by each state to the acts, records, and judicial proceedings of every other state. U.S. CONST., art. IV, § 1. The Constitution further authorizes Congress to enact laws that prescribe the manner in which such acts, records and proceedings are proven and the effect thereof. Id. Congress has exercised its authority through the enactment of section 1738 of the Judicial Code which provides in part that: "judicial proceedings [of any court of any state] shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken." 28 U.S.C. § 1738.
The United States Court of Appeals for the Sixth Circuit has recently summarized the Constitutional and statutory principles of full faith and credit as they relate to the preclusive effect of prior state court rulings in the context of nondischargeability actions in a subsequent bankruptcy case:
The doctrine of collateral estoppel applies in dischargeability actions under 11 U.S.C. § 523(a). In determining whether *280 to accord preclusive effect to a state-court judgment, we begin with the fundamental principle that "judicial proceedings [of any court of any state] shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken." 28 U.S.C. § 1738. The principles of full faith and credit reflected in § 1738 generally require "that a federal court must give to the state-court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered." Bankruptcy courts' exclusive jurisdiction does not alter this rule.
See Rally Hill Productions, Inc. v. Bursack (In re Bursack), 65 F.3d 51, 53 (6th Cir.1995) (citations omitted).
The Sixth Circuit has recently held that there is no federal policy exception to the application of full faith and credit doctrine to application of collateral estoppel to a prior state court judgment, even if the underlying judgment was obtained by default, so long as the applicable state law would give collateral estoppel effect to a default judgment. See Bay Area Factors v. Calvert (In re Calvert), 105 F.3d 315, 322 (6th Cir.1997) ("[W]e conclude that collateral estoppel applies to true default judgments in bankruptcy dischargeability proceedings in those states which would give such judgments that effect.").
C. Michigan Law of Collateral Estoppel and Application of that Principle in this Adversary Proceeding.
In People v. Gates, 434 Mich. 146, 452 N.W.2d 627 (1990), the Michigan Supreme Court succinctly defined the principle of collateral estoppel as follows:
Collateral estoppel precludes relitigation of an issue in a subsequent, different cause of action between the same parties where the prior proceeding culminated in a valid, final judgment and the issue was (1) actually litigated and (2) necessarily determined.
People v. Gates, 434 Mich. at 154, 452 N.W.2d 627 (citing Jacobson v. Miller, 41 Mich. 90, 93, 1 N.W. 1013 (1879); Howell v. Vito's Trucking & Excavating Co., 386 Mich. 37, 42, 191 N.W.2d 313 (1971); Restatement Judgments, § 68, p. 293; 1 Restatement Judgments, 2d, p. 250).
1. The "Actually Litigated" Requirement.
With respect to the first requirement, the Michigan Supreme Court stated:
In analyzing whether an issue was "actually litigated" in the prior proceeding, the Court must look at more than what has been plead and argued. We must also consider whether the party against whom collateral estoppel is asserted had a full and fair opportunity to litigate the issue.
Gates, 434 Mich. at 156-57, 452 N.W.2d 627 (citing Blonder-Tongue Laboratories, Inc. v. Univ. of Illinois Foundation, 402 U.S. 313, 329, 91 S. Ct. 1434, 1443, 28 L. Ed. 2d 788 (1971)).
The law is unsettled as to whether a default judgment satisfies the "actually litigated" requirement for collateral estoppel. This court has previously held that a "true default", i.e., a case in which default judgment was entered because the defendant failed to file an answer, is not entitled to collateral estoppel effect under Michigan law. Vogel v. Kalita (In re Kalita), 202 B.R. 889, 916 (Bankr.W.D.Mich.1996). But see Cresap v. Waldorf (In re Waldorf), 206 B.R. 858, 867 n. 3 (Bankr.E.D.Mich.1997) (disagreeing with Kalita and suggesting in obiter dictum that true defaults would be entitled to collateral estoppel effect under Michigan law). In this instance, the judgment entered by the Michigan state court against the Defendant was not a "true default" because he filed an answer in that action.
Moreover, the Defendant substantially participated in the defense of the underlying state court litigation right up until the eve of trial, whereupon default judgment was entered because he failed to appear at trial. See Plaintiffs' Motion for Summary Judgment, Ex. F. Under these circumstances, the "actually litigated" requirement is met and the state court judgment is entitled to collateral estoppel effect under Michigan law. Cf. Rally Hill Productions, Inc. v. Bursack (In re Bursack), 65 F.3d 51, 54 (6th Cir.1995) ("Here, Rally Hill's state-court complaint *281 raised the issues of fraud and use of false financial statements. The issues were actually litigated to the extent that Bursack retained an attorney, filed an answer, asserted cross-claims, and participated in discovery, which included his submitting to two depositions.").
2. The "Necessarily Decided" Requirement.
Regarding the second requirement for collateral estoppel, the Gates Court stated, "An issue is necessarily determined only if it is `essential' to the judgment." Gates, 434 Mich. at 158, 452 N.W.2d 627 (citing 1 Restatement Judgments, 2d, § 27, p. 250, comment h, p. 258). Thus, a major issue to be decided is whether a judgment for fraud under Michigan law necessarily entails a finding on each of the elements that are required to prove fraud under § 523(a)(2)(A).
(a). The Elements of Section 523(a)(2)(A).
The Plaintiffs seek a judgment of nondischargeability against the Debtor-Defendant under Section 523(a)(2)(A) which reads, in pertinent part:
(a) A discharge under section 727 . . . does not discharge an individual debtor from any debt
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition. . . .
11 U.S.C. § 523(a)(2)(A).
The elements of a nondischargeability claim under Section 523(a)(2)(A) are well-established in the Sixth Circuit. It must be proven:
1) that the debtor obtained money through a material misrepresentation;
2) that at the time the debtor made the representation, he knew it was false or he made it with gross recklessness as to its truth;
3) that the debtor intended to deceive;
4) that the creditor justifiably relied on the false representation; and
5) that its reliance was the proximate cause of loss. Brady v. McAllister (In re Brady), 101 F.3d 1165, 1172 (6th Cir.1996).
(b). The Elements of Fraud Under Michigan Common Law.
Michigan requires the plaintiff to establish the following elements to prove fraudulent misrepresentation:
1) the defendant made a material representation;
2) it was false;
3) the defendant knew it was false when made, or made it recklessly, without knowledge of its truth, and as a positive assertion;
4) it was made with the intention to induce reliance by the plaintiff;
5) the plaintiff relied on it; and
6) the plaintiff thereby suffered injury.
See Hi-Way Motor Co. v. Intern. Harvester Co., 398 Mich. 330, 336, 247 N.W.2d 813, 816 (1976). See also Semaan v. Allied Supermarkets, Inc. (In re Allied Supermarkets, Inc.), 951 F.2d 718 (6th Cir.1991) (describing elements of fraud under Michigan law).
(c). The Elements of Section 523(a)(2)(A) are Virtually Identical to Common Law Fraud Action under Michigan Law
As is shown by comparing the two sets of fraud elements above, this court agrees, "[T]he elements of a dischargeability case under 11 U.S.C. § 523(a)(2)(A) for false misrepresentation and fraud are virtually identical to the elements that Michigan requires to establish fraudulent misrepresentation." Cresap v. Waldorf (In re Waldorf), 206 B.R. 858, 863 (Bankr.E.D.Mich.1997). Thus, a state court judgment based upon fraud necessarily encompasses a finding of all the elements of Section 523(a)(2)(A) and is entitled to collateral estoppel effect in a subsequent bankruptcy court action.
3. There Is No Ambiguity In State Court Judgment.
The Defendant argues that because the state court granted judgment on four different counts, the fraud count is not entitled *282 to collateral estoppel effect.[1] The court rejects this argument. The Sixth Circuit has held that collateral estoppel is not applicable in a bankruptcy case where the prior state court judgment was ambiguous with respect to the issue of whether the defendant's conduct was willful and malicious and because the bankruptcy court had not considered any other pleadings in the state court record. See Spilman v. Harley, 656 F.2d 224, 228 (6th Cir.1981). The court of appeals stated, "[t]he person asserting the estoppel has the burden of proving the requirements of estoppel have been met. If the state court record does not show the issue was necessarily and actually litigated in the prior non-bankruptcy proceeding, collateral estoppel is inapplicable." Id. at 229. See also Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir.1986) ("[N]either the pleadings nor the general verdict reflects that the issue of wilfulness and maliciousness was actually litigated and necessary to the verdict. Thus, based on the record at hand, collateral estoppel would not operate to bar relitigation of this issue.").
Assuming Spilman and Wheeler remain binding authority, they are inapplicable in this proceeding because there is no ambiguity in the state court judgment. It explicitly states that the Defendant was found liable on all of the counts.
Defendant Andrew Callender, having failed to appear at the time and place set for trial of this matter after receiving proper and timely notice, is hereby found liable to Plaintiffs on all counts against him, which are as follows: Promissory Estoppel, Unjust Enrichment, Quantum Meruit, and Fraud and Misrepresentation. Judgment is hereby entered in favor of Plaintiffs Forrest and Norma Robinson and against Andrew Callender on those counts.
See Plaintiffs' Brief, Ex. G (Default Judgment 6/2/95, Montcalm Circuit Court, Case No. 93-S-322-CH) (emphasis added). This court holds that when a state court unambiguously grants a judgment on all of the counts in a multi-count complaint, then each and every count is entitled to collateral estoppel effect, including a count for fraud and misrepresentation.
4. Plaintiffs' Failure to Specifically Allege "Materiality" of Misrepresentations Does Not Preclude Collateral Estoppel.
The Defendant argues that the state court judgment should not be given collateral estoppel effect because the Plaintiffs' complaint did not expressly allege that the Defendant's misrepresentations were "material." This court rejects that argument. The Plaintiffs' state court complaint identified the specific representations that were made by Defendant. Plaintiffs' complaint alleged that the Defendant's representations were false and that Defendant knew they were false and that he expected that the Plaintiffs would rely on them. The complaint also alleged that Plaintiffs relied on those representations to their detriment thereby resulting in damages. The element of materiality is easily and properly inferred from the complaint if is fairly read in its entirety. Thus, the Plaintiffs' failure to specifically include the word "material" in their state court complaint does not preclude the subsequent application of collateral estoppel.
It is also important that the default judgment on the fraud and misrepresentation count necessarily entailed a finding that plaintiff satisfied all of the elements of fraud, including materiality. See Hi-Way Motor Co. v. Intern. Harvester Co. 398 Mich. 330, 336, 247 N.W.2d 813, 816 (1976). If the Defendant desired to do so, he could have disputed the sufficiency of the complaint in state court action by moving to dismiss pursuant to Mich. Court Rule 2.112(B) (fraud claim must be stated with particularity). The Defendant failed to do so and he is bound by all consequences of his participation *283 in the state court action. To rule to the contrary would be to permit a party to avoid collateral estoppel ramifications by challenging the sufficiency of a complaint after a judgment is rendered. Rules of procedure should not, and do not, permit this type of a collateral attack upon a judgment.
5. This Court Will Not Relitigate Defendant's Motion to Set Aside State Court Default Judgment.
The Defendant argues that the state court default judgment should be set aside because he suffers from brain damage which prevented him from adequately defending himself. This argument was previously made in the state court when the Defendant moved to set aside the default judgment. The state court denied the Defendant's request because there existed no meritorious defense and there was no demonstrable excusable neglect. This court declines to second guess whether the state court's refusal to set aside the default judgment was proper or not. The state court's prior procedural ruling is also binding on this court under principles of both collateral estoppel and res judicata.
III. CONCLUSION
There are no material contested facts and this court may, as a matter of law, grant or deny the Plaintiffs' motion for summary judgment. The Michigan state court, after the Defendant filed an answer, entered a judgment in favor of the Plaintiffs, inter alia, explicitly based upon the Defendant's fraudulent conduct. That judgment is entitled to collateral estoppel effect for the reasons discussed above. Summary judgment is granted in favor of the Plaintiffs; their state court judgment against the Defendant is nondischargeable under 11 U.S.C. § 523(a)(2)(A). This court shall enter an order accordingly.
NOTES
[1] The complaint filed against the Defendant in state court contained the following counts: (1) Promissory Estoppel; (2) Unjust Enrichment, (3) Quantum Meruit, and (4) Fraud and Misrepresentation. See Plaintiffs' Brief, Ex. A. The complaint also set forth an additional Count 5 which contained the Plaintiffs' request for relief. The default judgment was entered on Counts 1-4. See Plaintiffs' Brief, Ex. G (Default Judgment 6/2/95, Montcalm Circuit Court, Case No. 93-S-322-CH). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1660846/ | 796 So. 2d 404 (1999)
Eddie Duval POWELL III
v.
STATE.
CR-98-0246
Court of Criminal Appeals of Alabama.
October 29, 1999.
Rehearing Denied December 10, 1999.
*410 John William Stahl, Tuscaloosa, for appellant.
Bill Pryor, atty. gen., and Jeremy W. Armstrong, asst. atty. gen., for appellee.
FRY, Judge.
The appellant, Eddie Duvall Powell III, was convicted of four counts of capital murder: murder committed during the course of a burglary in the first degree, see § 13A-5-40(a)(4), Ala.Code 1975; murder committed during the course of a robbery in the first degree, see § 13A-5-40(a)(2), Ala.Code 1975; murder committed during a rape in the first degree, see § 13A-5-40(a)(3), Ala.Code 1975; and murder committed during sodomy in the first degree, see § 13A-5-40(a)(3), Ala. Code 1975. The jury, by a vote of 11-1, recommended that Powell be sentenced to death. The trial court imposed the death sentence recommended by the jury.
The record contains a summary of the facts and evidence presented, as found by the trial court. In pertinent part, the trial court's order states as follows:
"The Defendant, Eddie Duval Powell, has been convicted in this case of capital murder. The jury has recommended the sentence of death.
*411 "(1) In the early morning hours before sunrise on March 25, 1995, the victim, [M.W.], was brutally attacked, raped, sodomized and shot to death. The victim was an elderly widow and was attacked in her home in Holt, Alabama, as she apparently attempted to escape her attacker.
"(2) Defendant and a friend, Bobby Johnson, lived at the Johnson home across the street from the victim. Defendant and Bobby Johnson both worked at O'Charley's restaurant. Defendant borrowed Bobby Johnson's leather jacket and left the Johnson home in the early hours of March 25, 1995.
"(3) The evidence plainly showed that the Defendant had been at the home of the victim, contrary to Defendant's statement. The Defendant's semen was found in the victim's mouth, rectum, and vagina. The victim's blood was found on the Defendant's pants and on Bobby Johnson's leather jacket, which was worn by the Defendant on this date. The Defendant's handprint was found on the window on the front of the victim's home, where a screen had been cut. A matchbook from O'Charley's restaurant was found in the unfinished basement under the victim's home immediately after the murder. The matchbook appeared to have been there only a short time since it had no dust on it, unlike most other things in the basement.
"(4) The victim was shot about 5:25 A.M. on March 25, 1995, and the Defendant was first seen on videotape at the Shell Oil Station in Alberta City about an hour later at 6:27 A.M. This station was a walking distance of about forty-two minutes from the victim's home, considering a stop the Defendant made along the way, that was in evidence. The Shell Oil Station employee testified that the Defendant paid for wine mostly in nickels and had a lot of change in small coins. This was significant because the victim kept a container of small change in her purse for use in nickel and dime card games. The container of small change was missing, and the victim's handgun was missing also. The Defendant appeared at the Shell Oil Station wearing a leather jacket with a wet stain on it. The victim's blood was on the leather jacket worn by the Defendant on March 25, 1995. The Defendant wore this bloodstained jacket, which belonged to Bobby Johnson, to the residence of his friend, Jason Long, on the morning the victim was killed.
"(5) Testimony showed that the contents of the leather jacket pockets included an O'Charley's matchbook, small change, and jewelry similar to jewelry owned by the victim. None of these items belonged to Bobby Johnson, who owned the jacket and stated that no bloodstain was on the jacket when the Defendant took it.
"(6) The evidence showed that Defendant had a handgun after he arrived at the residence of Jason Long, which was about daybreak or between 6:30 and 7:00 A.M. on March 25, 1995. The Defendant asked Jason Long, who lived near the Shell Oil Station, to get rid of the handgun. Jason Long complied with this request, and the handgun was never found.
"(7) On the morning of March 25, 1995, the Defendant had fresh scratches on the back of his neck. Lawrence Bunkley, an acquaintance of Defendant and a friend of Jason Long, testified that the Defendant told him on the day the victim was killed something to the effect that he did the bitch, she ran up on him and he shot her."
(C. 661-63.)
I.
Powell contends that the trial court erred in denying his motion to suppress *412 his videotaped and audiotaped statements.
"`"`In reviewing the correctness of the trial court's ruling on a motion to suppress, this Court makes all the reasonable inferences and credibility choices supportive of the decision of the trial court.'" Kennedy v. State, 640 So. 2d 22, 26 (Ala.Cr.App.1993), quoting Bradley v. State, 494 So. 2d 750, 761 (Ala.Cr. App.1985), aff'd, 494 So. 2d 772 (Ala. 1986), cert. denied, 480 U.S. 923, 107 S. Ct. 1385, 94 L. Ed. 2d 699 (1987). A trial court's ruling on a motion to suppress will not be disturbed unless it is "palpably contrary to the great weight of the evidence." Parker v. State, 587 So. 2d 1072, 1088 (Ala.Cr.App.1991).'
"Rutledge v. State, 680 So. 2d 997, 1002 (Ala.Cr.App.1996)."
Maples v. State, 758 So. 2d 1, 41 (Ala.Cr. App.1999).
A.
Powell asserts that he should have been informed of his Miranda rights during his initial interview, pursuant to Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694 (1966). Specifically, he argues that the videotaped interview with Stan Bush, a homicide investigator for the Tuscaloosa Police Department, was a custodial interrogation.
"Miranda warnings are not necessarily required to be given to everyone whom the police question. Oregon v. Mathiason, 429 U.S. 492, 97 S. Ct. 711, 713, 50 L. Ed. 2d 714 (1977). Miranda is only applicable when an individual is subjected to custodial interrogation. Davis v. Allsbrooks, 778 F.2d 168, 170 (4th Cir.1985); Primm v. State, 473 So. 2d 1149, 1158 (Ala.Crim.App.), cert. denied, 473 So. 2d 1149 (Ala.1985). `By custodial interrogation, we mean questioning initiated by law enforcement officers after a person has been taken into custody or otherwise deprived of his freedom of action in a significant way.' Miranda, supra, 384 U.S. at 444, 86 S.Ct. at 1612.
"There is a distinction which must be made between general interrogation and custodial interrogation since Miranda is inapplicable when interrogation is merely investigative rather than accusative. Kelley v. State, 366 So. 2d 1145, 1148 (Ala.Crim.App.1979); Primm, supra, at 1158; Johnston v. State, 455 So. 2d 152, 156 (Ala.Crim.App.), cert. denied, 455 So. 2d 152 (Ala.1984). This distinction should be made on a case-by-case basis after examining all of the surrounding circumstances. United States v. Miller, 587 F. Supp. 1296, 1299 (W.D.Pa.1984); Johnston, supra, at 156; Warrick v. State, 460 So. 2d 320, 323 (Ala.Crim.App. 1984); Hall v. State, 399 So. 2d 348, 351-52 (Ala.Crim.App.1981); Kelley, supra at 1149."
Hooks v. State, 534 So. 2d 329, 347-48 (Ala. Cr.App.1987). See State v. Smith, 715 So. 2d 925 (Ala.Cr.App.1998).
In deciding whether the questioning of a suspect is a custodial interrogation, the following factors should be considered:
"`(1) the language used to summon the individual, (2) the extent to which the defendant is confronted with evidence of guilt, (3) the physical surroundings of the interrogation, (4) the duration of the detention, and (5) the degree of pressure applied to detain the individual. United States v. Crisco, 725 F.2d 1228, 1231 (9th Cir.), cert. denied, 466 U.S. 977, 104 S. Ct. 2360, 80 L. Ed. 2d 832 (1984)....'"
Hooks v. State, 534 So.2d at 348 (some citations omitted), quoting United States v. Wauneka, 770 F.2d 1434, 1438 (9th Cir. 1985). See also State v. Smith, 715 So. 2d 925, 927 (Ala.Cr.App.1998).
*413 In Click v. State, 695 So. 2d 209 (Ala.Cr. App.1996), this Court stated:
"It is well established that `the prosecution may not use statements, whether exculpatory or inculpatory, of the defendant unless it demonstrates the use of procedural safeguards effective to secure the privilege against self-incrimination.' Miranda v. Arizona, 384 U.S. 436, 444, 86 S. Ct. 1602, 1612, 16 L. Ed. 2d 694 (1966). However, the safeguards required by Miranda are required only if the defendant is in custody when questioned. Berkemer v. McCarty, 468 U.S. 420, 440, 104 S. Ct. 3138, 3150, 82 L. Ed. 2d 317 (1984); Landreth v. State, 600 So. 2d 440, 444 (Ala.Cr.App.1992).
". . . .
"Also, the fact that the questioning occurred at the police station does not necessarily lead to a conclusion that appellant was in custody for Miranda purposes.
"`[P]olice officers are not required to administer Miranda warnings to everyone they question. Nor is the requirement of warnings to be imposed simply because the questioning takes place in the station house, or because the questioned person is one whom the police suspect.'
"Oregon v. Mathiason, 429 U.S. 492, 495, 97 S. Ct. 711, 714, 50 L. Ed. 2d 714 (1977)."
695 So.2d at 216-17.
During the suppression hearing, Bush testified that he asked Cora Jennings, the victim's neighbor, to tell both Powell and Bobby Johnson to come to the police station and talk to him. Powell, Bobby Johnson, and Cora Jennings (Johnson's mother) lived across the street from the victim, and Bush believed Powell and Bobby Johnson had information about the murder. Additionally, Powell worked at O'Charley's restaurant and a matchbook from O'Charley's was found at the scene of the murder. Bush stated that Vincent Johnson, a friend of Powell's, drove Powell to the police station around 1:45 p.m. on March 25, 1995. According to Bush, he believed that Powell was a possible witness to the crime, and he began questioning Powell around 2:00 p.m.
Our review of the videotaped interview indicates that Bush began the interview around 2:00 p.m. in a small room in the police station. During the interview, Powell stated that he had graduated from high school in 1987 and that he was at the time of the interview 25 years old. Bush asked Powell several questions concerning where he was when the murder occurred. According to Powell, after he worked the evening shift at O'Charley's, he went home, and then he and his neighbor, Buddy, went to a nightclub. Powell stated that when he left the nightclub, he walked to the house of a prostitute. He further stated that after visiting the prostitute, he walked to a gas station in Alberta City, purchased some beer, and then walked to Jason Long's house, where he remained until the morning. During the interview, Bush told Powell that he was not a suspect but that he needed to know where Powell was the night that the murder occurred. Additionally, Bush asked Powell if he had seen anyone suspicious walking around the victim's house early in the morning, and asked him several questions about his roommate, Bobby Johnson.
At the suppression hearing Bush testified that, about one hour into the interview, he noticed that Powell was becoming evasive and that there were inconsistencies in his statement. At that point, he read Powell his Miranda rights. Our review of the videotape indicates that Bush did, in fact, read Powell his rights and that Powell stated that he understood his rights and signed a waiver of rights form. Bush asked Powell a few more questions and *414 then told him that he was free to leave. Powell said goodbye and left the interview room.
We conclude that Powell's interrogation did not become custodial until just before he was advised of his rights. Powell was summoned by Cora Jennings to talk to the police, and Powell voluntarily rode to the police station with a friend. Bush testified that he initially believed that Powell was a witness, but that, after Powell gave inconsistent and evasive answers, he suspected that Powell was involved in the crime. Bush stated that, as soon as he suspected that Powell was involved, he read him his Miranda rights. After examining all of the surrounding circumstances, we conclude that, before Powell was read his Miranda rights, Bush's questions were investigative, rather than accusative. Moreover,
"Nothing in the record suggests that the appellant was not free to leave the police station or that he was in custody until the point at which he became a suspect and was advised of his rights."
Click v. State, 695 So.2d at 217. Thus, Powell has failed to establish he was involved in a custodial interrogation before Bush advised him of his Miranda rights. Therefore, the trial court's determination to admit the videotaped statement was not "palpably contrary to the great weight of the evidence." Maples v. State, 758 So.2d at 41. The trial court did not err in admitting the videotaped statement into evidence.
Additionally, Powell argues that the trial court erred in admitting two subsequent statements he made after he was arrested for disorderly conduct inside the police station shortly after giving his first statement. Specifically, he argues that he should have been readvised of his Miranda rights and that he should have been given the opportunity to execute a waiver of rights form before each interrogation.
"Once the mandate of Miranda has been complied with at the threshold of the questioning it is not necessary to repeat the warnings at the beginning of each successive interview." Gibson v. State, 347 So. 2d 576, 582 (Ala.Cr.App.1977). See also Cleckler v. State, 570 So. 2d 796 (Ala. Cr.App.1990).
"An accused may be read the Miranda rights prior to one interrogation but not confess until a later interrogation during which there was no rereading of the Miranda warning. As a general rule, it has been held that Miranda warnings are not required to be given before each separate interrogation of a defendant after an original waiver of the accused's rights has been made. However, if such a long period of time has elapsed between the original Miranda warning and the subsequent confession that it can be said that, under the circumstances, the accused was not impressed with the original reading of his rights in making the ultimate confession, then the confession should be held inadmissible."
C. Gamble, McElroy's Alabama Evidence, § 201.09 (5th ed.1997) (footnotes omitted). See Phillips v. State, 668 So. 2d 881, 883 (Ala.Cr.App.1995).
During the suppression hearing, Bush testified that he conducted a second audiotaped interview with Powell around 4:30 p.m. on March 25, 1995.[1] Bush stated that when he began to read Powell his Miranda rights, Powell told him that he knew and understood his rights. According to Bush, Powell agreed to give a statement.
*415 At the suppression hearing, Investigator Greg Burroughs testified that he and Investigator John Steele interviewed Powell around 2:00 a.m. on March 26, 1995. Burroughs stated that he reminded Powell of his Miranda rights, and that Powell indicated that he remembered and that he understood his rights and he agreed to speak with him.
Given that Powell was thoroughly advised of his Miranda rights during his initial interview with Bush on March 25, that both Bush and Steele reminded Powell of his rights during the two subsequent interviews, and that the two subsequent interviews occurred within 12 hours of his initial waiver of his Miranda rights, we conclude that the trial court did not err in admitting the audiotaped statements into evidence. See Tolbert v. State, 450 So. 2d 805 (Ala.Cr.App.1984) (there was no necessity to re-inform defendant of his constitutional rights because defendant was reminded before his second and third statements that he had already been informed of his Miranda rights, he was asked if he remembered those rights, and he stated that he did and he agreed to talk with law enforcement officers). See also Cleckler v. State, 570 So. 2d 796 (Ala. Cr.App.1990).
B.
Powell argues that he did not voluntarily, knowingly, and intelligently waive his Miranda rights; and thus, he claims, the trial court erred in admitting the three statements into evidence. Specifically, Powell argues that he was intoxicated and was suffering from fatigue when he made the statements.
This Court addressed the voluntariness of a waiver of Miranda rights in Click v. State:
"Whether a waiver is voluntary, knowing, and intelligent depends on the particular facts and underlying circumstances of each case, including the background, experience, and conduct of the accusedi.e., the totality of the circumstances. Magwood v. State, 494 So. 2d 124, 135 (Ala.Cr.App.1985), aff'd, 494 So. 2d 154 (Ala.), cert. denied, 479 U.S. 995, 107 S. Ct. 599, 93 L. Ed. 2d 599 (1986); Chandler v. State, 426 So. 2d 477 (Ala.Cr.App.1982) (citing Edwards v. Arizona, 451 U.S. 477, 101 S. Ct. 1880, 68 L. Ed. 2d 378 (1981)); Myers v. State, 401 So. 2d 288 (Ala.Cr.App.1981.) The trial court need only be convinced from a preponderance of the evidence that a confession or inculpatory statement was voluntarily made. Magwood v. State, supra; Harris v. State, 420 So. 2d 812 (Ala.Cr.App.1982). The finding of the trial court as to voluntariness will not be disturbed unless it appears contrary to the great weight of the evidence. Dill v. State, 600 So. 2d 343, 368 (Ala.Cr.App. 1991), aff'd, 600 So. 2d 372 (Ala.1992), cert. denied, 507 U.S. 924, 113 S. Ct. 1293, 122 L. Ed. 2d 684 (1993); Magwood v. State, supra."
695 So.2d at 218.
In Jackson v. State, 674 So. 2d 1318 (Ala.Cr.App.1993), aff'd in pertinent part, 674 So. 2d 1365 (Ala.1994), this Court stated:
"`"`[U]nless intoxication, in and of itself, so impairs the defendant's mind that he is "unconscious of the meaning of his words," the fact the defendant was intoxicated at the time he confessed is simply one factor to be considered when reviewing the totality of the circumstances surrounding the confession.' Carr v. State, 545 So. 2d 820, 824 (Ala.Cr.App.1989). `The intoxicated condition of an accused when he makes a confession, unless it goes to the extent of mania, does not affect the admissibility and evidence *416 of the confession, but may effect its weight and credibility.' Callahan v. State, 557 So. 2d 1292, 1300 (Ala.Cr. App.), affirmed, 557 So. 2d 1311 (Ala. 1989)."
"`White v. State, 587 So. 2d 1218 (Ala. Cr.App.1990).'
"State v. Austin, 596 So. 2d 598, 601 (Ala.Cr.App.1991)."
674 So.2d at 1326. See also Gaddy v. State, 698 So. 2d 1100, 1117 (Ala.Cr.App. 1995), aff'd, 698 So. 2d 1150 (Ala.), cert. denied, 522 U.S. 1032, 118 S. Ct. 634, 139 L. Ed. 2d 613 (1997). "`Mere emotionalism and confusion do not dictate a finding of mental incompetency or insanity' so as to render a statement inadmissible." Callahan v. State, 557 So. 2d 1292, 1300 (Ala.Cr. App.1989), quoting Sullivan v. Alabama, 666 F.2d 478, 483 (11th Cir.1982).
During the suppression hearing, Bush testified that, before the initial interview, Powell told him that he had been drinking earlier in the day. Bush stated that Powell's ability to communicate did not appear to be impaired, and that he did not appear to be suffering from any mental disease or emotional shock. Bush further stated that Powell was not threatened, coerced, or offered any inducements in return for giving his statements. Although Mike Everett, an officer with the Tuscaloosa County Homicide Unit, testified that, after Powell's first interview but before his second interview, he had seen Powell drinking in the parking lot of the station, Everett testified that, in his opinion, Powell was not intoxicated when he was interviewed.
Here, the trial court was presented with conflicting testimony as to whether Powell was under the influence of alcohol. "`When there is conflicting evidence of the circumstances surrounding an incriminating statement or a confession, it is the duty of the trial judge to determine its admissibility, and if the trial judge decides it is admissible his decision will not be disturbed on appeal "unless found to be manifestly contrary to the evidence."'" A.W.M. v. State, 627 So. 2d 1148, 1150 (Ala. Cr.App.1993), quoting Ex parte Matthews, 601 So. 2d 52, 53 (Ala.), cert. denied, 505 U.S. 1206, 112 S. Ct. 2996, 120 L. Ed. 2d 872 (1992). See, e.g., Burgess v. State, [Ms. CR-94-0475, December 18, 1998] ___ So.2d ___ (Ala.Cr.App.1998); Burks v. State, 600 So. 2d 374, 380 (Ala.Cr.App. 1991); Leonard v. State, 551 So. 2d 1143, 1148 (Ala.Cr.App.1989). As did the trial court, we have reviewed the videotaped and audiotaped statements. We conclude, as did the trial court, that there is no indication that Powell was so intoxicated that he could not comprehend his circumstances or that his statements were rendered involuntary.
Additionally, we reject Powell's argument that his statements were not voluntary because, he says, when he made them he had been deprived of food or sleep for a prolonged time. See, e.g., Pardue v. State, 695 So. 2d 199 (Ala.Cr. App.1996). Indeed, there was no testimony from any officers that Powell had not received any food or had been prevented from sleeping between each of his statements, or that he was exhausted to the point of being unable to give a voluntary statement. The record simply does not establish that Powell was deprived of food or sleep. Moreover, whether a defendant was physically exhausted when he gave his statement is merely one factor to be considered by the jury in determining the credibility and weight to afford the statement. Burgess v. State, supra.
There was ample evidence from which the trial court could conclude that Powell's statements were knowingly and voluntarily made. No error occurred in their admission.
*417 II.
Powell maintains that the trial court erred in failing to order a change of venue for his trial because, he says, many of the jurors had heard about the case through what he says was extensive media coverage, and this exposure prevented him from receiving a fair trial.
The defense produced several newspaper articles and television stories concerning the incident. During the voir dire examination of potential jurors, the veniremembers were asked whether they had read or heard anything concerning M.W.'s death. Those who responded that they did have prior knowledge of the offense were questioned individually. All of the potential jurors indicated that they could put what they had read in the newspaper or seen on television out of their minds.
"`"[A] change of venue must be granted only when it can be shown that the pretrial publicity has so `pervasively saturated' the community as to make `the court proceedings nothing more than a "hollow formality"'... or when actual prejudice can be demonstrated. The burden of showing this saturation of the community or actual prejudice lies with the appellant."'
"George v. State, 717 So.2d [827] at 833 [(Ala.Cr.App.1996)], quoting Oryang v. State, 642 So. 2d 979, 983 (Ala.Cr.App. 1993).
". . . .
"`The defendant is not entitled to jurors who are totally ignorant of the facts and issues involved in the case or to jurors who never entertained a preconceived notion as to the defendant's guilt or innocence. Ex parte Grayson, 479 So. 2d 76, 80 (Ala.), cert. denied, 474 U.S. 865, 106 S. Ct. 189, 88 L. Ed. 2d 157 (1985). A defendant is entitled to a trial by jurors who can lay aside any preconceived impressions or opinions and render a verdict based on the evidence which is presented at trial, id. The record in this case indicates that the appellant received such a trial. See also Murphy v. Florida, 421 U.S. 794, 799-800, 95 S. Ct. 2031, 2036, 44 L. Ed. 2d 589 (1975); Irvin v. Dowd, 366 U.S. 717, 723, 81 S. Ct. 1639, 1643, 6 L. Ed. 2d 751 (1961). Because the appellant has failed to show that the pre-trial publicity in this case was "inherently prejudicial," Holladay v. State, [549 So. 2d 122 (Ala.Cr.App.1988)], or "presumptively prejudicial," Kuenzel v. State, 577 So. 2d 474 (Ala.Cr.App.1990), affirmed, 577 So. 2d 531 (Ala.1991), and the appellant has also failed to show that there was actual juror prejudice, we find no abuse of discretion by the trial court or manifest error in his finding of impartiality and his denial of the appellant's motion for change of venue. Irvin v. Dowd, 366 U.S. at 724, 81 S.Ct. at 1643; Ex parte Grayson, 479 So.2d at 80.'
"Oryang v. State, 642 So.2d at 993-94."
Boyd v. State, 715 So. 2d 825, 848 (Ala.Cr. App.1997).
"`Newspaper articles or widespread publicity, without more, are insufficient to grant a motion for change of venue.'" Harris v. State, 632 So. 2d 503, 517-18 (Ala.Cr.App.1992), quoting Ex parte Grayson, 479 So. 2d 76, 80 (Ala.1985), cert. denied, 474 U.S. 865, 106 S. Ct. 189, 88 L. Ed. 2d 157 (1985).
The voir dire conducted by the trial court and by counsel clearly showed that none of the prospective jurors was prejudiced by the pretrial publicity. Therefore, Powell has failed to show any actual prejudice resulting from the pretrial publicity. *418 Boyd v. State, supra; Williams v. State, 710 So. 2d 1276 (Ala.Cr.App.1996), aff'd, 710 So. 2d 1350 (Ala.1997), cert. denied, 524 U.S. 929, 118 S. Ct. 2325, 141 L. Ed. 2d 699 (1998); Oryang v. State, 642 So. 2d 989, 993 (Ala.Cr.App.1994). Cf. Ex parte Neal, 731 So. 2d 621 (Ala.1999); Burgess v. State, supra; Hyde v. State, 778 So. 2d 199 (Ala. Cr.App.1998); and Price v. State, 725 So. 2d 1003 (Ala.Cr.App.1997), aff'd, 725 So. 2d 1063 (Ala.1998), cert. denied, 526 U.S. 1133, 119 S. Ct. 1809, 143 L. Ed. 2d 1012 (1999). Thus, the trial court did not abuse its discretion in denying Powell's motion for a change of venue. See Harris v. State, 632 So. 2d 503, 517 (Ala.Cr.App. 1992), citing Ex parte Magwood, 426 So. 2d 929, 931 (Ala.), cert. denied, 462 U.S. 1124, 103 S. Ct. 3097, 77 L. Ed. 2d 1355 (1983).
III.
Powell contends that the trial court erred in admitting into evidence a jacket and its contents.[2] Powell argues that the jacket and the contents of the pockets of the jacket were irrelevant because, he claims, there was no evidence linking him to the items. He also argues that even if the jacket and the contents of its pockets were relevant, they should not have been introduced into evidence because, he says, the evidence was highly prejudicial. Additionally, he argues that the state did not establish a proper chain of custody for the admission of the jacket.
A.
We must address whether the jacket and the contents of its pockets are relevant to Powell's case, and if so, whether the evidence's "probative value is substantially outweighed by the risk of unfair prejudice, confusion, or a tendency to mislead the trier of fact." (Appellant's brief at p. 27.)
Rule 401, Ala.R.Evid., defines "relevant evidence" as "evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence."
The test of relevancy sanctioned by the Alabama appellate courts has been described as a "liberal test of relevancy under which evidence is admissible if it has any probative value, however slight, upon a matter in the case." C. Gamble, McElroy's Alabama Evidence § 21.01(1) (5th ed.1996). In Henderson v. State, 598 So. 2d 1045 (Ala.Cr.App.1992), this Court stated:
"`"The test of probative value or relevancy of a fact is whether it has any tendency to throw light upon the matter in issue even though such light may be weak and fall short of its intended demonstration." Tate v. State, 346 So. 2d 515, 520 (Ala.Cr.App.1977). "It is not necessary that each item of testimony, taken alone, be conclusively shown to prove the guilt of the defendant; but the question is whether each fact, in connection with all others, may be properly considered in forming a chain of circumstantial evidence tending to prove the guilt of the accused." Russell v. State, 38 So. 291, 296 (Ala.1905).'"
598 So.2d at 1047-48, quoting Barrow v. State, 494 So. 2d 834, 835 (Ala.Cr.App. 1986).
Rule 403, Ala.R.Evid., states:
"Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, *419 or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence."
This Court stated in Miles v. State, 715 So. 2d 913 (Ala.Cr.App.1997):
"The trial court is vested with broad discretion when determining matters of relevancy and this Court may not overturn its decision except in cases where there is an abuse of discretion. Primm v. State, 473 So. 2d 1149 (Ala.Cr.App. 1985), citing C. Gamble, McElroy's Alabama Evidence, § 21.01(1), § 21.01(6) (3d ed.1977); McLeod v. State, 383 So. 2d 207 (1980). According to the liberal standard adopted in Alabama, such an abuse of discretion can occur only when evidence that has no probative value is introduced. McElroy's, § 21.019(1)."
715 So.2d at 919-20. See Knotts v. State, 686 So. 2d 431, 444 (Ala.Cr.App.1995).
Powell argues that there was no evidence linking him to the bloodstained suede jacket recovered from Jason Long's house.
During a preliminary hearing, Investigator John Steele testified that during Powell's first interview, Powell stated that he had spent the night with Jason Long. Officers were sent to Long's residence. At trial, Long testified that he informed Steele that Powell had visited him at his residence early in the morning on March 25, that Powell was wearing a jacket, and that Powell left the jacket at his house. Steele testified that Long gave the jacket to the officers. During the hearing, Investigator Burroughs testified that, in the police station after his initial interview and shortly before he was arrested for disorderly conduct, Powell picked up the bloodstained suede jacket that had earlier been recovered from Long's house and was sitting on an officer's desk, and he tried to put the jacket on. Additionally, Investigator Rocky Montgomery testified that, although Bobby Johnson told him that the jacket was his, Johnson noticed that the jacket was missing from his home on the morning of the murder. Powell was Bobby Johnson's roommate. Investigator Burroughs testified that a videotape from a local gas station recorded at 6:27 a.m. on March 25 revealed that when Powell entered the station he was wearing a brown suede jacket with a noticeable wet spot on the left chest area, similar to the jacket Long gave the officers shortly after the murder occurred. Thus, there was overwhelming and relevant evidence that linked Powell to the jacket.
Powell also argues that there is no evidence linking the change found in the jacket to him or to the murder.
Investigator Montgomery testified that Bobby Johnson told him that he did not place the change, the jewelry, or the matchbooks in the jacket pockets. At trial, A.W., the victim's son testified that his mother kept her change in a square container. A.W. stated that, after the murder, he was unable to locate the container. Investigator Burroughs testified that change was strewn across M.W.'s carport. In addition, Burroughs stated that the videotape from the gas station revealed that Powell paid for an alcoholic beverage with a large amount of change. Thus, evidence linked the change found in the jacket to Powell and to the murder, burglary, and robbery of M.W.
Additionally, Powell argues that the evidence of the matchbooks found in the jacket pocket and outside M.W.'s house was irrelevant, and that there was no evidence linking Powell to the matchbooks.
Testimony indicated that Powell and Bobby Johnson both worked at O'Charley's restaurant and lived across the street from the victim. The matchbooks recovered *420 from the scene and from the jacket pocket were from the O'Charley's restaurant. As previously stated, Powell was seen wearing a suede jacket the morning that the murder occurred and an O'Charley's matchbook was found in the pocket of the jacket. Thus, relevant and sufficient evidence linked Powell to the matchbooks.
In addition, Powell argues that the jewelry found in the jacket pocket was not linked to the crime.
Investigator Burroughs testified that M.W.'s jewelry box was lying upside down on her bedroom floor. A.W. testified that his mother owned a gold herringbone chain necklace similar to the necklace found in the jacket linked to Powell. He further testified that he was unable to find the necklace after his mother was killed. According to Burroughs, several of M.W.'s relatives told him that the other jewelry found in the jacket pocket was similar to jewelry worn by M.W. Thus, there was sufficient and relevant evidence linking the jewelry to Powell and to the murder, burlgary, and robbery.
Given that there was overwhelming circumstantial evidence linking the relevant items to the crime and to Powell, we conclude that the probative value of the evidence substantially outweighed its prejudicial impact.
B.
Powell maintains that the jacket was inadmissible because, he claims, a chain of custody for the jacket was not established from the time the crime was committed until the police seized the jacket, and from the time the jacket was seized until trial. Specifically, Powell argues that the jacket was inadmissible because there was no testimony establishing who had access to the jacket from the time Powell left Jason Long's house until the jacket was given to the police. Additionally, Powell argues that the state did not establish who had access to the jacket after it was taken from Jason Long's residence.
"Proper analysis of a chain of custody question ... does not begin at the time of the offense; the chain of custody begins when [an] item of evidence is seized by the State." Burrell v. State, 689 So. 2d 992, 995-96 (Ala.Cr.App.1996); State v. Conrad, 241 Mont. 1, 785 P.2d 185 (1990); 29A Am.Jur.2d, Evidence § 947 (1994 ed.) ("The chain-of-custody rule does not require the prosecution to account for the possession of evidence before it comes into their hands."). Once the state obtains the evidence, then it "`need only prove to a reasonable probability that the object is in the same condition as, and not substantially different from, its condition at the commencement of the chain.'" Turner v. State, 610 So. 2d 1198, 1200-01 (Ala.Cr. App.1992), quoting Sommer v. State, 489 So. 2d 643, 645 (Ala.Cr.App.1986).
Testimony indicated that, on March 25 around 6:00 a.m., after Powell visited a gas station while wearing a suede jacket, he walked across the street to Jason Long's residence where he slept for a few hours. Investigator Burroughs testified that Long told him that Powell was wearing the jacket when he arrived, and that Powell left the jacket at his house when he left later that morning. Investigator Rocky Montgomery testified that, around 3:00 p.m., he and Investigator Steele went to Long's house and that Long handed the jacket to Steele. Although Powell contends that someone at Long's house may have placed the jewelry, matchbook, and change in the jacket pocket after he left, Powell offers no evidence in support of this argument. His contention does not affect the admissibility of the evidence based on a chain-of-custody objection. Therefore, whether someone other *421 than Powell placed the items in the jacket pocket was only a relevant question for the jury to decide. Burrell v. State, supra.
In Ex parte Scott, 728 So. 2d 172 (Ala. 1998), the Supreme Court stated:
"`In Ex parte Holton, 590 So. 2d 918, 920 (Ala.1991), the Alabama Supreme Court stated:
"`"The chain of custody is composed of `links.' A `link' is anyone who handled the item. The State must identify each link from the time the item was seized. In order to show a proper chain of custody, the record must show each link and also the following with regard to each link's possession of the item: `(1) [the] receipt of the item; (2) [the] ultimate disposition of the item, i.e., transfer, destruction, or retention; and (3) [the] safeguarding and handling of the item between receipt and disposition.' Imwinklereid, The Identification of Original, Real Evidence, 61 Mil.L.Rev. 145, 159 (1973).
"`"If the State, or any other proponent of demonstrative evidence, fails to identify a link or fails to show for the record any one of the three criteria as to each link, the result is a `missing' link, and the item is inadmissible. If, however, the State has shown each link and has shown all three criteria as to each link, but has done so with circumstantial evidence, as opposed to the direct testimony of the `link,' as to one or more criteria or as to one or more links, the result is a `weak' link. When the link is `weak,' a question of credibility and weight is presented, not one of admissibility."'"
728 So.2d at 182, quoting Knight v. State, 659 So. 2d 931, 932 (Ala.Cr.App.1993). See Jackson v. State, [Ms. CR-97-2050, May 28, 1999] ___ So.2d ___ (Ala.Cr.App. 1999); Thomas v. State, 766 So. 2d 860 (Ala.Cr.App.1998).
Whether a trial court erred in overruling an objection made on chain-of-custody grounds is reviewed under an abuse-of-discretion analysis. Akin v. State, 698 So. 2d 228, 232-33 (Ala.Cr.App. 1996), cert. denied, 698 So. 2d 238 (Ala. 1997).
Jason Long testified that he showed Investigator Steele and Montgomery Powell's jacket, which was hanging in his bedroom closet. Long stated that Steele took the jacket from the closet; however, Steele testified that Long handed him the jacket. At trial, Long testified that the jacket appeared to be in substantially the same condition at trial as when Steele removed it from his house. Steele testified that, after Long gave him the jacket, he returned to the police station. Bush stated that Steele placed the jacket on an officer's desk, and that he received the jacket from Steele around 3:30 p.m. Bush further stated that he found approximately $3.00 in change, one O'Charley's matchbook, two condoms and various items of jewelry in the pockets of the jacket. Bush testified that he left the items in the pockets of the jacket, and that he placed the jacket in a brown paper bag. Bush further testified that he remained with the jacket the entire time that it was at the police station. According to Bush, Mitch Rector conducted a presumptive test at the police station on the stain on the jacket to determine whether it was blood. Bush stated that he then gave the jacket to Mike Everett. Everett testified that, around 10:00 p.m., he drove to O'Charley's and showed the jacket to Bobby Johnson, who identified the jacket as being his property. Everett stated that he then returned to the police station and gave the jacket to Bush. Bush testified that he secured the jacket. Bush *422 further testified that, on March 28, he transferred the jacket to Johnny Dyer.
Dyer testified that he received the jacket from Bush in a sealed condition and that he transported it to the Department of Forensic Sciences lab in Tuscaloosa. Dyer further testified that he gave the jacket to John McDuffie, the director of the Tuscaloosa lab. McDuffie testified that he received the jacket in its sealed condition from Dyer. Mike Lee testified that he received the sealed jacket from the Tuscaloosa lab on April 19, and that he transported it to the Department of Forensic Sciences serology lab in Birmingham, and placed it in a locker. Larry A. Huys, a forensic scientist, testified that on April 20, he took the jacket out of the locker and analyzed the stain on a portion of the jacket. He further testified that he cut part of the jacket in order to perform the analysis, and that the jacket was in his exclusive care, custody, and control. Huys stated that he transferred the jacket to Dyer on July 13. Dyer testified that he transported the jacket from the Birmingham lab to the Tuscaloosa lab. McDuffie testified that he received the jacket from Dyer on July 13. Additionally, McDuffie testified that he gave the jacket to Mitch Rector on or about September 22. Rector testified that he transferred the jacket from the Tuscaloosa lab to the Birmingham lab on September 22. Huys testified that the jacket remained at the Birmingham lab in his exclusive care and control until he transferred the jacket to Rector on November 20. Rector testified that he transferred the jacket to the Tuscaloosa lab. McDuffie testified that he received the jacket at the Tuscaloosa lab on November 20, and that it remained in his constant care and control. McDuffie stated that, on September 4, 1997, he gave the jacket to the court reporter for the trial court.
In this case, the circumstantial and direct evidence established that the jacket was received, retained, and safeguarded by the police. Thus, any weak links in the chain of custody go to the weight and credibility of the evidence, rather than to its admissibility. See Ex parte Scott, supra.
Moreover, the jacket was admissible under § 12-21-13, Ala.Code 1975, which states:
"Physical evidence connected with or collected in the investigation of a crime shall not be excluded from consideration by a jury or court due to a failure to prove the chain of custody of the evidence. Whenever a witness in a criminal trial identifies a piece of evidence connected with or collected in the investigation of a crime, the evidence shall be submitted to the jury or court for whatever weight the jury or court may deem proper. The trial court in its charge to the jury shall explain any break in the chain of custody concerning the physical evidence."
Accordingly, we find no error as to this claim. Loggins v. State, 771 So. 2d 1070 (Ala.Cr.App.1999).
IV.
Powell contends that his indictment charging him with the separate offenses of murder during the course of a burglary in the first degree, murder during the course of a robbery in the first degree, murder during a rape in the first degree, and murder during sodomy in the first degree was multiplicitous and violated the Double Jeopardy Clause of the Fifth Amendment to the United States Constitution.
"[T]he test in determining whether the charges run afoul of the Double Jeopardy Clause is whether each crime *423 contains a statutory element not contained in the other." Williams v. State, 710 So. 2d 1276, 1321 (Ala.Cr.App.1996), citing Blockburger v. United States, 284 U.S. 299, 52 S. Ct. 180, 76 L. Ed. 306 (1932).
The Supreme Court of Alabama addressed a similar issue in Ex parte McWilliams, 640 So. 2d 1015 (Ala.1993), aff'd on return to remand, 666 So. 2d 89 (Ala.Cr. App.1994), aff'd, 666 So. 2d 90 (Ala.1995), cert. denied, 516 U.S. 1053, 116 S. Ct. 723, 133 L. Ed. 2d 675 (1996), wherein the Court stated:
"In Grady v. Corbin, 495 U.S. 508, 110 S. Ct. 2084, 109 L. Ed. 2d 548 (1990), the United States Supreme Court addressed the scope of coverage of the Double Jeopardy Clause, as follows:
"`The Double Jeopardy Clause embodies three protections: "It protects against a second prosecution for the same offense after acquittal. It protects against a second prosecution for the same offense after conviction. And it protects against multiple punishments for the same offense." North Carolina v. Pearce, 395 U.S. 711, 717, 89 S. Ct. 2072, 2076, 23 L. Ed. 2d 656 (1969) (footnotes omitted). The Blockburger [v. United States, 284 U.S. 299, 304, 52 S. Ct. 180, 182, 76 L. Ed. 2d 306 (1932),] test was developed "in the context of multiple punishments imposed on a single prosecution." Garrett v. United States, 471 U.S. 773, 778, 105 S. Ct. 2407, 2411, 85 L. Ed. 2d 764 (1985).'
"Grady, 495 U.S. at 516-17, 110 S.Ct. at 2090-91, 109 L.Ed.2d at 561. This Court has also held that the Double Jeopardy Clause of the Alabama Constitution, Art. I, § 9, applies only in three areas enumerated above. Ex parte Wright, 477 So. 2d 492 (Ala.1985).
"In this case, McWilliams was not prosecuted for the same offense after an acquittal; nor was he prosecuted for the same offense after a conviction. That is, he was not prosecuted twice for the same offense. Moreover, while in King [v. State, 574 So. 2d 921 (Ala.Cr.App. 1990),] the defendant received four separate prison sentences for the same offense, McWilliams has only been sentenced to die once and, indeed, can only be put to death once.
"In the context of prescribing multiple punishments for the same offense, the United States Supreme Court has stated that `the Double Jeopardy Clause does no more than prevent the sentencing court from prescribing greater punishment than the legislature intended.' Missouri v. Hunter, 459 U.S. 359, 366, 103 S. Ct. 673, 678, 74 L. Ed. 2d 535 (1983).
"In the present case, it is clear that the jury knew that it was convicting McWilliams of murdering Patricia Reynolds only once. It is also clear that the jury knew McWilliams's crime was made capital because his victim was murdered in the course of one robbery and one rape. We conclude, therefore, that the sentencing court has not prescribed a greater punishment than the legislature intended."
640 So.2d at 1022.
In this case, the facts clearly reveal that the jury knew it was convicting Powell of one murderi.e., the murder of M.W. Additionally, the facts established that the crime was made capital because M.W. was murdered during the course of one burglary, one robbery, one rape, and one act of sodomy. Because each crime contained an element of an offense not committed in the other, the charges did not run afoul of the Double Jeopardy Clause.
"We therefore conclude that under the Blockburger test, the appellant was properly indicted and convicted for ... *424 separate and distinct capital offenses `notwithstanding a substantial overlap in the proof offered to establish the crimes,' Iannelli v. United States, 420 U.S. 770, 785 n. 17, 95 S. Ct. 1284, 1293 n. 17, 43 L. Ed. 2d 616 (1975); Jackson v. State, 516 So. 2d 726, 761 (Ala.Cr.App. 1985), rem'd on other grounds, 516 So. 2d 768 (Ala.1986)."
Williams v. State, 710 So. 2d 1276, 1321 (Ala.Cr.App.1996).
Therefore, the charges were not multiplicitous and Powell's conviction on the four counts did not violate the Double Jeopardy Clause.
V.
Powell contends that the trial court erred in denying his motion to suppress evidence seized after his arrest for disorderly conduct. Specifically, he contends that his clothing and samples of his blood, saliva, hair, semen, and tissue were unlawfully seized because, he says, his arrest was illegal.
First, we must determine whether probable cause existed to arrest Powell for disorderly conduct.
In State v. Johnson, 682 So. 2d 385 (Ala. 1996), our Supreme Court held that:
"The level of evidence needed for a finding of probable cause is low. `An officer need not have enough evidence or information to support a conviction [in order to have probable cause for arrest].... "[O]nly the probability, and not a prima facie showing, of criminal activity is the standard of probable cause."' Stone v. State, 501 So. 2d 562, 565 (Ala.Cr.App. 1986). `"Probable cause exists where `the facts and circumstances within [the arresting officers'] knowledge and of which they had reasonably trustworthy information [are] sufficient in themselves to warrant a man of reasonable caution in the belief that' an offense has been or is being committed."' Young v. State, 372 So. 2d 409, 410 (Ala.Cr.App.1979)(quoting Draper v. United States, 358 U.S. 307, 313, 79 S. Ct. 329, 333, 3 L. Ed. 2d 327 (1959))."
682 So.2d at 387-88.
Section 15-10-3(a)(1), Ala.Code 1975, states, in pertinent part: "An officer may arrest a person without a warrant, on any day and at any time ... [i]f a public offense has been committed or a breach of the peace threatened in the presence of a police officer."
Section 13A-11-7(a), Ala.Code 1975, states, in pertinent part:
"A person commits the crime of disorderly conduct if, with intent to cause public inconvenience, annoyance or alarm, or recklessly creating a risk thereof, he:
"(1) Engages in fighting or in violent tumultuous or threatening behavior; or
"(2) Makes unreasonable noise; or
"(3) In a public place uses abusive or obscene language or makes an obscene gesture...."
Investigator Stan Bush testified that, during Powell's initial videotaped interview, he read Powell his Miranda rights. Bush testified that Powell voluntarily executed a waiver form indicating that he understood his rights. Bush stated that, after the interview, he told Powell that he was free to go, and that Powell left the building. Bush stated that he went to his office and reviewed some paperwork, and that he then walked outside to look at Vincent Johnson's car. According to Bush, as he was walking back to the building, he saw Powell and asked him to return to the station because Bush wanted to see if the shoe prints found in a crawlspace underneath M.W.'s home matched the *425 soles of Powell's shoes.[3] Bush stated that Powell agreed to return to the station, and that, while he went into another room to get a camera, he heard Powell begin to loudly use profanity. Tuscaloosa County Deputy Taylor Powell testified that, while he was in the process of a shift change, he saw Powell standing in the lobby and that Powell was cursing. Deputy Taylor Powell stated that Powell used loud and abusive language, and that Powell said, "You better tell those punk-ass police there ain't no bitches over here." (R. 439.) Taylor Powell further stated that Powell referred to the police as "motherfuckers." (R. 439.) Additionally, Taylor Powell testified that Tom Lowe, the Chief of the Tuscaloosa Police Department, homicide office, told him to arrest Powell for disorderly conduct. Taylor Powell stated that he handcuffed Powell and transported him to the county jail. Lloyd Baker, a deputy for the Tuscaloosa County Sheriffs Department, testified that just before Powell's arrest Powell was "being very loud and profane with his words, directing profane or abusive language toward the deputies." (R. 458.) According to Baker, Powell would calm down for a moment and then "start back up." (R. 458.) Lowe testified that he ordered an officer to arrest Powell because of his loud use of profanity and his unruly behavior in the hall outside the main homicide office.
Because Powell cursed loudly and used abusive language in the presence of several police officers at the police station, the officers had sufficient probable cause to arrest Powell for the misdemeanor offense of disorderly conduct. Thus, we conclude his arrest was lawful.
A.
Powell maintains that the trial court erred in denying his motion to suppress and in admitting into evidence in his capital murder trial the clothing he was wearing when he was arrested for disorderly conduct.
In United States v. Robinson, 414 U.S. 218, 94 S. Ct. 467, 38 L. Ed. 2d 427 (1973), the United States Supreme Court held:
"A custodial arrest of a suspect based on probable cause is a reasonable intrusion under the Fourth Amendment; that intrusion being lawful, a search incident to the arrest requires no additional justification. It is the fact of the lawful arrest which establishes the authority to search, and we hold that in the case of a lawful custodial arrest a full search of the person is not only an exception to the warrant requirement of the Fourth Amendment, but is also a `reasonable' search under that Amendment."
414 U.S. at 235, 94 S.Ct. at 477. See State v. Adams, 643 So. 2d 606, 610 (Ala.Cr.App. 1992).
A police officer may search for and seize any evidence on the arrestee's person, even if the evidence is unrelated to the crime for which the arrest was made, in order to prevent concealment or destruction of evidence. See Thomas v. State, 666 So. 2d 849, 853-54 (Ala.Cr.App. 1993), rev'd on other grounds, 666 So. 2d 855 (Ala.1995) (cocaine discovered in defendant's pockets after an arrest for disorderly conduct was admissible at trial where defendant was charged with disorderly conduct and possession of cocaine.); Ex parte Scarbrough, 621 So.2d at 1010 (confession to a murder, obtained while defendant was under arrest for traffic violation, *426 was admissible at trial); Chimel v. California, 395 U.S. 752, 89 S. Ct. 2034, 23 L. Ed. 2d 685 (1969). Moreover, a search incident to a lawful arrest does not have to be made immediately on arrest. "[S]earches and seizures that could be made on the spot at the time of arrest may legally be conducted later when the accused arrives at the place of detention." United States v. Edwards, 415 U.S. 800, 803, 94 S. Ct. 1234, 1237, 39 L. Ed. 2d 771 (1974). See also Abel v. United States, 362 U.S. 217, 80 S. Ct. 683, 4 L. Ed. 2d 668 (1960).
Having determined that Powell's arrest for disorderly conduct was lawful, the subsequent search of his person and seizure of his clothes incident to that lawful arrest was permissible. See Taylor v. State, 239 Ga.App. 858, 522 S.E.2d 266 (1999); State v. Staten, 238 Neb. 13, 469 N.W.2d 112 (1991); Pinkston v. State, 189 Ga.App. 851, 377 S.E.2d 864 (1989); and 2 LaFavre, Search and Seizure § 5.3 (3d ed.1996). Therefore, the trial court did not err in denying Powell's motion to suppress these items.
Additionally, the admission of the evidence was proper because the seizure of an arrestee's clothing is a reasonable administrative procedure. Cf. Ayers v. State, 659 So. 2d 177 (Ala.Cr.App.1994). During the suppression hearing, Taylor Powell testified that it is standard procedure in Tuscaloosa County to seize the clothing of an arrested person if the person is to be incarcerated and dressed in a jumpsuit. Taylor Powell further testified that the police often use their discretion in determining whether a loud and boisterous person who is arrested and charged with disorderly conduct will be permitted to make bond and leave or whether to remove the person's clothes and issue him or her a jumpsuit. Taylor Powell stated that he had planned to make Powell change into a jumpsuit after he had finished booking him for disorderly conduct, and that Bush arrived and seized Powell's clothing before he had finished the booking procedure. The fact that Powell's clothes were seized before Taylor Powell finished booking Powell does not constitute a Fourth Amendment violation. Because Powell's clothing would have been seized and inventoried at the conclusion of booking, no error occurred in this regard.
Finally, we reject Powell's argument that the seizure of his clothing was unlawful because, he says, he was illegally detained after his arrest for the misdemeanor offense of disorderly conduct. Specifically, he argues that he should have been permitted to pay his bond and leave without being detained and forced to change clothes.[4]
Rule 4.3(a)(1)(iii), Ala.R.Crim.P. provides that, in a warrantless arrest situation, a probable cause hearing must be held within 48 hours, where the defendant remains in custody. See Riverside v. McLaughlin, 500 U.S. 44, 111 S. Ct. 1661, 114 L. Ed. 2d 49 (1991).
Here, Powell was arrested for disorderly conduct on March 25, 1995. Investigator Bush testified that Powell's clothing was seized shortly after his arrest for disorderly conduct on March 25, 1995. Given that Powell's clothing was seized within 48 hours of his arrest for disorderly conduct, he may not now argue that he was illegally detained during the seizure of his clothing.
*427 Based on the foregoing, the trial court's refusal to suppress the evidence found on Powell's clothing was not "palpably contrary to the great weight of the evidence."
B.
Powell maintains that the trial court erred in denying his motion to suppress and in admitting into evidence the test results of his blood, saliva, hair, semen, and tissue samples. Specifically, he argues that the affidavit in support of the warrant was based on hearsay and did not establish probable cause to believe that he had participated in the offense.
In Jones v. State, 719 So. 2d 249 (Ala.Cr. App.1996), this Court stated:
"A finding of probable cause may be based completely on hearsay evidence, `provided that there is a substantial basis for believing the evidence under the totality of the circumstances.' Rule 3.9(b), Ala.R.Crim.P. `An issuing judge's determination that sufficient probable cause existed to support the warrant "is entitled to great deference and is conclusive in the absence of arbitrariness."' Wamble v. State, 593 So. 2d 109, 110 (Ala.Cr.App.1991), citing United States v. Pike, 523 F.2d 734 (5th Cir.1975), reh'g denied, 525 F.2d 1407, cert. denied, 426 U.S. 906, 96 S. Ct. 2226, 48 L. Ed. 2d 830 (1976). We must determine whether the issuing judge had a `substantial basis' for concluding that probable cause existed. Wamble v. State; Illinois v. Gates, 462 U.S. 213, 238, 103 S. Ct. 2317, 2332, 76 L. Ed. 2d 527 (1983)."
719 So.2d at 254. (Emphasis added.)
Powell was arrested and charged with murder at 2:05 a.m. on March 26. On March 28, Bush applied for a warrant to compel Powell to submit to the taking of specimens or samples of blood, saliva, and hair from his person. The affidavit in support of the trial court's order that Powell submit to the taking of specimens or samples of blood, saliva, and hair from his person stated, in pertinent part, the following:
"My name is Stan Bush. I am a police officer with the Tuscaloosa Police Dept. I am currently assigned as an investigator to the Tuscaloosa County Homicide Unit (TCHU).
"On March 25, 1995, [M.W.] was the victim of a home invasion murder. She was a 70-year-old white female who lived alone at 3516 19th St. N.E. Holt, Al. She was shot numerous times and was also beaten. After the shooting and assault took place in the bedroom of [M.W.'s] residence, [M.W.] was able to walk from her residence to the front yard of her neighbor (Cora Jennings) before she collapsed (3423 19th St. N.E.). Another of [M.W.'s] neighbors, Ruth Kizziah, also ran to [M.W.'s] aid, Mrs. Kizziah has told me that [M.W.] told her that an unknown black male had raped and shot her. [M.W.] was physically unable to give any more of a description before she died.
"The investigation conducted by the Tuscaloosa County Homicide Unit indicated that the suspect who had shot [M.W.] had attempted to gain entry into [M.W.'s] residence through a front living room window. Investigators were able to lift palm prints from the glass of this window. The suspect gained entry into the [M.W.] home through the back bathroom window. Fibers were recovered from the brick at the bathroom window seal. Investigators believe that [M.W.] was assaulted in her bedroom. There was a large concentration of blood, hair and fibers on and about her bed which I observed.
"Investigation led to one Eddie Duvall Powell (3423 19th St. N.E.). Powell has *428 been arrested numerous times for burglary, robbery and assault. Mitch Rector of Dept. of Forensic Science in Tuscaloosa has told me that Powell's palm prints have been identified by him as those that were recovered from the front living room window by investigators. Powell's clothing that he was wearing on [March 25] have also been recovered and have a large amount of blood on them.
"I have talked with the Medical Examiner Johnny Dyer who advised that [the] preliminary autopsy report did not indicate any sexual assault had taken place but he did stress that microscopic results have not been returned and the results are not final.[5] Blood, hair and saliva samples obtained from the suspect could be used to compare with those submitted as evidence to help identify the assailant as various samples of hair and blood were recovered from the crime scene."
(C. 706-07.)[6]
The affidavit additionally stated:
"Based upon the foregoing facts and information, your affiant believes and states that there is probable cause to believe and does believe that Eddie Duval Powell was the assailant who burglarized [M.W.'s] residence and shot her to death and that the said Eddie Duval Powell should be ordered to submit to the taking of samples of his hair, blood and saliva for comparison to the evidence obtained during the investigation."
(C. 707.)
In this case, the affidavit indicated that Powell's handprint was discovered on M.W.'s window, that M.W. told her neighbor that her assailant was an African-American male, and that Powell's clothing, which was obtained on the day of the murder, contained several bloodstains. We find that the facts detailed in Bush's affidavit were sufficient to form a substantial basis for the trial judge's determination that probable cause existed to support an order to obtain samples of blood, saliva, hair, semen, and tissue. Thus, the trial court did not err in denying Powell's motion to suppress and in admitting the test results into evidence.
VI.
Powell contends that the trial court erred in admitting into evidence photographs showing scratches on his neck. Specifically, he argues that the trial court's order was invalid, because, he says, the affidavit in support of the order to photograph the scratches on his neck did not establish probable cause and was based on hearsay.
As previously stated in Part V of this opinion, a finding of probable cause may be based solely on hearsay evidence, "`provided there is a substantial basis for believing the evidence under the totality of the circumstances.'" Jones v. State, 719 So.2d at 254, quoting Rule 3.9(b), Ala. R.Crim.P.
Additionally, we note that, in general, the mere observation of a person's physical characteristics does not constitute a Fourth Amendment search. See Nguyen v. State, 547 So. 2d 582, 585 (Ala.Cr. App.1988). "`Moreover, it is no search to *429 "record" those characteristics, in effect, by taking a picture of the individual.'" Nguyen v. State, 547 So.2d at 585, quoting LaFave, Search and Seizure, § 2.6(a) (1987).
In this case, the affidavit in support of the trial court's order to photograph scratches on Powell's neck stated the same facts listed in the affidavit discussed in Part V of this opinion. Additionally, the affidavit stated:
"I also observed some scratches on Powell's neck which have a straight-line pattern to them and may have been caused by his entry through [M.W.'s] window.
"Based upon the foregoing facts and information, your affiant believes and states that there is probable cause to believe and does believe that Eddie Duvall Powell was the assailant who burglarized [M.W.'s] residence and shot her to death and that the said Eddie Duval Powell should be ordered to submit to the taking of a photograph of his neck and samples of his hair, blood and saliva for comparison to the evidence obtained during the investigation."
(C. 712-13.) The trial court ordered Powell to submit to the taking of a photograph of his neck based on the information contained in the affidavit. (C. 711.)
In this case, the affidavit indicated that the suspect had entered M.W.'s house through the bathroom window. Bush personally saw long scratches on the back of Powell's neck, which he believed may have been caused by Powell's entry into the house through the window. Moreover, Bush stated that a large amount of blood was found on Powell's clothing. Additionally, Bush stated that Mitch Rector, a forensic scientist, told him that Powell's palm prints were recovered from M.W.'s living room. Thus, we find that the facts detailed in Bush's affidavit were sufficient to form a substantial basis for the trial court's determination that probable cause existed to support the issuance of an order to photograph the scratches on Powell's neck.
In addition, Powell argues that the photograph should have been excluded under Rule 402 and Rule 403, Ala.R.Evid., because, he says, it was not relevant, it had little or no probative value, and it was highly prejudicial. Specifically, he argues that the scratches on the back of his neck were not linked to the charged offenses.
Rule 403, Ala.R.Evid., provides that relevant evidence may be excluded if its "probative value is substantially outweighed by the danger of unfair prejudice." A determination whether the probative value of evidence is substantially outweighed by the danger of unfair prejudice rests within the sound discretion of the trial court. Hayes v. State, 717 So. 2d 30 (Ala.Cr.App.1997).
In Fisher v. State, 665 So. 2d 1014 (Ala. Cr.App.1995), we stated:
"As to the appellant's contention that the photographs are prejudicial, all evidence that tends to make out the case of one litigant is prejudicial to the opposing litigant. If it were not in some way prejudicial to the opposing party, one would question its relevance. An authenticated photograph may be received into evidence if it tends to `prove or disprove some disputed issue, ... illustrate or elucidate some relevant fact or... corroborate or disprove some other evidence offered or to be offered.' C. Gamble, McElroy's Alabama Evidence, § 123.03(1) (4th ed.1991)."
665 So.2d at 1019. See also Snell v. State, 565 So. 2d 265, 267-68 (Ala.Cr.App.1989), rev'd on other grounds, 565 So. 2d 271 (Ala. 1990) (photographs depicting scratches on defendant's body were relevant to prove that a struggle occurred during rape).
*430 In this case, the photographs of the scratches on Powell's neck were relevant to the issue whether Powell burglarized M.W.'s house by entering through a window. Lincoln Irvin testified that he cut Powell's hair on the evening of March 24, 1995, and that there were no scratches on Powell's neck. Cora Jennings testified that, around noon on March 25, 1995, she noticed scratches on the back of Powell's neck. In Powell's videotaped interview, which was played to the jury, he stated that the scratches on his neck were caused by a razor during a haircut. Thus, the trial court did not err in determining that the photographs of Powell's neck were relevant and that their probative value was not substantially outweighed by the danger of unfair prejudice.
VII.
Powell contends that the trial court erred in denying his motion for a mistrial because, he says, the jury venire was racially diluted and the trial court erred in denying his Batson motion.
A.
Powell contends that the trial court erred in denying his motion for a mistrial; the motion was based on the "racial dilution of the jury panel." (Appellant's brief at p. 46.) Specifically, he argues that the method used by the circuit clerk of dividing a large jury panel among various courtrooms denied him a jury venire that represented a fair cross-section of the community.
In Dobyne v. State, 672 So. 2d 1319 (Ala. Cr.App.1994), this Court stated:
"`[T]he fair cross-section requirement "ensures only a venire of randomness, one free of systematic exclusion. It does not ensure any particular venire." Note, United States v. Gelb: The Second Circuit's Disappointing Treatment of the Fair Cross-Section Guarantee, 57 Brook.L.Rev. 341, 343 n. 7 (1991). "Rather than being entitled to a cross-sectional venire," a defendant "has a right only to a fair chance, based on a random draw, of having a jury drawn from a representative panel." Comment, The Cross-Section Requirement and Jury Impartiality, 73 Cal.L.Rev. 1555, 1565 (1985)."
Dobyne v. State, 672 So.2d at 1329, quoting Sistrunk v. State, 630 So. 2d 147, 150 (Ala. Cr.App.1993).
Our review of the record indicates that there were approximately 120 potential jurors on the jury panel29 of whom were African-American. After the panel was qualified by the trial court, the potential jurors were divided among the various courtrooms.[7] This division of the jury pool resulted in a jury venire for Powell's trial of 38 individuals9 of whom were African-American. After challenges for cause were granted, three African-American veniremembers were left on the panel. Defense counsel timely objected to the division of the jury panel on the grounds that the division prevented Powell from "having a fair and accurate cross-section of the community." (R. 1066.) The trial court determined that the court's practice was to divide jurors among the various courtrooms, and denied Powell's motion for a mistrial.
Given that the jury panel was divided among the courtrooms, there is no evidence that certain groups of venire-members *431 were systematically excluded from the jury pool. Thus, the trial court did not err in denying Powell's motion for a mistrial. Dobyne v. State, supra.
B.
Powell contends that the trial court erred in finding that he did not prove a prima facie case of racial discrimination under Batson v. Kentucky, 476 U.S. 79, 106 S. Ct. 1712, 90 L. Ed. 2d 69 (1986). Specifically, he argues that the state's use of one of its peremptory challenges to remove juror number 106 from the jury venire and its selection of juror number 2 as its second alternate juror violated Batson. We disagree.
In support of his Batson motion, Powell argued that because the state removed one African-American juror and selected another African-American juror as an alternate, the state's strikes were not race-neutral. Our review of the record indicates that out of a jury pool of 38 veniremembers, 9 members were African-American. After challenges for cause were granted, 3 members were African-American. The state removed juror number 106, and selected juror number 2 as an alternate. The third African-American veniremember remained on the jury panel. The trial court determined that Powell failed to establish a prima facie Batson violation; therefore, it did not require the State to explain its reasons for its peremptory strikes of the African-American veniremembers.
"`Merely showing that the challenged party struck one or more members of a particular race is not sufficient to establish a prima facie case.'" Farrior v. State, 728 So. 2d 691, 699 (Ala.Cr.App. 1998), quoting Edwards v. State, 628 So. 2d 1021, 1024 (Ala.Cr.App.1993); Moore v. State, 677 So. 2d 828, 829 (Ala.Cr.App. 1996). A defendant fails to establish a prima facie case of discrimination under Batson and Ex parte Branch, 526 So. 2d 609 (Ala.1987), where the defendant fails to show any evidence of discrimination other than the number of African-American veniremembers who were struck. Young v. State, 730 So. 2d 1251, 1253-54 (Ala.Cr. App.1998); Moore v. State, 677 So.2d at 829. "`It is within the sound discretion of the trial court to determine if the State's peremptory challenges of black jurors are motivated by intentional racial discrimination.'" Taylor v. State, 666 So. 2d 36, 43 (Ala.Cr.App.1994), aff'd 666 So. 2d 73 (Ala. 1995), cert. denied, 516 U.S. 1120, 116 S. Ct. 928, 133 L. Ed. 2d 856 (1996), quoting Ex parte Lynn, 543 So. 2d 709, 712 (Ala. 1988), cert. denied, 493 U.S. 945, 110 S. Ct. 351, 107 L. Ed. 2d 338 (1989). "A circuit court's ruling on a Batson objection is entitled to great deference, and we will reverse a circuit court's Batson findings only if they are clearly erroneous." Stokes v. State, 648 So. 2d 1179, 1181 (Ala.Cr.App. 1994) (citations omitted).
In this case, the defense based its Batson challenge exclusively on the number of African-American veniremembers who were struck from the jury and who were selected as alternates. The fact that the state used one of its strikes to remove an African-American veniremember and selected one African-American veniremember as an alternate does not establish a prima facie case of discrimination. Thus, the trial court did not abuse its discretion by finding that the Powell failed to prove a prima facie Batson violation.
Based on the foregoing, the trial court's denial of the Powell's motion was not clearly erroneous.
VIII.
In accordance with Rule 45A, Ala.R.App. P., we have examined the record for any plain error with respect to Powell's capital-murder *432 convictions and death sentence, whether or not brought to our attention or to the attention of the trial court. We find no plain error or defect in either the guilt phase or the sentencing phase of Powell's trial.
We have also reviewed Powell's sentence in accordance with § 13A-5-53, Ala.Code 1975, which requires that, in addition to reviewing the case for any error involving Powell's capital murder convictions, we also review the propriety of the death sentence. Our determination must include a review of the following: (1) whether any error adversely affecting the rights of the defendant occurred in the sentence proceedings; (2) whether the trial court's findings concerning the aggravating and mitigating circumstances were supported by the evidence; and (3) whether death is the appropriate sentence in this case. Section 13A-5-53(b) requires that, in determining whether death is the proper sentence, we ascertain: (1) whether the sentence of death was imposed under the influence of passion, prejudice, or any other arbitrary factor; (2) whether an independent weighing by this court of the aggravating and mitigating circumstances indicates that death is the proper sentence; and (3) whether the sentence of death is excessive or disproportionate to the penalty imposed in similar cases, considering both the crime and the defendant.
After the jury convicted Powell of the capital offenses charged in the indictment, a separate sentence hearing was held before the jury in accordance with §§ 13A-5-45 and -46, Ala.Code 1975. After hearing evidence concerning the aggravating circumstances and the mitigating circumstances; after being properly instructed by the trial court as to the applicable law; and after being correctly advised as to its function in reference to the finding of any aggravating and mitigating circumstances, the weighing of those circumstances, and its responsibility in returning an advisory verdict, the jury recommended, by a vote of 11-1, a sentence of death by electrocution.
Thereafter, the trial court held another hearing, in accordance with § 13A-5-47, Ala.Code 1975, to determine whether it would sentence Powell to death as the jury recommended or to life imprisonment without the possibility of parole. The trial court ordered and received a written presentence investigation report, as required by § 13A-5-47(b). After the hearing, the trial court entered specific written findings concerning the existence or nonexistence of each aggravating circumstance enumerated in § 13A-5-49, Ala.Code 1975, each mitigating circumstance enumerated in § 13A-5-51, Ala.Code 1975, and any nonstatutory mitigating circumstance found to exist under § 13A-5-52, Ala.Code 1975, as well as written findings of fact summarizing the offense and Powell's participation in the offense.
In its findings of fact, the trial court found the existence of two statutory aggravating circumstances: (1) that the murder was committed while Powell was engaged in committing or attempting to commit, or fleeing after committing, or attempting to commit rape, robbery, or kidnapping, see § 13A-5-49(4), Ala.Code 1975; and (2) that the capital offense was especially heinous, atrocious, or cruel compared to other capital offenses, see § 13A-5-49(8), Ala. Code 1975. With regard to its finding that the capital offense was especially heinous, atrocious, or cruel compared to other capital offenses, the trial court stated:
"The State proved this circumstance beyond a reasonable doubt. The victim was an older woman, who was not in good health. The victim was horribly assaulted about the head with a blunt weapon with several blows hard enough *433 to tear her scalp and render her unconscious. She was brutally raped and sodomized orally and rectally. She was pursued from her home and shot five or six times, resulting in her death. The manner in which the victim was killed was unnecessarily torturous to the victim for an undetermined period of time. This killing of this victim was the epitome of a conscienceless or pitiless homicide."
(C. 666.)
The trial court found the existence of one statutory mitigating circumstance: the age of the defendant (he was 25 years old) at the time of the crime, see § 13A-5-51(7), Ala.Code 1975. The trial court found the existence of the following nonstatutory mitigating circumstances:
(1) that Powell exhibited signs of mental or emotional problems that went untreated;
(2) that Powell suffered direct or indirect abuse at some time in his life;
(3) that Powell was detrimentally affected by his family's instability during his early and middle years;
(4) that Powell had suffered some degree of neglect and deprivation in his early childhood years as the result of family turmoil, instability, and other factors;
(5) that Powell has friends and relatives who love him and do not want to see him die;
(6) that Powell has demonstrated the capacity to love and to care for another human being. As a young father, he cared for and demonstrated devotion to his children. This love was expressed in practical day-to-day ways, such as changing diapers, and bathing and feeding the infants, and in more profound ways, such as searching for employment;
(7) that Powell was suffering from unrelated, yet real stresses, at the time of the crime; and
(8) that Powell assisted other inmates while incarcerated.
(C. 669.)
The trial court's sentencing order reflects that after considering all the evidence presented, the arguments of counsel, the presentence report, the advisory verdict of the jury, and after weighing the aggravating circumstances against any statutory and nonstatutory mitigating circumstances, the court determined that the aggravating circumstances outweighed the mitigating circumstances. Accordingly, the trial court properly sentenced Powell to death. We conclude that the trial court's findings concerning the aggravating circumstances and the mitigating circumstances are supported by the evidence.
Powell was convicted of one count of the offense of murder committed during the course of a burglary, one count of murder committed during the course of a robbery, one count of murder committed during a rape, and one count of murder committed during the course of sodomy. These offenses are defined by statute as capital offenses. See §§ 13A-5-40(a)(2),(3), and (4), Ala.Code 1975. We take judicial notice that similar crimes have been punished capitally throughout the state. See, e.g., Freeman v. State, 776 So. 2d 160 (Ala.Cr.App.1999); Barnes v. State, 704 So. 2d 487 (Ala.Cr.App.1997); Hutcherson v. State, 677 So. 2d 1174 (Ala. Cr.App.1994), rev'd on other grounds, 677 So. 2d 1205 (Ala.1996); Dubose v. State, 662 So. 2d 1156 (Ala.Cr.App.1993), aff'd, 662 So. 2d 1189 (Ala.1995); Kuenzel v. State, 577 So. 2d 474, 530 (Ala.Cr.App.1990), aff'd, 577 So. 2d 531 (Ala.1991), cert. denied, 502 U.S. 886, 112 S. Ct. 242, 116 L. Ed. 2d 197 (1991); Henderson v. State, 583 So. 2d 276, 304 (Ala.Cr.App.1990), aff'd, 583 So. 2d 305 *434 (Ala.1991), cert. denied, 503 U.S. 908, 112 S. Ct. 1268, 117 L. Ed. 2d 496 (1992).
After carefully reviewing the record of the guilt phase and the sentencing phase of Powell's trial, we find no evidence that the sentence was imposed under the influence of passion, prejudice or any other arbitrary factor. We conclude that the findings and conclusions of the trial court are abundantly supported by the evidence. We have independently weighed the aggravating circumstances against the statutory and nonstatutory mitigating circumstances, and we concur in the trial court's judgment that death is the appropriate sentence in this case. Considering the crimes committed by Powell, we find that the sentence of death is neither excessive nor disproportionate to the penalty imposed in similar cases.
Powell's convictions and his sentence of death are affirmed.
AFFIRMED.
LONG, P.J., and McMILLAN and COBB, JJ., concur; BASCHAB, J., recuses herself.
NOTES
[1] Bush initially interviewed Powell around 2:00 p.m. on March 25, 1995. Powell was first informed of his Miranda rights at approximately 3:00 p.m. on March 25.
[2] The state admitted the jacket into evidence. Testimony at trial conflicted as to whether the jacket was leather or suede. However, each of the witnesses identified the jacket admitted into evidence by the state.
[3] The record does not support Powell's argument that he was being illegally detained at this time.
[4] Powell also asserts that he was not permitted to make bond for his arrest for disorderly conduct. However, contrary to Powell's assertion, our review of the record indicates that a $500 bond was set. (C. 753.) Moreover, during the hearing on the motion to suppress, Bush testified that, during his second interview with the appellant, he told Powell to talk to the officers at the booking desk to find out the amount of his bond.
[5] Although the preliminary report did not indicate a sexual assault, the actual autopsy showed the presence of semen and did indicate that the victim had been sexually assaulted.
[6] We note that this portion of the affidavit is identical to a portion of the affidavit attached to the trial court's order to obtain photographs of Powell's neck showing scratches.
[7] Powell did not challenge the randomness of the circuit court's division of the panel among the various courtrooms at trial. In his brief to this court, Powell states, "[t]he circuit court randomly split that panel with one-half going to Judge Gay Lake's courtroom for [his] trial and one half going to the other three circuit judges." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1276610/ | 554 F.3d 1133 (2009)
DELTA CONSULTING GROUP, INCORPORATED, Plaintiff-Appellee,
v.
R. RANDLE CONSTRUCTION, INCORPORATED and Ronald S. Randle, Defendants-Appellants.
No. 07-3660.
United States Court of Appeals, Seventh Circuit.
Argued October 23, 2008.
Decided February 5, 2009.
*1135 Boris A. Kaupp (argued) Reinert & Rourke, St. Louis, MO, for Plaintiff-Appellee.
John E. Hilton, Carmody MacDonald, St. Louis, MO, D. Lynn Whitt (argued), Pollack & Whitt, Mountain Grove, MO, for Defendants-Appellants.
Before BAUER, WOOD, and TINDER, Circuit Judges.
BAUER, Circuit Judge.
R. Randle Construction, Inc., and Ronald S. Randle (collectively, "Randle") entered into two construction contracts with Belleville Township High School District 201 (School District) to perform work as a general contractor on the Belleville East High School Project (Project). Disputes over the Project arose between Randle and the School District, which caused delays, which in turn, caused Randle to suffer financial losses. Randle hired Delta Consulting Group, Inc. (Delta) to prepare and present a Request for Equitable Adjustment (REA) to the School District, to recover the damages attributable to the School District. Delta expressed that the REA's preparation, which included the necessary services, could typically be accomplished with the approximate preliminary budget of $34,000.00. Delta's proposal stated that the figure represented an estimate of the amount normally required for these types of jobs. Randle paid Delta a $5,000.00 retainer.
Using documents and information provided by Randle, Delta produced an REA representing damages for approximately *1136 $1.6 million. The REA consisted of three phases: (1) Familiarization and Initial Assessment, which included a review of Randle's documentation, site visits, key personnel interviews and assessment of claim issues; (2) Detailed Analysis and Report, which included extensive analysis of issues, a schedule analysis and a calculation of damages reflected in an REA; and (3) Dispute Resolution, which included Delta's attendance at dispute resolution proceedings.
Delta submitted the REA to the School District in an effort to recover Randle's damages. The School District, through its representative, Landmark Contract Management, Inc. (Landmark), reviewed the REA and concluded that the accompanying documents and analysis did not support $1.6 million in damages. At Randle's request, Delta undertook additional services to revise the REA using additional documentation from Randle; Delta submitted a second REA for approximately $1.7 million.[1]
On February 25, 2004, Delta and Randle met with Landmark to discuss the resubmitted REA. Landmark reviewed the claims with Delta and questioned the lack of documentation to support the School District's liability for Randle's damages. Although Delta attempted to address Landmark's concerns, Landmark again found that the documentation did not adequately support the REA claim.
On March 5, 2004, Randle met with Landmark to discuss the resubmitted REA; frustrated with Delta's previous interactions with Landmark, Randle did not invite Delta to this meeting. Landmark repeated its concerns that the documentation submitted by Delta did not support the REA claim. Randle abruptly ended the meeting and claimed that he would sue the School District.
Throughout this process, Randle received Delta's invoices for the REA services and continuously paid the invoices through March 9, 2004.[2] Delta ultimately billed Randle $144,174.35; Randle paid $62,622.19 without objection (excluding the $5,000 retainer).
Randle hired a private firm and sued the School District for damages caused by the delay of the Project. Delta accepted Randle's request that Delta refrain from pursuing immediate collection on the unpaid invoices until Randle's claim had been litigated. Ultimately, Randle settled its claim with the School District for $450,000.00.
In October 2004, Randle's accountants conducted an audit of Randle's financial statements. As part of the audit, Randle, through its agent, sent Delta a letter to confirm that $89,302.16 was the amount due to Delta as of September 30, 2004. Delta responded that the correct amount due was $81,552.16. Randle did not object after receiving Delta's response until roughly a year later.
When Delta sought payment on the unpaid invoices, Randle responded that it was not satisfied with Delta's performance and should not be charged for inadequate work. Delta sued Randle to recover $81,552.16 in unpaid invoices (ultimately seeking $76,552.16 after applying the initial retainer), plus 9% interest as permitted by law. Randle claimed that Delta failed to adequately present the REA and counterclaimed for breach of contract.
*1137 On August 23, 2007, the district court granted Delta's summary judgment motion in its entirety. Specifically, the district court held that the communications between Delta and Randle, which included Randle's failure to object to Delta's statement of account within a reasonable time and Randle's partial payment of the account over the preliminary estimate, established an account stated. The district court also awarded summary judgment in favor of Delta on Randle's counterclaim; Randle impliedly waived its right to damages for Delta's alleged breach by paying, and not contesting, $62,622.19.
On October 25, 2007, the district court further ordered: (1) that prejudgment interest at the Illinois statutory rate of 5% be awarded to Delta; and (2) that postjudgment interest at the Illinois statutory rate of 9% be awarded to Delta until Randle pays the judgment.
This timely appeal followed.
DISCUSSION
Randle argues that, as a matter of law, the district court erred in holding that an account stated existed against Randle, where genuine issues of material fact are present as to the amount owed to Delta. Randle also claims that genuine issues of material fact exist to preclude summary judgment on the waiver of its breach of contract counterclaim. Randle further argues that the district court improperly struck a portion of this counterclaim. Finally, Randle argues that the district court applied the incorrect rate to the postjudgment interest award. We review de novo the district court's decision to grant summary judgment, construing all the facts and inferences in favor of Randle, the nonmoving party. See Springer v. Durflinger, 518 F.3d 479, 483-84 (7th Cir. 2008). We also apply the substantive law of Illinois, the state in which this diversity case was filed. See Global Relief Found., Inc. v. New York Times Co., 390 F.3d 973, 981 (7th Cir.2004).
Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, show that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). "The initial burden is on the moving party ... to demonstrate that there is no material question of fact with respect to an essential element of the non-moving party's case." Cody v. Harris, 409 F.3d 853, 860 (7th Cir.2005). If the moving party meets this burden, the non-moving party must submit evidence that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Ptasznik v. St. Joseph Hosp., 464 F.3d 691, 694 (7th Cir.2006). The existence of merely a scintilla of evidence in support of the non-moving party's position is insufficient; there must be evidence on which the jury could reasonably find for the non-moving party. Springer, 518 F.3d at 483-84.
We address each issue in turn.
A. Account Stated
Randle first claims that summary judgment was improper because the existence of an account stated was in dispute.
An "account stated" determines the amount of a preexisting debt when parties who previously have conducted monetary transactions agree that there truly is an account representing the transactions between them. Protestant Hospital Builders Club, Inc. v. Goedde, 98 Ill. App. 3d 1028, 54 Ill. Dec. 399, 424 N.E.2d 1302, 1306 (1981). When a statement of account is rendered by one party to another and is retained by the latter beyond a reasonable time without objection, that statement constitutes an acknowledgment *1138 and recognition by the latter of the correctness of the account, together with a promise, express or implied, for the payment of such balance, and establishes an account stated. W.E. Erickson Construction, Inc. v. Congress-Kenilworth Corp., 132 Ill.App.3d 260, 87 Ill. Dec. 536, 477 N.E.2d 513, 520 (1985); Motive Parts Co. of Am., Inc. v. Robinson, 53 Ill.App.3d 935, 11 Ill. Dec. 665, 369 N.E.2d 119, 122 (1977). In this manner, the debtor and creditor have a meeting of the minds as to the accuracy of the account and have manifested their mutual assent to the agreement. Toth v. Mansell, 207 Ill.App.3d 665, 152 Ill. Dec. 853, 566 N.E.2d 730, 734-35 (1990). The manner of acquiescence is not critical, and the meeting of the minds may be inferred from the parties' conduct and the circumstances of the case. Id. at 735.
Randle repeatedly argues that it would not have entered into an agreement where it would pay over four times what it initially expected to pay. Delta's preliminary estimate stated that preparation and presentation of a typical REA would normally cost approximately $34,000.000; Randle continuously paid the invoices after it had reached the preliminary budget figure. Significantly, Randle ultimately paid $62,622.19, excluding the $5,000.00 retainer, almost twice the estimate. Although Randle suggests that the total amount billed should be roughly around the preliminary estimate, the parties did not contractually lock themselves into the preliminary estimate. The parties mutually assented to continuing services under the proposal because Randle continued to pay invoices for Delta's services. See In re Marriage of Angiuli, 134 Ill.App.3d 417, 89 Ill. Dec. 328, 480 N.E.2d 513, 518 (1985) ("Assent to an account stated may be shown by payment or part payment of the balance.").
In addition to part payments, Randle's active conduct specifically established an account stated for the remaining, unpaid invoices. Randle initiated an agreement, that Delta accepted, in which Delta would withhold efforts to collect on the unpaid invoices while Randle attempted to resolve the Project dispute through litigation. By this agreement, Randle impliedly acknowledged that it owed payment to Delta for unpaid invoices after its last payment on March 9, 2004. It is unreasonable to believe that a transacting business would ask for more time to pay a debt it did not acknowledge it incurred.
More importantly, Randle settled any doubt that it owed money to Delta by its actions in October 2004. Randle acknowledged the accuracy of its debt to Delta when Randle, through its agent, requested that Delta confirm a balance due of $89,302.16. Delta responded that it was only owed $81,552.16. Randle argues that it never agreed to the accuracy of the account by this occurrence; the correspondence is not an acknowledgment of a debt, but rather a potential debt reflected on its books. Based on our review of the record, we agree with the district court that Randle's request was made to confirm an actual amount owed. The language of the request, written by Randle, is telling: "Our auditors ... are conducting an audit of our financial statements. Please confirm the amounts $89,302.16 due to you." Thus, when Delta replied, listing the unpaid invoices in an itemized statement, it rendered a statement of account to Randle.
Our only inquiry now is whether the parties mutually assented to the amount billed. To determine this, we look to whether Randle acquiesced in the correctness of the statement by retaining it beyond a reasonable time without objection. We conclude that Randle failed to object to *1139 the statement of account within a reasonable time.
Throughout its brief, Randle argues that its acceptance of invoices and partial payments of those invoices did not establish an account stated because, to use Randle's words, payments made on those invoices were made "before Randle came to the realization that it had made a mistake by hiring Delta." Randle argues that once the first REA had been rejected by Landmark, its frustration was relayed to Delta and repeated after subsequent REA rejections. Randle argues that because it only paid a portion of the total billings, it objected to the excessive amount billed.
The record, however, reveals otherwise. Although Randle may have been frustrated with Delta's performance, Randle continued to pay through its frustration, impliedly acknowledging the debt incurred. Randle paid invoices after the denial of the first REA and continued to pay after the denial of the resubmitted REA. More importantly, Randle privately met with Landmark on March 5, 2004, at the pinnacle of its frustration with Delta, and still made a payment four days later on March 9, 2004. Randle's subjective frustration alone did not constitute a refusal to pay the invoices or a contest on the amount billed. Randle's behavior was not a valid objection to the account stated.
Moreover, Randle's failure to object did not stop there. Months after Delta had fallen out of Randle's good graces, Randle sent Delta a letter to confirm the amount owed to Delta; significantly, when Randle received Delta's response indicating a lower amount, Randle did nothing. Randle even states that it "did nothing because there was nothing [it] needed to do." Randle believed that its failure to respond did not constitute an acknowledgment of a debt because such an acknowledgment was not intended, as its dissatisfaction already constituted its objection. But as noted above, the objective facts establish that an account was rendered and Randle did not object to it. Randle never contested Delta's accounting statement and even conceded at oral argument that there is no documentation of its objection. Thus, Randle acquiesced in the correctness of that statement by failing to object to it within a reasonable time and that acquiescence is sufficient to establish an account stated between the parties. Protestant Hospital Builders, 54 Ill. Dec. 399, 424 N.E.2d at 1306.
Furthermore, Randle did not present evidence to open the account stated. "A court will not open an account stated absent showing fraud, omission or mistake." First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1011 (7th Cir.1985); see also Meeker v. Fowler, 35 Ill.App.3d 313, 341 N.E.2d 412, 415 (1976). Randle's conclusory statements that it did not subjectively agree to the amount owed, without presenting evidence of fraud, omission or mistake, are not sufficient to oppose summary judgment. Hall v. Printing and Graphic Arts Union, 696 F.2d 494, 500 (7th Cir.1982).
Accordingly, Randle provided no evidence that it objected within a reasonable time to Delta's confirmation of $81,522.16 (excluding the retainer) in unpaid invoices; it did not raise a genuine issue of material fact regarding the existence of an account stated.
B. Individual Liability
Next, Randle argues that the district court erred in holding Ron Randle, as an individual, also liable for Delta's unpaid invoices. Although the record reflects that Delta sent its invoices to R. Randle Construction Inc. and Delta only received payments from the corporation, *1140 Delta sued both the corporation and Randle individually and Randle never challenged the claim against his individual capacity before the district court. The lack of capacity to sue or be sued is a defense that must be pleaded with specificity or it is waived. See Fed.R.Civ.P. 9(a); see also Wagner Furniture Interiors, Inc. v. Kemner's Georgetown Manor, Inc., 929 F.2d 343, 345-46 (7th Cir.1991) (failure to raise the issue of capacity by direct negative averment waives the defense) (citations omitted). Importantly, not only did Randle not contest his individual capacity below, he also counterclaimed on behalf of the corporation and as an individual; therefore this argument is waived before our court. See Karazanos v. Madison Two Assoc., 147 F.3d 624, 629 (7th Cir. 1998).
C. Waiver
Randle argues that the district court erred because genuine issues of material fact exist as to whether Randle waived its breach of contract claim for $62,622.19. The district court, while assuming, without finding, that Delta breached, held that Randle had waived any right to damages by its conduct in relation to Delta's consulting services. We agree; we also assume, without holding, that Delta breached the contract, but need not address the issue because Randle impliedly waived its right to damages under that claim.
In Illinois, waiver is the voluntary and intentional relinquishment of a known right. United States v. Sumner, 265 F.3d 532, 537 (7th Cir.2001); Gallagher v. Lenart, 226 Ill. 2d 208, 314 Ill. Dec. 133, 874 N.E.2d 43, 56 (2007). Waiver may be made by an express agreement or it may be implied from the conduct, acts or words of the party who is alleged to have waived a right. Ryder v. Bank of Hickory Hills, 146 Ill. 2d 98, 165 Ill. Dec. 650, 585 N.E.2d 46, 49 (1991). "An implied waiver may arise where a person against whom the waiver is asserted has pursued such a course of conduct as to sufficiently evidence an intention to waive a right or where his conduct is inconsistent with any other intention than to waive it." Id.; see also PPM Finance, Inc., v. Norandal USA, Inc., 392 F.3d 889, 895 (7th Cir.2004) (waiver implied when a party's conduct is inconsistent with an intention to assert that right). Although waiver may be implied, the act relied on to constitute the waiver must be clear, unequivocal and decisive. The Galesburg Clinic Assoc., v. West, 302 Ill.App.3d 1016, 236 Ill. Dec. 161, 706 N.E.2d 1035, 1037 (1999). Where there is no dispute as to the material facts and only one reasonable inference can be drawn therefrom, it is a question of law whether the facts proved constitute waiver. Wald v. Chicago Shippers Assoc., 175 Ill.App.3d 607, 125 Ill. Dec. 62, 529 N.E.2d 1138, 1147-48 (1988). However, if the facts necessary to constitute waiver are in dispute or if reasonable minds might differ as to the inferences to be drawn from the undisputed evidence, then the issue becomes a question of fact. Id. at 1148.
Randle argues that the district court erred as its actions do not clearly and unequivocally indicate a desire to relinquish its right to repayment of $62,622.19. Although the district court held that Randle's conduct impliedly waived the right, Randle states that its failure to demand the money paid and later acknowledgment of a larger debt owed to Delta are not inconsistent with Randle's intent to enforce its rights on damages. Specifically, Randle argues that its frustration with Delta's deficient work and the lack of a substantiated REA exemplified that Delta had not earned the money it was paid, or as Randle put it, the money that Delta successfully extracted from Randle. However, *1141 we conclude that Randle's conduct supports its implied waiver and therefore will not disturb the district court's decision on this issue.
The undisputed, objective facts sufficiently evidence a finding of waiver. As previously described above, Randle had been paying Delta's invoices after: (1) the preliminary budget had been reached; (2) the preliminary budget had been far exceeded; (3) the first submitted REA had been rejected; (4) the re-submitted REA had been rejected; and (5) Randle's hostile meeting with Landmark. Such conduct did not reasonably portray Randle's objection of payment for the services rendered and does not reflect Randle's desire to seek its money back. In fact, these actions established the opposite; even though Delta's work was not what Randle expected, Randle continuously accepted Delta's performance by paying for it and never once objecting to it. See Chicago College of Osteopathic Medicine v. George A. Fuller Co., 719 F.2d 1335, 1343 (7th Cir.1983) (citing Royal Ornamental Iron, Inc. v. Devon Bank, 32 Ill.App.3d 101, 336 N.E.2d 105, 110 (1975)) (waiver may arise "by conduct manifesting a continued recognition of the contract's existence after learning of the breach thereof, such as by continuing to accept performance of the contract and to have the benefit thereof.").
More importantly, Randle not only failed to contest what was paid, it acknowledged further indebtedness by asking Delta to suspend collection and by not objecting to the receipt of Delta's lowered statement of account. As previously discussed, Randle never objected to the invoices, never sought return of the money paid and kept paying; this objective conduct manifested a clear, unequivocal and decisive intention to waive its rights.
D. Striking Portion of Counterclaim
Randle next argues that a portion of its counterclaim, labeled by the district court as "Reconstructing or Reproducing Delta's Amended REA," should not have been struck by the district court. The district court held that this claim was made without basis and should have been amended or withdrawn, and because it was not, the court struck this portion of the counterclaim. We review a district court's decision to strike for an abuse of discretion and will not disturb a decision that is reasonable and not arbitrary. Holbrook v. Norfolk S. Ry. Co., 414 F.3d 739, 745 (7th Cir.2005); see also Adusumilli v. City of Chicago, 164 F.3d 353, 359 (7th Cir.1998). Under this standard, we find that the district court's actions were proper.
Rule 12(f) provides that a district court "may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f). The court may either strike on its own or on a motion by a party and has considerable discretion in striking any redundant, immaterial, impertinent or scandalous matter. Id.; Talbot v. Robert Matthews Distrib. Co., 961 F.2d 654, 665 (7th Cir.1992). Randle's counterclaim, in pertinent part, sought damages for the amount paid to the law firm to entirely re-construct a third and final REA, after Delta could not do what it was hired to. Undisputably, a third REA was never created. Randle later attempted to explain that the damages sought were the contingent fee payment to the law firm which would not have been necessary had Delta properly performed its duties. The district court quoted Randle that the law firm was hired to file suit and not to re-present the REA to the School District and struck the claim as without basis. The district court alternatively found that had Randle *1142 amended this claim to seek the contingent fee, Randle would still have failed.
Here, Randle needlessly spends much of its argument on this issue addressing the district court's alternative decision that had Randle amended his claim seeking attorney's fees, there would still have been no recovery. We need not consider this alternative argument because Randle failed to sufficiently argue what is properly before our court: whether the district court abused its discretion when it struck the portion of the counterclaim.
On this issue, Randle's opening brief dedicated only five lines of argument that consisted entirely of a false suggestion and a conclusory allegation. First, Randle begins by suggesting that the district court erred when it "struck this component of the [c]ounterclaim although no motion to strike had been filed by [Delta]." However, Rule 12(f) expressly tells us that a court can act on its own. Fed.R.Civ.P. 12(f)(1). Second, Randle states that "this reference to a potential measure of damages does not constitute redundant, immaterial, impertinent, or scandalous matter." However, Randle does not, and could not, elaborate on this conclusory allegation because, as the district court properly found, there is no basis for the claim at all. A third REA was never created. In addition, the district court never prohibited Randle from amending its counterclaim, and we note that Randle never sought leave of court to file its amendment. Randle simply failed to amend this portion of its counterclaim, leaving behind an impertinent, immaterial claim that was well within the discretion of the district court to strike. See Talbot, 961 F.2d at 665 (district court did not abuse discretion in striking allegations devoid of factual basis under Rule 12(f)).
E. Postjudgment Interest
Lastly, the district court imposed a 9% postjudgment interest rate under Illinois law. Randle argues and Delta, at oral argument, concedes that 28 U.S.C. § 1961(a) applies. Accordingly, we remand this case solely to determine the appropriate postjudgment interest rate under the federal statute.
CONCLUSION
We affirm the district court's grant of summary judgment in favor of Delta on all factual issues but remand this case only for the appropriate calculation of postjudgment interest.
NOTES
[1] Sometime after the submission of the revised REA, the School District offered, and Randle rejected, $100,000.00 to settle the claim.
[2] Although the date is unknown, the district court determined that Randle terminated Delta's services sometime after its last payment on March 9, 2004. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1309916/ | 588 F.3d 659 (2009)
WILLIAM O. GILLEY ENTERPRISES, INC., a Nevada corporation doing business in California and the estate of William O. Gilley, deceased; Dennis Decota, an individual; Patrick Patrick Palmer, an individual on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,
v.
ATLANTIC RICHFIELD COMPANY; Chevron Corporation; Exxon Corporation; Mobil Oil Corporation; Exxon/Mobil Corporation; Shell Oil Company; Texaco Inc.; Tosco Corporation; Ultramar Diamond Shamrock; Valero Corporation; Conoco-Philips Petroleum Corporation; Chevron/Texaco Corporation; Tesoro Corporation, Defendants-Appellees.
No. 06-56059.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted February 13, 2008.
Filed December 2, 2009.
*660 Charles M. Kagay, Spiegel, Liao & Kagay LLP, San Francisco, CA, for the plaintiffs-appellants.
Timothy D. Cohelan, Cohelan & Khoury, San Diego, CA, for the plaintiffs-appellants.
Hojoon Hwang, Munger, Tolles & Olson LLP, San Francisco, CA, for the defendant-appellee.
Peter H. Mason, Fulbright & Jaworski LLP, Los Angeles, CA, for the defendant-appellee.
David M. Foster, Fulbright & Jaworski LLP, Washington DC, for defendant-appellee.
Patrick J. Sullivan, Law Offices of Patrick J. Sullivan, Oceanside, CA, for the defendant-appellee.
Before: STEPHEN S. TROTT, RICHARD R. CLIFTON and CONSUELO M. CALLAHAN, Circuit Judges.
ORDER AND OPINION
ORDER
The Opinion filed April 3, 2009, slip op. 4188, and appearing at 561 F.3d 1004 (9th *661 Cir.2009), is withdrawn. It may not be cited as precedent by or to this court or any district court of the Ninth Circuit.
The superseding opinion will be filed concurrently with this order. The parties may file an additional petition for rehearing or rehearing en banc. All other pending motions are denied as moot.
OPINION
PER CURIAM:
The district court granted Defendants' motion to dismiss Plaintiffs' antitrust claim founded on § 1 of the Sherman Act, holding that 1) Aguilar v. Atlantic Richfield Co., 25 Cal. 4th 826, 107 Cal. Rptr. 2d 841, 24 P.3d 493 (2001), precludes the allegations made in the operative pleading; 2) Defendants' exchange agreements can not be aggregated to establish market power and anticompetitive effect; and 3) even if the exchange agreements could be aggregated, the absence of a conspiracy to limit supply and raise prices eliminates a causal connection between the exchange agreements and anticompetitive effect. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.
I
BACKGROUND
Plaintiff-Appellant William O. Gilley filed this class-action lawsuit in 1998 on behalf of himself and other wholesale purchasers of CARB gasoline in the state of California. CARB gas is a cleaner-burning fuel, and since 1996 it is the only type of gas that can be sold in California. The complaint alleged that Defendants-Appellees, major oil producers, violated § 1 of the Sherman Act by entering into a conspiracy to limit the supply of CARB gasoline and to raise prices.
The allegations of the complaint were plainly similar to those alleged in Aguilar, a class-action suit filed in California Superior Court in 1996. That suit was brought under the Cartwright Act, CAL. BUS. & PROF. CODE § 16720 et seq., California's equivalent to the Sherman Act. Aguilar, 107 Cal. Rptr. 2d 841, 24 P.3d at 502. The plaintiff in Aguilar was a retail purchaser and consumer of gasoline and sought to represent a class of retail purchasers. The plaintiff in this action was a wholesale purchaser and retail dealer of gasoline and sought to represent a class of wholesale purchasers. Both plaintiffs were represented by the same attorneys, and both actions targeted the same defendants for essentially the same allegedly unlawful conduct. Because of the similarity in the cases, the district court hearing this case stayed the suit pending the outcome of Aguilar.
In Aguilar, the state superior court granted summary judgment to the defendants, concluding that there was insufficient evidence presented by the plaintiffs to allow a reasonable juror to find a conspiracy to limit supply and raise prices among the several gasoline companies. Id. at 503. The California Supreme Court affirmed. Id. at 521. As a result, Defendants in this case brought a motion for summary judgment arguing that Gilley's claims were barred by collateral estoppel. In response, Gilley offered a proposed amended complaint, which the court found insufficient. The district court, however, granted Gilley leave to provide another proposed amended complaint, which he did.
On May 6, 2002, the district court granted Defendants' motion for summary judgment on that complaint, holding that Gilley was precluded by Aguilar from relitigating whether a conspiracy existed to limit supply and raise prices. However, the court granted Gilley further leave to amend the *662 complaint to allege that "each of the bilateral agreements, entered into independently between various defendant gasoline companies, ha[s] anti-competitive effects and therefore violate[s] the Sherman Act."
On May 24, 2002, Gilley filed the third post-Aguilar complaint, alleging that forty-four bilateral exchange agreements had the effect of unreasonably restraining trade in violation of § 1 of the Sherman Act and in violation of CAL. BUS. & PROF. CODE § 17200. On March 27, 2003, the district court granted Defendants' motion to dismiss that complaint with prejudice. With respect to the § 1 claim, the court explained that Gilley had not alleged any theory as to how any individual exchange agreement, which accounts for a small percentage of the relevant market, is able to inflate the price of CARB gasoline. The district court rejected Gilley's argument that the court could consider the aggregate effects of the individual bilateral agreements to allege an anticompetitive effectnamely higher gas prices.
Gilley appealed to this Court, which reversed and remanded, holding that the district court erred in not giving Gilley an opportunity to correct the newly identified deficiencies. After the remand, the second amended complaint ("SAC") was filed.
The district court granted Defendants' motion to dismiss the SAC, holding that Plaintiffs failed to allege that the exchange agreements, when considered individually, would be capable of producing significant anticompetitive effects. We now review the district court's dismissal of the SAC.
II
DISCUSSION
A. Standard of Review
We review de novo a dismissal for failure to state a claim pursuant to Rule 12(b)(6). Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir.2005). All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. Id. On a motion to dismiss in an antitrust case, a court must determine whether an antitrust claim is "plausible" in light of basic economic principles. Bell Alt. Corp. v. Twombly, 550 U.S. 544, 556, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007).
B. Analysis
We address the following issues in this appeal: 1) the preclusive effect of the California Supreme Court's decision in Aguilar; 2) the pleading standard for § 1 claims; 3) the sufficiency of Plaintiffs' SAC; and 4) the state law claim under CAL. BUS. & PROF. CODE § 17200.[1]
1. The Preclusive Effect of the California Supreme Court's Aguilar Decision.
Gilley does not dispute that the decision in Aguilar has some preclusive effect in the current lawsuit, but he contends that his current claim is not entirely extinguished by Aguilar. In contrast, Defendants argue that all of the allegations as pleaded in the SAC are precluded by Aguilar. We conclude that Gilley's claims are precluded by the California Supreme Court's decision.
Section 1 of the Sherman Act prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States." 15 U.S.C. § 1. The Supreme Court has clearly established that the section is limited to prohibiting *663 unreasonable restraints of trade. See Texaco Inc. v. Dagher, 547 U.S. 1, 5, 126 S. Ct. 1276, 164 L. Ed. 2d 1 (2006). Whether a plaintiff pursues a per se claim or a rule of reason claim under § 1, the first requirement is to allege a "contract, combination in the form of trust or otherwise, or conspiracy."
The core of the plaintiff's claims in Aguilar was a per se claim based on an alleged unlawful conspiracy among petroleum companies. The California Supreme Court's opinion in Aguilar states:
Just as the superior court's order granting the petroleum companies summary judgment was not erroneous as to Aguilar's primary cause of action for an unlawful conspiracy under section 1 of the Cartwright Act to restrict the output of CARB gasoline and to raise its price, neither was it erroneous as to her derivative cause of action, which was for an unlawful conspiracy under the unfair competition law for the same purpose.
...
The petroleum companies carried their burden of persuasion to show that there was no triable issue of material fact and that they were entitled to judgment as a matter of law as to Aguilar's unfair competition law cause of action. They did so by doing so as to her Cartwright Act cause of action. Again, they carried their burden of production to make a prima facie showing of the absence of any conspiracy, but she did not carry her shifted burden of production to make a prima facie showing of the presence of an unlawful one.
It is true, as Aguilar argues, that her unfair competition law cause of action is not based on allegations asserting a conspiracy unlawful under the Cartwright Act. But it is indeed based on allegations asserting a conspiracy, specifically, one unlawful at least under the unfair competition law itself. As stated, the petroleum companies showed that there was no triable issue of the material fact of conspiracy. Aguilar claims that conspiracy is not an element of an unfair competition law cause of action in the abstract as a matter of law. Correctly so. (See Bus. & Prof.Code, § 17200). But she simply cannot deny that conspiracy is indeed a component of the unfair competition law cause of action in this case as a matter of fact.
Id. at 521 (emphasis in original).
This portion of Aguilar holds that the plaintiffs had failed to demonstrate the existence of a conspiracy that was per se illegal or otherwise illegal under the Sherman Act.
The preclusive effect of Aguilar is woven through the numerous court decisions in Gilley's federal action. Gilley filed this class action in 1998, and its proceedings were stayed pending the outcome of Aguilar. After the California Supreme Court issued its opinion in Aguilar, the defendants filed a motion for summary judgment. Gilley opposed the motion and also offered to file an amended complaint. The district court granted the motion for summary judgment. The district court held that pursuant to the doctrine of issue preclusion, Gilley was barred from relitigating the conspiracy alleged in Aguilar. The court denied Gilley's request to amend the complaint to allege continuing violations of antitrust laws subsequent to the time period involved in Aguilar, reasoning:
The exchange agreements were already judged by the California Supreme Court not to be evidence of a conspiracy. The court finds that the proposed amended complaint merely alleges the ongoing use of these supply agreements and not any new conduct. Issue preclusion therefore bars Gilley from relitigating whether use of the ongoing agreements *664 constitute an illegal conspiracy under the Sherman Act.
The district court, however, agreed with Gilley that "his rule-of-reason claim has not been litigated to the extent that he is alleging that the individual bilateral exchange agreements violate the anti-trust laws due to their anti-competitive effect." Accordingly, it granted Gilley leave to file an amended complaint "only to the extent that it alleges that each of the bilateral agreements, entered into independently between various defendant gasoline companies, have unreasonable anti-competitive effects and therefore violate the Sherman Act."
Gilley amended his complaint. Defendants responded by filing a motion to dismiss the First Amended Complaint ("FAC"). The district court granted the motion, explaining:
After careful scrutiny of the FAC, the court has been unable to discern any allegation that any of the parties in any of the bilateral agreements entered these agreements with an unlawful intent or purpose to restrain competition. In the few instances that Plaintiff does allege an improper purpose, he does so by alleging joint action among all, or substantially all of the defendants. As discussed below, Plaintiff's pleading of such joint purpose or action regarding the various defendants is improper and will not be considered by the court. Therefore, Plaintiff has failed to properly allege "concerted action" regarding any individual bilateral exchange agreement.
The district court dismissed the case with prejudice, commenting that because "Plaintiff was already granted leave to amend his complaint previously, and at this late date was unable to set forth a valid anti-trust claim, it appears that Plaintiff cannot allege sufficient facts constituting a valid § 1 claim."
Gilley appealed, and we reversed and remanded to allow Gilley an opportunity to file a further amended complaint. We held that the district court had abused its discretion by denying Gilley an opportunity to amend his complaint.
When Gilley filed a Second Amended Complaint, defendants again moved to dismiss, and the district court granted the motion. It explained:
Plaintiffs do not allege that each exchange agreement has a discrete effect on competition which can be viewed together with the separate effects of the other exchange agreements. Instead, Plaintiffs allege the existence of a network of exchange agreements that allow Defendants to coordinate their production and output, thereby limiting the amount of CARB gasoline on the rack or spot market and allowing Defendants to raise prices to branded dealers.
Even if a single defendant and all of the defendants who contracted with that defendant cumulatively had sufficient market power to substantially impair competition, Plaintiffs would need to make the further showing that all of these defendants worked together through the use of the exchange agreements and strategic shutdowns or decreased production to stabilize the spot market and avoid the depression of gasoline prices....
Plaintiffs cannot avoid the fact that their Sherman Act claim is, at its core, a conspiracy claim. Plaintiffs' theory of recovery rests upon the existence of a web of exchange agreements that allegedly allows all of the Defendants to engage in a precise dance of give-and-take with the goal of maintaining the delicate balance of CARB production. Coordinated action is essential to Plaintiffs' claim.
*665 After four attempts to plead around a conspiracy claim, Plaintiffs still fail to allege that the bilateral exchange agreements, viewed independently, constitute an unreasonable restraint on trade. Plaintiffs' inability to establish a causal connection between the individual exchange agreements, and anticompetitive harm is fatal to Plaintiffs' Sherman Act claim.
A critical aspect of the district court's perspective was its determination that the SAC did not allege "that each exchange agreement has a discrete effect on competition which can be viewed together with the separate effects of other exchange agreements." Rather, the district court saw the SAC as alleging "a network of exchange agreements" that "allow Defendants to coordinate their production and output." In essence, the district court read the SAC as not alleging that the bilateral agreements "violate the anti-trust laws due to their anti-competitive effect," but rather that the agreements facilitate coordinated action by the defendants that unlawfully restrains trade. We agree.
This distinction is critical. If the bilateral agreements in themselves have an illegal effect on competition (when aggregated), then the bilateral agreements constitute the "contract, combination or conspiracy" required for a claim under § 1 of the Sherman Act. If, however, the bilateral agreements only facilitate coordinated activity, then to maintain a claim under § 1 of the Sherman Act, Gilley must show some meeting of the minds, some "contract, combination or conspiracy," between those defendants whom Gilley alleges coordinated their actions. Although a plaintiff might well be able to do so in the abstract, here, Gilley is precluded by Aguilar from asserting that the defendants so conspired.
The Second Amended Complaint implicitly, if not explicitly, asserts a conspiracy. The charging paragraphs of the SAC describe the defendants' parallel actions and imply the existence of a conspiracy. The SAC asserts:
California's CARB gas supply is generally manufactured primarily by defendants, California branded refiners, who are engaged in the business of refining, distributing and selling almost 100% of the CARB gas in the state of California during the class period. California remains largely isolated from external sources of supply.
All California refiners, now also major retail marketers, control supply and pricing from production to distribution, in part, through supply agreements that require dealers to purchase gasoline exclusively at each branded refiner's present DTW price, a price that is always greater than the rack price and cost of distribution.
California refiners' weekly refinery production decisions are influenced by, among other things, spot price impact, refiner margins, bilateral exchange partners' market needs, ability to draw inventory from bilateral exchange partners, and overall market supply.
With the impending introduction of CARB gasoline in 1996, each of the defendants or their predecessors in interest, entered into new sales and/or exchange agreements with other defendants, many of which provided for the provision of CARB gas "as mutually agreed" (AMA) with no minimum or maximum.
The determination that these paragraphs assert a conspiracy is reinforced by the next paragraph of the SAC which reads:
The sales and exchange agreements known to plaintiffs that are subject of this action are listed on the attached Exhibit.... On information and belief, plaintiffs allege that defendants have entered *666 into other sales and exchange agreements, presently unknown to plaintiffs, with similar intent and effect.
Certainly the tenor of this paragraph is that the "similar intent and effect" violates antitrust laws. Moreover, in light of the preceding paragraphs and the failure to assert any other specific violation of the Sherman Act, the alleged violation must be one of conspiracy or collusion.
This allegation of conspiracy is carried forward in the SAC's allegations against particular defendants, starting with Chevron.[2] It lists three exchange agreements that Chevron entered into with Exxon, Shell, and Tosco Refining Co., and alleges, on information and belief, that Chevron has entered similar agreements "for the delivery of CARB in Northern California." The SAC then alleges:
Chevron's intent and purpose in entering into these exchange agreements was to limit refining capacity for CARB gas and/or to keep CARB gas out of the spot market and away from unbranded marketers.
Through the use of these exchange agreements, coupled with its own refining capacity and that of its contracting partners, Chevron has obtained sufficient market power to limit the supply of CARB gas to unbranded marketers and to raise the price at which it sells CARB gas in Northern California to supracompetitive levels. These agreements have had the effect of raising CARB gas prices in Northern California above competitive levels, without any countervailing procompetitive benefit.
(emphasis added).
These paragraphs reveal how Gilley proposes to meet the market power requirement for a claim under § 1 of the Sherman Act, but they leave the reader uninformed as to how the individual exchange agreements allegedly violated the Sherman Act "without a conspiracy to control supply or to set prices." In his brief, Gilley responds by pointing to the paragraphs concerning the relationship between Chevron and Tosco. These paragraphs set forth various reasons for why the defendants purportedly entered into particular agreements,[3] suggest an industry-wide conspiracy,[4] and assert that the individual agreements facilitated a combination *667 or conspiracy.[5]
Again, the paragraphs seem to allege a conspiracy. They certainly do not clearly allege that the exchange agreements themselves constitute a restraint of trade or suggest why the defendants' actions were "collusive, rather than independent, action." See Aguilar, 107 Cal. Rptr. 2d 841, 24 P.3d at 519.
In sum, the SAC, plainly and fairly read, is not limited to alleging that the bilateral exchange agreements are themselves restraints of trade. Instead, its broad allegations encompass conspiracy claims that are precluded by Aguilar.
The breadth of the SAC is inconsistent with the spirit of Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929. Although Twombly involved an alleged conspiracy based on parallel conduct and this case is ostensibly not a conspiracy case, we have held that Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1953, 173 L. Ed. 2d 868 (2009), makes clear that the pleading requirements stated in Twombly apply in all civil cases, including this one. Doe I v. Wal-Mart Stores, Inc., 572 F.3d 677, 683 (9th Cir.2009). The Supreme Court reiterated that Federal Rule of Civil Procedure 8(a)(2) requires "`a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to `give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'" Twombly, 550 U.S. at 554-55, 127 S. Ct. 1955(quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)).[6] It commented that a plaintiff's obligation "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action" and that "[f]actual allegations must be enough to raise a right to relief above the speculative level." Id. at 555, 127 S. Ct. 1955 (internal citations omitted). The Supreme Court reaffirmed its earlier decisions holding that "something beyond the mere possibility of loss causation must be alleged, lest a plaintiff with a largely groundless claim be allowed to take up the time of a number of other people with the right to do so representing an in terrorem increment of the settlement value," and that "when the allegations in a complaint, however true, could not raise a claim of entitlement to relief, this basic deficiency should ... be exposed at the point of minimum expenditure of time and money by the parties and the court." Id. at 558, 127 S. Ct. 1955 (internal quotation marks and citations omitted). The Court concluded that allegations of parallel conduct in themselves do not provide a sufficient basis to sustain a conspiracy *668 claim.[7]
Moreover, in Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009), the Supreme Court affirmed that its decision in Twombly "expounded the pleading standard for all civil actions." Id. at 1953 (internal quotation marks and citation omitted). The Court reiterated that "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has allegedbut it has not `show[n]'`that the pleader is entitled to relief.' Fed. R.Civ.P. 8(a)(2)." Id. at 1950.
In this case the district court read the complaint as not stating a viable cause of action. It determined that the SAC did not allege that "each exchange agreement has a discrete effect on competition which can be viewed together with the separate effects of other exchange agreements," but rather as alleging "the existence of a network of exchange agreements that allow Defendants to coordinate their production and output." We read the SAC as not asserting that the bilateral agreements, in themselves, restrain trade, but that they facilitate or make it easier for the defendants to coordinate their actions to restrain trade. The district court explained:
Even if a single defendant and all of the defendants who contracted with that defendant cumulatively had sufficient market power to substantially impair competition, Plaintiffs would need to make the further showing that all of these defendants worked together through the use of the exchange agreements and strategic shutdowns or decreased production to stabilize the spot market and avoid the depression of gasoline prices....
This is the type of "in terrorem increment of the settlement value" that the Supreme Court mentioned in Twombly. Id. at 558. Moreover, when viewed in the light of the preclusive effect of Aguilar, the SAC simply "does not raise a claim of entitlement to relief." Id.
There can be little doubt that the broad scope of the SAC was intentional. Gilley has known since 2002 that following Aguilar, he was precluded from alleging a conspiracy. Nonetheless, he has thrice been given the opportunity to amend his complaint to limit it to a claim based solely on the alleged anti-competitive effect of the individual exchange agreements absent a conspiracy, and has thrice proffered amended complaints that continue to assert, albeit ever more subtly, the existence of a conspiracy. It might be possible for Gilley to allege an antitrust claim limited to issues that are not precluded by Aguilar, but he has declined to do so. Accordingly, the district court properly struck the SAC.
*669 Furthermore, the district court's final denial of leave under the circumstances of this case was not an abuse of discretion.[8]
III
CONCLUSION
We recently reiterated in Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047 (9th Cir.2008), that "[t]o state a claim under Section 1 of the Sherman Act, 15 U.S.C. § 1, claimants must plead not just ultimate facts (such as a conspiracy), but evidentiary facts which, if true, will prove: (1) a contract, combination or conspiracy among two or more persons or distinct business entities; (2) by which the persons or entities intended to harm or restrain trade or commerce ... (3) which actually injures competition." Gilley, in order to state a § 1 claim, must plead "a contract ... by which the persons or entities intended to harm or restrain trade." Despite its length and detail, the SAC does not clearly assert which individual agreement or agreements constitute in themselves a "contract ... by which the persons or entities intended to harm or restrain trade." Rather, the SAC is fairly read as alleging the existence of a network of exchange agreements that arguably allowed the defendants to unlawfully coordinate their production and output. But given the preclusive effect of Aguilar, Gilley cannot show such coordination. The SAC is not saved by the argument that it could be read to encompass a claim that the individual agreements in themselves constitute a restraint of trade because the SAC does not provide the defendants fair notice of such a claim and the grounds upon which it rests. See Twombly, 550 U.S. at 555, 127 S. Ct. 1955. Moreover, aggregation does not save the SAC because it does not show that the defendants' adjustments of CARB production were part of any agreement or conspiracy, rather than independent efforts to maximize profits. See Twombly, 550 U.S. at 566, 127 S. Ct. 1955. For these reasons, we affirm the district court's dismissal of the Second Amended Complaint without leave to amend, and we affirm the court's dismissal of Plaintiffs' state law claim brought pursuant to CAL. BUS. & PROF. CODE § 17200.
AFFIRMED.
NOTES
[1] Our holding renders moot the issue of Plaintiff's standing to add Tesoro as a Defendant.
[2] The allegations against the other defendants are similar to the allegations against Chevron.
[3] For example, the SAC sets forth a 1994 individual exchange agreement between Chevron and Tosco and alleges:
Chevron's intent and purpose in entering into this agreement with Tosco was to place its surplus CARB gas with other branded refiners to maximize returns. Chevron intended to and did rearrange its CARB gas supply to avoid a market imbalance caused by CARB gas flowing to independent marketers.
If Chevron and Tosco agreed to restrain the production of gas, the individual exchange agreement might well be a contract to restrain trade pursuant to § 1 of the Sherman Act. The paragraph, however, does not say that the parties agreed. Instead, it only addresses Chevron's intent and purpose. This purpose and intent would presumably motivate Chevron to act independently or interdependently without any agreement as to purpose or intent with Tosco.
[4] For example, the SAC alleges that "[t]hrough the use of these exchange agreements, coupled with its own refining capacity and that of its contracting partners, Chevron has obtained sufficient market power to limit the supply of CARB gas to unbranded marketers and to raise the price at which it sells CARB gas." This implies a broader conspiracy, though the SAC does not allege that there was a meeting of the minds of the parties to raise the price of gasoline specifically in connection with any of the individual exchange agreements.
[5] For example, the SAC alleges that "Tosco's intent and purpose in entering into this agreement with Chevron was [to] join the `club' of major branded refiners and to give Chevron the opportunity to place its surplus CARB gas with other branded refiners to maximize returns." This is confusing, as it indicates that Tosco's intent was to give Chevron "the opportunity" to maximize its return. This seems to suggest that the individual exchange agreement facilitated, but did not in itself provide for, the maximization of Chevron's return.
[6] The Court went on to disapprove the language in Conley that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Twombly, 550 U.S. at 561, 127 S. Ct. 1955 (quoting Conley, 355 U.S. at 45-46, 78 S. Ct. 99). The Court held that:
[t]he phrase is best forgotten as an incomplete, negative gloss on an accepted pleading standard: once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint.
Twombly, 550 U.S. at 563, 127 S. Ct. 1955.
[7] The Court noted:
We think that nothing contained in the complaint invests either the action or inaction alleged with a plausible suggestion of conspiracy. As to the ILECs' supposed agreement to disobey the 1996 Act and thwart the CLECs' attempts to compete, we agree with the District Court that nothing in the complaint intimates that the resistance to the upstarts was anything more than the natural, unilateral reaction of each ILEC intent on keeping its regional dominance. The 1996 Act did more than just subject the ILECs to competition; it obliged them to subsidize their competitors with their own equipment at wholesale rates. The economic incentive to resist was powerful, but resisting competition is routine market conduct, and even if the ILECs flouted the 1996 Act in all the ways the plaintiffs allege, ... there is no reason to infer that the companies had agreed among themselves to do what was only natural anyway; so natural, in fact, that if alleging parallel decisions to resist competition were enough to imply an antitrust conspiracy, pleading a § 1 violation against almost any group of competing businesses would be a sure thing.
550 U.S. at 566, 127 S. Ct. 1955.
[8] In Griggs v. Pace Amn. Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999), we held that the "district court determines the propriety of a motion to amend by ascertaining the presence of any of four factors: bad faith, undue delay, prejudice to the opposing party, and/or futility." Generally, "this determination should be performed with all inferences in favor of granting the motion." Id. Nonetheless, "we have noted that a district court does not abuse its discretion in denying a motion to amend a complaint ... when the movant presented no new facts but only new theories and provided no satisfactory explanation for his failure to fully develop his contentions originally." Nunes v. Ashcroft, 375 F.3d 805, 808 (9th Cir.2004) (quoting Vincent v. Trend W. Technical Corp., 828 F.2d 563, 570-71 (9th Cir. 1987)) (internal quotation marks omitted). Here, assuming that Gilley could, in the abstract, amend his complaint to state a claim that is not precluded by Aguilar, his repeated failure to do just that suggests that it would be futile to offer him another chance to do so. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1344524/ | 234 Kan. 618 (1984)
675 P.2d 361
TAMARAC DEVELOPMENT COMPANY, INC., Appellant,
v.
DELAMATER, FREUND & ASSOCIATES, P.A., Appellee.
No. 54,741
Supreme Court of Kansas.
Opinion filed January 13, 1984.
James L. Burgess, of Fleeson, Gooing, Coulson & Kitch, of Wichita, argued the cause and Thomas D. Kitch, of the same firm, was with him on the brief for the appellant.
Jeff A. Roth, of Hershberger, Patterson, Jones & Roth, of Wichita, argued the cause and was on the brief for the appellee.
The opinion of the court was delivered by
HERD, J.:
The appellant, Tamarac Development Co., appealed from an order granting summary judgment in favor of the appellee, Delamater, Freund & Associates. The trial court determined as a matter of law that Tamarac's cause of action was one in tort rather than contract and thus barred by the two-year statute of limitations. The Court of Appeals in a per curiam decision affirmed the trial court. We granted review.
Appellant is a developer of residential subdivisions. Appellee is an engineering and architectural firm. In 1976 and 1977, the parties entered into various contracts whereby appellee was to provide engineering and architectural services for the development of a mobile home park. There is no allegation that any of the written contracts were breached. Appellant alleges appellee *619 breached an oral contract to supervise the grading construction and to check the grades on completion to insure their accuracy. After payment to the grading contractor, it was discovered too much dirt had been removed, creating drainage problems. Appellant was forced to expend a considerable sum of money to bring the park to grade as a result.
Appellant originally alleged negligence, but later amended its petition alleging breach of contract. There is no dispute that if the action is one for negligence it is barred by the two-year statute of limitations of K.S.A. 60-513. Conversely, if the action is one for breach of contract, it is not barred by the three-year limitation of K.S.A. 60-512.
The only point on appeal is whether the district court erred in holding appellants did not have a cause of action in contract. The issue of whether a cause of action sounds in contract or tort, or both, has been before this court numerous times. These cases, however, when applied to the instant case are inconsistent. The inconsistencies in this area of law have been confirmed by Professor Prosser when he stated:
"Frequently, where either tort or contract will lie and inconsistent rules of law apply to the two actions, the question arises whether the plaintiff may elect freely which he will bring, or whether the court must itself decide that on the facts pleaded and proved the `gist' or `gravamen' of his cause of action is one or the other. As to this the decisions are in considerable confusion, and it is difficult to generalize.
"Where the particular point at issue is one of adjective law only, affecting the suit or its procedure, but not the merits of the cause of action, the courts have tended to be quite liberal in giving the plaintiff his freedom of choice, and have upheld his action of tort or contract as he has seen fit to bring it. Likewise where the point is one affecting substantive rights, but the claim is one for damages to property or to pecuniary interests only, the tendency has been, with some occasional dissent, to allow the election. But when the claim is one for personal injury, the decision usually has been that the gravamen of the action is the misconduct and the damage, and that it is essentially one of tort, which the plaintiff cannot alter by his pleading. This had the odd result that the negligence of an attorney will survive the death of his client, while that of a physician is oft interred with his patient's bones. Actually the courts appear to have preserved a great deal of flexibility, and to have been influenced in their decisions by their attitude toward the rule of law in question." Prosser, The Law of Torts § 92, pp. 621-22 (4th ed. 1971).
We have consistently held: "The difference between a tort and contract action is that a breach of contract is a failure of performance of a duty arising or imposed by agreement; whereas, a tort is *620 a violation of a duty imposed by law." Haysville U.S.D. No. 261 v. GAF Corp., 233 Kan. 635, Syl. ¶ 5, 666 P.2d 192 (1983). See also Guarantee Abstract & Title Co. v. Interstate Fire & Cas. Co., 232 Kan. 76, 79, 652 P.2d 665 (1982).
The problem with this test, however, is in some cases, such as this, both standards apply. The appellant argues there was an oral agreement between the parties that appellees would insure the grading to be accurate. This promise could be construed to be either a contract for a specific result accurate grading or an implied warranty to inspect and supervise in a workmanlike manner. Both are contract actions. The appellee argues the inspection called for was merely performed negligently, which is a violation of a duty to use reasonable care imposed in common law upon professionals. Appellee's argument, therefore, is that this is an architect malpractice action and malpractice actions lie only in tort.
Case law in Kansas supports both arguments. Appellee argues the cases which hold a breach of a legal duty by a professional is a tort action are controlling. See Brueck v. Krings, 230 Kan. 466, 638 P.2d 904 (1982); Malone v. University of Kansas Medical Center, 220 Kan. 371, 552 P.2d 885 (1976); Chavez, Executrix v. Saums, 1 Kan. App. 2d 564, 571 P.2d 62, rev. denied 225 Kan. 843 (1977).
Appellee's citations are distinguishable, however. In each of the cases, the court cited an actual legal duty owed by the professional to the client. In Malone, a case dealing with a doctor's negligent treatment of a patient, the court held: "Certain duties and obligations are imposed upon physicians and hospitals by law. Breach of such duty by a physician is malpractice, and an action for damages for malpractice is one in tort, even though there was a contract, express or implied, for employment." 220 Kan. at 274-75. See also PIK Civ.2d 15.01. Brueck involved an accounting firm which had performed an audit. In holding the action was in tort this court stated:
"In the case now before us, plaintiffs do not claim that Peat, Marwick failed to perform its contract; the audits for the years 1971, 1972 and 1973 were performed, completed and delivered. The wrongs alleged by the plaintiffs were that Peat, Marwick failed to perform those audits in accordance with the duties imposed on it, not by the specific terms of the contracts, but by the Kansas savings and loan code, the Kansas securities law, and the professional standards of the accounting profession." 230 Kan. at 469-70.
*621 In the instant case, while an architect's license may be taken away for "gross negligence, incompetency, or misconduct" in the practice of the profession (K.S.A. 74-7026), there is not a specific statute, as in Brueck, establishing a duty owed by an architect. Since there is not a breach of a legal duty, as in Malone, the action in this case is open to construction.
Though professionals are liable for malpractice for breach of a legal duty, that does not preclude them from contracting to perform a duty higher than the one imposed by law. Such was the holding in Noel v. Proud, 189 Kan. 6, 367 P.2d 61 (1961). Noel was explained by this court in a later case:
"[T]he tort statute of limitations against a doctor of medicine had already expired when suit was brought by the patient. The petition alleged breach of express warranty by the doctor that surgery would not worsen the patient's condition. This court held that the three year statute of limitations for an oral contract was applicable to the cause of action stated, rejecting the contention that irrespective of any express warranties, the only cause of action predicated upon a physician-patient relationship must sound in tort." Juhnke v. Hess, 211 Kan. 438, 440, 506 P.2d 1142 (1973).
There is dicta in Malone which also supports the proposition a professional may contract for a specific result.
"Physicians, as well as hospitals, may enter into express contracts by which they bind themselves to warrant the success of treatment, or to otherwise obligate themselves above and beyond their ordinary duties. Such contracts may form the basis for breach of contract actions." 220 Kan. at 374.
Thus, according to Malone and Proud, if the architectural firm in this case contracted to provide a specific result, rather than just contracting to plan and inspect the grading work in general, the action could be on the contract rather than in tort.
On the other hand, in an action against a general building contractor for improper construction of a home, we held the suit could be either in tort or contract or both. In Ware v. Christenberry, 7 Kan. App. 2d 1, 5, 637 P.2d 452 (1981), Justice Holmes wrote for the Court of Appeals, "it now appears settled that in Kansas a person suffering damage from breach of an implied warranty may proceed upon either a contract or tort theory, or both, in initially framing his cause of action."
In the instant case the appellant argues that in addition to the oral contract there was an implied warranty of workmanlike performance. The existence of such warranty was recognized by *622 this court in Gilley v. Farmer, 207 Kan. 536, 542, 485 P.2d 1284 (1971), where the court stated:
"[T]his court has been consistent in holding that where a person contracts to perform work or to render a service, without express warranty, the law will imply an undertaking or contract on his part to do the job in a workmanlike manner and to exercise reasonable care in doing the work. [Citation omitted.]
"Where negligence on the part of the contractor results in a breach of the implied warranty, the breach may be tortious in origin, but it also gives rise to a cause of action ex contractu. An action in tort may likewise be available to the contractee and he may proceed against the contractor either in tort or in contract; or he may proceed on both theories."
See also Crabb v. Swindler, Administratrix, 184 Kan. 501, 337 P.2d 986 (1959) (breach of an implied warranty to do plumbing in a workmanlike manner may be contract or tort action); and Scantlin v. Superior Homes, Inc., 6 Kan. App. 2d 144, 627 P.2d 825 (1981) (house contractor has implied contract to build in a workmanlike manner). The appellant argues this warranty was breached by the architect's failure to insure the grading was made to the elevations called for in the blueprints. Based on our decision in Malone v. University of Kansas Medical Center, 220 Kan. 371, it can be said certain professionals, such as doctors and lawyers, are not subject to such an implied warranty. However, an architect and an engineer stand in much different posture as to insuring a given result than does a doctor or lawyer. The work performed by architects and engineers is an exact science; that performed by doctors and lawyers is not. A person who contracts with an architect or engineer for a building of a certain size and elevation has a right to expect an exact result. See Hanna v. Huer, Johns, Neel, Rivers & Webb, 233 Kan. 206, 662 P.2d 243 (1983). The duty of the architect is so strong and inherent in the task, we hold it gives rise to an implied warranty of workmanlike performance. An injured party under these circumstances may choose his remedy from express contract (if applicable), implied warranty or negligence.
We find the trial court erred in granting summary judgment on the ground this case is a tort action only and the statute of limitations had passed. Summary judgment is warranted only when it is conclusively established there remain no issues of material fact. Nordstrom v. Miller, 227 Kan. 59, 605 P.2d 545 (1980).
The record shows representatives from both parties stated the oral contract called for a specific result.
*623 The testimony of the witnesses supports not only an oral contract for a specific result but also breach of an implied warranty. The granting of summary judgment was premature, since there remains an unresolved issue of fact.
We reverse the judgment of the trial court and the Court of Appeals and remand this case for trial consistent with this opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1661053/ | 796 So. 2d 434 (2001)
Ex parte Eddie Duval POWELL III.
(Re Eddie Duval Powell III v. State).
1990546.
Supreme Court of Alabama.
January 12, 2001.
Rehearing Denied March 30, 2001.
*435 John W. Stahl of Stahl & Stahl, P.C., Tuscaloosa, for petitioner.
Bill Pryor, atty. gen., and A. Vernon Barnett IV, asst. atty. gen., for respondent.
ENGLAND, Justice.
Eddie Duval Powell III was convicted of capital murder and was sentenced to death. The Court of Criminal Appeals affirmed his conviction and his sentence. Powell v. State, 796 So. 2d 404 (Ala.Crim. App.1999). We granted certiorari review. We affirm.
Powell was indicted by a Tuscaloosa County grand jury on four counts of capital murder related to the shooting death of 70-year-old Mattie Wesson. Count I charged Powell with murder made capital because it was committed during the course of a burglary in the first or second degree or during an attempt thereof, a violation of Ala.Code 1975, § 13A-5-40(a)(4); Count II charged Powell with murder made capital because it was committed during the course of a robbery in the first degree or during an attempt thereof, a violation of § 13A-5-40(a)(2); Count III charged Powell with murder made capital because it was committed during the course of a rape in the first or second degree or during an attempt thereof, a violation of § 13A-5-40(a)(3); and Count IV charge Powell with murder made capital because it was committed during the course of sodomy in the first or second degree or during an attempt thereof, a violation of § 13A-5-40(a)(3).
A jury convicted Powell on each count. The trial court then conducted the penalty phase of Powell's trial, in accordance with Ala.Code 1975, § 13A-5-6. After hearing the evidence presented by the parties and hearing the arguments of counsel, the jury recommended, by a vote of 11-1, that Powell be sentenced to death.
Thereafter, the trial court conducted its own sentencing hearing, as required by Ala.Code 1975, § 13A-5-47. The trial court found the existence of two statutory aggravating circumstances, one statutory mitigating circumstance, and eight nonstatutory mitigating circumstances. In light of those circumstances and the jury's recommendation, the trial court sentenced Powell to death by electrocution.
This Court, on March 6, 2000, granted Powell's petition for a writ of certiorari to review the opinion of the Court of Criminal Appeals and to search the record for plain error, pursuant to Rule 39(k), Ala. R.App. P.[1] In his brief to the Court of Criminal Appeals, Powell raised seven issues, several of which had subparts. The Court of Criminal Appeals thoroughly addressed and properly decided each of these issues. In his certiorari petition to this Court, Powell raised an *436 additional 34 issues, most of which have multiple subparts. Because these additional issues were not raised in the Court of Criminal Appeals, they are not subject to appellate review absent plain error. See Ex parte Myers, 699 So. 2d 1285, 1296 (Ala.1997), cert. denied, 522 U.S. 1054, 118 S. Ct. 706, 139 L. Ed. 2d 648 (1998); Ex parte Frith, 526 So. 2d 880, 882 (Ala.1987). Error is plain "if the error is so obvious that the failure to notice it would seriously affect the fairness or integrity of the judicial proceedings." Haney v. State, 603 So. 2d 368, 392 (Ala.Crim.App.1991), aff'd, 603 So. 2d 412 (Ala.1992), cert. denied, 507 U.S. 925, 113 S. Ct. 1297, 122 L. Ed. 2d 687 (1993). (Citation omitted.) Powell also raised two issues for the first time in his reply brief filed with this Court. As a general rule, issues raised for the first time in a reply brief are not properly subject to appellate review. See Kennesaw Life & Accident Ins. Co. v. Old Nat'l Ins. Co., 291 Ala. 752, 287 So. 2d 869, 871 (1973).[2] None of the issues raised in either of Powell's briefs has merit. Moreover, our search of the record reveals no error, plain or otherwise.
As required by Rule 39(k), Ala. R.App. P., we have meticulously searched the entire record for error, and we have found none, plain or otherwise.[3] We conclude that Powell received a fair trial.
We have reviewed the opinion of the Court of Criminal Appeals and conclude that it adequately and properly reviewed Powell's conviction and sentence. The judgment of the Court of Criminal Appeals affirming Powell's conviction and his sentence of death is affirmed.
AFFIRMED.
HOOPER, C.J., and MADDOX, HOUSTON, SEE, LYONS, BROWN, and JOHNSTONE, JJ., concur.
NOTES
[1] Rule 39 was amended, effective May 19, 2000.
"The amendment removes the provision in the former Rule 39(c) that provided that a petition for a writ of certiorari to the Supreme Court in a case in which the death penalty was imposed would be granted as a matter of right. With this amendment, review of death-penalty cases will be at the discretion of the Supreme Court. The Supreme Court retains the authority to notice any plain error or defect in the proceedings under review in those cases."
"Court Comment to Amendment to Rule 39 effective May 19, 2000, as to death-penalty cases, etc.," Ala. R.App. P.
[2] We note that Kennesaw Life & Accident Insurance Co. v. Old National Insurance Co. did not involve the imposition of the death penalty and, therefore, was decided in accordance with the general rules regarding the preservation of error on appeal. Because this present case involves the imposition of the death penalty, we caution that the Kennesaw rule would not apply in the presence of plain error.
[3] The petition for certiorari review in this case was filed in this Court on December 22, 1999, before the effective date of the amendment to Rule 39. See note 1. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1839855/ | 206 B.R. 858 (1997)
In re Lindsey WALDORF, Debtor.
Karen CRESAP, Personal Representative of the Estates of Joseph and Jean Cresap, Plaintiff,
v.
Lindsey WALDORF, Defendant.
In re Reinhart A. OLSEN, Debtor.
Karen CRESAP, Personal Representative of the Estates of Joseph and Jean Cresap, Plaintiff,
v.
Reinhart A. OLSEN, Defendant.
Bankruptcy Nos. 95-54088-R, 96-40992-G, Adv. Nos. 96-4356-R, 96-4388-R.
United States Bankruptcy Court, E.D. Michigan, Southern Division.
March 13, 1997.
*859 *860 E. Michael Morris, Birmingham, MI, for plaintiff.
Stuart Gold, Southfield, MI, for defendants.
OPINION REGARDING CROSS MOTIONS FOR SUMMARY JUDGMENT
STEVEN W. RHODES, Bankruptcy Judge.
Karen Cresap filed each of these adversary proceedings to obtain a determination that the debt which the debtors Lindsey Waldorf and Reinhart Olsen jointly and severally owe to the estates of Joseph and Jean Cresap is nondischargeable.[1] Cresap alleges that the debt is non-dischargeable because it is the result of one or more of the following: fraud and misrepresentation, under § 523(a)(2)(A); fraud while acting in a fiduciary capacity, under § 523(a)(4); or willful and malicious injury to the property of Cresap, under § 523(a)(6). Cresap now moves for summary *861 judgment. Waldorf and Olsen respond with cross-motions for summary judgment. The Court consolidated the proceedings for the purpose of resolving these motions together. The Court concludes that Cresap is entitled to a judgment of non-dischargeability under § 523(a)(2)(A) on the basis of collateral estoppel, but that the balance of her claims should be dismissed.
The underlying facts of Cresap's claim have already been the subject of lengthy litigation in state court. On February 3, 1992, Jean and Joseph Cresap ("the Cresaps") brought suit in the Oakland County Circuit Court to recover money which they invested in a corporation, Technology Un-Limited. The Cresaps sued Technology Un-Limited, its successor corporation, Innovative Industries, and the individual debtors, Reinhart Olsen and Lindsey Waldorf. In response to the defendants' motion for summary disposition, the state court dismissed Counts I, II, and VI of the complaint. Count III remained and alleged:
Fraud and misrepresentation of defendants Technology Un-Limited, Inc., officers, Reinhart A. Olsen, Philip E. Chase, Lindsey Waldorf as officers of the corporation and individually, jointly and severally and its successor corporation, Innovative Industries, Inc. and its president, Elmer Sivacek as an officer of the corporation and individually, jointly and severally.
After protracted litigation, the Cresaps obtained summary disposition on this remaining count. In an order entered on December 7, 1994, the state court found all of the defendants liable. However, this order did not set the amount of damages. The trial judge convened a hearing on damages, but adjourned the hearing to allow the parties to brief the admissibility of certain evidence. The hearing was set to resume on December 27, 1995. When Waldorf and Olsen failed to appear, the trial judge issued final judgment against them in the amount of $279,023. Waldorf and Olsen did not appeal this ruling. On December 29, 1995, Waldorf filed a petition for bankruptcy relief under chapter 7. Olsen filed for chapter 7 relief on January 25, 1996.
After learning of the bankruptcies, Cresap brought these adversary proceedings against Waldorf and Olsen.
Waldorf and Olsen deny that they are indebted to Cresap for the state court judgment and deny that Cresap's claim is nondischargeable.
Cresap now moves for summary judgment, contending that the state court's judgment is binding in this case and collaterally estops Waldorf and Olsen from contesting the non-dischargeability of the debt. In response, Waldorf and Olsen contend that Cresap is not entitled to rely on collateral estoppel. Waldorf and Olsen cross-move for summary judgment, arguing that Cresap's complaint fails to sufficiently state a claim for fraud and for the existence of a fiduciary relationship between the parties.
II. This Court must give full faith and credit to the prior state judgment.
The federal courts employ a variety of doctrines to recognize the validity and effect of prior state judgments, including res judicata, collateral estoppel, judicial estoppel, and the Full Faith and Credit Act. The bankruptcy courts do not apply the doctrine of res judicata (or "claim preclusion") in dischargeability proceedings since the Supreme Court decided Brown v. Felsen, 442 U.S. 127, 99 S. Ct. 2205, 60 L. Ed. 2d 767 (1979). However, the bankruptcy courts can apply the doctrine of collateral estoppel (or "issue preclusion") to avoid relitigating any grounds for non-dischargeability which were litigated in a prior proceeding. Grogan v. Garner, 498 U.S. 279, 285, n. 11, 111 S. Ct. 654, 658, n. 11, 112 L. Ed. 2d 755 (1991); Spilman v. Harley, 656 F.2d 224, 227 (6th Cir. 1981); Rally Hill Prods. v. Bursack (In re Bursack), 65 F.3d 51 (6th Cir.1995); Bay Area Factors v. Calvert (In re Calvert), 105 F.3d 315 (6th Cir.1997); Bend v. Eadie (In re Eadie), 51 B.R. 890, 893 (Bankr.E.D.Mich. 1985).
In Grogan, the Supreme Court held that the standard of proof on a claim of non-dischargeability under § 523(a) is the preponderance of the evidence standard. The Court based this conclusion, in part, on its determination that "application of that standard *862 will permit exception from discharge of all fraud claims creditors have successfully reduced to judgment." Grogan, 498 U.S. at 290, 111 S.Ct. at 661 (emphasis added). The Court expressly stated that collateral estoppel principles apply in discharge proceedings, without discussing the matter further. Id. at 285, n. 11, 111 S.Ct. at 658, n. 11.
In recent years, the Supreme Court has issued a series of decisions expanding the analysis that the federal courts must use to determine whether to give a state judgment preclusive effect. Rather than relying solely on the judicial doctrine of collateral estoppel, a federal court must first consider whether the Full Faith and Credit Act requires it to accord the state judgment the same preclusive effect that the judgment would receive under state law. See Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 104 S. Ct. 892, 79 L. Ed. 2d 56 (1984); Parsons Steel, Inc. v. First Alabama Bank, 474 U.S. 518, 106 S. Ct. 768, 88 L. Ed. 2d 877 (1986); Marrese v. Am. Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S. Ct. 1327, 84 L. Ed. 2d 274 (1985); Matsushita Elec. Indus. Co. v. Epstein, ___ U.S. ___, 116 S. Ct. 873, 134 L. Ed. 2d 6 (1996).
The Full Faith and Credit Act states, in relevant part, that state court "judicial proceedings shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken." 28 U.S.C. § 1738.
The Sixth Circuit has held that the Full Faith and Credit Act applies in dischargeability proceedings. Bursack, 65 F.3d at 52-53. Under Bursack, the bankruptcy court must initially determine whether a state court judgment would receive preclusive effect in the state where it was rendered. Id. at 53. If so, the bankruptcy court must give the state judgment preclusive effect unless it determines that an exception to the Full Faith and Credit Act exists. Id.
Recently, the Sixth Circuit concluded that the Act would apply without exception even when the underlying state judgment is a default judgment. Calvert, 105 F.3d 315. Accordingly, this Court must apply the Full Faith and Credit Act and give Cresap's state judgment the same preclusive effect that is recognized by Michigan law.
III. Michigan law employs the doctrine of collateral estoppel to give preclusive effect to prior judgments.
Michigan courts apply collateral estoppel "to avoid relitigation of claims, and to prevent vexation, confusion, chaos and the inefficient use of judicial resources." Bd. of County Road Comm'rs v. Schultz, 205 Mich.App. 371, 377, 521 N.W.2d 847, 851 (1994). The Michigan Supreme Court has explained Michigan's rule of collateral estoppel, as follows:
Collateral estoppel precludes the relitigation of an issue in a subsequent, different cause of action between the same parties where the prior proceeding culminated in a valid, final judgment and the issue was 1) actually litigated and 2) necessarily determined.
People v. Gates, 434 Mich. 146, 154, 452 N.W.2d 627, 630, cert. den., 497 U.S. 1004, 110 S. Ct. 3238, 111 L. Ed. 2d 749 (1990).
An issue is "actually litigated" if it "is put into issue by the pleadings, submitted to the trier of fact, and determined by the trier of fact." Latimer v. Mueller & Son, Inc., 149 Mich.App. 620, 640-41, 386 N.W.2d 618, 627 (1986); see also In re Eadie, 51 B.R. at 894. For collateral estoppel purposes, an issue may be "actually litigated" without a trial. Latimer, 149 Mich.App. at 640-41, 386 N.W.2d at 627 (finding that a claim was "actually litigated" for collateral estoppel purposes when the trial court dismissed it on a motion for directed verdict at the close of the claimant's opening statement); see also Detroit v. Qualls, 434 Mich. 340, 357, n. 27, 454 N.W.2d 374, 382, n. 27 (1990) (decision rendered by summary disposition constituted decision on the merits).
An issue is "necessarily determined" if it is essential to the judgment. Gates at 158, 452 N.W.2d at 631.
For collateral estoppel, Michigan also requires that the "same parties" are involved in both the initial and the subsequent *863 case. This is requirement is known as the doctrine of mutuality of estoppel:
The doctrine of mutuality of estoppel requires that in order for a party to estop an adversary from relitigating an issue that party must also have been a party, or a privy to a party, in the previous action. In other words, "[t]he estoppel is mutual if the one taking advantage of the earlier adjudication would have been bound by it, had it gone against him." Although there is a trend in modern law to abolish the requirement of mutuality, this Court reaffirmed its commitment to that doctrine in 1971 in Howell.
Lichon v. Am. Universal Ins. Co., 435 Mich. 408, 427-428, 459 N.W.2d 288, 298 (1990). A party is one who is directly interested in the subject matter, who has a right to make a defense or to control the proceeding, and who has a right to appeal from the judgment. Howell v. Vito's Trucking & Excavating Co., 386 Mich. 37, 43, 191 N.W.2d 313, 315-16 (1971). A person is in privy to a party if, after the judgment, the person has an interest in the matter affected by the judgment through one of the parties, such as by inheritance, succession, or purchase. Id.
Accordingly, in order to apply Michigan's doctrine of collateral estoppel, this Court must determine: 1) whether the parties in this case are the same as, or in privy to, the parties to the state case; and 2) whether the issues in this case were "actually litigated" in the state case; and 3) whether the issues were "necessarily determined" in the state case.
IV. The Michigan doctrine of collateral estoppel precludes Waldorf and Olsen from relitigating the fraud issues.
A. The parties here satisfy the requirement of mutuality of estoppel.
The Cresaps' estates have "an interest in the subject matter affected by the judgment" in the Oakland County Circuit Court and in the present dischargeability action. This satisfies the Michigan requirement for mutuality of estoppel. Waldorf and Olsen do not contend otherwise.
B. The issues of fraud and misrepresentation were actually litigated in the prior state case.
The elements of a dischargeability case under 11 U.S.C. § 523(a)(2)(A) for false misrepresentation and fraud are virtually identical to the elements that Michigan requires to establish fraudulent misrepresentation. In a dischargeability proceeding brought pursuant to § 523(a)(2)(A), the issue is whether Cresap's claim resulted from the defendant's false representation or actual fraud:
(a) A discharge under section 727, 114, 1228(a), or 1328(b) of this title does not discharge an individual from any debt
. . . .
(2) for money, property, services, or an extension, renewal or refinancing of credit, to the extent obtained by
(A) false pretenses, a false representation or actual fraud, other than a statement respecting the debtor's or an insider's financial condition[.]
To establish that a debt should be denied discharge under § 523(a)(2)(A), the creditor must prove:
1) that the debtor obtained money through a material misrepresentation;
2) that the debtor knew the representation was false or made the representation with gross recklessness as to the truth;
3) that the creditor relied on the misrepresentation; and
4) that the creditor's reliance was the proximate cause of the loss.
Longo v. McLaren (In re McLaren), 3 F.3d 958, 961 (6th Cir.1993). The creditor has the burden of proving his case by a preponderance of the evidence. Grogan, 498 U.S. at 287, 111 S.Ct. at 659.
Michigan describes fraud as "an intentional perversion or concealment of the truth for the purpose of inducing another in reliance upon it to part with some valuable thing or to surrender a legal right." Barkau v. Ruggirello, 113 Mich.App. 642, 647, 318 N.W.2d 521, 524 (1982). Michigan requires the plaintiff to establish the following elements to prove fraudulent misrepresentation:
*864 1) the defendant made a material representation;
2) it was false;
3) the defendant knew it was false when made, or made it recklessly, without knowledge of its truth, and as a positive assertion;
4) it was made with the intention to induce reliance by the plaintiff;
5) the plaintiff relied on it; and
6) the plaintiff thereby suffered injury.
Hi-Way Motor Co. v. Intern. Harvester Co., 398 Mich. 330, 336, 247 N.W.2d 813, 816 (1976).
The Michigan Supreme Court has discussed various standards of proof for fraud, from "clear and convincing" proof to a preponderance of the evidence. See Mina v. Gen. Star Indemnity Co., 218 Mich.App. 678, 682-85, 555 N.W.2d 1, 3-4 (1996) (collecting cases and concluding that "we are unable to say with any degree of certainty exactly what standard of proof courts should apply in fraud cases").
Waldorf and Olsen argue that in the state court proceeding that resulted in the judgment against them, the Cresaps' claim of fraud was not "actually litigated." This argument fails for the following three reasons: 1) Waldorf and Olsen misconstrue Michigan's definition of "actually litigate;" 2) Waldorf and Olsen mischaracterize Cresap's argument in the motion for summary disposition; and 3) Waldorf and Olsen mischaracterize the state court's judgment.
1. The issue of fraud and misrepresentation was "actually litigated" on the motion for summary disposition.
The state case was resolved on summary disposition. A matter need not be fully tried in order to be "actually litigated." Under Michigan law, if an issue is decided on the merits on a motion for summary disposition, it is "actually litigated." Qualls, 434 Mich. at 357, n. 27, 454 N.W.2d at 382, n. 27. Accordingly, a ruling on summary disposition is "a final judgment capable of barring a second lawsuit where the proper circumstances occur." In re Moon, 116 B.R. 75, 78 (Bankr.E.D.Mich.1990) (citing Ferguson v. Montrose, 75 Mich.App. 596, 598, 255 N.W.2d 700 (1977) and Curry v. City of Detroit, 394 Mich. 327, 231 N.W.2d 57 (1975)). Collateral estoppel applies when there is a motion for summary disposition that involves the same matter in issue, the same parties or their privies, and a judgment on the merits of the claim. Id.
As the preceding analysis shows, the state law fraud claim presents the same essential elements necessary to prove fraud under § 523(a)(2)(A). The state case involved the same parties or their privies as the present bankruptcy case, and the trial judge ruled on the merits of the case. These factors demonstrate that when the state court entered its summary judgment, the Cresaps' fraud claim was "actually litigated."
2. Cresaps' pleadings in the state court in support of the motion for summary disposition were based on Count III, fraud and misrepresentation.
Count III of the complaint in state court alleged that the individual defendants were personally liable for fraud and misrepresentation. Waldorf and Olsen contend that the Cresaps raised alternative theories of liability in their brief in support of summary disposition.
Far from alleging alternative causes of action, the Cresaps' arguments were advanced to support the claim that the court should pierce the corporate veil to find the individual corporate officers were personally liable for the fraud. These arguments were not additional causes of action.[2] As the Court of Appeals recently stated,
[A]n alter ego claim is not by itself a cause of action. Rather, it is a doctrine which fastens liability on the individual who uses a corporation merely as an instrumentality *865 to conduct his or her own personal business, and such liability arises from fraud or injustice perpetrated not on the corporation but on third persons dealing with the corporation.
Spartan Tube and Steel, Inc. v. Himmelspach (In re RCS Engineered Prods. Co., Inc.), 102 F.3d 223, 226 (6th Cir.1996). The Court of Appeals then explained Michigan's rule for piercing the corporate veil:
The general principle in Michigan is that separate corporate identities will be respected, and thus corporate veils will be pierced only to prevent fraud or injustice. Wodogaza v. H & R Terminals, Inc., 161 Mich.App. 746, 756, 411 N.W.2d 848, 852 (1987). See also Wells v. Firestone Tire and Rubber Co., 421 Mich. 641, 650, 364 N.W.2d 670, 674 (1984). A court may find that one entity is the alter ego of another and pierce the corporate veil upon proof of three elements: first, the corporate entity must be a mere instrumentality of another; second, the corporate entity must be used to commit a fraud or wrong; and third, there must have been an unjust loss or injury to the plaintiff. Nogueras v. Maisel & Assoc. of Michigan, 142 Mich.App. 71, 86, 369 N.W.2d 492, 498 (1985).
Id.
The Michigan law on piercing the corporate veil places fraud squarely at issue, as Cresaps' pleadings in the state court demonstrate. All of the arguments raised in Cresaps' motion for summary disposition supported their claim that the court should pierce the corporate veil to hold the individuals liable for fraud.
3. The state court judgment was based on the claim for fraud and misrepresentation.
Waldorf and Olsen ask this Court to find that the state court judgment did not grant summary disposition on Count III's fraud claim, but rather found the individual defendants liable on a separate theory for breach of contract.
To determine the full meaning and effect of an ambiguous prior state judgment, the bankruptcy court must examine the entire record of the state proceedings. Wheeler v. Laudani, 783 F.2d 610, 615-16 (6th Cir. 1986).
The record shows that the state court dismissed the claim of breach of contract, as follows:
As to count one, breach of contract and specific performance. The court finds that plaintiffs have not raised a question of fact as to whether defendant (sic) Olsen and Waldorf ever personally guaranteed the loan or made any promises in their individual capacity to repay it.
Both defendants signed all pertinent documents in their capacity as officers of the corporation. Accordingly[,] the court is going to grant defendant's (sic) motion to dismiss count one of the complaint.
(Tr. of hr'g, May 26, 1993, p. 4). Nothing in the record shows that complaint was amended to reinstate this claim for breach of contract.
Further, nothing in the motion for summary disposition or in the transcript of the oral argument suggests that the Cresaps were asserting a breach of contract claim when they moved for summary disposition. Their attorney's oral argument on the motion supported their allegations of fraud and misrepresentation and their theory of piercing the corporate veil. Cresaps' attorney argued:
. . . [W]e're asking the Court to find judgment for the plaintiffs and to find that there is personal liability as to the defendants, because they were using the Technology Unlimited Corporation as a sham corporation; Innovative Industries was obviously a sham corporation.
. . . What we're alleging to the Court is these men didn't just misrepresent, they perpetuated a fraud, they established a sham corporation[.]
. . . We believe, the plaintiffs believe that these gentlemen utilized Technology Unlimited as a sham corporation of Innovative Industries for their own purpose.
They actually were operating outside the corporate structure, they were attempting to make a profit. They perpetuated a *866 fraud upon the plaintiffs. They established a sham corporation . . .
. . . So we would ask the Court in this instance, number one, we believe that the documents that we've attached as a loan agreement are valid documents. The interim agreement and the receipt of the interim agreement are contracts where the Cresaps, the plaintiffs, loaned to Mr. Olson and Mr. Waldorf sums of money which they pledged to pay back either directly, through a bridge loan or through patents.
And they also pledged that if there was a successor corporation, that they would pay them back.
They had no intention, we believe, to ever pay the money back if the deal didn't work.
We believe that by their mechanizations in attempting to transfer things from Technology Unlimited and Innovative Industries, they thought they would wipe out the Cresaps and that they would go away.
We're saying to the Court that there was no Innovative Industries, very clearly by the records and by their own admissions now. [T]hey talk of something called Creative we've never heard of, but they did issue stock to Innovative Industries, they had a Board of Directors meeting of Innovative Industries, they transacted business as if there was a real corporation and there was none, nor did they ever file one afterwards to bridge the gap. They never went back and filed the papers, they never filed them before the meeting, never filed them after the meeting.
So there was just an absolute fraud perpetuated not only upon the Cresaps, but every shareholder they invited to the meeting. And that's very clear not only from our pleadings[,] but from theirs.
So we have asked the Court to pierce the corporate veil because in effect they weren't operating as a corporation, they were operating as individuals utilizing a corporate name, utilizing two corporate names, utilizing an alleged partnership merely to bring the people in so they could obtain some money.
. . . [T]he complete identity of interest between the sole shareholders of the corporation may lead the Court to treat them as one for certain purposes. And those purposes are to pierce the corporate veil by a creditor, for creditor's purposes. And in this case, we're saying to the Court that these people are in effect creditors, they made a valid loan agreement, they received no consideration back whatsoever from these gentlemen for it, and we're asking the Court to find on their behalfyou know, there was a time when these gentlemen could have tendered patents that were active. They never did that. We believe they had no desire, didn't feel they had to pay these people back and felt that by creating a sham corporation, Innovative Industries, they could escape payment. . . .
(Tr. of hr'g, July 28, 1994, pp. 4-12). Immediately after the parties concluded oral argument, the judge stated:
Well, the Court is of the opinion that when individuals sign in their own capacity on behalf of a corporation, obviously they have no liability. They're agents of the corporation in this case, as a practical matter, pursuant to the Affidavits, it's unrebutted that there wasn't a corporation and he wouldn't use the words, really, piercing the corporate veil when you don't have a corporation.
But the Court is of the opinion that you're presumed to know the law and you're presumed to know that if you're not just standing as a corporation, that when you sign a document on behalf of the corporation that doesn't exist, that you're bound by the contract entered into personally. And the contract has been breached and the Court is of the opinion that judgment should enter as prayed for and the Court will sign an order to that effect.
The court eventually entered the following order on December 7, 1994:
This matter having come before the Court on Motion of Plaintiffs requesting Summary Judgment against Plaintiffs pursuant to M.C.R. 2.116(A)(2); (B)(1); (C)(9) and (C)(10) and the Court having heard the arguments from each of the respective parties, Plaintiffs have a right to such Summary Judgment as a matter of law; *867 the Court finds further that the Defendants are to be held personally liable, individually, jointly and severally;
It is The Order of this Court that Summary Judgment shall be entered on behalf of the Plaintiffs and against the Defendants;
It is Further Ordered that a Hearing shall be scheduled for the purpose of taking testimony to establish damages, said hearing is to be held within thirty (30) days of the entry of this Order;
IT IS SO ORDERED.
A finding that the state court's ruling was based on a breach of contract claim would ignore the history and the pleadings in the state case. This Court cannot find that the state court ruled on a claim which had already been dismissed from the suit, which was not discussed in the motion for summary disposition, and which was not presented at oral argument on the motion.
Having chosen not to appeal, Waldorf and Olsen cannot pursue a collateral attack on the merits of the ruling in the Bankruptcy Court. See In re Gober, 100 F.3d 1195, 1202-03 (5th Cir.1996) (rejecting debtor's argument that collateral estoppel should not apply in dischargeability proceeding because state judgment did not comport with pleadings); In re Maurice, 21 F.3d 767, 774 (7th Cir.1994) (rejecting as collateral attack debtor's argument against use of collateral estoppel).
V. This court is precluded by the Full Faith and Credit Act from considering collateral attacks of the state judgment.
Waldorf and Olsen argue that the state court's ruling on damages should be set aside because they were not present at the hearing when he ruled. Waldorf and Olsen acknowledge that they were aware of the hearing and that they submitted a brief on issues which the court had identified as relevant. Rather than filing a motion for reconsideration in state court that explains their failure to appear, Waldorf and Olsen ask this Court to ignore the state court's ruling because of their failure to attend the damages hearing. Only the state court is in a position to say whether Waldorf and Olsen's explanation would prompt reconsideration of the issue of damages. The Full Faith and Credit Clause requires this Court to refrain from relitigating the damages when they have already been litigated in state court.
Waldorf and Olsen argue that the state court's ruling on damages is similar to a default judgment and that this Court should find an exception to the Full Faith and Credit Act for default judgments, relying on Wood v. Dealers Fin. Servs., Inc. (In re Wood), 199 B.R. 25 (E.D.Mich.1996). However, the Court of Appeals squarely rejected the reasoning of Wood when it recently ruled that there is no exception to the Full Faith and Credit Act for default judgments. Calvert, 105 F.3d at 322. Calvert requires this Court to apply the Full Faith and Credit Act without exception for default judgments, and the Full Faith and Credit Act requires the Court to look to state law to determine the effect of the judgment.
As another bankruptcy court has recently observed, the Michigan Supreme Court has not explicitly announced what preclusive effect it will give to a default judgment. Vogel v. Kalita (In re Kalita), 202 B.R. 889, 905 (Bankr.W.D.Mich.1996). The Michigan Court of Appeals has stated that a default judgment is considered a determination on the merits of matters essential to support the judgment. City of Detroit v. Nortown Theatre, Inc., 116 Mich.App. 386, 392, 323 N.W.2d 411, 413-14 (1982); see also Braxton v. Litchalk, 55 Mich.App. 708, 717, 223 N.W.2d 316, 316 (1974) (confining its holding to the circumstances of the case).[3]
*868 This Court has applied the rule to uphold judgments which were entered against defendants who did not attend the hearing at which judgment was issued. In re Eadie, 51 B.R. at 893; Frantz v. Schuster (In re Schuster), 171 B.R. 807, 812 (Bankr.E.D.Mich. 1994).
Likewise, the Michigan Court of Appeals has refused to allow parties to relitigate issues which were determined against them in previous proceedings which they chose not to attend or appeal. See Talbot v. Talbot, 99 Mich.App. 247, 297 N.W.2d 896 (1980) (previous judgment against defendant governed issue when defendant received notice of hearing but chose not to attend because he believed court lacked jurisdiction); Van Pembrook v. Zero Man. Co., 146 Mich.App. 87, 380 N.W.2d 60 (1985) (default judgment would not be set aside where defendant received service and summons, but failed to answer the complaint because it believed that lawsuit was improper); Harvey Cadillac Co. v. Rahain, 204 Mich.App. 355, 514 N.W.2d 257 (1994) (default judgment entered as sanction for failure to participate in discovery would not be set aside where defendant's attorney received notice of the motion for default but failed to appear or respond); Park v. Am. Casualty Ins. Co., 219 Mich.App. 62, 555 N.W.2d 720 (1996) (default judgment would not be set aside where defendant's counsel received notice of trial but inadvertently failed to appear).
Here, Waldorf and Olsen were aware of the issues and had participated in the state litigation for years. They filed pleadings regarding the issue of damages and received proper notice of the hearing. They failed to attend the hearing, and the judgment was entered. Neither filed a motion for reconsideration in the trial court, and neither appealed the judgment.
Waldorf and Olsen contend that when they filed bankruptcy, the automatic stay cut off their opportunity to appeal. This is not persuasive. Waldorf and Olsen themselves invoked the automatic stay by filing their bankruptcy petitions. If they had wished to appeal, they could have asked this Court to lift the stay to allow the state appeal. The point is that Waldorf and Olsen cannot use the bankruptcy court to appeal the state court judgment.
VI. Waldorf and Olsen are entitled to summary judgment on Cresap's claim of fraud in a fiduciary capacity.
Cresap contends that the state court judgment also establishes that the debt is non-dischargeable under § 523(a)(4), which denies discharge for "fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny[.]" The Court of Appeals has explained fraud in a fiduciary capacity, as follows:
A debt created while acting in a fiduciary capacity is a special debt, created by a breach of trust obligations defined by law, and is separate and distinct from any underlying contractual debt which arises from a bankrupt's agreement with respect to goods or services. The question of who is a fiduciary for purposes of section § 17(a)(4) [the predecessor to § 523(a)(4)] is one of federal law, although state law is important in determining when a trust relationship exists. The term "fiduciary" applies only to express or technical trusts and does not extend to implied trusts, which are imposed on transactions by operation of law as a matter of equity. Moreover, the requisite trust relationship *869 must exist prior to the act creating the debt and without reference to it.
Cashway v. Johnson (In re Johnson), 691 F.2d 249, 251-52 (6th Cir.1982) (internal citations omitted). Fiduciary status does not arise from the debtor-creditor relationship alone. Butler v. Clark (In re Clark), 202 B.R. 243, 256 (Bankr.W.D.Mich.1996).
Waldorf and Olsen argue that Cresap has failed to plead any facts or law to support a theory of dischargeability under § 523(a)(4).
The record of the state case shows that Cresap initially argued that there was a "constructive trust" agreement breached by Waldorf and Olsen, but the state court granted defendants' motion for summary disposition and dismissed this count on May 26, 1993. Nothing indicates that this claim was reinstated, and nothing in the state court pleadings suggests that this theory was pursued.
In the present adversary proceeding, Cresap has failed to cite any facts or law which would suggest that Waldorf and Olsen had a fiduciary relationship with the Cresaps. Indeed, the Cresaps are barred from relitigating this issue for the same reasons that Waldorf and Olsen are barred from relitigating the fraud issue. Accordingly, Waldorf and Olsen are entitled to summary judgment on the § 523(a)(4) claim.
VII. Waldorf and Olsen are entitled to summary judgment on Cresap's claim of willful and malicious injury.
Cresap contends that the debt is non-dischargeable under § 523(a)(6), which denies discharge to "any debt for willful and malicious injury by the debtor to another entity." The Court of Appeals has instructed that
An injury to an entity or property may be a malicious injury within [§ 523(a)(6)] if it was wrongful and without just cause or excessive, even in the absence of personal hatred, spite, or ill-will. The word "willful" means "deliberate or intentional," a deliberate and intentional act which necessarily leads to injury. Therefore, a wrongful act done intentionally, which necessarily produces harm and is without just cause or excuse, may constitute a willful and malicious injury.
Perkins v. Scharffe, 817 F.2d 392, 394 (6th Cir.), cert. den., 484 U.S. 853, 108 S. Ct. 156, 98 L. Ed. 2d 112 (1987). Although Cresap contends that the state judgment shows that the debt is non-dischargeable under § 523(a)(6), nothing in the record shows that a similar state claim was pleaded, briefed, argued, or decided. The pleadings and exhibits in this adversary case fail to set forth any specific facts or law which would support a claim under § 523(a)(6). Therefore, Waldorf and Olsen are entitled to summary judgment on this claim.
Conclusion
After examining the pleadings and transcripts of the state case, this Court concludes that the issue of fraud and misrepresentation was actually litigated and necessarily determined in the prior state action and that Cresap is entitled to a judgment of non-dischargeability under § 523(a)(2)(A). The Court further concludes that Cresap has failed to come forward with facts or law which would support her claims for non-dischargeability under § 523(a)(4) and (a)(6), and that therefore Waldorf and Olsen are entitled to summary judgment on these two claims.
NOTES
[1] Joseph and Jean Cresap initiated suit in the Oakland County Circuit Court. Both Cresaps died before the conclusion of their state case, and Karen Cresap is the representative of their estates.
[2] In the state court, the Cresaps listed ten separate arguments in support of their position that the individual defendants were hiding behind their corporations to commit fraud; that the corporations had no separate existence apart from the individuals; and that the court should pierce the corporate veils. These arguments were labelled "issues," but each presented a factual allegation, not a separate legal cause of action.
[3] This Court recognizes that Kalita criticizes Michigan cases such as Braxton as "wrongly decided." 202 B.R. at 915. Kalita bases this criticism on its interpretation of Jacobson v. Miller, 41 Mich. 90, 1 N.W. 1013 (1879), which Kalita finds stands for the proposition that "unless a proper answer is filed which identifies facts necessarily in issue, a subsequent judgment is not entitled to collateral estoppel effect because the factual issues were not contested and, hence, not actually litigated." Id. at 914. A review of the myriad of other cases which have cited Jacobson in the past century shows that Kalita is the only court to draw such a broad conclusion. Michigan courts cite Jacobson for a more narrow rule of collateral estoppel:
[W]here the subsequent action is based upon a different cause of action from that upon which the prior action was based, the effect of the [prior] judgment is more limited. The judgment is conclusive between the parties in such a case as to questions actually litigated and determined by the judgment. It is not conclusive as to questions which might have been but were not litigated in the original action.
Howell v. Vito's Trucking and Excavating Co., 386 Mich. 37, 42, 191 N.W.2d 313 (1971) (citing Jones v. Chambers, 353 Mich. 674, 680, 91 N.W.2d 889, 892 (1958) (citing Jacobson)). Jacobson simply allowed subsequent litigation between the same parties to adjudicate an issue which was not determined in the initial lawsuit; it does not hold that failure to file an answer precludes a finding that the issue was actually litigated. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1857265/ | 341 B.R. 6 (2006)
In re Jonathan Bradley SHADWICK, Debtor.
Jonathan Bradley Shadwick, Plaintiff,
v.
United State Department of Education, Keybank USA, N.A., and Curators of the University of Missouri Defendants.
Bankruptcy No. 05-21412-7-DRD, Adversary No. 05-2076-DRD.
United States Bankruptcy Court, W.D. Missouri.
March 29, 2006.
*7 *8 Janice A. Harder, Columbia, MO, for Debtor.
MEMORANDUM OPINION
DENNIS R. DOW, Bankruptcy Judge.
In this adversary proceeding, plaintiff Jonathan Bradley Shadwick ("Debtor") seeks a determination, pursuant to 11 U.S.C. § 523(a)(8), that his student loan debt, owed to defendants United State Department of Education ("Education"), Keybank USA, N.A. ("Keybank") and the Curators of the University of Missouri ("Curators") should be discharged for the reason that excepting the debts from discharge would impose upon him an undue hardship. This is a core proceeding of which this Court has jurisdiction pursuant to 28 U.S.C. § 1334(b) and which it may *9 hear and determine pursuant to 28 U.S.C. § 157(a), 157(b)(1) and 157(b)(2)(I). The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure as made applicable to this proceeding by Rule 7052 of the Federal Rules of Bankruptcy Procedure. For the reasons set forth below, I find that the Debtor has not satisfied his burden of proving that repayment of the debts owed to Education and Curators[1] would impose an undue hardship upon him and that they are therefore excepted from discharge under § 523(a)(8).
I. FACTUAL AND PROCEDURAL BACKGROUND
Debtor seeks a discharge of his liability on numerous, separate student loans taken out over a seven-year period from 1997 to 2004 to finance his bachelor's degree and law degree. Debtor is 28 years old and has no disabilities or other medical conditions which limit his ability to earn income. In addition to earning a bachelor's degree in Business Administration from Missouri Southern State College, Debtor graduated from the University of Missouri School of Law and he has completed several courses toward a Masters in Business Administration. The total indebtedness owed by Debtor to Curators as of February 16, 2006 was $17,907.74.[2] The total indebtedness owed to Education as of October 26, 2005 was $91,159.44.[3] After graduation from law school, Debtor immediately secured employment for the state of Missouri doing legislative research, with a starting salary of $36,000. Debtor sat for the bar exam in July of 2005, and did not pass. Debtor's position with the state of Missouri was terminated on October 31, 2005.[4] At the time of trial, Debtor was unemployed.
Debtor has made no payments whatsoever on any of his student loans. Additionally, he has not sought deferment or forbearance from either Education or Curators. According to the testimony from the Curator's representative, Debtor is eligible for a deferment program based on unemployment and economic hardship. After a period of deferment, Debtor would be eligible to make temporary payments in an amount less than that which would ordinarily be required, starting as low as $25.00 per month, subject to review after a period of six months. The evidence from the Education representative was that Debtor's initial payment under the Income Contingent Repayment Plan ("ICRP") would be $0.00. Even if Debtor were in this program for a period of 25 years, he would receive a discharge of the balance of the unpaid debt at the age of 53. Debtor has not applied for the program.
Debtor and his spouse have three children, ages 5, 6 and 8. Debtor's youngest child has been diagnosed with severe Autism and is currently enrolled in a special needs program offered by the Columbia school system. Debtor's spouse is 26 years old and unemployed. Although she testified as to certain medical conditions, including a mood disorder, Debtor testified that they are controlled by medication. She testified that her medical conditions did not prevent her from providing appropriate care for her children. The evidence *10 also demonstrates that she has worked in the past and could do so now on a part-time basis as the children are not in the house from approximately 9 a.m. to 4 p.m. on weekdays. According to the evidence, she has been evaluated for ADHD, but it was not clearly established that she has been diagnosed. Her testimony is only that she "believed" that she has been so diagnosed. Debtor's spouse also testified that she has a "driving phobia," but there has been no medical diagnosis of this condition and she has never sought professional help for it. In any event, there is no testimony that any of these conditions prevent her from obtaining part-time employment.
Debtor's mother and brother-in-law passed away while Debtor was in law school, events which Debtor believes negatively impacted his overall grade point average in law school. Neither Debtor or his spouse have relatives who are available to assist them emotionally or financially.
II. DISCUSSION
A. Applicable Legal Principles on Determination of Undue Hardship
Debtor contends that it would be an undue hardship for him to repay the remaining amount due on his student loans. Under § 523(a)(8), certain student loans are nondischargeable unless repayment of the loan would impose an undue hardship on the debtor or his dependents. The burden of establishing undue hardship, by a preponderance of the evidence, is on the debtor. Ford v. Student Loan Guarantee Found. of Arkansas (In re Ford), 269 B.R. 673, 675 (8th Cir. BAP 2001); Andrews v. South Dakota Student Loan Assistance Corp. (In re Andrews), 661 F.2d 702, 704 (8th Cir.1981). Unfortunately, the Code contains no definition of the phrase "undue hardship" and interpretation of the concept has been left to the courts. In this Circuit, the applicable standard is the "totality of the circumstances" test. See Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 554 (8th Cir.2003); Andrews, 661 F.2d at 704; Fahrer v. Sallie Mae Servicing Corp. (In re Fahrer), 308 B.R. 27, 32 (Bankr. W.D.Mo.2004). In applying this approach, the courts are to consider: (1) the debtor's past, current and reasonably reliable future financial resources; (2) the reasonable, necessary living expenses of the debtor and the debtor's dependents; and (3) other relevant facts and circumstances unique to the particular case. Long, 322 F.3d at 554; Ford, 269 B.R. at 676. The principal inquiry is to determine whether "the debtor's reasonable future financial resources will sufficiently cover payment of the student loan debt while still allowing for a minimal standard of living"; if so, the indebtedness should not be discharged. Long, 322 F.3d at 554. The Court must determine "whether there would be anything left from the debtor's estimated future income to enable the debtor to make some payment on his student loan without reducing what the debtor and his dependents need to maintain a minimal standard of living." In re Andresen, 232 B.R. 127, 139 (8th Cir. BAP 1999); accord Long, 322 F.3d at 554-55.
There is no precise formula for, or statutory definition of, what constitutes a "minimal standard of living." On one end of the spectrum, it is clearly not enough for a debtor simply to demonstrate that payment of a student loan would require a readjustment of his financial situation or a diminution in lifestyle. Educ. Credit Mgmt. Corp. v. Stanley (In re Stanley), 300 B.R. 813, 817 (N.D.Fla.2003). A debtor is therefore not entitled to maintain the standard of living enjoyed before the filing of the petition. See Stanley, 300 *11 B.R. at 817. On the other hand, it is not necessary that a debtor live in abject poverty in order to demonstrate undue hardship and obtain a discharge of student loans. See Stanley, 300 B.R. at 818. A minimal standard of living requires that the debtor have sufficient financial resources to satisfy needs for food, shelter, clothing and medical treatment. Gill v. Nelnet Loan Services, Inc. (In re Gill), 326 B.R. 611, 627 (Bankr.E.D.Va.2005); see also Myers v. Fifth Third Bank (In re Myers), 280 B.R. 416, 421-422 (Bankr. S.D.Ohio 2002) (minimal standard of living includes the following elements: shelter, utilities, food and personal hygiene, clothing, health insurance or ability to pay medical and dental expenses and recreation).
The "totality of the circumstances" is obviously a very broad test, giving the Court considerable flexibility. As a result, courts in the Eighth Circuit have looked to a number of facts and circumstances to assist them in making this determination including: (1) total present and future incapacity to pay debts for reasons not within the control of the debtor; (2) whether the debtor has made a good faith effort to negotiate a deferment or forbearance of payment; (3) whether the hardship will be long-term; (4) whether the debtor has made payments on the student loan; (5) whether there is permanent or long-term disability of the debtor; (6) the ability of the debtor to obtain gainful employment in the area of the study; (7) whether the debtor has made a good faith effort to maximize income and minimize expenses; (8) whether the dominant purpose of the bankruptcy petition was to discharge the student loan; and (9) the ratio of student loan debt to total indebtedness. VerMaas v. Student Loans of North Dakota (In re VerMaas), 302 B.R. 650, 656-57 (Bankr.D.Neb.2003); Morris v. Univ. of Arkansas, 277 B.R. 910, 914 (Bankr.W.D.Ark.2002). Applying the totality of the circumstances test to the instant case, the Court examines each factor separately.
B. Analysis of the Totality of the Circumstances
1. Past, Present and Reasonably Reliable Future Financial Resources
The first factor that the Court must consider is Debtor's past, present and reasonably reliable future financial resources. In addition to the current and prospective income of the Debtor, the Court must consider the income or earning potential of Debtor's spouse.[5] As noted previously, Debtor's spouse is currently voluntarily unemployed. Although she testified that she suffers from a mood disorder, Debtor testified that this affliction is controlled by medication. There is no evidence that Debtor's spouse has actually been diagnosed with ADHD or that she has even sought professional help regarding her "driving phobia"; therefore, the Court cannot conclude that such disorders impede her ability to be gainfully employed. The evidence is that the Debtor's youngest child has Autism, however, he, like the other two children, is in school from approximately 9:00 a.m. to 4 p.m. on weekdays. Because the program that the *12 Debtor's autistic son is in appears to be meeting his needs, offering helpful therapy and resulting in some improvements in his condition, it does not appear to the Court that his condition imposes any limits on the ability of the Debtor's spouse to be employed, at least on a part-time basis.
This case really centers on Debtor's future income and the lack of significant impediments to repaying his student loans. Although Debtor is presently unemployed, he does have significant earning capacity, a fact which the Court must consider in the undue hardship analysis. See Weller v. Texas Guaranteed Student Loan Corp. (In re Weller), 316 B.R. 708, 716 (Bankr. W.D.Mo.2004) (Court must look beyond the debtor's present to the foreseeable future and consider debtor's education, training, employment history and ability to earn.); Chapelle v. Educational Credit Mgmt. Corp. (In re Chapelle), 328 B.R. 565, 571-72 (Bankr.C.D.Cal.2005) (Court declines to discharge student loan debt where debtor has a law degree, is healthy and has 13 years before retirement age during which she has the potential to secure employment and make payments on her student loans). Debtor is 28 years old and has no disabilities or other medical conditions which limit his ability to earn income. In addition to an undergraduate degree, Debtor has taken courses toward a Master's in Business Administration and has a law degree from the University of Missouri. Although he failed the bar exam the first time he took it, he is eligible to take it again and has offered no particularly good reason for not having done so. Obviously, Debtor's earning capacity would be enhanced if he would retake and pass the bar exam. Debtor could be preparing to retake the bar exam during this period of his unemployment. Additional evidence of Debtor's earning capacity is the fact that he was able to secure a legal job immediately out of law school which paid an annual salary of $36,000. The field in which Debtor chose to obtain his degree can be extremely lucrative and offers Debtor a wide range of employment opportunities. The Court is unpersuaded by Debtor's assertion that his grade point average will prevent him from obtaining employment with a salary equal to or greater than the first job he secured immediately after graduating from law school. On the stand, he appeared intelligent and articulate, Debtor seems, however, to have essentially given up on himself and asks the Court to do likewise, which the Court declines to do.
2. Debtor's Reasonable Necessary Living Expenses
There is little controversy about Debtor's current income or expenses. Defendants did not really argue that any of the household's current monthly expenses are unnecessary or unreasonable. Schedule I showed income of $2,945.00 per month which consisted of the $2,644.50 per month Debtor was making at his previous job and a $300.00 per month SSI payment. The evidence at trial was that Debtor's current monthly income is $1,984.83, which includes unemployment compensation, food stamps and SSI payments.[6] According to the evidence, the SSI payment has increased by $300.00. Schedule J, filed with the case, shows monthly expenses of $2,881.00. The evidence introduced at trial shows monthly expenses slightly lower in the amount of $2,757.00.[7] According to the evidence, Debtor's home mortgage payment is now $726.00, an increase of $26.00. Debtor also testified that because his spouse lost eligibility for state medicaid, the various prescription drugs she takes to *13 control her conditions will have to be paid for by the household, at a monthly cost of $426.00. It is clear that based on his present income, which consists solely of unemployment compensation, food stamps and certain social security payments, Debtor could not make a payment on the student loans while maintaining a minimal standard of living. However, Debtor's prospects of future earnings, combined with any part-time income his spouse could contribute, suggest that Debtor will be in a position to repay his student loans at some point in the near future.
3. Other Unique Circumstances
As noted previously, because Debtor is currently unemployed, the evidence is that he would be eligible to apply for an economic hardship deferment and to apply to participate in the ICRP, a program which involves making payments dependent on one's disposable income. According to the evidence, if Debtor was enrolled in the ICRP, his current payment would be $0. Debtor's ICRP payments would be reviewed annually for possible changes in income. Although Debtor testified that he was aware of this program and other repayment options available to him, he has not made any attempt to seek a deferment or forbearance from either Education or Curators, nor has he investigated his repayment options or made a single payment to either of the defendants. These facts, coupled with Debtor's significant capacity to earn future income, trouble the Court and weigh against a finding of undue hardship.
The availability of repayment of the student loans through the ICRP is but one of a number of factors that the Court is to consider in determining whether excepting the debts from discharge would impose an undue hardship on the Debtor. Ford, 269 B.R. at 677; Mulherin v. Sallie Mae Servicing Corp. (In re Mulherin), 297 B.R. 559, 565 (Bankr.N.D.Iowa 2003); In re Wilson, 270 B.R. 290, 294-95 (Bankr.N.D.Iowa 2001). The Court must consider the consequences of Debtor's potential participation in the ICRP and the efficacy of that relief under the circumstances. Fahrer, 308 B.R. at 35. In this case, Debtor owes Curators approximately $17,907.74 and Education approximately $91,159.44, for a total student loan debt of approximately $110,000.00. Given the Debtor's age and his significant capacity to earn future income, there is little doubt that he would be able to repay a considerable amount, if not all, of his student loans prior to retirement. Even if Debtor were in the ICRP program for a period of 25 years, he would receive a discharge of the balance of the unpaid debt at the age of 53, well short of retirement. The age of a debtor is a factor the Court may take into consideration in assessing whether repayment of the debt constitutes an undue hardship. Fahrer, 308 B.R. at 35, citing Ford, 269 B.R. at 677; In re Crowley, 259 B.R. 361, 370 (Bankr.W.D.Mo.2001); In re Brown, 249 B.R. 525, 527-28 (Bankr. W.D.Mo.2000). Unlike the 61 year old debtor in Brown, here, if Debtor were required to participate in an extended repayment plan his working life would not be extended at all.
Other factors which the Court may take into consideration in determining whether repayment would constitute an undue hardship are whether the dominant purpose of the bankruptcy petition was to discharge the student loan debt and the ratio of student loan debt to total indebtedness. Debtor's Schedule F and Amended Schedule F identify unsecured creditors holding claims totaling $185,213.00. Approximately 90% of the total amount of the unsecured debt set forth in the schedules is the student loan debts that the Debtor seeks to discharge. Additionally, the *14 Court finds troubling the fact that Debtor filed this bankruptcy proceeding and the complaint to determine dischargeability of the debts almost immediately after graduation and failing the bar exam, even before the Curator loan went into repayment status, giving weight to the Court's conclusion that Debtor's primary goal in this bankruptcy was to discharge his student loans.
Many of the factors the courts have identified as relevant in determining the existence of undue hardship counsel this Court against finding repayment of Debtor's student loans as creating an undue hardship. Debtor is only 28 years old. He has no health deficits or physical or mental impairments. He filed his bankruptcy on the "eve of a lucrative career" and made absolutely no effort to repay any of his student loan debt, an amount which constitutes approximately 90% of his total unsecured debt. He has a bachelor's degree and a law degree and has only attempted to take the bar exam one time. The Court is convinced that Debtor has the capacity to earn significant income but that he has failed to take the steps necessary to maximize his earning potential and repay his student loan debt. The Court also notes that even with a denial of the Debtor's request to discharge the debts owed to Education and Curators, Debtor will get some relief as a result of having filed his complaint because his indebtedness for certain student loans, now held by Keybank, in the scheduled amount of $31,761.00, will be discharged as a result of Keybank's failure to answer the complaint and the Court's subsequent entry of default judgement.
For all the above reasons, the Court finds that repayment of Debtor's student loan indebtedness to Education and Curators would not impose an undue hardship on Debtor and his dependents pursuant to 11 U.S.C. § 523(a)(8) and it is therefore not dischargeable. It is therefore
ORDERED that the indebtedness owed by Debtor to Education and Curators not be discharged pursuant to 11 U.S.C. § 523(a)(8).
A separate order will be entered in accordance with Bankruptcy Rule 9021.
NOTES
[1] Keybank did not file a timely answer, therefore, that debt was discharged pursuant to the Court's Order of Default Judgment entered on February 2, 2006.
[2] Stipulation of Plaintiff Shadwick and Defendant the Curators of the University of Missouri ("Curators Stipulation").
[3] Defendant's Exhibit # 1.
[4] Plaintiffs's Exhibit # 3.
[5] See Bray v. Educ. Credit Mgmt. Corp. (In re Bray), 332 B.R. 186, 192-193 (Bankr. W.D.Mo.2005); see also e.g., Sweeney v. Educ. Credit Mgmt. Corp. (In re Sweeney), 304 B.R. 360, 362-63 (D.Neb.2002) ("Overwhelming authority requires that a court consider the spouse's income. This Court finds no published opinion of a court that holds to the contrary."); Educ. Credit Mgmt. Corp. v. Buchanan (In re Buchanan), 276 B.R. 744, 751 (N.D.W.Va.2002); White v. U.S. Dept. of Educ. (In re White), 243 B.R. 498, 509 (Bankr. N.D.Ala.1999).
[6] Plaintiff's Exhibit 14.
[7] Plaintiff's Exhibit 14. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1724232/ | 602 So. 2d 704 (1992)
J. Burton ANDREPONT
v.
LAKE CHARLES HARBOR and TERMINAL DISTRICT.
No. 91-C-2521.
Supreme Court of Louisiana.
May 26, 1992.
*705 Mack E. Barham, Robert E. Arceneaux, Lee Ann Archer, Suzanne B. Bagert, Barham and Markle, New Orleans, Raleigh Newman, Lake Charles, for applicant.
James Eugene Williams, Edward K. Alexander, Jr., Woodley, Williams, Fenet, Palmer, Boudreau & Norman, Lake Charles, for respondent.
CALOGERO, Chief Justice.
Plaintiff, J. Burton Andrepont, seeks damages for loss of salary, and employer retirement contributions or pension benefits, arising out of his alleged wrongful termination by defendant, Lake Charles Harbor and Terminal District (hereinafter, Dock Board). The lower courts found that defendant breached an employment contract without cause and awarded plaintiff damages for loss of salary from the time of breach until the Legislature shortly thereafter amended La.R.S. 34:202 to abolish the existing Dock Board and create a new one.
We granted plaintiff's writ to determine whether the lower courts properly denied recovery for the full salary and employer retirement contributions (or alternatively retirement benefits) that plaintiff would have received, or had the benefit of, if the contract had not been breached. For the reasons expressed hereafter, we reverse the judgment of the court of appeal and find that plaintiff is entitled to compensation for his loss of salary and recovery of an additional sum to compensate him for his losses relative to the Louisiana State Employees' Retirement System. We remand to the district court for determination of the specific amount of those monetary damages.
On September 15, 1986, plaintiff entered into a four year contract with the Lake Charles Dock Board. He continued as Port Director until May 2, 1988, when he was terminated by the Board. A month later, plaintiff filed suit in the district court, claiming that he was wrongfully terminated. He sought compensatory damages in the amount of the salary he would have received, and the retirement benefits to which he would have been entitled, if the remainder of the four year contract had been honored. While the lawsuit was pending, the Legislature passed Act 351 of 1988 which, effective September 15, 1988, amended La.R.S. 34:202 to abolish the existing Dock Board, create a new one, and provide for appointments to the new Board. Defendant contends, and the courts below found, that this legislative action had the effect of terminating plaintiff's contract as of September 15, 1988, and that the plaintiff could therefore recover damages only for the period between the breach of the contract and the effective date of the Legislature's amendment of the statute. Plaintiff contends that the Legislature's amendment and reenactment of La.R.S. 34:202, whatever its effect, cannot be applied retroactively so as to affect his contractual rights.
The district court found that the contract was legal and enforceable at its inception, and that the Dock Board had terminated the contract without cause when the Board fired Andrepont on May 2, 1988. The court further held, however, that the 1988 amendment to La.R.S. 34:202 was subject to La.R.S. 42:3 (which provides that the term of office of an employee of a state or local board cannot be longer than the electing board's term), and that the Legislature's termination of the existing Board and appointment of members to a new Board resulted in a legal termination of Andrepont's contract on September 15, 1988. Thus, the trial court awarded plaintiff damages in the amount of his salary, but only for the period May 2, 1988, through September 15, 1988. The court of *706 appeal affirmed. 586 So. 2d 722. Andrepont now asks this court to review the rulings of the lower courts and to award damages through September 15, 1990, the concluding date of the four year contract, for his salary and his losses relative to the Louisiana State Employees' Retirement System.
A principal question at issue is whether the Legislature's amendment of La.R.S. 34:202 affects the damages to which Andrepont is entitled as a result of the Dock Board's breach of contract. In finding that the contract was valid at its inception, the lower courts determined that the contract did not violate the provisions of La.R.S. 42:3 when Andrepont contracted with the Dock Board for a four year term as Port Director. That statute provides:
The terms of office of all employees or officials elected by any state, district, parochial, or municipal board shall not be for a longer period of time than the term of office of the membership of the board electing them so that each respective board shall elect its own officers and employees.
Since each member of the Dock Board was appointed to a six year term of office, since the majority of the board members had more than four years remaining in their respective terms at the time of Andrepont's initial employment, and since the average time remaining in the board members' staggered terms was greater than four years, Andrepont's four year contract term was within the prescribed statutory limit. Whether the "term of office of the membership of the board" is interpreted as the six year term for which each Dock Board member is initially appointed, or the average time remaining in their terms when a contract is confected, or the length of time remaining in the majority of the board members' terms at a contract's inception, plaintiff's four year contract did not violate La.R.S. 42:3. We agree therefore that the contract was valid at its inception because it was not for a term longer than the board members' terms.
However, on September 15, 1988, the amendment to La.R.S. 34:202, which created a new Dock Board while disbanding the Board which had hired Andrepont for the position of Port Director, came into effect. This legislation was allegedly passed because federal extortion indictments had been brought against three of the original board members. Termination of Andrepont's contract was apparently not what the legislation set out to accomplish in creating a new Board. Although La.R.S. 42:3 does evidence a policy of permitting each public board to elect its own officers and employees, the statute does not address the situation where a board's term is "shortened" by legislative abolition. In the absence of the Legislature's intending to terminate Andrepont's contract, this court will not find that the relevant legislative amendment served to divest Andrepont of his rights under the contract. Plaintiff is therefore entitled to damages through September 15, 1990, the end of his contract term. Because we find that the Legislature's amendment of La.R.S. 34:202 did not terminate Andrepont's contract or legally divest him of any rights under the contract, we find it unnecessary to address, or to resolve, a possibly more troublesome question, that is, whether legislative abrogation of a state agency's contract would offend the contract clauses of the federal and state constitutions and violate the contracting party's corresponding constitutional rights.
Since plaintiff is entitled to damages for the full term of the contract, it becomes necessary for us to determine the extent of those damages under the applicable law. Article 2749 of the Louisiana Civil Code addresses an employer's liability for terminating an employee with a fixed term contract without cause. It provides:
If, without any serious grounds of complaint, a man should send away a laborer whose services he has hired for a certain time, before that time has expired, he shall be bound to pay to such laborer the whole of the salaries which he would have been entitled to receive, had the full term of his services arrived.
An employer's breach of a fixed term contract without cause results in the employee's *707 entitlement to compensation for all wages or salary that he would have received but for the breach. Carlson v. Ewing, 54 So. 2d 414 (La.1951); Shoemaker v. Bryan, 12 La.Ann. 697 (1857); Sherburne v. Orleans Cotton Press, 15 La. 360 (1840); Roussel v. Blanchard & Co., 430 So. 2d 247, 249 (La.App. 4th Cir.1983). The Dock Board has not protested the trial court's finding that Andrepont's termination was without cause. They simply rely, for defense, on the contention that the Legislature's creation of a new Board, coupled with La.R.S. 42:3's prohibition against state agency contracts for terms longer than the board members' terms, legally terminated Andrepont's contract approximately four months after the Dock Board discharged him without cause. The lower courts accepted that position and found therefore that Andrepont was entitled only to recover damages in the amount of his salary for those few months. Because we have determined that the amendment of that statute did not effect the termination of Andrepont's contract, he is entitled to compensation, as well, in the full amount of his salary for the remaining portion of the four year contract period (to September 15, 1990).
Of course, there is no duty to mitigate lost salary damages in these circumstances. See La.Civ.Code Ann. art. 2749 (West 1952); Carlson v. Ewing, 54 So.2d at 421; Shea v. Schlatre, 1 Rob. 319 (1842); Turner v. Winn Dixie Louisiana, Inc., 474 So. 2d 966 (La.App. 5th Cir.1985). Plaintiff's damages for loss of salary are therefore not reduced by any amounts that he may have earned between termination and expiration of the contract period. Defendant cannot successfully maintain that these damages should be reduced because Andrepont could have or should have sought other employment.
In response to plaintiff's claim for damages regarding his prospective retirement rights, the Dock Board contends that Andrepont is not entitled to any such damages, because recoverable damages are only as specified in Article 2749, that is, "the whole of the salaries" alone. In contrast, plaintiff contends that recovery for his losses pertaining to retirement rights is not barred by Article 2749. Plaintiff asks this court to rule that the Dock Board must pay monetary damages to Andrepont in the amount necessary to compensate him for his losses relative to the Louisiana State Employees' Retirement System.
There is very little jurisprudence in Louisiana which addresses the question of a plaintiff's ability to recover retirement contributions, or benefits, because of an employer's breach of a fixed term contract. In Brasher v. Chenille, Inc., 251 So. 2d 824, 827 (La.App. 3rd Cir.1971), the third circuit court of appeal determined that future retirement contributions were not recoverable under Article 2749 because the word "salaries" should be strictly construed so as to exclude "fringe benefits" such as contributions to retirement plans.
In order to ascertain the meaning of the word "salaries" in Article 2749, an examination of the statute's history is helpful. The statute originated in slightly different form in the Projet du Gouvernment in the year 1800.[1] In 1808, the statute was placed in the Louisiana Civil Code;[2] in the 1825 Civil Code, the provision was amended and reenacted in its present form.[3] When the statute was originally enacted nearly *708 200 years ago, the word "salary" possibly was intended to mean only a laborer's wages paid on a daily, weekly, or other regular basis. At that time, the only compensation which was bargained for under a contract for services was likely to have been wages.
However, over the years, retirement contributions and benefits have come to represent an increasingly important part of an employee's compensation for his services. As a result, many courts, in a variety of factual settings, have determined that pension benefits constitute deferred compensation for services. Hare v. Hodgins, 586 So. 2d 118, 122 (La.1991) (partition of community property); Robert C.S. v. Barbara J.S., 434 A.2d 383 (Del.1981) (divorce); T.L. James & Co., Inc. v. Montgomery, 332 So. 2d 834, 851 (La.1976) (succession); Taylor v. Multnomah County Deputy Sheriff's Retirement Bd., 265 Or. 445, 510 P.2d 339 (1973) (deputy sheriff's participation in retirement plan); Hanson v. City of Idaho Falls, 92 Idaho 512, 446 P.2d 634 (1968) (policemen's retirement fund). In T.L. James, on rehearing, this court stated that "[t]he contribution of the employer into these [profit-sharing and retirement] plans is not a purely gratuitous act, but it is in the nature of additional remuneration to the employee who meets the conditions of the plan.... The credits to these plans, when made, are in the nature of compensation (although deferred until contractually payable)." T.L. James, 332 So.2d at 851. Thus, there is ample support for finding that contributions to retirement plans are among the emoluments of employment and can be considered deferred compensation or "salaries." We therefore tend to disagree with the Brasher court's restrictive interpretation of "salaries" in Article 2749. Nonetheless, we find it unnecessary to overrule that decision expressly at this time for the reasons expressed hereafter regarding the applicability of the general obligations provisions of the Civil Code.
In addition to his entitlement to damages for lost wages under Article 2749, plaintiff contends that general obligations law is also applicable and provides for recovery of lost employer retirement contributions, or pension benefits. The obligations articles provide for the recovery of all damages caused by the obligor's failure to perform,[4] which plaintiff contends includes contributions to the State Employees' Retirement System, contemplated but not deposited by the defaulting employer, or retirement benefits which would have come into being in due course but for the employer's breach. Defendant contends, however, that general obligations articles are not available to supplement Article 2749.
Although Article 2749 is somewhat restrictive, that article does not bar a plaintiff from bringing claims for other kinds of damages under any other applicable provisions of law. In Bartlett v. Doctors Hospital of Tioga, 422 So. 2d 660 (La.App.3d Cir. 1982), writ denied, 427 So. 2d 869 (La.1983), the third circuit court of appeal found that an employee discharged without cause could sue for relief under both Article 2749 for future salaries, and La.R.S. 23:631 et seq. for wages due at the termination of his employment, with penalties and attorney fees.
In addition, general obligations provisions have been applied by this court in at least one case, like this one, involving the breach of a fixed term employment contract. Giron v. Housing Auth. of City of Opelousas, 393 So. 2d 1267 (La.1981). In Giron, the plaintiff brought claims for injunctive relief and, in the alternative, monetary damages, because the employer breached a five year contract without cause. The court awarded damages under La.C.C. arts. 1926-1927,[5] which were the *709 general obligation provisions in effect at that time. In another wrongful discharge case, Duhon v. Slickline, Inc., 449 So. 2d 1147 (La.App. 3rd Cir.), writ denied 452 So. 2d 172 (La.1984), the third circuit court of appeal, relying on this court's decision in Giron, ordered reinstatement of an employee with a fixed term contract and awarded damages in the amount of back pay and benefits.[6] Thus, the general obligations articles provide additional remedies available to an aggrieved employee whose contract is breached without cause.[7]
Although this court stated in Carlson v. Ewing, 54 So. 2d 414 (La.1951), that the general obligations article relating to measurement of damages did not extend to breach of contract in an employee-employer relationship because Article 2749 specifically provides for damages in cases of wrongful discharge, that case is distinguishable. In Carlson, this court concluded that Article 2749 prevails over general obligations provisions, but only in the context of a wrongfully discharged employee's duty to mitigate damages. In that employer is obligated to pay "the whole of the salaries which he would have been entitled to receive, had the full term of his services arrived," Louisiana courts "... have repeatedly held that the fact that [an] employee may elsewhere earn money during the unexpired term of the contract has no bearing on his right to recover his salary for the said unexpired term." Id. 54 So.2d at 421.
In contrast, incidentally, there is an offsetting mitigation of damages under the general obligations provisions. La.Civ. Code Ann. art. 2002 (West 1987); Moyse v. Runnels School, Inc., 457 So. 2d 767 (La. App. 1st Cir.1984); Hogan Exploration, Inc. v. Monroe Engineering Associates, Inc., 430 So. 2d 696 (La.App. 2d Cir.1983). Although the court in Carlson correctly found Article 2749, the more specific statute, to be controlling on the limited question of the duty to mitigate damages, that case does not stand for the proposition that Article 2749 prevails in all regards concerning wrongful termination of a fixed term contract. In particular, the statute is not controlling with regard to the matter of other damages not specifically addressed by Article 2749, that is, damages other than "salaries."
In the present case, the Dock Board has failed to perform its obligations under the contract. Article 1994 of the Louisiana Civil Code provides:
An obligor is liable for the damages caused by his failure to perform a conventional obligation.
A failure to perform results from nonperformance, defective performance, or delay in performance.
With regard to damages, Article 1996 of the Louisiana Civil Code provides that "[a]n obligor in good faith is liable only for the damages that were foreseeable at the time the contract was made." Article 1996 of the Louisiana Civil Code further provides that "[a]n obligor in bad faith is liable for all the damages, foreseeable or not, that are a direct consequence of his failure to perform." In the present case, it is unnecessary to determine whether the Dock Board acted in good or bad faith in breaching the employment contract because Andrepont's loss of the benefit of employer retirement contributions, and resulting injury, were clearly foreseeable at the time *710 of the breach. Those benefits were a primary concern of Andrepont's in bargaining for the four year contract[8] and the Dock Board must compensate him for his loss.
In support of our determination, we note that a number of other jurisdictions and federal courts have found that employees who are illegally discharged are entitled to recover for lost retirement contributions, or corresponding pension benefits. Blum v. Witco Chemical Corp., 829 F.2d 367 (3rd Cir.1987) (lost pension benefits recoverable as front pay under the Age Discrimination in Employment Act of 1967, §§ 2-17, as amended, 29 U.S.C.A. §§ 621-634); Hittle v. Santa Barbara County Employees Retirement Ass'n., 703 P.2d 73 (Cal.1985); Lukasik v. Riddell, Inc., 116 Ill.App.3d 339, 72 Ill. Dec. 123, 452 N.E.2d 55 (1983); Freund v. Laendenbank Wien Aktiengesellschaft, 111 N.Y.S.2d 178 (Sup.Ct.1949), aff'd 277 A.D. 770, 97 N.Y.S.2d 549 (App. 1950); Wilson v. Rudolph Wurlitzer Co., 48 Ohio App. 450, 194 N.E. 441 (1934). As stated in Blum, "[p]ension benefits, unlike lesser fringe benefits, are an integral part of an employee's compensation package, and indeed are generally referred to as deferred compensation. Because of the paramount importance of pension benefits to an employee's future financial security, it would be unfair to exclude them from a calculation of front pay." Blum, 829 F.2d at 375.
In determining the extent of plaintiff's damages, the Dock Board should surely be denied at least the monetary benefit that it reaped by desisting from performing. That coincides with what Andrepont seeks here, that is, salary and employer retirement contributions. This case would perhaps be more difficult if the plaintiff were seeking to have the Dock Board burdened with pension obligations, or if he were asking us to cast the Louisiana State Employees' Retirement System (not a defendant herein) for his retirement benefits. However, plaintiff's counsel conceded in oral argument that Andrepont, in this suit, merely seeks recovery of the contributions that would have been made by the Dock Board to the State Retirement System on his behalf, as well as interest on those employer contributions. Plaintiff apparently intends to present those monetary contributions, plus interest, actuarial cost, or some counterpart, and corresponding employee contributions, plus interest, actuarial cost, or some counterpart, to the State Employees' Retirement System with a request that the System credit his retirement account appropriately.
We find that the Dock Board is liable to plaintiff for the contributions to the Louisiana State Employees' Retirement System that the Board would have made on the plaintiff's behalf for the period of May 2, 1988, until September 15, 1990, had it not discharged him without cause. The lower courts relied on the third circuit court of appeal's determination in Brasher, 251 So. 2d 824, and denied plaintiff any recovery for retirement loss damages. For that reason, the lower courts did not reach the question of the monetary amount of plaintiff's retirement losses. We find, however, that plaintiff is entitled to recover for retirement losses, so the question of the amount of those losses must now be addressed. Because this issue has not previously been considered by the lower courts, and because it is a complicated question, perhaps with the need for submission of additional evidence, we will remand to the trial court to resolve this matter, as well as the monetary amount of plaintiff's lost wages.
This determination is complicated because it seems that the Dock Board should at least be required to pay the employer contributions which it would have made on plaintiff's behalf, but for its breach, plus appropriate legal interest, probably from the dates when those employer contributions would have been due. On the other hand, especially since this issue has not previously been addressed (nor briefed in *711 this court), we are not so sure that some other formula might not more appropriately be applied. For instance, assuming plaintiff succeeds in getting the Louisiana State Employees' Retirement System to credit him with state service for May 2, 1988, until September 15, 1990, he will be confronted with having to fund that period of service. That amount might be calculated in accordance with the La.R.S. 11:158(C) (which provides for purchase of service credit in the System), and it might be appropriate for the district court to ascertain plaintiff's retirement loss damages as that corresponding sum (assuming the court is able to determine the amount due under the appropriate statute), less the portion of that sum which is equal to the employee's contribution obligation. On the other hand, the district court may determine that, rather than actuarial cost to the System under La.R.S. 11:158(C), the resolution should be more akin to interest at a board approved actuarial rate, a formula alluded to in La. R.S. 11:423(C) and La.R.S. 11:425(B) and (C).
Determining the monetary amount of plaintiff's retirement losses will not be a simple matter, but the defendant's obligation is to make the plaintiff whole. Whether that can best be accomplished by adding legal interest to the employer contributions from the dates when those respective contributions were due, or in some other manner, is for the parties to argue and the district court to decide. In addition, in determining plaintiff's monetary damages regarding salary and retirement losses, plus interest, actuarial cost, or some counterpart thereto, the district court should consider whether plaintiff has lost any retirement benefits, or sums, which he would have received as a retiree in the period between September 15, 1990, and the date of the trial court's judgment on remand.[9]
Of course, damages may be mitigated under the general obligations provisions of the Civil Code and it is conceivable that plaintiff obtained, or could have obtained, other employment subsequent to his termination by the Dock Board. It is unlikely that plaintiff secured state employment at a comparable salary for a sufficient number of years to become vested in the System, or employment with another employer sufficient to obtain pension benefits. That inquiry, however, is one that the district court should make on remand, because this issue has not been briefed to this court, or previously considered by the lower courts, and we cannot ascertain from this record whether mitigation took place. Therefore, on remand regarding the amount of damages, the district court should examine evidence to determine whether any mitigation occurred with regard to plaintiff s "retirement loss" damages.
This case will be remanded to the district court to take evidence, if necessary, and to fix the damages to which plaintiff is entitled, which shall include Andrepont's loss of salary, the Dock Board's share of retirement contributions, and whatever additional amount[10] is required to fully compensate plaintiff for his losses relative to the retirement plan.
DECREE
For the foregoing reasons, the judgment of the court of appeal is reversed and this case is remanded to the district court.
REVERSED; REMANDED TO THE DISTRICT COURT
LEMMON, J., concurs and assigns reasons.
LEMMON, Justice, concurring.
Plaintiff's employment contract was valid at the time of execution. When the *712 Board breached the contract, plaintiff was entitled to the damages sustained on account of the breach, and the legislative action after the breach did not affect the validity of the original contract or the Board's liability for the full amount of damages for breaching that contract.
Furthermore, pension benefits, which constitute partial remuneration for the employee's performance of employment services, should be included within the term "the whole of the salaries" in La.Civ.Code art. 2749.
NOTES
[1] In the Projet du Gouvernment, Book III, Title XIII, art. 114 (1800), the article read as follows:
If, without any just ground of complaint, a master should send away a servant or laborer before the time agreed on, he shall be bound to pay said servant or laborer the whole of the salary of the year, or period for which he had been hired, deducting the wages which the servant or laborer is likely to earn elsewhere, during that part of the time which has not expired.
The original article differed from the more recent versions in that it required an offset for wages which the laborer was likely to earn elsewhere.
[2] See La.Civ.Code of 1808, art. 59, p. 382. Article 59 of the 1808 Louisiana Civil Code was largely the same as the Projet version except that it deleted any reference to deductions for wages that the laborer might earn elsewhere.
[3] See La.Civ.Code art. 2720 (1825); La.Rev.Civ. Code art. 2749 (1870).
[4] See La.Civ.Code Ann. arts. 1994 et seq. (West 1987).
[5] Article 1926 of the 1870 Louisiana Civil Code stated:
On the breach of any obligation to do, or not to do, the obligee is entitled either to damages, or, in cases which permit it, to a specific performance of the contract, at his option, or he may require the dissolution of the contract, and in all these cases damages may be given where they have accrued, according to the rules established in the following section.
Article 1927 of the 1870 Louisiana Civil Code stated:
In ordinary cases, the breach of such a contract entitles the party aggrieved only to damages, but where this would be an inadequate compensation, and the party has the power of performing the contract, he may be constrained to a specific performance by means prescribed in the laws which regulate the practice of the courts.
[6] The types of benefits are not specified in the court's published opinion, except to say that the plaintiff's contract provided for "... all benefits payable to the president." Duhon, 449 So.2d at 1149, 1153.
[7] In fact, West's 1992 edition of the Louisiana Civil Code, as edited by A.N. Yiannopoulos, specifically provides cross-references from Article 2749 to general obligations articles (e.g., La.Civ. Code art. 1758 (general effects of obligations); La.Civ.Code art.1986 (obligee's right to specific performance or damages)), and other statutory provisions (such as Louisiana Revised Statute 23:631, which provides for recovery of wages due at the time of termination).
[8] Plaintiff had previously served in the Louisiana Legislature. When he contracted with the Dock Board as Port Director, he needed approximately three and a half years of additional state service in order to qualify for retirement benefits in the Louisiana State Employees' Retirement System.
[9] According to La.R.S. 11:441(A)(3), a member of the Louisiana State Employees' Retirement System is eligible for retirement if he has "[t]en years or more of service, at age sixty or thereafter." As a matter of information, plaintiff's sixtieth birthday fell on May 17, 1990. He apparently would have had the required years of state service when the contract term expired on September 15, 1990, making him eligible for retirement at that time.
[10] This additional amount shall include interest, actuarial cost, or some appropriate counterpart, and possibly any sums that plaintiff would have received as a retiree after September 15, 1990. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1874732/ | 694 F. Supp. 210 (1988)
James E. MATTOX, Individually and as Executor of the Estate of Lucille Mattox, Plaintiff,
v.
WESTERN FIDELITY INSURANCE COMPANY, Defendant.
No. EC87-285-S-D.
United States District Court, N.D. Mississippi, E.D.
September 8, 1988.
*211 Ralph Holland, Thomas A. Wicker, Holland, Ray & Upchurch, P.A., Tupelo, Miss., for plaintiff.
John H. Dunbar, Holcomb, Dunbar, Connell, Chaffin & Willard, Oxford, Miss., for defendant.
OPINION
SENTER, Chief Judge.
This cause is before the court on cross motions for summary judgment. The case involves allegations that Western Fidelity wrongfully denied claims which were filed by the plaintiff to recover under a major medical policy for expenses incurred during his wife's hospitalization. The defendant seeks summary judgment that it was justified in denying the claims and rescinding the policy due to material misrepresentations made by the Mattoxes or, alternatively, that it did not act in bad faith in denying them. The plaintiff seeks summary judgment that he is entitled to recover damages for breach of contract as well as compensatory damages for mental distress and punitive damages due to the tortious nature of the breach of the contract.
FACTS
On June 10, 1986, James Mattox applied for a major medical policy to cover himself and his wife, Lucille. The application was completed by Keelan Overby, soliciting agent for Western Fidelity, in the office at the Mattox's store and was signed by Mr. Mattox. The Mattoxes already had a policy *212 in effect with another company when Mr. Overby solicited their business. Mr. Mattox agreed to take the new policy when Overby convinced him that it would save him "a little over seventy three dollars ($73.00) a month." Overby advised the Mattoxes to keep their other policy in effect until they heard from Western Fidelity that their application had been accepted. They followed his advice.
Questions on the application form required the applicant to reveal certain information about the medical history of each person who was to be insured under the policy. There was a single blank space provided for the applicant to fill in the name of his family physician. Mr. Mattox says that he gave Overby the names of three physicians two that he had consulted and his wife's gynecologist, Dr. Swan Burrus. The latter was the only name that Overby wrote down on the application. Question #9 of the application asked: "Are you and all members [sic] now in good health and free from any physical or mental defect?" The answer shown on Mr. Mattox's completed application is yes. Question #10 asks: "How many times have you or any member been confined in a hospital within the past 3 years?" This question is answered no. Question # 11 asks: "Have you ever had any disease or disorder of the following? (a) Heart, circulatory system, eye, ear, nose, throat, lungs, prostate, stomach, bladder, intestines, appendix, back or spine? (b) High blood pressure, paralysis, arthritis, cancer or tumor, diabetes, hernia, female disorder, gallbladder, liver, goiter, or rectal diseases? ... (f) Any other medical or surgical advice or treatment or operations in the past?" Each of these subquestions is answered no. Mr. Mattox claims that Overby never asked him any of these questions about specific maladies. According to Mattox, he was asked only whether he and his wife were in good health, had ever been confined to a hospital, and if they had any medical problems. However, Mr. Mattox did sign the application and place his initials beside questions 9, 10, and 11 after the application form was filled out. In response to the general questions about his wife's health, Mr. Mattox asserts that he told Overby about his wife's history of mild hypertension. This contention is apparently undisputed by the defendant.[1] In fact, the defendant proposed that the court find this as a fact.
Answers to questions posed on the application also informed Western Fidelity that the Mattoxes had another policy with another company which they intended to cancel upon acceptance of their application by Western Fidelity.
Upon receipt of the application by Western Fidelity, David Collett, the company's chief underwriter, noting that both of the Mattoxes were in their sixties, requested copies of their medical records from the doctor shown on the form to be their family physician. This was standard practice for any applicant over fifty years of age. In response to Collett's request, Dr. Burrus forwarded copies of Mrs. Mattox's records with a note to the effect that his clinic did not treat men. Neither Mr. Collett nor anyone else at Western Fidelity ever sought any further information on the medical history of Mr. Mattox, although Collett was well aware that the company had nothing other than the application to go on in determining whether he was insurable as a standard risk.
The records forwarded by Dr. Burrus clearly revealed that Mrs. Mattox had been treated by Dr. Max Taylor for elevated blood pressure and had been given medicine (Corgard) to control the condition. This record revealed blood pressure readings of 140 over 80 on January 6, 1982, and again on August 26, 1983, and of 130 over *213 80 on April 12, 1985. In his deposition, Mr. Collett admits that he was aware that Mrs. Mattox had been treated for high blood pressure when he decided to issue the policy. The underwriting procedure adopted by Western Fidelity required that any evidence of high blood pressure be fully investigated before a policy could be issued. This investigation was to consist of a review of the records of the attending physician. However, no attempt was made by Collett or anyone else at Western Fidelity to obtain records from Dr. Taylor prior to acceptance of the application. A policy was issued on or about July 16, 1986.
On November 24, 1986, Mrs. Mattox consulted Dr. Taylor, complaining of a general feeling of malaise and of diarrhea. A blood test revealed that Mrs. Mattox's white blood count was extremely high. Tentatively diagnosing Mrs. Mattox's problem as leukemia, Dr. Taylor referred her to Dr. Spencer Schreiter. Dr. Schreiter's diagnosis was that Mrs. Mattox was suffering from chronic lymphocytic leukemia. In December, the chronic leukemia became acute and Mrs. Mattox was hospitalized. On January 12, 1987, Lucille Mattox succumbed to the leukemia and died. There is no contention that her leukemia predated the issuance of the policy. In fact, the parties have stipulated that no symptoms of leukemia were manifested until approximately two weeks before the disease was diagnosed. The hospitalization and chemotherapy treatment resulted in a bill from North Mississippi Medical Center in the amount of $40,283.51. Doctor bills and other charges brought the total to $48,981.40. Mr. Mattox filed a claim for payment with Western Fidelity on January 23, 1987.
The claim was processed by Connie Mueller, a claims examiner for Western Fidelity. Additional hospital and medical records concerning both this claim and Mrs. Mattox's prior medical history were requested and received. Based on her analysis of these records, Ms. Mueller approved the claim. This approval was communicated to Mr. Mattox by Ms. Mueller when he called concerning the status of his claim. According to Mattox, Ms. Mueller told him that the check was ready and awaiting the signature of the company president.
At the time this claim was processed, Western Fidelity was following a policy of having every claims decision reviewed by its president, Leland Kohutek. This policy had been instituted early in 1986 due to a complete turnover of personnel in the claims department. The company's written claims handling procedure requires that when a decision to deny a claim due to misrepresentation is made, the file, along with a list of the apparent misrepresentations, should be forwarded to the chief underwriter. If any medical records in the file indicated treatment by doctors whose records were not in the file, those records were to be requested. The chief underwriter was then to "prepare a written memorandum stating what the underwriting decision on the application would have been had all of the prior medical history been disclosed in the application." This memo was to list the grounds for the decision by reference to specific portions of underwriting manuals used by the company. The company does not contend that this procedure was followed when Mr. Kohutek reviewed the Mattox claim.
In his analysis of the file, Mr. Kohutek's attention was drawn to two entries in the records from Internal Medicine Associates. On September 22, 1980, the following entry was made:
Everything is normal and she is much relieved. Give her Bentyl to take pvn and also weight loss booklet. Return in 2 months. I have instructed her to lose weight. Blood sugar was 134 and this is borderline. (Emphasis added.)
On April 12, 1985, the results of a blood test administered, according to the report, because the patient was concerned about a family history of colon cancer and stomach cancer showed that she had a "slightly elevated blood sugar of 123." Neither Mr. Kohutek nor anyone else at Western Fidelity made any further investigation concerning these two blood sugar entries either prior to or following the decision to rescind the policy. Mr. Kohutek's review of the file also turned up blood pressure readings *214 of 160 over 80 on March 7, 1983; 180 over 110 on October 23, 1984, and 140 over 88 on November 13, 1984. None of these readings had been seen by Western Fidelity's underwriters when the policy was issued.
According to Mr. Kohutek, when he discovered this "history" of blood sugar problems coupled with high blood pressure, he sent the file to David Collett and asked him what the company's decision would have been if this information had been known at the time the application was received. Collett, however, does not recall that events transpired that way. He remembers only that Mr. Kohutek asked him a hypothetical question about an applicant with a combination of high blood pressure and diabetes or high blood sugar. Collett told Kohutek that they would not insure such a person. Mr. Collett was not given the Mattox file to review at that time. In fact, according to his deposition testimony, Collett did not see the Mattox file from the time the initial decision to issue the policy was made until a week or so before his deposition was to be taken in this case. None of this is in keeping with the company's own written procedure for reviewing claims.
The decision to deny the claim and rescind the policy was finalized on April 22, 1987, three months after its submission. According to Mr. Kohutek, the decision to rescind coverage was based on the combination of elevated blood pressure and elevated blood sugar.
Material Misrepresentation
Under Mississippi law, a material misrepresentation made in applying for an insurance policy gives rise to a right in the insurer to rescind the policy. Fidelity Mutual Life Insurance Co. v. Miazza, 93 Miss. 18, 46 So. 817 (1908). The fact that the falsity of the statement is unknown to the applicant is of no consequence. Even innocent misrepresentations make the policy issued in reliance on them voidable if those misrepresentations are material to the risk assumed. Dukes v. South Carolina Insurance Co., 590 F. Supp. 1166, 1168-70 (S.D.Miss.1984).
Western Fidelity has enumerated twelve misrepresentations which it alleges were made on the application involved in this case. Stripped of redundancies, these allegations boil down to four essential facts the company claims were misrepresented or concealed.
First, the company asserts that "Mr. Mattox did not tell Mr. Overby about any doctors who had treated his wife in the past other than Dr. Burrus," although he knew that she had been consulting doctors at Internal Medicine Associates. The only question on the application which asks for the name of any doctor is the one which asks for the name of a family physician. There is nothing about this question which suggests that the applicant is to reveal the name of every doctor who has been consulted by any potential insured. Mr. Mattox clearly answered the question posed by providing the name of a doctor who gave his wife an annual physical. Even if the court should find that this was a misrepresentation, David Collett's deposition shows that this information was not material to the risk being assumed. Mr. Collett testified that he was fully aware that he had no family physician information on Mr. Mattox when he received the note from Dr. Burrus stating that he did not treat men. He further testified that as an underwriter, he was not concerned with this lack of information. This testimony belies any contention of the materiality of the representation that Dr. Burrus was Mrs. Mattox's family physician. To entitle the insurer to rescind, the misrepresentations made must affect either the acceptance of the risk or the hazard assumed by the company. Miss.Code Ann. § 83-9-11(3) (1972). Collett says plainly that the lack of any family physician information on Mr. Mattox did not affect the acceptance of the risk. The company cannot now be heard to complain that the failure to disclose the names of more than one physician for Mrs. Mattox was a material misrepresentation entitling it to rescind this policy when its chief underwriter was totally unconcerned that it had no family physician information whatsoever on her husband who was also insured under the same policy.
*215 The second alleged misrepresentation occurred when Mr. Mattox told Overby that both he and his wife were in good health. The company has presented no evidence other than the high blood pressure and slightly elevated blood sugar readings to show that the statement that Mrs. Mattox was in good health was a false one. The plaintiff has submitted the affidavit of Dr. Max Taylor, who was treating Mrs. Mattox for high blood pressure. Dr. Taylor states emphatically that Mrs. Mattox's blood pressure problems were not serious and were controlled.[2] In fact, his records reveal that he was considering taking her off the medication. This affidavit also states that if he had been consulted, he would have told Western Fidelity officials that Mrs. Mattox was in good health. As noted earlier, the defendant in its proposed findings of fact admits that in response to the general question concerning the couple's health, Mr. Mattox told Overby that his wife had been treated for mild hypertension. Two blood sugar readings that the defendant admits were within the normal range are not evidence of poor health. The defendant has presented no evidence that two readings of slightly elevated blood sugar over a period of five years suggest that a person is in poor health. In fact, the doctor's report which discloses the highest of these two readings begins with the words "[e]verything is normal."
The third allegation of misrepresentation concerns the statement on the application that Mrs. Mattox did not suffer from high blood pressure. There is no doubt that high blood pressure would be material to the acceptance of the risk. However, there are two alternative reasons why this defense is not available to the defendant.
First, under Mississippi law, if the applicant divulges the information, but the agent who fills out the form does not record the information accurately, there has been no misrepresentation. World Insurance Co. v. Bethea, 230 Miss. 765, 93 So. 2d 624 (1957). An insurance company "cannot avoid the policy because the application for insurance does not fully disclose information given to its agents." National Life and Accident Insurance Co. v. Miller, 484 So. 2d 329, 334 (Miss.1985). Western Fidelity makes much of the fact that Mr. Mattox signed the application and initialed each of the entries which it claims were misrepresentations. This is of no avail to the company, though, because the signing of the completed application by the insured does not undo the fact that the insured has communicated the information to the agent. Home Insurance Co. of New York v. Thornhill, 165 Miss. 787, 144 So. 861 (1932). Absent some proof of collusion between the applicant and the agent, which is not even alleged in this case, the information relayed to the agent is imputed to the company and the company cannot then rescind the policy because it was not told what its agent was told. See Southern United Life Insurance Co. v. Caves, 481 So. 2d 764, 767 (Miss.1985) (knowledge of agent imputed to company).
Alternatively, and more importantly, it is undisputed that when David Collett made the decision to issue the policy covering Mrs. Mattox, he was aware that she was taking Corgard, a medication for high blood pressure. He also had before him the records of Dr. Burrus which revealed that Dr. Max Taylor was treating Mrs. Mattox for high blood pressure.
An insurer may waive the right to forfeit or rescind a policy of insurance ... by recognizing the validity of the policy and continuing it in force after knowledge of circumstances entitling it to avoid the policy. Most of the cases supporting this rule hold that slight evidence will suffice to support a finding that the insurer waived the right of forfeiture.
Casualty Reciprocal Exchange v. Wooley, 217 So. 2d 632, 636 (Miss.1969). This principle is clearly applicable in the instant case. If waiver were held not to apply in this situation, an insurance company would be free to issue insurance policies with full knowledge of innocent misstatements by the applicant and collect premiums while *216 reserving the right to avoid the policy any time a claim was submitted which was for an amount greater than the accumulated premiums. This result is obviously inequitable. The court holds that by issuing a policy and accepting premiums with full knowledge that the applicant was being treated for high blood pressure and that this information did not appear on the application, Western Fidelity waived the right to rescind the policy for that "misrepresentation."
Finally, the company asserts that the representation on the application that Mrs. Mattox had never suffered from diabetes was false. As evidence of this proposition, the company points only to the two isolated reports of elevated blood sugar readings. The company argues that its instructions to its agents define diabetes as "elevated sugar levels in the blood." However, there is absolutely no evidence before this court that even suggests that this definition was ever communicated to Mr. Mattox. It is undisputed in fact it is stipulated by the parties that Mrs. Mattox was never diagnosed by a physician to suffer from diabetes nor was she ever treated for diabetes.[3] In fact, the deposition testimony of Dr. Max Taylor, the physician from whose records the elevated blood sugar readings were taken, is that she was never even treated for high blood sugar. The testimony of both Dr. Taylor and David Collett, the company's own chief underwriter, is that both of these readings are at the high end of the normal range. Not only has the company failed to prove that the statement that Mrs. Mattox did not suffer from diabetes was false, it has failed to prove that she "suffered from high blood sugar." So even if the company's in-house definition of diabetes were accepted, Western Fidelity has failed to show that there was a misrepresentation as to this question.
The company has submitted the affidavit of Mr. Collett wherein he insists that Western Fidelity would not have insured Mrs. Mattox if its officers had known of her history of high blood sugar combined with high blood pressure. In fact, he insists that no company would have done so. Though this statement is relevant to the question of materiality, it begs the essential question of whether there was a misrepresentation in the first place. The actions of the Western Fidelity officials evince a fundamental misconception of the right of rescission. Throughout the course of their dealings with Mr. Mattox, Western Fidelity officials appeared to be of the opinion that if there is something in the "insured's" medical history which would have caused the company not to accept the risk if they had known about it at application time, then the company is entitled to rescind the contract. In fact, stipulation # 32 reads: "The reason for the Defendant's decision to rescind coverage for Lucille Mattox was a combination of elevated blood pressure and elevated blood sugar."
Although this court has held that there is no duty on the insurer to investigate an applicant upon receipt of the application, Ross v. Western Fidelity Insurance Co., No. EC87-54-S-0 (N.D.Miss. June 29, 1988) (unpublished opinion), that does not mean that the company may, in good faith, wait until a claim is filed and then determine that the claimant was not an insurable risk and avoid the policy. Uninsurability alone is not grounds for rescission of the policy. The company that refuses to investigate until after a claim is filed runs the risk that it has insured someone whom it otherwise would not have. It is indeed true that the company has the right to rely on the information supplied in the application in determining whether or not to accept the risk, Apperson v. United States Fidelity & Guaranty Co., 318 F.2d 438, 441 (5th Cir.1963). However, the company has no right to rescind the policy because there was information, not asked for on the application and not volunteered by the applicant, the knowledge of which would have caused the company to refuse to insure. If the company intends to rely exclusively on *217 the application, it should ask questions tailored to elicit all the information that it needs. An applicant has neither concealed nor misrepresented information when he has answered fully and truthfully all the questions asked of him. Liverpool & London & Globe Insurance Co. v. Delaney, 190 Miss. 404, 200 So. 440 (1941).
Summary Judgment
Western Fidelity failed to establish that Mrs. Mattox suffered from diabetes and it admitted the facts necessary to establish that it had waived the alleged misrepresentation concerning high blood pressure. Misrepresentation is an affirmative defense which Western Fidelity would be required to prove at trial. Reserve Life Insurance Co. v. McGee, 444 So. 2d 803, 808 (Miss.1984). The defendant's failure to come forward with evidence to establish matters that it would be required to prove at trial mandates summary judgment in the plaintiff's favor when the basic Rule 56 requirements are otherwise met. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 2552-53, 91 L. Ed. 2d 265 (1986). The court finds that there is no dispute as to the fact that the plaintiff's decedent was an insured under a major medical policy issued by Western Fidelity and that this policy covered treatment for leukemia. The defendant does dispute the amount that is due under the policy, and the plaintiff has not produced sufficient evidence to permit the court to fix the amount on summary judgment. The defendant has failed to establish any defense to liability under the policy or to show that a fact issue exists as to such a defense. Therefore, the court holds that the plaintiff is entitled to partial summary judgment as to the defendant's liability under the policy, but not as to the amount of that liability.
Compensatory and Punitive Damages
Extracontractual compensatory damages are available under Mississippi law for tortious breach of contract including "economic losses incurred as a proximate result of the insurer's tortious conduct and emotional distress damages." Blue Cross & Blue Shield v. Maas, 516 So. 2d 495, 498 (Miss.1987) (Justice Robertson's concurrence joined by five other justices). See also Eichenseer v. Reserve Life Insurance Co., 682 F. Supp. 1355 (N.D. Miss.1988). However, the only evidence tending to show that such damages were incurred in this case is the statement in the plaintiff's deposition that he has had difficulty sleeping at night. This evidence is simply not sufficient to resolve this issue on summary judgment. The court finds that there is a genuine dispute as to material fact on the question of damages for emotional distress.
The punitive damages claim is likewise not ripe for summary resolution. Two separate decisions must be made before punitive damages may be awarded in a breach of insurance contract action. First, it must be determined that the refusal to pay the claim was not supported by an arguable reason. "A person is said to have an arguable reason for acting if there is some credible evidence that supports the conclusions on the basis of which he acts." Blue Cross and Blue Shield of Mississippi v. Campbell, 466 So. 2d 833, 851 (Miss.1984) (Justice Robertson writing separately). The question of whether an arguable reason for the denial existed is generally a question of law to be decided by the court. Reserve Life Insurance Co. v. McGee, 444 So. 2d 803, 809 (Miss.1983). The undisputed facts of this case are that the insurer claims the right to rescind the policy because of misrepresentations as to the deceased's history of high blood pressure and diabetes or high blood sugar. The defendant knew of the high blood pressure problem when it issued the policy. There is absolutely no credible evidence to support the company's conclusion that Mrs. Mattox was diagnosed as suffering from, or treated for, or advised concerning diabetes. The defendant never asked about high blood sugar, so there was no credible evidence to support its decision that the applicant had made a misrepresentation on this point. The court, therefore, holds that Western Fidelity had no arguable reason for refusing to pay this claim.
*218 A decision that the defendant had no arguable reason does not of itself entitle the plaintiff to an award of punitive damages. It must also be determined that in denying the claim, the defendant "committed a wilful or malicious wrong, or acted with gross or reckless disregard for the insured's rights." Pioneer Life Insurance Co. of Illinois v. Moss, 513 So. 2d 927, 930 (Miss.1987). These questions are inherently jury questions. The court is not prepared to invade the province of the jury by deciding these issues on summary judgment.
CONCLUSION
The plaintiff is entitled to summary judgment as to Western Fidelity's liability under the contract, but not as to the amount of that liability. The issues of compensatory and punitive damages will not be resolved on summary judgment.
An order in conformity with this opinion will be issued on this date.
NOTES
[1] In his deposition, Mattox asserts that he gave this information to Overby. Throughout the briefing of this case both in briefs submitted in opposition to the defendant's summary judgment motion and in briefs supporting his own motion, the plaintiff has insisted he told Overby about his wife's hypertension. Paradoxically, stipulation 22 is to the effect that Mattox never reported his wife's "history of high blood pressure." The paradox is lessened by a close reading of Mr. Mattox's deposition in which he insists that hypertension and high blood pressure are not synonymous terms.
[2] Mr. Collett also said in his deposition that Mrs. Mattox's blood pressure was under control and that he did not consider this to be a problem from an underwriting standpoint.
[3] This fact also defeats the defendant's claim that Mattox answered question 11(f) falsely. That question calls upon the applicant to reveal "(a)ny other medical or surgical advice or treatment or operations in the past." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917210/ | 288 B.R. 229 (2002)
In re HUNTCO INC, et al., Debtors.
Huntco, Inc. et al., Movants.
No. 02-41185-293.
United States Bankruptcy Court, E.D. Missouri, Eastern Division.
May 15, 2002.
*230 J. Patrick Bradley, Greensfelder, Hemker, et al., Francis X. Buckley, Jr., St. Louis, MO, Leonard A. David, Teaneck, NJ, John P. Dillman, Linebarger, Heard et al., Houston, TX, Robert E. Eggmann, Copeland, Thompson et al., David L. Giong, Armstrong, Teasdale et al., Steven Goldstein, St. Louis, MO, Philip J. Kochman, Kochman, Donati et al., Houston, TX, Steven W. LaBounty, District Counsel, I.R.S., St. Louis, MO, Brian J. LaFlamme, *231 Jefferson City, MO, Edward C. Lanter, Summe and Lanter, Fort Wright, KY, William F. McCormick, Nashville, TN, Timothy S. McFadden, Lord, Bissell et al., Chicago, IL, Patricia Williams Prewitt, Locke, Liddell et al., Houston, TX, Rex D. Rainach, Baton Rouge, LA, Patrick D. Sullivan, Hoover Slovacek, Houston, TX, Michael H. Traison, Miller, Canfield et al., Detroit, MI, for creditor.
Michael M. Tamburini, Blackwell, Sanders et al., Kansas City, MO, Nancy S. Jochens, Kansas City, MO, Michael A. Clithero, Blackwell, Sanders et al., St. Louis, MO, for debtors.
MEMORANDUM OPINION
DAVID P. MCDONALD, Chief Judge.
This matter is before the Court on the motion of Huntco Inc. ("Huntco") and three of its operating subsidiaries (collectively "Debtors") to employ the law firm of Blackwell Sanders Peper Martin, LLP ("BSPM") as counsel. The United States Trustee ("UST") filed an objection to Debtors' motion asserting that BSPM is disqualified to serve as counsel to Debtors under 11 U.S.C. § 327(a). Because BSPM is both a disinterested person as defined in 11 U.S.C. § 101(14) and does not represent an interest adverse to the estate, it qualified to serve as counsel to Debtors under § 327(a). Accordingly, the Court will grant Debtors' motion to employ BSPM as counsel.
JURISDICTION AND VENUE
This Court has jurisdiction over the parties and subject matter of this proceeding under 28 U.S.C. §§ 1334, 151, and 157 and Local Rule 9.01(B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), which the Court may hear and determine. Venue is proper in this District under 28 U.S.C. § 1409.
FACTUAL AND PROCEDURAL BACKGROUND
Huntco is a holding company that owns all the outstanding shares of three operating subsidiaries, Huntco Nevada, Inc., Huntco Steel, Inc. and Midwest Products, Inc. (collectively the "Operating Subsidiaries"). Huntco has issued two classes of shares, Class A common shares (the "Common Shares") and Class B convertible preferred shares (the "Preferred Shares"). The Common Shares were publically traded and accordingly, the public owns all of the outstanding Common Shares.
Four companies (collectively the "Privately Held Companies"), either directly or indirectly, own all the outstanding Preferred Shares. All of the outstanding shares of the Privately Held Companies are owned by three trusts (collectively the "Family Trusts"). Two individuals, B.D. Hunter ("Hunter") and Robert Marischen ("Marischen"), are either the sole trustee or the co-trustee of the individual Family Trusts. Thus, as either trustee or co-trustee of the various Family Trusts, Hunter and Marischen effectively control the voting rights of the Preferred Shares. Marischen is also the Vice Chairman, Chief Executive Officer and President of Huntco and Vice President of Midwest Products, Inc., one of the operating subsidiaries.
Debtors filed their various petitions for relief under Chapter 11 of the United States Bankruptcy Code on February 4, 2002. Debtors filed an application to employ BSPM as counsel pursuant to § 327(a) contemporaneously with their petitions for relief. Pursuant to Fed. R. Bankr.P.2014(a), BSPM filed a declaration on February 15, 2002, outlining its connections to Hunter, Marischen and the Privately Held Companies. BSPM supplemented its declaration at the request of the UST on March 12, 2002.
*232 BSPM's supplemental declaration indicates that it has represented Hunter, Marischen and the Privately Held Companies. BSPM has acted as outside general counsel to the Privately Held Companies since 1993 and has represented the Privately Held Companies on numerous transactions in a wide array of issues. BSPM's representation of Hunter includes providing estate planning and tax advice, negotiating and documenting transactions between Hunter and the Privately Held Companies and assisting in the completion of various filings and disclosures required by the Securities and Exchange Commission related to Hunter's ownership of both Common and Preferred Shares. Also, Marischen submitted an affidavit to the Court swearing that BSPM's representation of him has been limited to the drafting of a will and providing advice on a residential real estate contract.
The UST filed an objection to Debtors' motion to employ BSPM under § 327(a) based on the firm's representation of Hunter, Marischen and the Privately Held Companies as outlined in BSPM's supplemental declaration. Because the evidence indicates that BSPM is a disinterested person and that it does not represent an interest adverse to the estate, BSPM is qualified to represent Debtors under § 327(a). Accordingly, the UST's objection will be overruled and Debtors' application to employ BSPM will be granted.
DISCUSSION
A. Introduction
The Bankruptcy Code generally gives a debtor in possession the same rights as a trustee. 11 U.S.C. § 1107(a). Thus, § 327(a) gives the debtor in possession, with court approval, the right to employ counsel to represent it in carrying out its duties under the Bankruptcy Code. The selected counsel has the burden of establishing that it is qualified under § 327(a) to represent the debtor in possession by way of its disclosure under Fed. R. Bankr.P.2014(a) and accompanying affidavits. Interwest Business Equipment, Inc. v. United States Trustee (In re Interwest Business Equipment, Inc.), 23 F.3d 311, 318 (10th Cir.1994). A bankruptcy court, however, should give the debtor in possession significant deference in its selection of counsel to represent it under § 327(a). In re Marvel Entertainment Group, Inc., 140 F.3d 463, 478 (3d Cir.1998); In re Creative Restaurant Management, 139 B.R. 902, 909 (Bankr.W.D.Mo.1992).
Section 327(a) provides that a debtor in possession may employ counsel provided that the proposed counsel is a disinterested person and does not hold or represent an interest adverse to the estate. Because § 327(a) is drafted in the conjunctive, the proposed counsel must be both disinterested and not hold or represent an interest adverse to the estate. Pierce v. Aetna Life Ins. Co. (In re Pierce), 809 F.2d 1356, 1362 (8th Cir.1987)
B. BSPM's Representation of Hunter and Marischen.
The UST first asserts that BSPM may not represent Debtors under § 327(a) because of BSPM's representation of Hunter and Marischen. However, BSPM's disclosure and Marischen's accompanying affidavit demonstrate that BSPM is both disinterested and does not represent an interest adverse to the estate because of its representation of Hunter and Marischen. Thus, BSPM's representation of Hunter and Marischen does not disqualify it from representing Debtors under § 327(a).
1. BSPM's Representation of Hunter and Marischen Does not Render BSPM a Non-disinterested Party.
The first issue in determining whether BSPM's representation of Hunter and Marischen disqualifies it from representing *233 Debtors under § 327(a) is whether BSPM's representation of Hunter and Marischen renders it a non-disinterested person. The Code defines the term "disinterested person" in relevant part as "an entity that does not have an interest materially adverse to the interest of the estate or of any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with, or interest in, the debtor . . .". 11 U.S.C. § 101(14)(E). If BSPM is not disinterested under § 101(14), it is not qualified to represent Debtors under § 327(a). Pierce, 809 F.2d at 1362-63. Because § 101(14)(E) only applies when the law firm itself holds a materially adverse interest, the Court finds that BSPM's representation of Hunter and Marischen does not render it as a non-disinterested person.
One bankruptcy court has held that a law firm's representation of a non-disinterested person renders the law firm itself non-disinterested under § 101(14)(E). In re Glenn Electric Sales Corp., 89 B.R. 410, 416 (Bankr.D.N.J.1988). The two circuit courts that have addressed the issue, however, have held that § 101(14)(E) only applies to a law firm when the law firm itself holds a materially adverse interest and not where the firm simply represents an entity that may hold a materially adverse interest. In re AroChem Corp., 176 F.3d 610, 629 (2d Cir.1999); In re BH & P, 949 F.2d 1300, 1310 (3rd Cir.1991). The Court will adopt the latter approach for two reasons.
First, the Court notes that the Third Circuit Court of Appeals, subsequent to the bankruptcy court's decision in Glenn Electric Sales, explicitly held in BH & P that § 101(14)(E) only applies when a law firm itself holds a materially adverse interest. Id. Thus, the continuing validity of holding in Glenn Electric Sales is in serious doubt.
The second reason why the Court rejects the Glenn Electric Sales Court's position is that it ignores the plain language of the Code. Section 101(14)(E) states that an entity is not disinterested only when it has an interest materially adverse to the estate, creditor or equity holders. (Emphasis Added). Unlike the adverse interest requirement in § 327(a), § 101(14)(E) does not state that a person who represents an interest adverse to the estate, creditor or equity holders is not disinterested. Thus, Congress clearly knew the difference between holding and representing an interest and chose not to include representing an interest in the definition of a non-disinterested person under § 101(14)(E). See AroChem, 176 F.3d at 629.
Accordingly, the Court will follow the Second and Third Circuit and hold that a law firm is not disinterested under § 101(14)(E) simply because it represents an entity that may be a non-disinterested person. Rather, a law firm is disinterested under § 101(14)(E) unless it personally holds a materially adverse interest to the estate, creditor or equity holders.
Here, there is no allegation that BSPM personally holds an interest that is materially adverse to the estate, any creditors or equity holders. Neither BSPM's disclosure nor Marischen's affidavit even remotely suggest that BSPM personally holds an interest that is materially adverse to the estate, creditors or equity holders. The UST has failed to identify any interest that BSPM may personally hold that is materially adverse to the estate, creditors or equity holders. Therefore, the Court finds that BSPM's representation of Hunter or Marischen does not render BSPM as a non-disinterested party under § 101(14).
2. BSPM's Representation of Hunter and Marischen is not a Per Se Representation of An Interest Adverse to the Estate.
The closer question is whether BSPM's represents an interest adverse to *234 the estate under § 327(a) because of its representation of Hunter and Marischen. The UST first argues that BSPM's representation of Hunter and Marischen is a per se representation of an interest adverse to the estate under § 327(a) because of their role as controlling shareholders with respect to the Preferred Shares. The Court will not adopt this per se rule because it is not consistent with the economic realities underlying the shareholders' relationship to the debtor in position and does not allow for the flexible, fact specific analysis required by § 327(a).
A small minority of cases has held that the interest of a principal shareholder is per se adverse to the interest of the estate. Accordingly, these courts have held that § 327(a) imposes a per se prohibition on a attorney's dual representation of both the principal shareholders and the debtor in possession. See e.g. In re Kendavis Indus. Int'l., 91 B.R. 742, 754 (Bankr.N.D.Tex.1988).
The majority position is that representation of principal shareholders is not per se to the representation of an interest adverse to the estate under § 327(a). In re Freedom Solar Center, Inc., 776 F.2d 14, 17 (1st Cir.1985); In re EWC, Inc., 138 B.R. 276, 284 (Bankr.W.D.Okla.1992); In re Hurst Lincoln Mercury, Inc., 80 B.R. 894, 895 (Bankr.S.D.Ohio 1987). Under the majority position, the objecting party must demonstrate some other conflict between the shareholders and the debtor in possession. Freedom Solar Center, 776 F.2d at 17 (Shareholder was a potential purchaser of debtor in possession's assets); Colorado Nat'l Bank v. Ginco (In re Ginco), 105 B.R. 620, 621 (D.Colo.1988) (Estate had potential claims against shareholder for corporate mismanagement); EWC, 138 B.R. at 284 (Shareholder was a recipient of preferential transfers); In re Lee, 94 B.R. 172, 178 (Bankr.C.D.Cal.1988) (Shareholders were jointly liable on several notes with the debtor in possession).
The rationale underlying the majority position is two fold. First, the majority position recognizes that the economic interests of the shareholders are generally aligned with those of the estate. Hurst Lincoln Mercury, 80 B.R. at 896. Thus, given that a bankruptcy court must give the debtor in possession deference in its selection of counsel, any party objecting to the proposed counsel's dual representation of the shareholder and the debtor must point to some conflict other than the shareholder/debtor in possession relationship.
The second reason underlying the majority rule is that the court's inquiry as to whether a law firm represents an interest adverse to the estate under § 327(a) is a fact specific analysis that is case specific. In re Martin, 817 F.2d 175, 182 (1st Cir.1987). This fact specific analysis should focus upon two issues. First, the court must determine whether there is an existing conflict of interest. Second, the court must examine whether the probability that any potential conflict will ripen into an actual conflict is sufficiently strong to warrant the disqualification of the debtor in possession's selected counsel. Martin, 817 F.2d at 182; Marvel Entertainment Group, 140 F.3d at 477. The objecting party, however, must produce more evidence than the mere appearance of a conflict to sustain its burden on the adverse interest test of § 327(a). Marvel Entertainment Group, 140 F.3d at 477; BH & P, 949 F.2d at 1314; Martin, 817 F.2d at 183.
The minority per se rule is simply too rigid to accommodate this flexible, fact specific analysis of the adverse interest test under § 327(a). Id. Rather, as discussed above, the proper application of § 327(a) must give the bankruptcy court *235 the flexibility to analyze the economic realities underlying the relationship between the shareholders and the debtor in possession. As a leading commentator has observed, because per se rules under § 327(a) in general do not provide the bankruptcy court with such flexibility, they do not comport with the proper analysis required by § 327(a). 3 LAWRENCE P. KING ET. AL., COLLIER ON BANKRUPTCY ¶ 327.04[5][b] (15th ed.2001).
The UST contends that this Court has previously adopted the per se rule in two previous cases. First, the UST first argues that this Court adopted the minority per se rule in an unpublished order in the LLS, Inc. Bankruptcy (Case No. 02-40510). In LLS the debtor in possession's selected law firm did represent two of the debtors' primary shareholders. The two shareholders, however, were also bidding on the debtors' assets and there was a significant potential for litigation between the debtor in possession and the shareholders. This Court held that the proposed law firm represented an interest adverse to the estate under § 327(a) because the law firm represented the two shareholders in their role as potential purchasers of the estate's assets and adversaries in litigation. This is consistent with the majority position that rejects the per se rule. See Freedom Solar Center, 776 F.2d at 17.
The UST also maintains that this Court's opinion in In re Areaco Invest. Co., 152 B.R. 597 (Bankr.E.D.Mo.1993) adopts the per se rule. In Areaco, the attorney failed to properly disclose as required by Rule 2014(a) the fact that he represented the debtor in possession's two principal shareholders. Id. at 602. Also, in Areaco the attorney negotiated a settlement to a dispute on behalf of the debtor in possession and the two shareholders. The evidence adduced demonstrated that the attorney's lack of full disclosure of his relationship to the shareholders led to confusion among the various constituency groups as to whom the attorney actually represented. Id. at 603. This Court, therefore, held that the attorney failed to demonstrate that his work was on behalf of the estate as opposed to two shareholders and disallowed a portion of the attorney's requested fees. Id.
Here, there is no allegation that BSPM failed to make the requisite disclosure under Rule 2014(a). Also, this Court, in dicta, actually adopted the majority position in Areaco and noted that generally, the interest of the shareholders will align with the interest of the estate. Id. Given the sound policy rationale underlying the majority rule discussed above, the Court will follow its dicta in Areaco. Accordingly, the UST must identify some conflict between either Hunter and Marischen and the estate, apart from the shareholder/corporation relationship, for BSPM's representation of Hunter and Marischen to be a representation of an interest adverse to the estate under § 327(a).
3. BSPM's Past Representation of Marischen is not a Representation of an Interest Adverse to the Estate.
The only potential conflict between the estate and either Hunter or Marischen is the success fee that Marischen will receive under the proposed Success Based Initiative Plan (the "Plan"). Under the Plan, certain key employees will receive a bonus from the estate if the sale of Debtors' assets generates sufficient proceeds to pay the claim of the senior secured lender, Congress Financial ("Congress"). Marischen, in his role as Chief Executive Officer of Huntco and Vice President of two of the Operating Subsidiaries, could receive a maximum of $210,000.00 under the Plan. This potential payment to Marischen under the Plan does not disqualify BSPM *236 from representing Debtors under § 327(a) for two reasons.
First, the evidence adduced indicates that BSPM does not currently represent Marischen in any capacity. Section 327(a) prohibits a professional person who ". . . represent[s] an interest adverse to the estate" from representing the debtor in possession. Because § 324(a) is written in the present tense, it prohibits a law firm from representing the debtor in possession only if the law firm currently represents an interest adverse to the estate. AroChem, 176 F.3d at 623. Section 324(a), therefore, does not disqualify a law firm that may have in the past represented a person or entity that holds an interest adverse to the estate. Id.
Here, BSPM, in support of its response to the UST's objection, proffered the affidavit of Marischen. In his affidavit, Marischen states that BSPM has only represented him on two distinct occasions. Specifically, BSPM represented Marischen in 1994 in a residential real estate transaction and in 1998 in preparing his will. Marischen further states in his affidavit that BSPM does not currently represent him in any capacity, including his rights under the Plan. The UST failed to controvert these statements contained in Marischen's affidavit. Accordingly, even if Marischen does hold an interest adverse to the estate because of his interest under the proposed Plan, the uncontroverted evidence indicates that BSPM does not currently represent that interest. Therefore, BSPM's past representation of Marischen is not a representation adverse to the interest of the estate under § 324(a).
Second, even if § 324(a) were to apply generally to a law firm's past representation of a person or entity that currently holds an adverse interest, BSPM's past representation of Marischen in the instant case would not disqualify it under § 324(a). A law firm represents an interest adverse to the estate under § 324(a) only if the issues on which it represented the interest holder is somehow germane to the issues involved in the bankruptcy. AroChem, 176 F.3d at 624; Marvel, 140 F.3d at 477; New Haven Radio, Inc. v. Meister (In re Martin-Trigona), 760 F.2d 1334, 1343-44 (2d Cir.1985).
Here, as discussed above, the uncontroverted evidence indicates that BSPM's representation of Marischen has been limited to advice on a residential real estate transaction and the drafting of his will. These two issues are not in any way related to any conceivable issue that may arise in these bankruptcies. Accordingly, even if § 324(a) were to apply to a law firm's past representation of a person or entity, BSPM's past limited represent of Marischen does not amount to the representation of an interest that is adverse to the estate under § 324(a).
C. BSPM's Representation of the Privately Held Companies
The UST's second argument is that BSPM's representation of the Privately Held Companies either renders BSPM a non-disinterested party under § 101(14)(E) or is a representation of an interest that is adverse to the estate. As illustrated above, BSPM cannot be non-disinterested under § 101(14)(E) because of its representation of the Privately Held Companies, even if those companies themselves are non-disinterested. Also, the analysis of whether BSPM's representation of the Privately Held Companies constitutes a representation of an interest adverse to the estate under § 327(a) is identical to the Hunter and Marischen analysis above.
Specifically, the representation of a debtor in possession's affiliate is not a per se representation of an interest that is *237 adverse to the estate. BH & P, 949 F.2d at 1316-17. Rather, the objecting party must identify some conflict between the affiliate and the debtor in possession apart from the affiliate relationship. Id.; In re First Jersey Securities, Inc., 187 B.R. 135, 149 (Bankr.D.N.J.1995) rev'd on other grounds 180 F.3d 504 (3d Cir.1999). For example, if there is a strong possibility that the debtor in possession may have claims against an affiliate company, the affiliate company holds an interest adverse to the estate so as to disqualify a law firm from representing both under § 327(a). See Interwest Business Equipment v. United States (In re Interwest Business Equipment), 23 F.3d 311, 316-17 (10th Cir.1994).
Here, there is no allegation of any actual or potential conflicts between Debtors and the Privately Held Companies apart from the affiliate relationship. As discussed above, this is insufficient to warrant a finding that BSPM's representation of the Privately Held Companies constitutes the representation of an interest adverse to the estate under § 324(a).
CONCLUSION
There is no allegation that BSPM failed to properly disclose its relationships with Hunter, Marischen and the Privately Held Companies as required in Rule 2014(a). Also, BSPM's representation of Hunter, Marischen and the Privately Held Companies does not render it a non-disinterested person under § 101(14)(E). Furthermore, BSPM's representation of Hunter, Marischen and the Privately Held Companies as set forth in its disclosure and supplemented by Marischen's affidavit does not constitute the representation of an interest adverse to the estate under § 324(a). Therefore, BSPM is qualified to represent Debtors under § 327(a). Accordingly, the Court will grant Debtors' application to employ BSPM.
Although Debtors' application will be granted, the Court appreciates the UST's concern that there is a possibility that a potential conflict between Debtors and either Hunter and Marischen or the Privately Held Companies may surface in the future. Accordingly, the Court reminds BSPM that its duty to disclose under Rule 2014(a) is a continuing one. In re Cleveland Trinidad Paving Co., 218 B.R. 385, 389 (Bankr.N.D.Ohio 1998).[1]
An Order consistent with this Memorandum Opinion will be entered this date.
NOTES
[1] Also, the Court notes that the Code gives it a great deal of discretion in fashioning a remedy when a law firm fails to make such continuing disclosures. For example, § 328(c) gives the Court the power to deny any application for fees if a law firm either becomes non-disinterested or represents an interest adverse to the estate after the bankruptcy court has granted the original application under § 327(a). Pierce, 809 F.2d at 1362 n. 18; Areaco, 152 B.R. at 602-03. Additionally, § 330(a)(2) allows the bankruptcy court to award an amount less than the amount requested by the professional if the professional fails to provide updated disclosures required by Fed. R. Bankr.P.2014(a). Id. at 603. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2029842/ | 785 N.E.2d 1 (2003)
203 Ill.2d 141
271 Ill.Dec. 350
Denise GUILLEN, a Minor, by Suamy GUILLEN, Her Father and Next Friend, Appellee,
v.
POTOMAC INSURANCE COMPANY OF ILLINOIS, Appellant.
No. 92056.
Supreme Court of Illinois.
January 24, 2003.
*3 Thomas M. Crisham, John P. O'Malley and David M. Jenkins, of Crisham & Kubes, Ltd., Chicago, for appellant.
Anthony C. Valiulis and William Macy Aguiar, of Much, Shelist, Freed, Denenberg, Ament & Rubenstein, P.C., Chicago, for appellee.
Hugh C. Griffin, Thomas W. Jenkins and Stevie A. Starnes, of Lord, Bissell & Brook, Chicago (Craig A. Berrington, Washington, D.C., of counsel), for amici curiae The National Association of Independent Insurers and The American Insurance Association.
Chief Justice McMORROW delivered the opinion of the court:
Two principal issues are presented in this case: (1) whether an insurer who mails notice to its insured of a material change in an insurance policy, as required under section 143.17a(b) of the Illinois Insurance Code (215 ILCS 5/143.17a(b) (West 1992)), must maintain proof of the mailing on a recognized "U.S. Post Office" (hereinafter, Postal Service) form or form acceptable to the Postal Service or other commercial delivery service; and (2) whether the plaintiff, by virtue of an assignment given by the insured in this case, obtained a right to indemnification from the defendant insurance company.
BACKGROUND
In May 1996, the plaintiff, Denise Guillen (Guillen), a minor, by her father and next friend, Suamy Guillen, filed a complaint against her former landlords, Ezequiel and Maria Ortiz, in the circuit court of Cook County. In her complaint, Guillen alleged that she was a tenant in an apartment owned by the Ortizes for approximately the first two years of her life, from October 19, 1993, until September 1995. During this time, Guillen alleged, she was exposed to deteriorating lead-based paint and paint dust, which was present in the apartment. Guillen asserted that, as a result of this exposure, she suffered severe lead poisoning and permanent developmental injuries. Guillen further alleged that her injuries were proximately caused by the Ortizes' negligent failure to inspect for or remove the lead-based paint.
Shortly after receiving Guillen's complaint, the Ortizes tendered Guillen's claims to their insurer, defendant Potomac Insurance Company of Illinois (Potomac). Potomac refused the tender and denied any obligation to defend or indemnify the Ortizes. According to Potomac, an endorsement that had recently been added to the Ortizes' commercial liability policy contained a lead exclusion which precluded coverage for Guillen's claims. After refusing the tender and denying coverage, Potomac took no further action with respect to Guillen's complaint. Potomac did not defend under a reservation of rights or file suit seeking a declaration of the rights of the parties.
In July 1997, Guillen and the Ortizes entered into a settlement agreement. Under the terms of the settlement, the Ortizes agreed to pay Guillen the sum of $600,000 in exchange for a release from liability for any claims relating to Guillen's lead poisoning. Importantly, however, the Ortizes' obligation to pay the $600,000 was *4 subject to the condition that it would "be satisfied solely through the assignment" to Guillen of the Ortizes' right to payment from Potomac. The assignment of the Ortizes' right to payment from Potomac was included within the terms of the settlement agreement. No other payment obligation was imposed upon the Ortizes and no judgment was entered against them.
In March 1998, Guillen, as the assignee of the rights of the Ortizes, filed an amended declaratory judgment complaint against Potomac in the circuit court of Cook County. In this action, which is the subject of the instant appeal, Guillen sought a declaration that Potomac was obligated to pay Guillen the $600,000 settlement amount agreed to by the Ortizes. Potomac filed an answer to Guillen's complaint in which it raised numerous affirmative defenses. The parties thereafter filed cross-motions for summary judgment.
In her motion for summary judgment, Guillen alleged that Potomac had failed to comply with the statutory notice requirements that governed the addition of the lead exclusion. Guillen argued that, under section 143.17a(b) of the Illinois Insurance Code (Code) (215 ILCS 5/143.17a(b) (West 1992)), when an exclusion that materially alters insurance coverage is added to a renewal insurance policy, the insurer must give the policyholder 60 days written notice and must "maintain proof of mailing or proof of receipt [of notice]" to make the alteration effective. Guillen contended that Potomac had failed to maintain the required proof of mailing or proof of receipt and, as a result, could not establish that the Ortizes had been notified of the change in coverage affected by the lead exclusion. Thus, according to Guillen, the lead exclusion never became part of the Ortizes' insurance policy. Because the lead exclusion was not part of the Ortizes' insurance policy, Guillen maintained that Potomac had breached its duty to defend and should be estopped from raising policy defenses to coverage for Guillen's claims against the Ortizes. Finally, Guillen alleged that Potomac's wrongful refusal to defend made it responsible for any reasonable settlement amount agreed to by the Ortizes. And, since the Ortizes had assigned to Guillen their right to recovery from Potomac, Guillen argued that she was entitled to recover the $600,000 settlement amount from Potomac.
In its motion for summary judgment, Potomac disputed Guillen's contention that it had not provided proper notice to the Ortizes regarding the addition of the lead exclusion. Potomac argued that it had notified the Ortizes in writing about the lead exclusion 75 days prior to renewal and that it had maintained sufficient proof of mailing. In support of this contention, Potomac provided the circuit court with an unsigned copy of a letter which was purportedly sent to the Ortizes, and an affidavit from an employee of Potomac that described Potomac's custom and practice with respect to mailing notices of material changes in insurance policies to its insureds.
Potomac additionally argued in its motion for summary judgment that, even if it had breached its duty to defend, it was not required to pay the $600,000 settlement amount agreed to by the Ortizes. According to Potomac, it was under no obligation to pay Guillen because the Ortizes' assignment to Guillen of their right to recovery against Potomac was invalid. Potomac pointed out that under the terms of the Ortizes' insurance policy, Potomac was required to pay "those sums that the insured becomes legally obligated to pay as damages." Potomac argued that the Ortizes were never "legally obligated" to pay anything under the terms of the settlement agreement with Guillen. In support of *5 this contention, Potomac noted that, since the Ortizes' payment obligation under the settlement agreement was limited solely to an assignment of the Ortizes' right to recover under their insurance policy, the Ortizes were never personally obligated to pay any money and, indeed, were never placed in any personal financial risk by the agreement. Potomac argued, therefore, that the Ortizes were not "legally obligated" to pay damages to Guillen in any practical sense of the term and, thus, had no right to indemnification from Potomac. Potomac further noted that Guillen, as the assignee of the Ortizes' rights against Potomac, "stood in the shoes" of the Ortizes. Therefore, Potomac argued, since the Ortizes had no right to recover from Potomac, neither did Guillen.
In a written order dated June 26, 2000, the circuit court found that, with respect to the lead exclusion, Potomac had not satisfied the notice requirements of section 143.17a(b) of the Code. The court concluded that the unsigned letter and employee affidavit offered by Potomac failed to show that Potomac had "maintain[ed] a contemporaneous proof of mailing" as required under the statute. The court further reasoned that, because of Potomac's failure to comply with the notice requirements of the Code, the lead exclusion never became a part of the Ortizes' insurance policy. Consequently, the circuit court found that Potomac had a duty to defend the underlying lawsuit brought by Guillen, that Potomac had breached that duty, and that Potomac was estopped from raising policy defenses to coverage.
The circuit court further found, however, that Guillen had failed to establish the elements of a prima facie claim for indemnification against Potomac. The circuit court concluded that, because the Ortizes' payment obligation under the settlement was limited to the assignment, the Ortizes had not "incurred any liability for damages with respect to the Guillen lawsuit" and therefore had no right to assert a cause of action for indemnity against Potomac. The circuit court also noted that Guillen, as the assignee of the Ortizes' rights against Potomac, could have no greater claim against Potomac than the Ortizes themselves had. Thus, because Potomac owed no duty to indemnify the Ortizes, the court concluded that Potomac was not liable to Guillen. The circuit court therefore granted Potomac's motion for summary judgment.
On appeal, the appellate court reversed the circuit court's grant of summary judgment in favor of Potomac. 323 Ill.App.3d 121, 256 Ill.Dec. 51, 751 N.E.2d 104. Initially, the appellate court addressed whether Potomac had established that it provided the Ortizes with notice of the lead exclusion. In deciding whether Potomac had adhered to the notice requirements of section 143.17a(b) with respect to the lead exclusion, the appellate court turned to subsection (a) of the statute, which governs an insurer's notice obligations when it chooses not to renew an insurance policy. Subsection (a) states that "proof of mailing" notice of nonrenewal shall be maintained on "a recognized U.S. Post Office form or a form acceptable to the U.S. Post Office or other commercial mail delivery service." 215 ILCS 5/143.17a(a) (West 1992). Subsection (b), which deals with notice of a material policy change, also states that the insurer must maintain "proof of mailing" but does not repeat the definition of that term which is set forth in subsection (a). Concluding that the words "proof of mailing" should be given the same meaning throughout the statute, the appellate court held that an insurer who attempts to prove that it mailed notice of a material policy change under subsection (b) must show that it maintained proof of mailing on a form acceptable to the Postal *6 Service or other commercial mail delivery service. Since Potomac failed to show proof of mailing on such a form with respect to the lead exclusion, the appellate court concluded, like the circuit court, that the exclusion never became part of the Oritzes' insurance policy and that Potomac had therefore breached its duty to defend. 323 Ill.App.3d at 131, 256 Ill.Dec. 51, 751 N.E.2d 104.
However, the appellate court reversed the circuit court's holding that Guillen had failed to state a prima facie claim for indemnification against Potomac. Potomac argued before the appellate court, as it did in the circuit court, that because of the nature of the settlement agreement between the Ortizes and Guillen, the Ortizes were under no "legal obligation" to pay any damages to Guillen. Therefore, according to Potomac, the Ortizes had no right to indemnification from Potomac and had nothing to assign to Guillen. The appellate court rejected these arguments and held that the Ortizes had a right to indemnification from Potomac and that they had properly assigned this right to Guillen. In so holding, the appellate court emphasized that the issue of the Ortizes' right to indemnification and the validity of their assignment to Guillen could not be considered "in a vacuum" but had to be considered in light of the fact that Potomac had breached its duty to defend. 323 Ill.App.3d at 135, 256 Ill.Dec. 51, 751 N.E.2d 104.
Finally, the appellate court observed that courts have raised concerns about the possibility of collusion between an insured and an injured plaintiff who agree to settle a claim following an insurer's breach of the duty to defend. 323 Ill.App.3d at 132-33, 256 Ill.Dec. 51, 751 N.E.2d 104, citing United States Gypsum Co. v. Admiral Insurance Co., 268 Ill.App.3d 598, 637, 205 Ill.Dec. 619, 643 N.E.2d 1226 (1994). Thus, the appellate court noted, an insurer may challenge a settlement made in its absenceeven though the insurer's absence was caused by its own breach of the duty to defendon the basis that either the decision to settle or the settlement amount was unreasonable. 323 Ill.App.3d at 133, 256 Ill.Dec. 51, 751 N.E.2d 104. Applying these principles to the case at bar, the appellate court concluded that the Ortizes' decision to settle with Guillen was made "in reasonable anticipation of liability" and was not subject to challenge by Potomac. However, the appellate court remanded the cause to the circuit court for a hearing to determine whether the settlement amount agreed to by the Ortizes was reasonable. 323 Ill.App.3d at 137-38, 256 Ill.Dec. 51, 751 N.E.2d 104.
Potomac subsequently filed a petition for leave to appeal, which we allowed (177 Ill.2d R. 315).
ANALYSIS
The circuit court's entry of summary judgment is subject to de novo review. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 102, 180 Ill.Dec. 691, 607 N.E.2d 1204 (1992). The construction of an insurance policy, which is a question of law, is also reviewed de novo. American States Insurance Co. v. Koloms, 177 Ill.2d 473, 479-80, 227 Ill. Dec. 149, 687 N.E.2d 72 (1997).
At the outset, Guillen acknowledges the general rule which holds that, in the absence of a breach of the duty to defend, an insured must obtain the consent of the insurer before settling with an injured plaintiff. See, e.g., Thornton v. Paul, 74 Ill.2d 132, 144, 23 Ill.Dec. 541, 384 N.E.2d 335 (1978); Alliance Syndicate, Inc. v. Parsec, Inc., 318 Ill.App.3d 590, 600, 251 Ill.Dec. 861, 741 N.E.2d 1039 (2000). Guillen concedes that in this case, if Potomac did not breach its duty to defend the Ortizes, *7 then the Ortizes' decision to settle with Guillen has no binding effect upon Potomac. Accordingly, we first consider whether Potomac breached its duty to defend the Ortizes against Guillens' complaint.
Duty to Defend
In determining whether an insurer owes its insured a duty to defend, a court looks to the allegations contained in the underlying complaint against the insured and compares those allegations to the relevant coverage provisions of the insurance policy. Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 393, 189 Ill.Dec. 756, 620 N.E.2d 1073 (1993). If the facts alleged in the underlying complaint fall within or potentially fall within the coverage of the policy, the insurer's duty to defendant is triggered. Outboard Marine, 154 Ill.2d at 108, 180 Ill.Dec. 691, 607 N.E.2d 1204.
As noted, the complaint at issue in this case was filed against the Ortizes by Guillen in May 1996. In that complaint, Guillen alleged that she suffered serious injuries after being exposed to lead-based paint and paint dust in the Ortizes' apartment from approximately October 19, 1993, to September 1995. The complaint alleged that Guillens' injuries were caused by the Oritzes' negligent failure to inspect for or remove the lead-based paint.
The relevant insurance policies in this case are commercial general liability policies that were issued by Potomac to the Ortizes from 1991 through 1994. The Ortizes' initial insurance policy was issued by Potomac for the period of October 12, 1991, to October 12, 1992. Two renewal policies were subsequently issued for the period of October 12, 1992, to October 12, 1993, and for October 12, 1993, to October 23, 1994.
As it did in the courts below, Potomac maintains in this court that it sent a letter to the Oritzes on July 28, 1993, in which it notified them that a lead liability exclusion would take effect in their October 12, 1993, renewal policy. The lead exclusion stated, in pertinent part, that
"This insurance does not apply to:
1. `Bodily injury', `property damage', `personal injury', or `advertising injury' arising out of, resulting from, or in any way caused or contributed to by the actual, alleged or threatened ingestion, inhalation, absorption of, exposure to or presence of lead in any form emanating from any source * * *." (Emphasis in original.)
Potomac maintains that the lead exclusion clearly precluded coverage for claims such as those brought by Guillen. Moreover, according to Potomac, because the exclusion took effect on October 12, 1993, and Guillen's complaint alleges that her injuries began October 19, 1993, the underlying complaint did not fall within the Ortizes' policy language. Accordingly, Potomac contends that the Ortizes had no coverage and Potomac had no duty to defend.
Guillen maintains, however, that Potomac failed to comply with the notice requirements of section 143a of the Code with respect to the lead exclusion. Section 143a of the Code provides, in pertinent part:
" § 143.17a. Notice of Intention Not to Renew. a. No company shall fail to renew any policy of insurance * * * unless it shall send by mail to the named insured at least 60 days advance notice of its intention not to renew. The company shall maintain proof of mailing of such notice on one of the following forms: a recognized U.S. Post Office form or a form acceptable to the U.S. *8 Post Office or other commercial mail delivery service. * * *
b. * * * [N]o company may increase the renewal premium on any policy of insurance * * * by 30% or more, nor impose changes in deductibles or coverage that materially alter the policy, unless the company shall have mailed or delivered to the named insured written notice of such increase or change in * * * coverage at least 60 days prior to the renewal or anniversary date. * * * An exact and unaltered copy of such notice shall also be sent to the insured's broker * * *. The company shall maintain proof of mailing or proof of receipt whichever is required." (Emphases added.) 215 ILCS 5/143.17a(a), (b) (West 1992).
Mirroring the reasoning of the appellate court, Guillen contends that, under subsection (b) of section 143.17a, the term "proof of mailing" must be defined as it is under subsection (a), i.e., a form acceptable to the Postal Service or other commercial mail delivery service which shows that notice was mailed. Applying this definition, Guillen argues that Potomac has failed to establish that it notified the Ortizes of the lead exclusion because Potomac has not presented an acceptable form which shows that the notice was mailed. Thus, Guillen contends that Potomac did not satisfy the notice requirements of section 143.17a(b), that the lead exclusion never took effect, and that Potomac breached its duty to defend the Ortizes. We agree.
Subsection (a) of section 143.17a defines an insurer's obligation to provide notice to its insured when the insurer chooses not to renew an insurance policy. Subsection (a) requires the insurer to "maintain proof of mailing" of the nonrenewal notice on "a recognized U.S. Post Office form or a form acceptable to the U.S. Post Office or other commercial mail delivery service." 215 ILCS 5/143.17a(a) (West 1992). Subsection (b), which governs the notice requirements for material changes to policies, repeats the same words, "proof of mailing," found in subsection (a) but does not repeat the definition set forth in subsection (a). However, this court has held that, "[u]nder basic rules of statutory construction, where the same words appear in different parts of the same statute, they should be given the same meaning unless something in the context indicates that the legislature intended otherwise." McMahan v. Industrial Comm'n, 183 Ill.2d 499, 513, 234 Ill. Dec. 205, 702 N.E.2d 545 (1998), citing People v. Talbot, 322 Ill. 416, 422, 153 N.E. 693 (1926). Applying this general rule, as the appellate court below did, leads to the conclusion that the term "proof of mailing" should be given the same meaning in both subsection (a) and subsection (b).
Potomac does not dispute the general rule of statutory construction set forth above but, instead, questions its application in the case at bar. Potomac contends that, in this case, the context of section 143.17a indicates that the legislature intended that a different meaning of "proof of mailing" be applied in subsection (b) from that found in subsection (a). Potomac maintains that a material policy modification is a less serious transaction than a policy nonrenewal because the latter leaves the insured without any insurance whatsoever while the former does not. Thus, Potomac argues, it is reasonable to conclude that the legislature imposed less stringent notice requirements on insurers with respect to material modifications than policy nonrenewals. Potomac contends, therefore, that the term "proof of mailing" found in subsection (b) is not limited to Postal Service forms or commercial delivery forms but may also include other forms of proof such as an insurer's custom *9 and practice with respect to mailing. We disagree.
It is true, as Potomac notes, that subsection (b) of section 143.17a addresses material modifications to insurance policies rather than policy nonrenewals. However, by definition, a material modification to an insurance policy is one that makes significant changes to that policy. Moreover, in most cases, the material modification made by the insurer will not be a change that increases coverage but, instead, will be a partial cancellation or reduction in coverage for the insured. The material modification may be equally as significant from the perspective of the insured as a policy nonrenewal would be. Indeed, the attempted modification at issue in this case, the lead exclusion, would be significant from the Ortizes' point of view since it would have eliminated coverage for an entire category of serious claims brought against them.
A material alteration of an insurance policy is an important transaction that may have a serious effect on the interests of the insured. Recognizing this, the legislature imposed the notice requirements for material modifications to protect the insured from cancellation or reduction of certain coverage without the insured's knowledge. Given these facts, we cannot agree with Potomac's contention that material policy modifications are, as a general matter, so lacking in importance compared to policy nonrenewals that the words "proof of mailing" should be read as having different meanings under subsection (a) and subsection (b).
We note, too, that there are other, affirmative, reasons to conclude that the words "proof of mailing" should be given the same meaning in both subsection (a) and subsection (b). For example, one benefit provided by the simple, defined "proof of mailing" standard found in subsection (a) is that it helps avoid evidentiary disputes and wasteful litigation over whether notice of the nonrenewal was actually provided the insured. By applying the definition of "proof of mailing" found in subsection (a) to subsection (b), that same benefit can be afforded to disputes regarding notice of material modifications.
In light of the above, we discern no compelling reason to depart from the general rule which holds that when the same words appear in different places in a statute they should be given the same meaning. See McMahan, 183 Ill.2d at 513, 234 Ill.Dec. 205, 702 N.E.2d 545. We therefore agree with the appellate court's determination that an insurer who mails notice to its insured of a material change in an insurance policy pursuant to section 143.17a(b) of the Code must maintain proof of the mailing on a recognized Postal Service form or form acceptable to the Postal Service or other commercial delivery service.
In the case at bar, it is undisputed that Potomac did not maintain proof that it mailed the lead exclusion on a form acceptable to the Postal Service or other commercial delivery service. However, Potomac contends that this failure is of no moment because the legislature has not provided a remedy for an insurer's failure to comply with the notice requirements regarding material modifications. In support of this contention, Potomac points to subsection (c) of section 143.17a, the provision which governs the remedies to be applied when the notice provisions of section 143.17a are violated. Subsection (c) provides:
"c. Should a company fail to comply with the notice requirements of this Section, the policy shall terminate only as provided in this subsection. In the event notice is provided at least 31 days, *10 but less than 60 days prior to expiration of the policy, the policy shall be extended for a period of 60 days or until the effective date of any similar insurance procured by the insured, whichever is less, on the same terms and conditions as the policy sought to be terminated. In the event notice is provided less than 31 days prior to the expiration of the policy, the policy shall be extended for a period of one year or until the effective date of any similar insurance procured by the insured, whichever is less, on the same terms and conditions as the policy sought to be terminated unless the insurer has manifested its willingness to renew at a premium which represents an increase not exceeding 30%." 215 ILCS 5/143.17a(c) (West 1992).
Potomac notes that subsection (c) does not expressly refer to the notice requirements for material modifications or what remedy should be afforded when an insurer fails to comply with those requirements. Potomac contends, therefore, that the appellate court "crafted an unenumerated remedy into subparagraph (c)" when the court concluded that Potomac's failure to comply with the proof of mailing requirement of subsection (b) meant that the lead exclusion never became a part of the Ortizes' insurance policy.
This court has previously recognized the importance of the insurer's obligation to provide notice to its insured of changes that materially diminish insurance coverage. See Ragan v. Columbia Mutual Insurance Co., 183 Ill.2d 342, 233 Ill.Dec. 643, 701 N.E.2d 493 (1998) (addressing section 143.14a). The notice requirements of the Code are not mere technicalities, but are important provisions enacted by the legislature to protect insureds from having significant changes made to their insurance coverage without their knowledge. Ragan, 183 Ill.2d at 351, 233 Ill. Dec. 643, 701 N.E.2d 493. Further, where, as here, the legislature has determined that a particular form of proof is required to prove notice, the legislature has struck a public policy balance between the needs of the insured and the insurer. By requiring a defined "proof of mailing," the legislature helps secure the insured's right to notification while, at the same time, imposing only "a very low threshold of proof" upon the insurer. Ragan, 183 Ill.2d at 351-52, 233 Ill.Dec. 643, 701 N.E.2d 493. Because of this policy determination, in these situations, "[t]here is no alternative method for proving compliance with the proof of mailing requirements other than to maintain the proof of mailing" defined in the statute. Ragan, 183 Ill.2d at 351, 233 Ill.Dec. 643, 701 N.E.2d 493. Given the importance attached to the notice requirements under the Code, and the public policy considerations reflected in the legislature's decision to define the specific notice requirements under subsection (b), we reject Potomac's suggestion that no consequences flow from an insurer's failure to comply with those provisions.
Both parties in the case at bar discuss the possibility that, under subsection (c), when an insurer fails to give an insured notice of a material modification to a renewal insurance policy, then the remedy afforded is that the entire renewal policy is not activated and the insured's previous insurance policy remains in effect. We note that this remedy is not well suited to a violation of the notice provisions pertaining to material modifications. If the remedy of continuing the previous insurance policy were applied to breaches of notice of material modifications, then the statutory breach would void not just the modification but the entire renewal policy as well. This would be true even though the statutory violation had nothing to do with the renewal policy as a whole and even though the *11 insured otherwise had notice of the renewal policy. Although the remedy of having the previous insurance policy continue in effect is clearly required when an insurer breaches the notice provisions for policy nonrenewals, we think it unlikely that the legislature intended such a result for breaches pertaining to policy modifications.
Subsection (c) clearly provides that, when notice requirements are not met with respect to the attempted nonrenewal of an insurance policy, the nonrenewal does not take effect. We think it reasonable to conclude that the legislature intended the same logic to apply with regard to an attempted material policy modification. That is, as both the appellate and circuit courts below determined, when a notification requirement is not satisfied with respect to a material modification to an insurance policy, the modification does not take effect. Cf. Ragan, 183 Ill.2d 342, 233 Ill.Dec. 643, 701 N.E.2d 493 (insurer's failure to maintain proof of mailing of policy cancellation rendered that cancellation invalid). We note that this result provides both an incentive to the insurer to comply with the notice requirements of subsection (b) and an appropriately tailored remedy to the insured for an insurer's breach of those requirements.
In the instant case, Potomac failed to maintain the "proof of mailing" required under section 143.17a(b) when it attempted to modify the Ortizes' insurance policy to add the lead exclusion. Accordingly, that modification never became a part of the insurance policy. Potomac therefore breached its duty to defend the Ortizes from Guillen's claims and is estopped from raising policy defenses to coverage. Clemmons v. Travelers Insurance Co., 88 Ill.2d 469, 475, 58 Ill.Dec. 853, 430 N.E.2d 1104 (1981).
Validity of the Assignment
Potomac next argues that, even if it breached its duty to defend the Ortizes, it is entitled to summary judgment because the assignment given by the Ortizes to Guillen is invalid. The settlement agreement between Guillen and the Ortizes contains the following provisions relating to the assignment:
"1. Payment. Subject to paragraph 10 below [requiring court approval of the settlement], Defendants will pay Plaintiff the sum of $600,000.00, to be satisfied solely through the assignment to Plaintiff reflected in Paragraph 2 below.
2. Assignment. Defendant hereby assigns to Plaintiff, to the fullest extent permitted by law or otherwise, all of their rights to payment if any, from General Accident Insurance ("General") under that certain Business Owners Policy of insurance [ ] issued to Defendants MARIA G. ORTIZ AND EZEQUIEL B. ORTIZ, by General, arising out of the claims asserted against Defendants in the Action or the settlement thereof." (Emphasis in original.)
As it did in the lower courts, Potomac notes before this court that an assignee "stands in the shoes" of the assignor and can have no greater rights than those possessed by the assignor. Thus, Potomac observes, for Guillen to state a prima facie claim for indemnification against Potomac, she must first establish that the Ortizes themselves possessed a right to indemnification. Potomac contends that Guillen cannot meet this burden.
Potomac points out that, under the terms of the Ortizes' insurance policy, Potomac was required to indemnify the Ortizes for those sums which they were "legally obligated to pay as damages." Potomac does not dispute that, generally speaking, once an insurer breaches its *12 duty to defend, the insured may enter into a reasonable settlement agreement without foregoing its right to seek indemnification. See Outboard Marine, 154 Ill.2d at 128, 180 Ill.Dec. 691, 607 N.E.2d 1204. Potomac concedes that, in such a case, if the payment obligation of the insured is not limited by an assignment, the settlement agreement would create a legal obligation on the part of the insured to pay damages.
Potomac argues, however, that in this case, the Ortizes were never "legally obligated" to pay damages under the terms of their settlement agreement with Guillen because their payment obligation was limited solely to an assignment of the Ortizes' right to recover under their insurance policy. Potomac observes that, because of the assignment, the Ortizes were never personally obligated to pay any money and were never placed in any personal financial risk. This is in contrast, Potomac notes, with a settlement that does not contain such an assignment. In that situation, the insured is placed in financial risk because, unless the insured can prove the insurer breached the duty to defend, the insured will be personally responsible for the amount of the settlement. Potomac contends, however, that in this case, the assignment effectively extinguished the Ortizes' legal obligation to pay damages. Potomac maintains, therefore, that the Oritzes were not legally obligated to pay damages in any real or practical sense of those words, that they suffered no insurable loss, and that they had no right to indemnification. Thus, since Guillen stands in the shoes of the Ortizes, Potomac argues that she cannot state a prima facie claim for indemnification.
Potomac's argument regarding the validity of the Ortizes' assignment presents a question: How should the "legally obligated to pay" language be interpreted when an insurer breaches its duty to defend? Although this is a question of first impression in this court, numerous courts in other jurisdiction have considered it, albeit in a somewhat different context from that presented here. Most often, the interpretation of the "legally obligated to pay" language has arisen when the insured and the injured plaintiff enter into a settlement agreement consisting of a stipulated judgment or consent judgment joined with a covenant not to execute and an assignment of the insured's rights against the insurer to the injured plaintiff. See generally C. Wood, Assignments of Rights and Covenants Not to Execute in Insurance Litigation, 75 Tex. L.Rev. 1373 (1997); J. Harris, Judicial Approaches to Stipulated Judgments, Assignments of Rights, and Covenants not to Execute in Insurance Litigation, 47 Drake L.Rev. 853 (1999).
When confronted by a settlement agreement consisting of a stipulated judgment, an assignment and a covenant not to execute, insurers have maintained, as Potomac does here, that the covenant not to execute effectively extinguishes the insured's legal obligation to pay since the insured "has no compelling obligation to pay any sum to the injured party." Freeman v. Schmidt Real Estate & Insurance, Inc., 755 F.2d 135, 138 (8th Cir.1985). The majority of courts, however, have rejected this argument. See, e.g., 47 Drake L.Rev. at 858 (the trend leans "overwhelmingly" to the rule that the insured remains "legally obligated to pay" when the settlement consists of a stipulated judgment, an assignment, and a covenant not to execute); 75 Tex. L.Rev. 1373; Gainsco Insurance Co. v. Amoco Production Co., 53 P.3d 1051, 1060-61 (Wyo.2002) (collecting cases).
The construction of the "legally obligated to pay" language adopted by the majority of courts is a technical, rather than practical, one. Courts accepting the conclusion *13 that the insured remains "legally obligated to pay" when the settlement consists of a judgment, covenant not to execute, and an assignment hold that a covenant not to execute is a contract and not a release. The insured still remains liable in tort and a breach of contract action lies if the injured party seeks to collect on the judgment. 47 Drake L.Rev. at 858. Thus, under this construction, the insured is still "legally obligated" to the injured plaintiff, and the insured retains the right to indemnification from the insurer.
The rationale supporting this technical construction of the "legally obligated to pay" language is that "an insurer who has abandoned the insured by refusing to defend a claim should not be allowed to `hide behind' the policy language." Gainsco, 53 P.3d at 1060-61 (and cases cited therein). Further, some courts have observed that if the "legally obligated to pay" language were construed in favor of the insurers, it would defeat the very purpose of the settlement agreement entered into by the insured. See, e.g., State Farm Mutual Automobile Insurance Co. v. Paynter, 122 Ariz. 198, 593 P.2d 948, 953 (Ariz.App. 1979). And, since the insured has the right to protect itself after the insurer breaches its duty to defend, public policy generally supports giving a technical construction to the "legally obligated to pay" language. See, e.g., 75 Tex. L.Rev. at 1384. Thus, the prevailing view is that a liberal construction of the words "legally obligated to pay" in favor of the insured is appropriate, once the insurer has breached its duty to defend.
We agree with the majority view regarding the construction given the "legally obligated to pay" language. Once the insurer has breached its duty to defend, it is in no position to demand that the insured be held to a strict accounting under the policy language. Fairness requires that the insured, having been wrongfully abandoned by the insurer, be afforded a liberal construction of the "legally obligated to pay" language.
In the case at bar, the Ortizes agreed to pay Guillen the sum of $600,000 to be paid solely from an assignment of the Ortizes' rights against Potomac given to Guillen. Technically speaking, the assignment did not release the Ortizes' from their obligation to pay Guillen $600,000. Instead, it simply limited the assets against which Guillen could collect the $600,000. The assignment did not negate the payment obligation itself. It is true that, in practical terms, the Ortizes never faced any personal financial risk under the settlement agreement. However, because Potomac breached its duty to defend, the Ortizes are entitled to have the "legally obligated to pay" language liberally construed in their favor. Applying that construction here, the Ortizes remained "legally obligated to pay" under the terms of the insurance policy. Accordingly, Potomac's argument that it has no duty to indemnify the Ortizes, because the Ortizes had no "legal obligation to pay," fails.
Potomac also attacks the validity of Ortizes' settlement with Guillen based on public policy. Potomac argues that, in settlement agreements such as the one at issue in the case at bar, the insured's own money is never at risk and, therefore, the insured has no incentive to contest liability or damages with the injured plaintiff. According to Potomac, since the insured is essentially paying with the insurer's money, the insured can, and will, agree to any amount of damages the injured plaintiff requests. For this reason, Potomac contends that settlements such as those at issue here create an environment that fosters collusion and fraud. Thus, Potomac maintains that the agreement between the *14 Ortizes and Guillen should be invalidated as against public policy.
"In deciding whether an agreement violates public policy, courts determine whether the agreement is so capable of producing harm that its enforcement would be contrary to the public interest. [Citation.] The courts apply a strict test in determining when an agreement violates public policy. J & K Cement Construction, Inc. v. Montalbano Builders, Inc., 119 Ill.App.3d 663, 683, 75 Ill.Dec. 68, 456 N.E.2d 889 (1983). The power to invalidate part or all of an agreement on the basis of public policy is used sparingly because private parties should not be needlessly hampered in their freedom to contract between themselves. First National Bank v. Malpractice Research, Inc., 179 Ill.2d 353, 359, 228 Ill. Dec. 202, 688 N.E.2d 1179 (1997). Whether an agreement is contrary to public policy depends on the particular facts and circumstances of the case." Kleinwort Benson of North America, Inc. v. Quantum Financial Services, Inc., 181 Ill.2d 214, 226, 229 Ill.Dec. 496, 692 N.E.2d 269 (1998).
Potomac's concern regarding the possibility of collusion in the type of settlement agreement at issue in the case at bar is well taken. See generally 75 Tex. L.Rev. at 1385-87 ("neither party [to the settlement agreement] is motivated to seriously negotiate over issues of damages and liability because the end goal is to structure the deal so that the carrier, a nonparty to the agreement, pays"); State Farm Fire & Casualty Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996). Nevertheless, we do not find the concern regarding the possibility of collusion compelling enough to warrant voiding the instant settlement agreement. As a majority of courts have recognized, the risk of collusion and fraud can be lessened in cases such as those at bar, if not avoided altogether, by placing a requirement upon the plaintiff to prove that the settlement it reached with the insured was reasonable before that settlement can have any binding effect upon the insurer. See generally 75 Tex. L.Rev. 1373; 47 Drake L.Rev. 853.
The criteria for establishing the reasonableness of a settlement agreement in the present context varies somewhat among jurisdictions. Ultimately, however, with respect to the insured's decision to settle, the litmus test must be whether, considering the totality of the circumstances, the insured's decision "conformed to the standard of a prudent uninsured." (Emphasis added.) Rhodes v. Chicago Insurance Co., 719 F.2d 116, 120 (5th Cir. 1983). Similarly, with respect to the amount of damages agreed to, the test "is what a reasonably prudent person in the position of the [insured] would have settled for on the merits of plaintiff's claim." Miller v. Shugart, 316 N.W.2d 729, 735 (Minn. 1982). This involves a commonsense consideration of the totality of "facts bearing on the liability and damage aspects of plaintiff's claim, as well as the risks of going to trial." Miller, 316 N.W.2d at 735. We note that the burden of proving reasonableness is properly placed upon the plaintiff both out of fairness, since the plaintiff was the one who agreed to the settlement, and out of practicality, since, as between the plaintiff and the insurer, the plaintiff will have better access to the facts bearing upon the reasonableness of the settlement. Further, we note that the insurer retains the right to rebut any preliminary showing of reasonableness with its own affirmative evidence bearing on the reasonableness of the settlement agreement.
Like the appellate court, we agree that the matter at bar must be remanded to the circuit court for further proceedings bearing *15 on whether the settlement agreement between the Ortizes and Guillen was reasonable under the circumstances. However, in certain respects, we depart from the appellate court's holding regarding the remand hearing. As noted, the appellate court in the case at bar, looking primarily at the face of the complaint filed by Guillen against the Ortizes, concluded that the Ortizes' decision to settle with Guillen was reasonable as a matter of law and was not subject to challenge by Potomac. Unlike the appellate court, we cannot conclude that the face of the complaint filed by Guillen is sufficient to establish, as a matter of law, that the Ortizes acted as a prudent uninsured when they decided to settle with Guillen. We note, too, that Potomac has not had an opportunity to present any evidence on the issue of the reasonableness of the Ortizes' decision to settle. Accordingly, we order that the judgment of the appellate court is to be modified. On remand, the circuit court shall consider both whether the Ortizes' decision to settle and whether the amount of damages were reasonable.
Finally, with respect to the reasonableness of the amount of damages, we note that the appellate court below stated, as a general proposition of law, that if the settlement amount falls below the policy limits, "the settlement amount is upheld as reasonable." 323 Ill.App.3d at 137, 256 Ill.Dec. 51, 751 N.E.2d 104. This is too broad a standard to apply in the context of settlement agreements such as those at bar. The fact that the amount of damages agreed to is within the policy limits does not, by itself, establish that the damages are what a reasonably prudent person in the position of the insured would have settled for on the merits of the plaintiff's claim.
CONCLUSION
For the foregoing reasons, the judgment of the appellate court is affirmed as modified. The cause is remanded to the circuit court for further proceedings consistent with this opinion.
Appellate court judgment affirmed as modified; cause remanded.
Justice RARICK took no part in the consideration or decision of this case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2131786/ | 398 Mich. 330 (1976)
247 N.W.2d 813
HI-WAY MOTOR COMPANY
v.
INTERNATIONAL HARVESTER COMPANY
Docket No. 56828, (Calendar No. 13).
Supreme Court of Michigan.
Argued April 6, 1976.
Decided December 21, 1976.
Gillard, Bauer & Mazrum for plaintiffs.
Dickinson, Wright, McKean, Cudlip & Moon (by *333 John E.S. Scott and Kathleen Lewis) for defendant.
LINDEMER, J.
This case involves an action for damages. Plaintiffs allege that they were fraudulently induced into entering a franchise agreement with defendant by the representations of defendant's agents that plaintiff Hi-Way Motor Company would be the exclusive heavy-duty truck dealership in the Alpena area.
Hi-Way Motor Company is incorporated in this state for the express purposes of selling automobiles and trucks and maintaining a service department. William J. Pinkerton, Sr., was president of that company and prior to holding such office was an attorney and a corporation executive for many years. Plaintiffs' bill of particulars describes Pinkerton as having "extensive knowledge as a businessman and a lawyer" in the field of management.
Defendant International Harvester Company markets a variety of automotive products, machinery, and equipment through a nationwide system of dealerships. These products include a complete line of trucks. This truck line embraces so-called "light trucks" and "heavy-duty" trucks. The "Fleetstar A" is one type of "heavy-duty" truck. It is the granting of a franchise for this "Fleetstar A" series to another dealership that provoked the instant controversy.
Prior to May, 1967, and for a period of approximately two months, Pinkerton negotiated with Alden Peterson, Harold Wahl, and James Coey, employees of defendant, concerning the acquisition by plaintiff of an International Harvester truck franchise in the Alpena area. A franchise in Alpena was formerly held by Everett Smith, but *334 Mr. Smith had terminated his franchise in April of 1967. Plaintiffs claim that during these negotiations Peterson, Wahl, and Coey assured Pinkerton that no other heavy-duty truck line franchise would be granted in that area.
In the general geographic area around Alpena County there are three other dealers who were, prior to the time that plaintiff entered into its franchise agreement, authorized to sell certain International Harvester products. However, none of these dealers had franchises for "heavy-duty" trucks. These dealers are located in Spruce, Hillman, and Rogers City, Michigan.
On May 15, 1967, the franchise agreement was signed and Hi-Way Motor Company became an authorized International Harvester dealer. This agreement was supplemented by a series of additional written agreements authorizing the sale of different products, all incorporating the basic contract. As a result, plaintiff company was authorized to sell defendant's complete line of light-duty and heavy-duty trucks, including the aforementioned "Fleetstar A" line.
Clause 32 of the agreement provides as follows:
"All understandings and agreements between the parties are contained in the agreement, which supersedes and terminates all previous agreements between the parties pertaining to the sale of the goods covered by this agreement. The rights of either party pertaining to goods sold by the Company to the Dealer under the previous sales and service agreements will be determined by the provisions of this agreement. There are no oral or collateral agreements or understandings affecting the agreement. When authorized by the Company's General Office, the Company's District Manager or Assistant District Manager may enter into written agreements with this Dealer, which are not inconsistent *335 with any provision of the agreement, supplementing the agreement, but no representative of the Company, other than one of its corporate officers, is authorized in its behalf to modify, change or waive any of the provisions of the agreement or to change, add to (except by the filling in of blank lines and spaces) or erase any of the printed portion of the form upon which the agreement is prepared." (Emphasis supplied.)
Plaintiff opened for business in May of 1967. In December of that same year, plaintiff was granted a franchise by Oldsmobile and operated both dealerships on the same property. In November of 1968, defendant replaced its district manager and Mr. Wahl, its assistant district manager. In light of these changes, plaintiff again sought assurances concerning the exclusivity of his heavy-duty truck franchise.
In January of 1970, defendant informed Pinkerton through Mr. Peterson that a "Fleetstar A" franchise was to be awarded to a Mr. Thompson, a dealer in Spruce, Michigan. Pinkerton protested this decision, and a series of meetings resulted at which Pinkerton attempted to have defendant reconsider its decision. When Pinkerton did not get the satisfaction he sought, he notified the defendant that he was unilaterally terminating the franchise agreement. The parties agreed that October 31, 1970, was the termination date.
Plaintiff then instituted this action for damages claiming fraud and misrepresentation. The trial court, sitting without a jury, found for the plaintiffs in the amount of $71,211.68 and rendered judgment accordingly. The Court of Appeals reversed, reasoning that the evidence did not support a finding that all the elements of a cause of action for fraudulent misrepresentation existed. 59 Mich App 366; 229 NW2d 456 (1975). Plaintiffs' *336 application for leave to appeal was granted July 23, 1975. We affirm the Court of Appeals.
The elements constituting actionable fraud or misrepresentation are well-settled in this jurisdiction. In Candler v Heigho, 208 Mich 115, 121; 175 NW 141 (1919), we set forth those elements:
"The general rule is that to constitute actionable fraud it must appear: (1) That defendant made a material representation; (2) that it was false; (3) that when he made it he knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by plaintiff; (5) that plaintiff acted in reliance upon it; and (6) that he thereby suffered injury. Each of these facts must be proved with a reasonable degree of certainty, and all of them must be found to exist; the absence of any one of them is fatal to a recovery."
See also, A&A Asphalt Paving Co v Pontiac Speedway, Inc, 363 Mich 634, 639; 110 NW2d 601 (1961); Marshall v Ullmann, 335 Mich 66, 73-74; 55 NW2d 731 (1952); Waldbauer v Hoosier Casualty Co, 285 Mich 405, 408-409; 280 NW 807 (1938). The burden of proof rests with plaintiffs. Fraud will not be presumed but must be proven by clear, satisfactory and convincing evidence. Youngs v Tuttle Hill Corp, 373 Mich 145, 147; 128 NW2d 472 (1964).
The initial consideration, then, is whether defendant's agents made a material representation to plaintiff. In Boston Piano & Music Co v Pontiac Clothing Co, 199 Mich 141; 165 NW 856 (1917), we affirmed the rule that an action for fraudulent misrepresentation must be predicated upon a statement relating to a past or an existing fact. Future promises are contractual and do not constitute fraud.
*337 A reading of the testimony fairly suggests the conclusion that defendant's agents gave Pinkerton the impression that he would have an exclusive heavy-duty truck franchise "as long as he did a reasonable job" in the area.
Plaintiffs contend that the above promise amounted to the oral granting of an exclusive franchise agency. They urge that the assurances were representations as to existing fact, despite the "mere fact" that they were stated in promissory terms. The record, however, cannot reasonably bear such a construction.
Pinkerton, who conducted the negotiations, testified not that he was actually granted an exclusive franchise but rather that he was promised that "if we did * * * a reasonable job, there would be no reason or no excuse to give any part of the heavy-duty franchise to anyone else in [the] area". Pinkerton also testified that he read and understood the contract before he signed it.
Pinkerton's behavior after the contract was executed is inconsistent with the argument that he thought he had been awarded an exclusive franchise. The record shows that after the franchise was awarded, Pinkerton frequently asked Peterson for assurances that no one else would be awarded a heavy-duty contract in the Alpena area. Later, Pinkerton traveled to Detroit to get such assurances from defendant's district manager.
Plaintiffs further contend that even if the representations are found to be promises of future action, they nevertheless fall within the "bad faith" exception to the general rule that such promises are not actionable torts. Plaintiffs' contention is based on our holding in Crowley v Langdon, 127 Mich 51, 58-59; 86 NW 391 (1901), that a fraudulent misrepresentation may be based *338 upon a promise made in bad faith without intention of performance.
Plaintiffs point to the fact that it was against defendant's company policy to grant exclusive dealerships in arguing that defendant's agents never intended to perform when the promises were made. However, the record shows that each witness, in response to Pinkerton's concern regarding an exclusive franchise, indicated that it was his intention at the time that only one heavy-duty franchise would be awarded in the area. Both Peterson and Wahl testified that it was their opinion in 1967 that the market area would support only one full line dealer. This opinion is consistent with Pinkerton's testimony that defendant's agents assured him there would be no need to grant other franchises for heavy-duty trucks if he did a good job.
Plaintiff maintains that a letter from an attorney employed by defendant to plaintiffs' attorney is evidence of defendant's agents' bad faith. The letter, together with others, was admitted over defense counsel's objection for the limited purpose of establishing a chronology of events. The admission into evidence was on a separate record. Although it was never reoffered or readmitted, the trial court relied solely on this letter in finding that defendant's agents acted with no intention of fulfilling their promises.
The letter, dated some three years after the promises were made, denies any commitment to an exclusive franchise and states that even if such a commitment were made it could not be honored due to company policy. Yet as we stated in Danto v Charles C Robbins, Inc, 250 Mich 419, 425; 230 NW 188 (1930), evidence of fraudulent intent, to come within the exception, must relate to conduct *339 of the actor "at the very time of making the representations, or almost immediately thereafter". The letter is evidence too remote in time to indicate that when the agents made the promise they had no intention of fulfilling it.
Reliance is also placed on a related doctrine, the so-called "false token" exception to the general rule that broken promises of future action are not actionable torts. This exception pertains where, although no proof of the promisor's intent exists, the facts of the case compel the inference that the promise was but a device to perpetrate a fraud. As we have indicated, the record is bereft of any such facts. Moreover, the case relied on for this point, Rutan v Straehly, 289 Mich 341; 286 NW 639 (1939), involved a fiduciary relationship. Here, the record shows no such relationship, but rather the negotiations of two knowledgeable commercial parties.
Like the Court of Appeals, we are unable to find evidence from which it could reasonably be inferred either that defendant's agents gave their promises without intention of performance or that they misrepresented a past or present fact. Although we are hesitant to disturb the trial judge's findings, we find that they are within the "clearly erroneous" language of GCR 1963, 517.1. The "judicial sieve" employed here is appropriately "of finer mesh than the one correspondingly employed here on review" of a jury's verdict. Schneider v Pomerville, 348 Mich 49, 54-55; 81 NW2d 405 (1957). We conclude, therefore, that plaintiffs have failed to establish the alleged fraud on the part of defendant by clear and convincing evidence.
The Court of Appeals is affirmed. Costs to defendant.
KAVANAGH, C.J., and LEVIN, COLEMAN, FITZGERALD, and RYAN, JJ., concurred with LINDEMER, J.
*340 WILLIAMS, J. (concurring).
I concur with my Brother Justice LINDEMER. I agree with the circuit court that fraud may be predicated on broken future promises. However, in this case the circuit court relied exclusively on a letter allegedly evidencing fraud which was admitted into evidence for purposes other than showing defendant's agents had no intention of fulfilling their promises. Absent this evidence, I agree that defendant in this case made no material misrepresentation to plaintiff. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3119947/ | Writ of Mandamus l)cnied, Opinion issued October
29 ,2012
In The
Qtuitrt uf Appcit
.Yiftli Jhtrirt iif cxu d 1LItku
No. 05-12-01286-CV
IN RE ALICE LONGFELLOW, ET AL., Relators
Original Proceeding from the 134th Judicial District Court
Dallas County, Texas
Trial Court Cause No. 12-02900
MEMORANDUM OPINION
Before Justices Morris, Richter. and Lang-Miers
Opinion by Justice Morris
Relators contend the trial judge erred in denying their motion to expunge us pendens and plea
to the jurisdiction. The facts and issues are well known to the parties, so we need not recount them
herein. Based on the record before us, we conclude relators have not shown they are entitled to the
relief requested. See TEx. R. App. P. 52.8(a); Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex.
1992) (orig. proceeding). Accordingly, we DENY relators’ petition for writ of mandamus.
MtRRIS
()fcE
121286F.P05 | 01-03-2023 | 10-16-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/8326577/ | Moriartv, Cornelius J., J.
Plaintiff, Metso Automation USA, Inc. (Metso), brought this action seeking a declaratory judgment that it is not liable to either Bayer Corporation or Factory Mutual Insurance Company for losses and damages allegedly sustained as a result of an explosion on July 28, 2007 in Kansas City, Missouri. Bayer Corporation (Bayer) and its insurer, Factory Mutual Insurance Company (Factory) now move to dismiss the instant action on the grounds that an action for declaratory judgment is not an appropriate vehicle for resolution of the issues, lack of personal jurisdiction and forum non conveniens. For the reasons set forth below the Motions to Dismiss are ALLOWED.
BACKGROUND
Metso, a Delaware corporation, manufactured ball valves. Bayer, a corporation existing under the laws of the Democratic Republic of Germany, owns a service company named Bayer Crop Science (Cropscience). Cropscience operates a chemical plant facility (the Facility) owned by Bayer, in Kansas City, Missouri.
On July 28, 2007 a chemical explosion occurred at the Facility which allegedly resulted in losses to Cropscience in the amount of $6,805,000.00.
*629As of the date of the explosion, Factory, a Rhode Island corporation, was the property insurer for Bayer, and it alleges it paid Bayer’s losses regarding the explosion.
Bayer and Factory allege that the explosion was caused by defective ball valves, which were manufactured by Metso.
On June 29, 2010 Metso took the unusual step of filing the instant action seeking a declaration that it was not liable for the losses and damages sustained by Bayer and Factory as a result of the explosion.1 Oral argument was heard on the defendants’ Motions to Dismiss on July 19, 2011.
DISCUSSION
As I allow the motions to dismiss based on the doctrine of forum non conveniens, a discussion of the other grounds advanced by the defendants is not necessary. The doctrine of forum non conveniens operates to “decline jurisdiction which is constitutionally permissible when another state is better situated to deal with the matter.” Green v. Manhattanville College, 40 Mass.App.Ct. 76, 78 (1996), rev. den., 422 Mass. 1107.
While it is true that “plaintiffs choice of forum should rarely be disturbed,” New Amsterdam Cas. Co. v. Ester, 353 Mass. 90, 95 (1967), it may be, where “the balance of both private and public concerns strongly favors the defendant’s motion.” Green at 79.
Those concerns include (1) ease of access to proof, (2) availability of compulsory process and (3) the cost of attendance of witnesses. Green at 80.
I find that these factors strongly favor a trial in Missouri. Here the valves were likely sold in Missouri. The explosion occurred in Missouri. The percipient witnesses to the explosion are likely in Missouri. A view of the Facility may be necessary and finally, records likely to prove damages are in Missouri. For these reasons the case should be dismissed on the ground of forum non conveniens.
ORDER
It is hereby Ordered that the Motions to Dismiss are ALLOWED.
Fourteen days after the filing of the instant action, Bayer and Factory filed suit in Missouri. | 01-03-2023 | 10-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/2458720/ | 281 S.W.2d 492 (1955)
Clyde O. BROWN
v.
Pamelia C. BROWN et al.
Supreme Court of Tennessee.
June 10, 1955.
On Rehearing August 2, 1955.
*495 Ferdinand Powell, Jr., and Warren R. Webster, Knoxville, for appellant.
Anderson & Anderson, Knoxville, for appellees.
ROBERT S. CLEMENT, Special Justice.
This suit was filed by the complainant Clyde O. Brown in the Chancery Court of Knox County primarily for the purpose of enjoining the defendant Pamelia C. Brown from prosecuting a petition for contempt which the defendant Pamelia C. Brown had filed in the Circuit Court of Knox County in an effort to enforce a decree of that Court against the complainant Clyde O. Brown.
The controversy arises out of a divorce action between the parties, which the husband Clyde O. Brown commenced in February of 1952 by filing his bill for an absolute divorce against the wife Pamelia C. Brown on the ground of cruel and inhuman treatment. In that bill he averred that the parties had entered into a property settlement agreement, one of the provisions of which was that his wife would receive a certain parking lot located on West Church Street in Knoxville, which the parties owned as tenants by the entireties. Among his prayers was a request that the Court approve the property settlement agreement. He also prayed that the custody and control of the two minor children of the parties be adjudicated by the Court in whatever manner the Court deemed to be in the best interest of the children; and he indicated his willingness to support these children.
After the disposition of numerous preliminary matters not material here, the wife, Pamelia C. Brown, filed her answer to this bill for divorce. She denied quite vigorously the allegations on which her husband based his suit for divorce. She made no mention of the alleged property settlement agreement. She did, however, allege that her husband was a "man of means," and that he was able to support the defendant and their children and should be required to do so. She did not ask that her answer be treated as a crossbill, and she made no formal prayers for relief.
In February of 1953, after a series of bitterly contested proceedings, the Circuit Court entered a decree granting the husband Clyde O. Brown an absolute divorce from the wife. The Court, however, awarded custody of the minor children to the defendant wife and required the husband to pay "alimony" in the amount of $125 per month for the maintenance and support of the wife and the children. In addition the Court suggested that the parties attempt to arrive at a property settlement, but provided that in the event no such agreement was submitted to the Court, the Court would "pass upon the property rights" between the parties. The Court expressly retained the case on its docket for the purpose of arriving at some disposition of the property belonging to the parties.
The wife filed various supplemental pleadings and petitions in an effort to reopen the case and defeat the husband's suit for divorce; but the relief she sought in these matters was denied. Finally the Circuit Court in May of 1953 entered a final decree, once more decreeing the exclusive custody of the minor children to the wife and ordering the husband to pay as "alimony, for the support and maintenance of defendant and said two dependent children, the sum of $125.00 per month * * *."
The Circuit Court further ordered that the equity in the parking lot, "held in the joint names of complainant and defendant should be decreed to defendant as alimony." To carry out this portion of its decree the Court, after setting forth a detailed description of the property, decreed that all of the right, title and interest of the husband *496 in the parking lot, "be divested out of him and vested in the defendant Pamelia C. Brown, and to perfect defendant's title, the complainant will execute and deliver to defendant a proper deed conveying his interest in said property, the defendant assuming all indebtedness resting thereon."
No mention was made in this decree of any property settlement agreement between the parties.
The wife then perfected an appeal from this decree to the Court of Appeals, which affirmed the decree. She petitioned this Court for certiorari, but the writ was denied.
The husband filed no appeal. At no stage of the proceedings in the Circuit Court, or in the appellate courts, does it appear that he in any way challenged the validity of the decree of the Circuit Court or the power or jurisdiction of that Court to enter it.
After the remand of the case to the Circuit Court the wife sought to obtain from the husband a deed to the parking lot as provided in the decree of that Court. Apparently the husband refused to execute such a deed. The wife then filed a petition for contempt in the Circuit Court in which she set forth the provisions of the decree of that Court and alleged that the husband had refused to comply therewith. She prayed that an attachment issue for the body of the husband; and that he be required to execute the deed as provided in the Circuit Court's decree, and that on his failure to do so he be taken into custody until the order of the Court was complied with.
The attachment issued, requiring the husband to appear before the Circuit Court on June 5, 1954, to answer the petition for contempt. The husband presented a bond for his appearance as required by the fiat of the Circuit Court. However, he filed no answer or other pleading to the petition for contempt. On June 5, 1954, the husband, on the basis of the original bill in this cause, obtained a fiat from the Honorable Charles E. Dawson, Chancellor, holding the Chancery Court at Knoxville, and an injunction was accordingly issued restraining the wife from further prosecuting her petition for contempt in the Circuit Court.
In his original bill in this suit the husband alleges that the decree of the Circuit Court, in so far as it purported to divest him of his title to the said parking lot and ordered him to execute a deed to his wife of all of his interest therein, was void, because it was, in that regard, beyond the jurisdiction of the Circuit Court for the reason that the relief granted was alleged to be outside the scope of the pleadings and for the further reason that the statutes forbid the courts from awarding a wife alimony when the husband is granted a divorce.
To this bill the wife filed a demurrer on the grounds: (1) that there was no equity on the face of the bill; (2) that the Chancery Court had no jurisdiction to hear the cause, but rather that the exclusive power to inquire into the matters alleged in the bill was in the Circuit Court of Knox County; (3) that the decree of the Circuit Court did nothing more than carry out a property settlement agreement entered into by the parties; (4) that the husband at no time during the proceedings in the Circuit Court or in the appellate courts objected to the entry of the decree by the Circuit Court, and that he was accordingly barred from raising the question in this suit; (5) that the bill herein amounted to a collateral attack on the decree of the Circuit Court, and that such an attack could not be made by proceedings such as this; and (6) that the award of the property in question to the wife was for the support of the minor children of the parties and was therefore valid.
The Chancellor sustained the wife's demurrer and dismissed the husband's bill, without stating his reasons for so holding. The husband has seasonably perfected an appeal to this Court from the Chancellor's decree.
At the outset we are met with the question of whether or not a Chancery Court has the *497 power or jurisdiction to enjoin a party to an action in the Circuit Court from proceeding with a petition for contempt in that Court.
Patently the Chancery Court has no power to sit as a court of review to correct judgments of the Circuit Court which are merely erroneous. Nor does it have the power to interfere with the Circuit Court itself in the performance of its duties and functions. But the original bill in this case alleges that the judgment of the Circuit Court is void for want of jurisdiction, and it seeks to reach not the Circuit Court itself but the defendant herein who filed the petition for contempt in the Circuit Court.
Contempt proceedings, such as the proceeding in the Circuit Court in this case, to compel a party to abide by the decree of a court are civil and not criminal in their nature. Chappell v. Chappell, 37 Tenn. App. 242, 261 S.W. (2d) 824. Therefore a bill to enjoin a party from prosecuting such a petition does not amount to an interference with the Court which entered the original judgment, since it seeks to reach only the party involved, and not the Court itself.
Such contempt proceedings partake of the nature of a supplemental process, Chappell v. Chappell, 37 Tenn. App. 242, 261 S.W. (2d) 824. A bill to enjoin the prosecution of such a petition for contempt is thus closely analogous to a bill to enjoin an execution on a judgment of the Circuit Court. It is well settled in this state that the Chancery Courts have the jurisdiction to enjoin an execution from a Circuit, or other court of coordinate jurisdiction, where that execution is based upon a void judgment. Douglass v. Joyner, 60 Tenn. 32; Wooten v. Daniel, 84 Tenn. 156; Rucker v. Moore, 48 Tenn. 726.
In addition if the judgment of the Circuit Court which the defendant wife sought to enforce is void for want of jurisdiction, it can bind no one and a disobedience of it would not be a contempt. Howell v. Thompson, 130 Tenn. 311, 170 S.W. 253; Churchwell v. Callens, 36 Tenn. App. 119, 252 S.W. (2d) 131; Note, 12 A.L.R. (2d) 1059.
The Chancery Court therefore had the jurisdiction to enjoin the defendant wife from proceeding with her petition for contempt in the Circuit Court, if the judgment of the Circuit Court is void for want of jurisdiction as the complainant alleges.
A bill seeking to enjoin a judgment on the ground that it is on its face void for want of jurisdiction is a direct and not a collateral attack on that judgment. Tennessee Marble and Brick Company v. Young, 179 Tenn. 116, 163 S.W. (2d) 71; Myers v. Wolf, 162 Tenn. 42, 34 S.W. (2d) 201; Jordan v. Jordan, 145 Tenn. 378, 239 S.W. 423. The alleged want of jurisdiction of the Circuit Court in this case appears on the face of the record. If the judgment of the Circuit Court was beyond its jurisdiction as alleged, it is thus not merely voidable and thus subject only to direct attack; it is void and subject to collateral attack as well. Hamm v. Hamm, 30 Tenn. App. 122, 204 S.W. (2d) 113, 175 A.L.R. 523.
The first ground on which the complainant husband attacks the validity of the judgment of the Circuit Court in this case is that the judgment in so far as it purported to award the property in question to the defendant wife was beyond the scope of the pleadings. It is true, as the complainant argues, that a judgment or a decree which is beyond the fair scope of the pleadings is void. Lieberman, Loveman & Cohn v. Knight, 153 Tenn. 268, 283 S.W. 450, 452; Terrell v. Terrell, 192 Tenn. 317, 241 S.W. (2d) 411. In determining whether or not a judgment is beyond the scope of the pleadings, those pleadings must be given a liberal construction with all reasonable intendments taken in favor of the judgment. Myers v. Wolf, 162 Tenn. 42, 34 S.W. (2d) 201. The policy underlying the rule seems to be that since the purpose of pleadings is to give notice to all concerned regarding what may be adjudicated, a judgment beyond the scope of the pleadings is beyond the notice given the parties and thus should not be enforced.
But the complainant in this case certainly had notice that the Circuit Court might enter a judgment awarding this parking lot *498 property to his wife. In fact he set up in his bill for divorce the existence of a property settlement agreement under which the wife was to receive this property and he asked that the Court approve that agreement. It is true that the wife did not admit the existence of such an agreement and made no formal prayers for alimony. However, she did expressly state that the husband was capable of supporting her and their children and should be required to do so.
The Circuit Court in its decree awarding the parking lot property to the wife did not mention any property settlement agreement, and apparently was not simply incorporating such an agreement into its decree. But such settlement agreements are not binding on the courts in awarding alimony, rather they are merely evidential in value, Osborne v. Osborne, 29 Tenn. App. 463, 197 S.W. (2d) 234; Perry v. Perry, 183 Tenn. 362, 192 S.W. (2d) 830. If the Court has jurisdiction to award alimony it may modify such agreements and award alimony as the statute directs, "according to the nature of the case and the circumstances of the parties". Tenn. Code Section 8446; Doty v. Doty, 37 Tenn. App. 120, 260 S.W. (2d) 411.
The property was described with sufficient particularity in the pleadings to be readily identifiable even though a detailed description by metes and bounds was not given. Nothing more is required.
The award of the parking lot property to the defendant wife by the Circuit Court was thus fairly within the scope of the pleadings, if the Court had the jurisdiction to make such an award.
The complainant husband, however, raises a far more serious question in his contention that the judgment awarding his wife the parking lot is void for want of jurisdiction because the statutes of this state forbid the courts, from awarding a wife alimony when her husband has been granted a divorce.
Section 8446 of the Code provides in part, "Whether the marriage be dissolved absolutely, or a perpetual or temporary separation be decreed, the court may make an order and decree for the suitable support and maintenance of the complainant and her children, or any of them, by the husband, or out of his property * * *." This provision does not empower the courts to award alimony to a defendant wife where her husband obtains an absolute divorce.
It is somewhat significant to note that this code section was amended by Chapter 90 of the Public Acts of 1953 so as to allow the courts to divest the wife of her interest in property held jointly with the husband in certain cases where the husband is granted a divorce.
More important, however, Section 8449 of the Code provides,
"If the bonds of matrimony be dissolved at the suit of the husband, the defendant shall not be entitled to dower in the complainant's real estate, nor to any part of his personal estate, in case of his intestacy, nor to alimony."
The wife in such cases thus has no right to alimony and the husband is under no corresponding duty to provide it. Therefore, under the statutes of this state the courts, on granting a husband a divorce, have no power to award the wife alimony.
The policy underlying this provision is apparent. Divorce in this state is not a matter to be worked out for the mutual accommodation of the parties in whatever manner they may desire, or in whatever manner the Court may deem to be fair and just under the circumstances. It is conceived as a remedy for the innocent against the guilty. Brewies v. Brewies, 27 Tenn. App. 68, 178 S.W. (2d) 84. The unfortunate person against whom a divorce is granted may suffer not only the severance of his or her marital relations, but also the deprivation of those rights, such as alimony, which arise out of the marital relation. These provisions thus are intended to further the policy of rewarding the innocent and punishing the guilty. Allen v. McCullough, 49 Tenn. 174, 188. The statutes may in some *499 circumstances seem unwise, and indeed even harsh, but it is not for the courts to decide the policy of the state in this regard.
The Circuit Court in this case had the general jurisdiction of the subject matter of divorce and alimony; but it could make no valid adjudication with reference thereto which was not within the powers granted to it by law. Jordan v. Jordan, 145 Tenn. 378, 239 S.W. 423. A distinction must be made in this regard between the mere erroneous exercise of a power granted, and the usurpation of a power where none exists. As this Court said in Chickamauga Trust Company v. Lonas, 139 Tenn. 228, 235, 201 S.W. 777, 778, L.R.A. 1918D, 451, quoting from 15 R.C.L. 853:
"`One form of usurpation of power on the part of a court in rendering a judgment is where it attempts to disregard limitations prescribed by law restricting its jurisdiction. * * * Where a court is authorized by statute to entertain jurisdiction in a particular case only, and it undertakes to exercise the power and jurisdiction conferred in a case to which the statute has no application, in so doing it will not acquire jurisdiction, and its judgment will be a nullity and subject to collateral attack.'"
The Circuit Court in this case exceeded the powers conferred upon it by law. Its judgment awarding the wife alimony after granting the husband a divorce is not only beyond the powers conferred upon it by statute, but is also directly contrary to the mandate of the applicable statute. The judgment of the Circuit Court in so far as it purported to award the defendant wife alimony is therefore void. Lynch v. State, ex rel. Killebrew, 179 Tenn. 339, 166 S.W. (2d) 397; New York Casualty Co. v. Lawson, 160 Tenn. 329, 24 S.W. (2d) 881; Richardson v. Mitchell, 34 Tenn. App. 318, 237 S.W. (2d) 577; Note, 12 A.L.R. (2d) 1059, 1066.
A valid property settlement agreement, which is based upon a sufficient consideration and which does not give evidence of collusion, can be enforced by the courts, as any other valid contract, even if the husband is granted a divorce from his wife. But the right of the wife and the duty of the husband in such cases arises out of the contract and not out of the marital relation itself, and thus technically is not alimony. Pewitt v. Pewitt, 192 Tenn. 227, 240 S.W. (2d) 521. The defendant wife alleges that the decree in this case simply incorporated such an agreement, but the record does not support her allegation. The Circuit Court purported to recognize in her a right to alimony. In so doing it exceeded its powers.
But the defendant wife contends that the judgment of the Circuit Court is valid for the reason that the "alimony" awarded her included support for the two minor children placed in her custody. The judgment of the Circuit Court is not clear in this regard. The declaratory part of the judgment provided first, "that the complainant pay from his earnings, as alimony, for the support and maintenance of defendant and said two dependant children, the sum of $125.00 per month * * *." It then provided, "that the equity in the property known as the parking lot held in the joint names of complainant and defendant should be decreed to defendant as alimony." The ordering or mandatory part of the judgment followed the language quoted above as to the monthly payments, but did not specify the basis on which the parking lot was awarded the defendant wife. At no place in the decree was it stated that the parking lot was being awarded to her for the support of the children.
An allowance which the husband may be required to pay for the maintenance of the children is distinct from an allowance of alimony to the wife. 17 Am. Jur. 531, Divorce and Separation, Sec. 695. They are based upon altogether different principles. 17 Am. Jur. 462, Divorce and Separation, Sec. 586. A husband may be required to support children placed in the custody of his wife, even though he has *500 been granted a divorce. Stargel v. Stargel, 21 Tenn. App. 193, 107 S.W. (2d) 520. But the husband cannot be required to pay his wife alimony after he has been granted a divorce. Tennessee Code Sec. 8449.
Since alimony therefore could not ordinarily be construed as including payments for child support, the portion of the judgment awarding the parking lot to the defendant wife as "alimony" should not be construed as being for the support of the minor children. If the Circuit Court had intended for the term to have this loose construction with reference to the parking lot, it would have expressly so provided as it did in the case of the monthly payments.
In addition if the Circuit Court had intended that the parking lot should be held and used for the minor children, it could have decreed that title to the property should vest in the children as the Court did in the case of Cline v. Cline, 186 Tenn. 509, 212 S.W. (2d) 361. Instead the Court purported to vest the title to this property in the defendant wife, and at no place imposed any restrictions on her use of the property or of its profits or proceeds, or in any way indicated that it should be used for the support of the minor children.
In any event it could not be said that the Circuit Court intended the property to be divested out of the husband solely for the support of the minor children.
In view of all these circumstances it must be held that the judgment should be construed as purporting to vest title to the parking lot in the defendant wife as alimony as that term is used in Sec. 8449 of the Code. Accordingly the judgment is in that regard void.
Counsel for the defendant wife argue quite forcibly, however, that the complainant husband should be barred from asserting the invalidity of the judgment of the Circuit Court by reason of his failure to challenge that judgment and by reason of the fact that he induced the Court to enter such a decree by asking it to approve the alleged property settlement agreement.
In support of this contention counsel for the defendant wife rely primarily, if not altogether, on the case of Barber v. Barber, 28 Tenn. App. 559, 192 S.W. (2d) 79. In that case the Circuit Court of Hamilton County concluded that both parties were guilty of cruel and inhuman treatment and entered a divorce granting each an absolute divorce from the other. By that decree certain personal property was granted the wife as alimony, and the final disposition of the real estate was reserved by the Court. The Court later held that the wife was entitled to the real estate as alimony and so decreed. The husband then filed a motion for a new trial asserting for the first time that since he was also granted a divorce no alimony should be awarded the wife. The motion was denied and the husband appealed to the Court of Appeals. That Court affirmed the decree of the Circuit Court and certiorari was denied by this Court.
It should be observed that the denial of certiorari by this Court did not indicate that this Court approved all the reasons advanced to support the decision of the Court of Appeals, since this Court on application for the writ of certiorari is primarily concerned with the result reached. Bryan v. Aetna Life Insurance Co., 174 Tenn. 602, 130 S.W. (2d) 85.
The decision in the Barber case is readily distinguishable from the instant case, since in that case the wife had actually been granted a divorce; and as the Court of Appeals remarked in its opinion, in such circumstances it is doubtful whether Code Section 8449 has any application. The Court of Appeals based its decision, however, primarily on the ground that Code Section 8449 was for the benefit of the husband and could be waived by him if he did not seasonably assert it. The Court of Appeals then pointed out that Mrs. Barber had been prejudiced by her husband's failure to raise the question at the time of the original decree, since if it had been raised at that time the trial court might have reconsidered its *501 holding that the husband was entitled to a divorce, or, if not, the wife could have laid the grounds for obtaining a review of this finding. Whereas, as matters then stood she was not in a position to obtain such a review. The Court then held that, "as a matter of simple justice and upon principles of estoppel the contention that alimony should not be allowed because the husband was also granted a divorce comes too late and may not be sustained." [28 Tenn. App. 559, 192 S.W. (2d) 80.]
In any event the wife in this case was not similarly prejudiced by the failure of the husband to assert the invalidity of the award of alimony to her. Mrs. Brown did not seek a divorce and was not granted one. She had an opportunity to obtain a review of the decree awarding her husband a divorce and took full advantage of it.
The Court of Appeals did not discuss the question of the validity of the judgment from the standpoint of want of jurisdiction of the subject matter as must be done here.
Courts derive their powers to adjudicate not from the parties, but from the law. A Court acting without jurisdiction of the subject matter, or beyond the jurisdiction conferred upon it, is therefore acting without authority of law and its judgments and decrees in so acting are void and bind no one. Sheffy v. Mitchell, 142 Tenn. 48, 215 S.W. 403. It necessarily follows therefore that jurisdiction over the subject matter cannot be conferred or enlarged by waiver, consent or estoppel. James v. Kennedy, 174 Tenn. 591, 129 S.W. (2d) 215; Cory v. Olmstead, 154 Tenn. 513, 290 S.W. 31; Jordan v. Jordan, 145 Tenn. 378, 239 S.W. 423; Petition of Southern Lumber & Mfg. Co., 141 Tenn. 325, 210 S.W. 639.
The law with reference to such judgments is well stated in 1 Freeman, Judgments, 643, Sec. 322,
"A judgment void upon its face and requiring only an inspection of the record to demonstrate its invalidity is a mere nullity, in legal effect no judgment at all, conferring no right and affording no justification. Nothing can be acquired or lost by it; it neither bestows nor extinguishes any right, and may be successfully assailed whenever it is offered as the foundation for the assertion of any claim or title. It neither binds nor bars anyone. All acts performed under it and all claims flowing out of it are void. The parties attempting to enforce it may be responsible as trespassers. The purchaser at a sale by virtue of its authority finds himself without title and without redress. No action upon the part of the plaintiff, no inaction upon the part of the defendant, no resulting equity in the hands of third person, no power residing in any legislative or other department of the government, can invest it with any of the elements of power or of vitality. It does not terminate or discontinue the action in which it is entered, nor merge the cause of action; and it therefore cannot prevent the plaintiff from proceeding to obtain a valid judgment upon the same cause, either in the action in which the void judgment was entered or in some other action. The fact that the void judgment has been affirmed on review in an appellate court or an order or judgment renewing or reviving it entered adds nothing to its validity. Such a judgment has been characterized as a dead limb upon the judicial tree, which may be chopped off at any time, capable of bearing no fruit to plaintiff but constituting a constant menace to defendant."
The same rules are equally applicable when a judgment has been issued in excess of a Court's jurisdiction. "Irrespective of the character or dignity of the tribunal pronouncing the decision, whether of inferior, limited or superior general jurisdiction, it must confine its determination within the authority it possesses under the law and the case. If the Court is exercising special statutory powers the measure of its authority is the statute itself, and a judgment in excess thereof is null and void and subject to collateral attack. * * *" 1 Freeman, Judgments, 735, Sec. 354.
*502 The complainant husband therefore cannot be said to have waived his right to object to the validity of the judgment of the Circuit Court; nor can he be said to be estopped from so challenging the validity of that judgment by reason of his failure to question the jurisdiction of the Circuit Court, either before or after it entered its judgment.
Nor can the fact that the judgment was affirmed by the appellate courts on the appeal of the defendant wife be said to bar the complainant from now questioning its validity. New York Casualty Co. v. Lawson, 160 Tenn. 329, 24 S.W. (2d) 881.
Mere delay in and of itself is not sufficient to work an estoppel. The party who claims the benefit of an equitable estoppel must show some prejudice resulting from the acts of the person against whom the estoppel is urged. Gibson's Suits in Chancery, Section 67. But the defendant wife has not shown, either in her pleadings or in the argument of her counsel in what way, if any, she was prejudiced by the failure of the complainant husband to challenge the jurisdiction of the Circuit Court either before or after it entered its judgment.
Under the doctrine of judicial estoppel as followed in a long line of cases in this state no showing of prejudice is necessary. But in order for that doctrine to be applicable the party against whom the estoppel is urged must have made a statement of fact under oath which he later seeks to contradict. Sartain v. Dixie Coal and Iron Company, 150 Tenn. 633, 266 S.W. 313. The complainant husband here does not seek to deny any statement of fact made in the original divorce suit. He does not deny the existence of a property settlement agreement as alleged in his divorce bill. He bases his suit on the theory that the Circuit Court did not adopt such an agreement, but purported to award the defendant wife the property involved as alimony.
Nor can the complainant husband be said to be guilty of laches in failing to raise this question of jurisdiction at some earlier time, for laches is not based upon mere delay, but upon delay of a character which materially and prejudicially affects rights of the party seeking to invoke the doctrine. State ex rel. Wilson v. Mays, 190 Tenn. 156, 228 S.W. (2d) 97. The defendant wife here has not shown any such prejudice.
The principles of estoppel and kindred doctrines of equity play an important role in the resolution of the numerous problems arising under our divorce laws. Loftis v. Dearing, 184 Tenn. 474, 201 S.W. (2d) 655; Hamm v. Hamm, 30 Tenn. App. 122, 204 S.W. (2d) 113, 175 A.L.R. 523. It might well be said here that it is undesirable, if not unfair, to allow the complainant husband to challenge the jurisdiction of the Circuit Court which he himself invoked. But hold that he is barred from the relief which he seeks would be contrary not only to the policy of the state as declared by the Legislature, but also to the well settled rules governing the effect of judgments void for want of jurisdiction of the subject matter, and even contrary to the principles of estoppel themselves. These considerations outweigh any resulting unfairness to the defendant wife.
In so holding we have had in mind the limitations upon the functions of courts. "`Their general duty is not to change, but to work out, the principles already sanctioned by the practice of the past. No one supposes that a judge is at liberty to decide with sole reference even to his strongest convictions of policy and right. His duty in general is to develop the principles which he finds, with such consistency as he may be able to attain.'" Stack v. New York, etc., R. Co., 177 Mass. 155, 158, 58 N.E. 686, 687, 52 L.R.A. 328, quoted in Hamm v. Hamm, 30 Tenn. App. 122, 204 S.W. (2d) 113, 125.
Let the decree of the Chancellor be reversed and the cause be remanded to the Chancery Court of Knox County for further proceedings in accordance with this opinion.
*503 The costs are adjudged against the complainant Clyde O. Brown.
On Petition to Rehear
The wife Pamelia C. Brown, the original defendant in this suit has filed a very forceful petition to rehear on the grounds:
(1) That the Circuit Court of Knox County had the general jurisdiction to enter the decree awarding the property in issue to the wife as alimony, and in so far as its decree was contrary to the statutes it was merely erroneous and not void; and
(2) That the Chancery Court had no jurisdiction "to change the decree of the Circuit Court."
As was indicated in the original opinion herein, in order for a Court to have the jurisdiction to enter a decree in a particular case it must not only have the general jurisdiction over the subject matter involved and over the parties, it must also have the power to grant the particular relief decreed. Jordan v. Jordan, 145 Tenn. 378, 239 S.W. 423; Chickamauga Trust Company v. Lonas, 139 Tenn. 228, 201 S.W. 777. Where there is a limitation upon the general powers of a Court, a decree in contravention to or in excess of that limitation is to that extent void. 21 C.J.S., Courts, Sec. 25, page 37. Section 8449 of the Code imposes such a limitation on the general powers of the Courts of this state with reference to awards of alimony. A decree purporting to award alimony in contravention to that statute is not a mere erroneous exercise of a power conferred, and thus subject only to the prescribed procedures for review and appeal; it is the assumption of a power to act where none exists, and it is to that extent void and subject to attack whenever it is brought in issue.
Section 8446 of the Code provides that when a complainant wife has been awarded alimony, the order or decree remains in the Court's control, and that "on application of either party, the court may decree an increase or decrease of such allowance on cause being shown." Section 8454 provides with reference to decrees for payments for child support that such decrees remain within the control of the Court and are subject to such changes or modifications as the exigencies of the case may require.
These sections were enacted primarily to remove the difficulty which had been encountered with respect to future installments of alimony in cases where a divorce a vinculo had been granted. Hicks v. Hicks, 26 Tenn. App. 641, 176 S.W. (2d) 371. Under the prior law such a decree was final and passed beyond the Court's control after the term at which it was entered and could not thereafter be modified. Going v. Going, 144 Tenn. 303, 232 S.W. 443. The effect of these sections is to retain decrees for alimony and support within the control of the Court entering them to enable it to make such modifications of them as changed conditions and circumstances may require. Hicks v. Hicks, 26 Tenn. App. 641, 176 S.W. (2d) 371; Davenport v. Davenport, 178 Tenn. 517, 160 S.W. (2d) 406.
Thus in this case the Circuit Court of Knox County still retains its jurisdiction to modify or change the provisions of its decree with reference to payments for child support.
But the Circuit Court of Knox County had no jurisdiction to award the defendant wife alimony in this case. The purpose of this suit is thus not merely to increase or decrease the amount of alimony awarded on the basis of changes in the circumstances of the parties since the rendition of the Circuit Court's decree. Instead it is an attack on the validity of that decree at the time of its entry. It therefore does not fall within the scope of that portion of Section 8446 retaining decrees for alimony within the exclusive control of the Court rendering them.
The provisions of Sections 8446 and 8454 are not so broad as to require that all litigation between parties to a *504 divorce suit must be brought in the Court originally entering the decree of divorce. Coleman v. Coleman, 190 Tenn. 286, 229 S.W. (2d) 341.
The Chancery Court of Knox County had the jurisdiction to enjoin the enforcement of the decree for alimony rendered by the Circuit Court, where that decree was void at the time of its entry. Scurlock v. Scurlock, 92 Tenn. 629, 22 S.W. 858. The decree for alimony in this regard is no different from any other decree or judgment.
The petition to rehear is denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2087054/ | 620 N.E.2d 1073 (1993)
156 Ill. 2d 384
189 Ill. Dec. 756
CRUM AND FORSTER MANAGERS CORPORATION et al., Appellants,
v.
RESOLUTION TRUST CORPORATION, as Receiver for Mid-State Savings and Loan Association, et al., Appellees.
No. 74673.
Supreme Court of Illinois.
September 23, 1993.
*1075 John F. Bramfeld, Phebus, Tummelson, Bryan and Knox, Urbana, and Edward F.
*1076 Ruberry, Jeffery A. Goldwater and James A. Lupo, Jr., Bollinger, Ruberry & Garvey, Chicago, for appellants.
Ann S. Duross, Colleen B. Bombardier and Maria Beatrice Valdez, Washington, DC, William A. Spence and Brian P. Norton, Chicago, for appellee Resolution Trust Corp.
Richard T. West, Meyer, Capel, Hirschfeld, Muncy, Jahn & Aldeen, P.C., Champaign, for appellees Joseph W. Corley and JoAnn Corley.
Charles L. Palmer and John B. Alsterda, Flynn, Palmer, Tague & Lietz, Champaign, for appellee Donald L. Whitsitt.
Justice BILANDIC delivered the opinion of the court:
This appeal involves an insurance coverage dispute between the plaintiff-insurers and the defendant-insureds. The plaintiff-insurers, Crum and Forster Managers Corporation (Crum & Forster), Illinois Insurance Exchange, Inc., and LWB Syndicate, Inc. (collectively insurers), instituted this declaratory judgment action against the defendant-insureds, Mid-State Savings and Loan Realty, Inc., Mid-State Appraising, Inc., d/b/a Mid-State Realty, Inc. (Mid-State), Joseph and Joann Corley (the Corleys), Donald Whitsitt (Whitsitt) (collectively insureds), and Dependable Realty, Inc. (Dependable), seeking a determination of their duty to defend and indemnify the insureds in an underlying action (Dependable Realty v. Mid-State Realty et al. (Cir. Ct. Champaign Co.), No. 86-L-864) brought against the insureds by Dependable (Dependable action). While the Dependable action was pending, Mid-State was placed in receivership and the Resolution Trust Corporation (RTC) succeeded to Mid-State's rights under the insurance policies at issue and is, therefore, also a defendant in the instant declaratory judgment action.
At the trial level, the plaintiff-insurers moved for summary judgment and for judgment on the pleadings with respect to both their duties to defend and indemnify the insureds. Thereafter, the defendant-insureds filed cross-motions for summary judgment on the issue of the insurers' duty to defend them in the Dependable action but contended that any determination concerning the duty to indemnify would be premature because liability in the Dependable action had not yet been resolved.
The trial court denied the insurers' motions for judgment and granted the insureds' cross-motions for summary judgment, finding that the insurers had a duty to defend the insureds because the claims alleged in the Dependable complaint were at least potentially within the insurance policies' coverage. The trial court also found that any determination concerning the duty to indemnify issue would be premature until liability in the Dependable action had been resolved.
On appeal, a divided appellate court affirmed the trial court's grant of summary judgment in favor of the insureds, finding that the insurers had a duty to defend the insureds in the Dependable action. (236 Ill.App.3d 718, 176 Ill. Dec. 925, 602 N.E.2d 871.) The appellate court also found that any determination concerning the issue of indemnification was premature until the underlying Dependable litigation was resolved. We granted the plaintiff-insurers' petition for leave to appeal (134 Ill.2d R. 315).
In this appeal, the issues which we are called upon to determine are whether: (1) the courts below properly granted summary judgment in favor of the insureds on the duty to defend issue; (2) the insurers are prevented from asserting the defense of noncoverage under the policies; and (3) a declaration concerning the issue of indemnification would be premature at this point in time.
The facts of this case are as follows. In March 1986, the insurers issued "Real Estate Agents and Brokers Professional Liability Insurance Policies" to the insureds for the period of February 1986 through February 1987. In June 1986, Dependable filed an action against the insureds, which was later amended. Dependable's second-amended complaint alleged, inter alia, that Joseph Corley was employed by Dependable *1077 as its real estate sales manager from December 1982 through December 1984 when he left Dependable and joined Mid-State as a real estate agent. The Dependable complaint also alleged that Joann Corley was employed by Dependable as a real estate agent from February 1983 until late 1984 or early 1985 when she too left Dependable to join Mid-State as a real estate agent.
Dependable's complaint contained numerous counts, including: (1) interference with prospective economic advantage; (2) common law tortious interference with contractual relationships; (3) breach of and inducing the breach of a fiduciary duty by an officer and/or director; (4) common law unfair competition; (5) unfair competition and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Ill.Rev.Stat.1991, ch. 121½, pars. 261 through 272); (6) common law fraud; (7) theft of trade secrets; and (8) various conspiracy counts related to the foregoing counts.
The Dependable complaint essentially alleged that, while employed by Dependable, the Corleys, especially Joseph Corley, formed Mid-State as a competitor of Dependable, induced others on Dependable's sales staff to leave Dependable and join Mid-State's sales staff, refrained from and induced others to refrain from listing properties with Dependable and instead list them with Mid-State, learned and then stole Dependable's confidential sales techniques for the benefit of Mid-State, stole Dependable's clients for Mid-State's benefit, and then left Dependable to join Mid-State.
When Dependable filed the underlying complaint, the insureds retained counsel who in turn tendered the defense of the Dependable action to the plaintiff-insurers. Initially, the insurers accepted the tender of defense without reservation. Six months later, however, the insurers sent the insureds a reservation of rights letter indicating that they accepted the tender of defense but were not waiving any rights or defenses under the policy. The insureds then filed a declaratory judgment action (Mid-State action), seeking a declaration that the reservation of rights was untimely and that the insurers were, therefore, estopped from reserving any rights or policy defenses. The trial court granted summary judgment in favor of the insureds but the appellate court reversed, finding that the insurers' delay in reserving their rights did not prejudice the insureds. Therefore, the appellate court held that the insurers were not estopped from asserting policy defenses. (Mid-State Savings & Loan Association v. Illinois Insurance Exchange, Inc. (1988), 175 Ill.App.3d 265, 271-72, 124 Ill. Dec. 715, 529 N.E.2d 696.) Subsequently, the insurers filed the instant declaratory judgment action, seeking a declaration that they have no duty to defend or indemnify the insureds in the underlying Dependable action.
OPINION
Initially, we note that this appeal was taken from the trial court's orders granting summary judgment in favor of the insureds on the duty to defend issue and denying the insurers' motion for summary judgment. In an appeal from the grant of summary judgment, we conduct a de novo review. (Outboard Marine Corp. v. Liberty Mutual Insurance Co. (1992), 154 Ill. 2d 90, 102, 180 Ill. Dec. 691, 607 N.E.2d 1204.) Although summary judgment is a drastic means of disposing of litigation, it is an appropriate measure in cases where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Outboard Marine Corp., 154 Ill.2d at 102, 180 Ill. Dec. 691, 607 N.E.2d 1204.
POLICY CONSTRUCTION
The construction of an insurance policy and a determination of the rights and obligations thereunder are questions of law for the court which are appropriate subjects for disposition by way of summary judgment. (See Outboard Marine Corp., 154 Ill.2d at 108, 180 Ill. Dec. 691, 607 N.E.2d 1204; Zurich Insurance Co. v. Raymark Industries, Inc. (1987), 118 Ill. 2d 23, 58, 112 Ill. Dec. 684, 514 N.E.2d 150.) *1078 In construing an insurance policy, the primary function of the court is to ascertain and enforce the intentions of the parties as expressed in the agreement. (Outboard Marine Corp., 154 Ill.2d at 108, 180 Ill. Dec. 691, 607 N.E.2d 1204; de los Reyes v. Travelers Insurance Cos. (1990), 135 Ill. 2d 353, 358, 142 Ill. Dec. 787, 553 N.E.2d 301.) To ascertain the intent of the parties and the meaning of the words used in the insurance policy, the court must construe the policy as a whole, taking into account the type of insurance for which the parties have contracted, the risks undertaken and purchased, the subject matter that is insured and the purposes of the entire contract. (Outboard Marine Corp., 154 Ill.2d at 108, 115, 180 Ill. Dec. 691, 607 N.E.2d 1204; see Dora Township v. Indiana Insurance Co. (1980), 78 Ill. 2d 376, 378, 36 Ill. Dec. 341, 400 N.E.2d 921.) If the words in the policy are plain and unambiguous, the court will afford them their plain, ordinary meaning and will apply them as written. (United States Fire Insurance Co. v. Schnackenberg (1981), 88 Ill. 2d 1, 57 Ill. Dec. 840, 429 N.E.2d 1203.) The court will not search for ambiguity where there is none. Schnackenberg, 88 Ill.2d at 5, 57 Ill. Dec. 840, 429 N.E.2d 1203.
The professional liability policies before us provide in relevant part:
"(1) Professional Liability and Claims Made Clause: To pay on behalf of the Insured all sums in excess of the deductible amount stated in the Declarations which the Insured shall become legally responsible to pay in damages as a result of CLAIMS FIRST MADE AGAINST THE INSURED DURING THE POLICY PERIOD:
(a) by reason of any act, error or omission in professional services rendered or that should have been rendered by the Insured or by any person for whose acts, errors or omissions the Insured is legally responsible, and arising out of the conduct of the Insured's profession as a real estate agent or real estate broker including the following related activities for real estate: consultation, appraisal, property management, property management consultation or notary public, * * *." (Emphasis added.)
In construing the scope of coverage afforded by the policies before us, we initially consider the type of policy for which the parties have contracted. The policies at issue in this case are professional liability policies. This type of policy is similar to medical and legal malpractice insurance policies. In the nonmedical, nonlegal professions, this type of policy is commonly referred to as an error-and-omissions policy. (See 7A J. Appleman & J. Appleman, Insurance Law Practice § 4504.01, at 309 (rev. 1979).) This type of policy provides:
"a specialized and limited type of coverage as compared to comprehensive insurance; it is designed to insure members of a particular professional group from the liability arising out of a special risk such as negligence, omissions, mistakes and errors inherent in the practice of the profession." (Emphasis added.) (7A J. Appleman & J. Appleman, Insurance Law & Practice § 4504.01, at 310 (rev. 1979).)
Another authority on insurance law has described this type of policy similarly:
"Errors and omissions policies form the equivalent to malpractice insurance for occupations other than those in the legal and medical fields. Where such a policy stated it provided coverage for the `negligent acts, errors or omissions' of the insured, coverage would exist for the insured's negligent performance of its contract. But coverage is generally extended to a particular class of risks and is not a substitute for liability coverage." (Emphasis added.) 11 Couch on Insurance 2d § 44:396, at 573-74 (rev. ed. 1982).
Under the policies at issue, the risks undertaken by the insurers are those which are inherent in the practice of the real estate profession. Although there may be a myriad of risks to which one performing services in a real estate professional capacity may be exposed, covered risks are only those which inherently arise out of the rendering of the real estate services.
*1079 The policies at issue are claims-made policies. According to the plain terms of the policies, the claims must be made "by reason of any act, error or omission in [real estate] professional services rendered." (Emphasis added.) The phrase "by reason of" has been defined as "[b]ecause of," "[b]y means, acts, or instrumentality of." (Black's Law Dictionary 201 (6th ed. 1990).) We construe this phrase to mean that the claims made against the insureds by the underlying plaintiff must be made because of an act, error, or omission in the insured's performance or rendering of real estate services. There must be a direct, causal relationship between the insured's performance of real estate services and the underlying claims made against the insured in order for the claims to be covered under these policies at issue.
DUTY TO DEFEND
It is now well-established law that, in determining whether an insurer has a duty to defend its insured, the court must look to the allegations in the underlying complaint and compare these allegations to the relevant coverage provisions of the insurance policy. (Outboard Marine Corp., 154 Ill.2d at 108, 180 Ill. Dec. 691, 607 N.E.2d 1204.) If the facts alleged in the underlying complaint fall within, or potentially within, the policy's coverage provisions, then the insurer has a duty to defend the insured in the underlying action. (Outboard Marine Corp., 154 Ill.2d at 108, 180 Ill. Dec. 691, 607 N.E.2d 1204.) The insurer's duty to defend is much broader than its duty to indemnify its insured. Outboard Marine Corp., 154 Ill.2d at 125, 180 Ill. Dec. 691, 607 N.E.2d 1204.
Turning to the allegations in the Dependable complaint, it is clear from the face of the complaint that Dependable's claims made against the insureds do not arise or result because of the insureds' performance of real estate services. Essentially, Dependable's complaint alleges that the insureds committed intentional business torts and engaged in unfair competitive practices. The risk of conducting one's business in an unfair and tortious manner is certainly not one inherent in the practice of the real estate profession. Although the complaint contains allegations which refer to real estate matters such as listings and commissions, these are allegations which go to the injury or damage done to Dependable and which resulted from the insureds' allegedly tortious conduct. These allegations do not form the genesis from which the claims made by Dependable first arose. Dependable's claims are not made against the insureds because the insureds somehow incorrectly performed real estate services such as the listing of properties. Dependable's claims are made against the insureds and have arisen because of the insureds allegedly tortious conduct and unfair business practices which are ancillary to the performance of real estate services. In a layperson's terms, the claims are made against the insureds because they allegedly stole Dependable's secret sales techniques, listings, employees, and clients prior to doing anything with them in a real estate professional capacity.
In our judgment, to construe these error-and-omissions policies to cover the claims made in Dependable's complaint, as the insureds urge us to do, would expand the coverage beyond what was contracted for by the parties. The insureds' interpretation of these policies could not have been reasonably contemplated by the parties when they entered into these insurance contracts. In comparing the coverage intended by the parties with the facts alleged in the Dependable complaint, we find that such facts do not fall potentially within the coverage afforded by the policies before us. Therefore, the insurers have no duty to defend the insureds in the Dependable action.
The insureds, however, contend that the insurers should be barred from asserting that the policy does not provide coverage for the claims made by Dependable. They argue that the insurers either have waived or abandoned or should be barred from asserting their right to claim noncoverage as a policy defense under the principles of res judicata.
*1080 In the previous declaratory judgment action filed by Mid-State, the insureds sought a declaration that the insurers' reservation of rights letter was untimely and that the insurers were, therefore, estopped from asserting any policy defenses. In response, the insurers filed an answer which contained an affirmative defense of noncoverage. In its decision, the appellate court stated:
"On appeal only one issue is raised. That issue is whether [the insurers] are estopped from denying coverage by virtue of retaining attorneys who entered their appearance on behalf of plaintiffs in the underlying common law cause of action and who assumed the defense of that case.
* * * * * *
In short, there is no factual basis from which the trial court could find prejudice. Mere delay in raising the issue of noncoverage [in the reservation of rights letter] alone is not sufficient to establish prejudice by clear, concise, and unequivocal evidence. [Citation.] * * * Therefore * * *, we hereby reverse the order of the trial court * * * and hereby enter judgment in favor of defendant insurance companies, to wit: Defendant insurance companies are not estopped from interposing any policy coverage defenses with regard to the underlying action between Dependable Realty and plaintiffs herein." Mid-State Savings & Loan Association v. Illinois Insurance Exchange, Inc. (1988), 175 Ill. App. 3d 265, 270-72, 124 Ill. Dec. 715, 529 N.E.2d 696.
Waiver arises from an affirmative act, is consensual, and consists of the intentional relinquishment of a known right. (Western Casualty & Surety Co. v. Brochu (1985), 105 Ill. 2d 486, 499, 86 Ill. Dec. 493, 475 N.E.2d 872.) A waiver may be express or implied, arising from acts, words, conduct, or knowledge of the insurer. (Brochu, 105 Ill.2d at 499, 86 Ill. Dec. 493, 475 N.E.2d 872.) In the case at bar, the insureds argue that because the insurers raised noncoverage as an affirmative defense in the Mid-State action and later failed to pursue it in that action, they have waived or abandoned their right to assert noncoverage in this action presently before us. This argument is meritless. Initially, the Mid-State action was disposed of by the trial court's grant of summary judgment. All that the insurers could do following this resolution was to file an appeal, which they did. Thereafter, the appellate court reversed and entered summary judgment in favor of the insurers. We fail to see when and in what court the insurers could have litigated their noncoverage defense in the previous action. Under these facts, there certainly was no "intentional relinquishment of a known right" and we reject the insureds' argument on this issue.
The insureds also contend that the insurers should be barred from asserting noncoverage in this action under res judicata principles. Under res judicata, a final judgment rendered on the merits by a court of competent jurisdiction is conclusive to the rights of the parties and bars subsequent actions involving the same claims and demands by the same parties or their privies. (People ex rel. Burris v. Progressive Land Developers, Inc. (1992), 151 Ill. 2d 285, 294, 176 Ill. Dec. 874, 602 N.E.2d 820.) The "essential elements of res judicata are: (1) a final judgment on the merits rendered by a court of competent jurisdiction; (2) an identity of cause of action; and (3) an identity of parties or their privies." (Progressive Land Developers, Inc., 151 Ill.2d at 294, 176 Ill. Dec. 874, 602 N.E.2d 820.) "`If the same facts are essential to the maintenance of both proceedings or the same evidence is needed to sustain both, then there is identity between the allegedly different causes of action asserted and res judicata bars the latter action.'" Progressive Land Developers, Inc., 151 Ill.2d at 295, 176 Ill. Dec. 874, 602 N.E.2d 820, quoting Morris v. Union Oil Co. (1981), 96 Ill.App.3d 148, 157, 51 Ill. Dec. 770, 421 N.E.2d 278.
We find that the second element necessary for the operation of res judicata, identity of cause of action, is not met in *1081 this case. As the appellate court noted in the appeal from the previous declaratory action brought by Mid-State, the sole issue raised was whether the insurers were estopped from denying coverage by their actions prior to their reservation of rights. (Mid-State Savings & Loan Association, 175 Ill.App.3d at 270, 124 Ill. Dec. 715, 529 N.E.2d 696.) The appellate court also specifically noted that "[t]he [insureds] have made no claim that the policy itself provides coverage, but have instead complained that the actions of the [insurers] in delaying the reservation of rights should estop the insurance companies from denying coverage pursuant to the policy." (Mid-State Savings & Loan Association, 175 Ill.App.3d at 270, 124 Ill. Dec. 715, 529 N.E.2d 696.) The issue in the Mid-State action was an issue of estoppel, the resolution of which turned on whether the insureds had been prejudiced. Accordingly, the facts and evidence in that action centered around possible prejudice to the insureds. The instant case, however, involves the determination of coverage and the insurers' duties to its insureds. Accordingly, the facts and evidence necessary in this case center around the policy language and the allegations in the Dependable complaint. Therefore, we find that there is no identity of causes of action between the two declaratory judgment actions and we reject the insureds contentions that res judicata bars the insurers from asserting noncoverage in the case before us.
DUTY TO INDEMNIFY
The insureds contend that any determination concerning the insurers' duty to indemnify would be premature at this point in time because liability in the Dependable action has not yet been resolved. Both the circuit and appellate courts agreed with this contention. It is true that this court has stated this principle before. (Outboard Marine Corp., 154 Ill.2d at 127, 180 Ill. Dec. 691, 607 N.E.2d 1204; United States Fidelity & Guaranty Co. v. Wilkin Insulation Co. (1991), 144 Ill. 2d 64, 73, 161 Ill. Dec. 280, 578 N.E.2d 926.) This principle, however, is only operative in cases where the court has determined that the insurer's duty to defend its insured has arisen. (See Outboard Marine Corp., 154 Ill. 2d 90, 180 Ill. Dec. 691, 607 N.E.2d 1204; Wilkin, 144 Ill. 2d 64, 161 Ill. Dec. 280, 578 N.E.2d 926.) This is so because the duty to defend is broader than the duty to indemnify and arises even if the facts alleged in the underlying complaint fall potentially within the policy's coverage. (Outboard Marine Corp., 154 Ill.2d at 125, 180 Ill. Dec. 691, 607 N.E.2d 1204.) The duty to indemnify arises only if the facts alleged actually fall within coverage. (Outboard Marine Corp., 154 Ill.2d at 128, 180 Ill. Dec. 691, 607 N.E.2d 1204.) In cases such as the instant case where no duty to defend exists and the facts alleged do not even fall potentially within the insurance coverage, such facts alleged could obviously never actually fall within the scope of coverage. Under no scenario could a duty to indemnify arise. Clearly, where there is no duty to defend, there will be no duty to indemnify and we find that the plaintiff-insurers have no duty to defend or indemnify the insureds in this case.
Accordingly, for the reasons stated above, we reverse the judgment of the appellate and circuit courts and remand this cause to the circuit court with direction that summary judgment be entered in favor of the plaintiff-insurers.
Appellate court reversed; circuit court reversed; cause remanded with directions. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1516352/ | 360 Pa. Super. 119 (1987)
519 A.2d 1021
Perry ECKSEL
v.
ORLEANS CONSTRUCTION COMPANY and Thomas Vesey t/a Thomas Construction Company, Appellants.
Supreme Court of Pennsylvania.
Argued January 13, 1986.
Filed January 13, 1987.
*124 Andrew D. Bershad, Philadelphia, for appellants.
Jeffrey M. Chebot, Philadelphia, for appellee.
Before ROWLEY, KELLY and HOFFMAN, JJ.
HOFFMAN, Judge:
This is an appeal from the order and judgment entered in favor of appellee and against appellants in the amount of $52,100.00. Appellants contend that the trial court erred in (1) sua sponte ordering a new trial on the issue of damages, (2) failing to find that appellee had released appellants from liability, (3) concluding that appellants had breached implied warranties, (4) permitting appellee to amend his complaint after completion of the trial, (5) causing delays which prejudiced appellant, (6) failing to consider appellee's duty to mitigate damages, (7) rejecting appellants' evidence as to the market value and costs of repair of the house, (8) awarding an excessive amount of damages. We disagree and, accordingly, affirm the lower court's order and judgment.
Appellee filed this action in assumpsit in 1972, alleging that appellants had defectively constructed his house. In 1970, appellee entered into an agreement of sale in which he *125 agreed to buy an as yet unconstructed house from appellants, Orleans Construction Company and Thomas Vesey, its builders and vendors, for $41,000.00. Prior to settlement, appellee discovered water in the basement of the home and was assured by appellants that they would correct the problem. See Trial Court Opinion, June 11, 1984 at 1. Despite this assurance, the basement continued to flood and water collected in the house's lawn and driveway. See Lower Court Opinion, March 14, 1986 at 2. Appellants told appellee that regarding the property might cure the problem and, in accordance with that diagnosis, dumped two piles of dirt on appellee's lawn. However, the regrading was never performed and appellee had to have the piles of dirt removed. Id. On April 7, 1983, the parties entered into an agreement that appellants would complete an agreed-upon list of repairs to the house, including repair of the basement, and, in return, appellee would relinquish his legal claims against appellants. Appellants failed to complete all of the repairs, and those that they did complete were not performed in a reasonably workmanlike manner. Id. at 3.
Trial was held on June 8, 1983. The lower court, sitting without a jury, held that appellants were liable to appellee for the defects that created the wet basement problem. Id. at 8. The court also found, however, that it did not have sufficient information to determine damages pursuant to the formula then recently announced in Gadbois v. Leb-Co. Builders, Inc., 312 Pa.Superior Ct. 144, 458 A.2d 555 (1983) and sua sponte ordered a new trial limited to the issue of damages. Id. at 11-12. Appellants filed timely post-trial motions, but the lower court did not rule on those motions until the new trial was completed. That trial occurred on May 1, 1984. In an opinion dated June 11, 1984, the trial court entered judgment in favor of appellees and against appellants in the amount of $52,100.00. Appellants timely filed further post-verdict motions. On April 23, 1985, the lower court denied all of appellants' post-verdict motions, and this appeal followed.
*126 Appellants first contend that the trial court abused its discretion in sua sponte ordering a new trial limited to the issue of damages. Appellants argue that as the court specifically found that appellee had not offered sufficient evidence to determine damages, judgment should have been entered against appellee. We disagree.
The granting of a new trial is within the sound discretion of the trial court, and a decision to do so will not be reversed on appeal absent a showing that the trial court committed an error of law or palpably abused its discretion. See Burrell v. Philadelphia Electric Co., 438 Pa. 286, 289, 265 A.2d 516, 517 (1970); George I. Reitz & Sons, Inc. v. Donise Enterprise, Inc., 319 Pa.Superior Ct. 76, 81, 465 A.2d 1060, 1063 (1983). A trial court may, in its discretion, order a separate trial on a separate issue in a cause of action in furtherance of convenience or to avoid prejudice. See Pa.R.Civ.P. 213(b). See also Schaefer v. American States Insurance Co., 272 Pa.Superior Ct. 67, 71, 414 A.2d 672, 673 (1979). Additionally, a trial court may grant a new trial on the issue of damages alone where the issue of liability has been fairly determined and the issue of damages is readily separable. See Stokan v. Turnbull, 480 Pa. 71, 75, 389 A.2d 90, 93 (1978); Reid v. Oxendine, 275 Pa.Superior Ct. 548, 556, 419 A.2d 36, 40 (1980).
Here, in order to "avoid speculation" the lower court ordered a new trial on damages after it had found against appellants on the issue of liability. See Lower Court Opinion, supra at 5. Contrary to appellants' assertion that the lower court found that appellee had failed to prove damages, the court instead found that neither party had supplied enough information to determine damages pursuant to the then recently announced formula in Gadbois v. Leb-Co. Builders, Inc., supra. See Lower Court Opinion, supra at 11. We believe that the lower court properly followed the procedure authorized under Pa.R.Civ.P. 213(b) and the above-mentioned case law concerning new trials limited to damages. We therefore find that the lower court did not commit an error of law or palpably abuse its discretion in *127 this regard. See Burrell v. Philadelphia Electric Co., supra.
Appellants next contend that the lower court erred in finding that appellee had not released appellants from liability. Specifically, appellants argue that appellee signed two separate agreements that released them from liability arising out of any alleged defects in the construction of the house. The first agreement was allegedly contained in the agreement of sale, signed by appellee on November 19, 1970. The second agreement was allegedly entered into by appellee in April, 1973, subsequent to the filing of this suit and amounted to a settlement of the suit contingent upon the performance of certain enumerated repairs by appellants. Appellants contend that the lower court erred in disregarding these release agreements and finding against appellants on the issue of liability. We will address each of these alleged releases separately.
Because of the special knowledge of the builder-vendor in a home construction situation, language purportedly creating an express restriction or exclusion of an implied warranty must be strictly construed against the builder-vendor. See Tyus v. Resta, 328 Pa.Superior Ct. 11, 19, 476 A.2d 427, 432 (1984) (citations omitted). Additionally, due to the important consumer interests protected by an implied warranty, any attempt to disclaim such a warranty must be clear and unambiguous. Id. The language must also be specific and particular to the legal rights the buyer is waiving and their relation to their effect on specifically designated potential latent defects. Id. Evidence that the parties actually negotiated the release will tend to indicate that the purchaser made a knowing waiver of his or her rights. Id.
The release language in the agreement of sale reads:
After settlement is made and/or key is accepted and/or entry into possession of any part of the premises is made, Buyer agrees that no further claims or demands of any kind will be made upon Seller or Seller's principals, and Seller and Seller's principals shall not be liable for any *128 and all injuries, loss, or damage to Buyer or any other person, or to premises, resulting from any cause whatsoever, including but not [limited] to the exclusion of other causes not specifically recited herein, negligence and latent or undiscovered defects, and Buyer hereby releases and discharges Seller and Seller's principals from all liability for such injury, loss or damage.
See Agreement of Sale, November 11, 1970. The language in this release is broad and all-encompassing. It does not refer with specificity to what rights appellee was waiving or how they applied to particular latent defects. Additionally, there is no evidence that the release was negotiated by the parties. In fact, the release is found eleven paragraphs into what appears to be a boilerplate Agreement of Sale. We will not allow appellants to escape liability by relying on language of this nature.
The second alleged release relied upon by appellants refers to a settlement agreement entered into by the parties in April of 1973. As the lower court correctly noted, appellants failed to fulfill the agreement and correct the defects in the house. See Lower Court Opinion, supra at 6. Therefore, as appellants did not perform their part of the agreement, appellee's promise to release them from liability is not enforceable.
Appellants next contend that the lower court erred in finding that they had breached the implied warranty of habitability. Specifically, appellants make three arguments in this regard.[*] First, they argue that the lower court was precluded from finding there was a breach of implied warranty because appellee based his claim on breach of contract. We disagree.
*129 The implied warranty of habitability is a warranty based in a contract for the sale of a home. See Tyus v. Resta, supra 328 Pa.Super. at 19, 476 A.2d at 431. This implied warranty was first recognized in Pennsylvania in Elderkin v. Gaster, 447 Pa. 118, 288 A.2d 771 (1972). In Elderkin the Pennsylvania Supreme Court recognized that as warranties were rarely given in home construction contracts, and there was a wide disparity in knowledge between the buyer and the seller, a theory of implied warranties was necessary to safeguard the reasonable expectations of the buyer. The Court reasoned:
[O]ne who purchases a development home . . . justifiably relies upon the skill of the developer that the house will be a suitable living unit . . . [T]he builder-vendor impliedly warrants that the home he has built and is selling is constructed in a reasonably workmanlike manner and that it is fit for the purposes intended habitation.
Id., 447 Pa. at 128-129, 288 A.2d at 776. Warranties of habitability and reasonable workmanship are not created by representations of the builder-vendor but rather are implied in law and as such exist independent of any representations of a builder-vendor. See Tyus v. Resta, supra 328 Pa.Super. at 19, 476 A.2d at 433. Appellants first contend that the court could not find that they had breached the implied warranties because appellee did not specifically argue such a breach. We disagree. Appellee argued breach of contract. Since the implied warranties are inherent in the contract, and appellee argued all of the facts necessary to find that they were indeed breached, his failure to couch his argument in the exact terms of implied warranties did not preclude the lower court from ruling upon that theory. Decisions as to the application of the law are within the domain of the trial court. See General Electric Credit Corp. v. Aetna Casualty & Surety Co., 437 Pa. 463, 479-80, 263 A.2d 448, 457 (1970).
Appellants next argue that the concept of implied warranties was not recognized under Pennsylvania law when the *130 agreement of sale was entered into, and that it should not have been retroactively applied here. We disagree.
Appellate decisions are to be applied retroactively unless the court specifically states that a decision is to be applied prospectively only. See Commonwealth v. Cabeza, 503 Pa. 228, 233, 469 A.2d 146, 148 (1983). The Elderkin decision did not create the warranties of habitability and reasonable workmanship. Rather, it acknowledged their existence. See Tyus v. Resta, supra 328 Pa.Super. at 18, 476 A.2d at 431. Elderkin itself applied implied warranties to a 1963 agreement of sale. See Elderkin v. Gaster, supra 447 Pa. at 118, 288 A.2d at 771. Clearly, the lower court acted correctly in applying the implied warranties to this agreement of sale.
Appellants next argue that the lower court erred in finding that a leaky basement breached the warranty of habitability. We disagree. As the Lower Court noted:
A house is a shelter. The whole purpose of building shelter is to protect individuals and their property from the elements wind, water, fire, earth, etc. A basement is part of the overall pursuit of this protection. The plaintiff proved that the basement cannot be used even for storage. A continually wet basement indicated the owner of the resident [sic] may not rely on a part of that residence to protect individuals from at least one of the elements water. The purpose of building a house is undone by the defendants' improper construction created [sic] a premises unfit for human dwelling.
Lower Court Opinion, supra at 7. Additionally, there is precedent to uphold such a finding. In Tyus v. Resta, supra this Court upheld a lower court finding that a leaky crawlspace breached the warranty of habitability. We will not overturn the lower court's determination that the leaky basement in this case breached both the implied warranties of habitability and reasonable workmanship.
*131 Appellants next contend that the trial court erred in permitting appellee to amend his complaint after the completion of the trial. We disagree.
A party may at any time, either with the consent of the opposing party or by leave of court, amend his or her pleading. See Pa.R.Civ.P. 1033. Permission to allow an amendment of the pleadings is within the sound discretion of the trial court and will not be reversed on appeal absent a showing of abuse of discretion. See Gallo v. Yamaha Motor Corp. U.S.A., 335 Pa.Superior Ct. 311, 313, 484 A.2d 148, 150 (1984). A trial court may allow such an amendment to the pleadings while a motion for judgment on the pleadings is pending, after judgment, or after an award has been made or an appeal has been filed. See Biglan v. Biglan, 330 Pa.Superior Ct. 512, 521, 479 A.2d 1021, 1026 (1984). Such an amendment, however, must not be for a new cause of action or surprise or prejudice the opposing party. See Robinson Protective Alarm Co. v. Bolger & Picker, 337 Pa.Superior Ct. 503, 514, 487 A.2d 373, 378 (1985); Cingota v. Milliken, 286 Pa.Superior Ct. 117, 121, 428 A.2d 600, 602 (1981).
Here, appellee asked for damages in the amount of $20,000.00 in his original complaint filed in 1971. After the first trial in 1983, but before damages were awarded, the court granted leave to appellee to amend his complaint and increase his claim for damages to $52,100.00. The amendment did not allege a new cause of action, and was based on the same operative facts of the original action. Additionally, appellants cannot claim to have been surprised by the amendment as they admit that they had received notice of appellee's desire to increase his claim for damages nearly one year before appellee petitioned the court to allow the amendment. See Brief for Appellant at 20. Thus, the lower court did not err in permitting appellee to amend his complaint.
Appellants next contend that the trial court caused a number of delays which resulted in prejudice to the appellants. Specifically, they argue that appellee's eleven year *132 delay in prosecuting the case and the lower court's seven month delay between the first trial and its rendering of a verdict severely prejudiced their interests. We disagree.
Appellants' first argument, concerning the pre-trial delay, has been waived due to their failure to preserve it in either pre-trial or post-verdict motions. See Pa.R.Civ.P. 227(b) (grounds for post-trial relief must be raised, if available, in pre-trial proceedings or at trial). See also DeSiato v. Shahboz, 277 Pa.Superior Ct. 333, 336, 419 A.2d 798, 800 (1980) (party waives right to seek non pros when he indicates willingness to try the case on the merits notwithstanding delay).
Appellants also argue that a nine-month delay between the first trial and the lower court's decision that appellants were liable for the defective construction of the house was prejudicial. They base this allegation upon Pa.R.Civ.P. 1038(c) which provides that a trial court sitting without a jury "shall enter a decision within seven days except in protracted cases or cases of extraordinary complexity." Here, we believe that the parties' briefs, the lower court opinion, and the length of this opinion, amply demonstrate the complexity of the issues involved in this case. Accordingly, we find that this case fell within the exception to the seven day rule. We further note that the prejudicial effects that appellants allege occurred during the nine-month period, worsening of the water problem and an inability to account for changing market conditions, are not supported by the record. We therefore find this contention meritless.
The appellants next contend that the trial court erred in failing to consider that appellee did not mitigate the damages. We disagree. A party who suffers a loss has a duty to make a reasonable attempt to mitigate damages, but the burden is on the party who breaches the contract to show how further loss could have been avoided through the reasonable efforts of the injured party. See Gadbois v. Leb-Co. Builders, Inc., supra 312 Pa.Super. at 156-57, 458 *133 A.2d at 561-62. However, an injured party is not obligated to mitigate damages when both he and the liable party had an equal opportunity to do so. See Loyal Christian Benefit Association v. Bender, 342 Pa.Superior Ct. 614, 620, 493 A.2d 760, 763 (1985).
Here, appellants make no argument as to how the appellee could have mitigated the damages. Additionally, the trial court found, and the record shows, that the problem existed when the house was constructed and that it was an on-going problem not a worsening one. See N.T. June 8, 1983 at 38-41, 52-55. Therefore, the condition could not have been made worse by an alleged inaction on the part of appellee.
Appellants next contend that the trial court erred in rejecting its proferred evidence as to the cost of repair and market value of the house. Specifically, they contend that the trial court should have accepted the testimony of their experts over that of appellees, and credited their evidence that they had made a firm offer to purchase the house to establish its market value. We disagree. The findings of a trial judge sitting without a jury carry the same weight as a jury verdict, and this court will not disturb those findings on appeal absent an error of law or abuse of discretion. See Pato v. Cernuska, 342 Pa.Superior Ct. 609, 612, 493 A.2d 758, 759 (1985). We will respect a trial court's findings with regard to the credibility and weight of the evidence unless the appellant can show that the court's determination was manifestly erroneous, arbitrary and capricious or flagrantly contrary to the evidence. See Tyler v. King, 344 Pa.Superior Ct. 78, 96, 496 A.2d 16, 25 (1985).
Here, the trial court heard evidence from both parties concerning the relevant estimates of repairs and market value. The court decided to credit the evidence submitted by appellee. We will not disturb this finding on appeal. Additionally, appellants' offer to purchase the house, and its timing on the eve of the trial, is hardly credible evidence to prove market value of the house in light of the interest of *134 the party who made the offer. See Redevelopment Authority v. Pelullo, 48 Pa.Commonwealth Ct. 68, 74, 409 A.2d 122, 125 (1979) (such offers amount to settlement offers and are therefore not probative of value).
Appellants last contention is that the damages awarded by the trial court are excessive. Specifically, they maintain that as the house cost $40,965.00 when purchased in 1970, an award based on the cost of repair of $52,100.00 is clearly excessive. We disagree. We will not find a verdict excessive unless it is so grossly excessive so as to shock our sense of justice. See Fretts v. Pavetti, 282 Pa.Superior Ct. 166, 176, 422 A.2d 881, 885 (1980).
Here, the trial court followed the formula to determine damages set out by this Court in Gadbois v. Leb-Co. Builders, Inc., supra.
[T]he measure of damages in cases where a homeowner sues for defective construction is the difference between the market value of the house as constructed and the market value that the house would have had if constructed as promised, with the qualification that if it is reasonably practical to cure the defects in construction by repairs, and if the cost of repairs does not exceed the difference in market value, then the measure of damages is the cost of repairs.
Id., 312 Pa.Superior Ct. at 153, 458 A.2d at 557. The trial court found that the market value of the house as constructed was $50,000.00, and that the market value of the house if constructed properly was $100,000.00, leaving a difference of $50,000.00. See Lower Court Opinion, April 23, 1985 at 3, 4. The court also concluded that the cost to repair the house was $52,100.00. Id. at 5, 6. The court then noted that while the cost of repair slightly exceeded the difference in market values, the fact that appellee had established roots in the community and did not wish to relocate dictated that damages be awarded based upon the cost of repair. Id. (citing Incollingo v. Ewing, 444 Pa. 263, 308, 282 A.2d 206, 229 (1971) (fixed and formulated rules relating to the appropriate measure of damages must give *135 way when it is determined that they are not setting a compensatory standard)).
Appellants' argument that the award is out of proportion to the original cost of the house is without merit. Inflation and appreciation caused the market value of the house to rise, and even appellants offered evidence on market value that exceeded the original cost of the house. See Lower Court Opinion, April 23, 1985 at 3, 4. We will not find that this award, or the reasoning that compelled it, is so shocking so as to be overturned on appeal. Appellants conduct in constructing an obviously defective house, combined with their inadequate attempts at repair, provides ample justification for the verdict. The trial court's slight deviation from the Gadbois standard was designed to give appellee the benefit of his bargain a habitable house.
For the above stated reasons, we therefore affirm the order and judgment of the lower court.
Affirmed.
ROWLEY, J., files a concurring statement.
ROWLEY, Judge concurring:
I agree with the majority that appellants should not be allowed to escape liability by relying on the release language contained in the agreement of sale. In my opinion, however, the language is not ambiguous. Rather, the fatal defect in the release is that it is buried in the middle of a standard form contract in the same print size and type as the rest of the contract.
As pointed out by the majority, the builder-vendor enjoys a superior bargaining position due to his special knowledge in the home construction situation. The implied warranties of habitability and reasonable workmanship extended to the builder-vendor by our Supreme Court in Elderkin v. Gaster, 447 Pa. 118, 288 A.2d 771 (1972), "were necessary to equalize the disparate positions of the builder-vendor and the average home purchaser by safe-guarding the reasonable expectations of the purchaser compelled to depend *136 upon the builder-vendor's greater manufacturing and marketing expertise." Tyus v. Resta, 328 Pa.Super. 11, 19, 476 A.2d 427, 431 (1984).
Thus, I would hold that, for the protection of the consumer, any attempt to disclaim an implied warranty must not only be clear and unambiguous, but must be conspicuous. See Herlihy v. Dunbar Builders Corp., 92 Ill.App.3d 310, 47 Ill. Dec. 911, 415 N.E.2d 1224 (1980). Cf. Thermo King Corp. v. Strick Corp., 467 F. Supp. 75 (W.D.Pa.) (the test for "conspicuous" under the UCC is "whether a reasonable person against whom the modification or exclusion is to operate ought to have noticed it"), aff'd, 609 F.2d 503 (3d Cir. 1979); UCC, 13 Pa.Cons.Stat.Ann. § 2316(b) (Purdon 1984) (to exclude or modify an implied warranty of merchantability and/or fitness, the language must be conspicuous).
NOTES
[*] Appellants' further argument that the lower court was precluded from finding that the implied warranty of habitability was breached because that warranty was not in the express language of the agreement of sale can be summarily dismissed. The very nature of an implied warranty includes the notion that it is not found in express language, but rather inferred in law. See Tyus v. Resta, supra 328 Pa.Super. at 19, 476 A.2d at 433. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1527609/ | 357 B.R. 508 (2006)
In re David P. NELSON, Debtor.
Jack Lindau, Plaintiff-Appellee,
v.
David P. Nelson, Defendant-Appellant.
BAP No. 06-6042 MN.
United States Bankruptcy Appellate Panel for the Eighth Circuit.
Submitted: November 2, 2006.
Filed: November 24, 2006.
*509 *510 David P. Nelson, St. Paul, MN, pro se.
Scott W. Swanson, Woodbury, MN, for appellee.
Before SCHERMER, FEDERMAN, and MCDONALD, Bankruptcy Judges.
SCHERMER, Bankruptcy Judge.
David P. Nelson ("Debtor") appeals the bankruptcy court's order and judgment excepting from discharge his obligation to Jack Lindau ("Creditor") pursuant to 11 U.S.C. § 523(a)(2)(A). We have jurisdiction over, this appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth below, we reverse.
ISSUE
The issue on appeal is whether the court erred in finding that the Creditor established by a preponderance of evidence all elements necessary to except from discharge as fraudulent under Section 523(a)(2)(A) of the Bankruptcy Code a debt arising from a failed sale of a business. We conclude that the bankruptcy court erred in finding fraud.[1]
*511 MOTION TO STRIKE CERTAIN EVIDENCE ON APPEAL
As a preliminary matter, we must address the Creditor's motion to strike certain new evidence presented by the Debtor on appeal. The Debtor attached to his brief on appeal his own affidavit as well as a copy of a post-trial letter from his trial attorney to the Debtor. The record on appeal is limited to items which were presented to the trial court. See Fed. R. Bankr.P. 8006. Items included in an appendix to a brief are likewise limited to items from the trial court's docket as well as any transcripts from the court below. See Fed. R. Bankr.P. 8009. An appellate court, sits in review of a trial court. As such, it can only consider the evidence presented to the trial court. Otherwise, the appellate court exceeds its role as a reviewer of the proceedings below. Accordingly, the Creditor's motion to strike is granted. The affidavit and letter attached to the Debtor's brief will not be and have not been considered.
BACKGROUND
In 2004, the Creditor was interested in operating his own business. The Creditor had known the Debtor for several years and was aware that he owned and operated a retail business known as Mr. Nice Guy which sold tobacco, novelties, and drug paraphernalia. The Creditor approached the Debtor to discuss his desire to operate his own business. The Debtor told the Creditor that he was interested in getting out of the retail business. The Debtor offered to sell the business to the Creditor for $40,000. The Creditor agreed to purchase the store for $40,000 and attempted to obtain the necessary financing. The Creditor was unable to obtain financing to purchase the store and informed the Debtor he could not purchase the store for $40,000.
The parties entered into a new agreement whereby the Creditor agreed to purchase the business from the Debtor for $70,000 payable with a $15,000 down payment, followed by fifteen monthly payments of $3,000,`and a final balloon payment of $10,000. The Debtor spent a week and a half conducting an inventory of the store. After completing the inventory, the Creditor gave the Debtor $7,000 cash toward the down payment. This transaction was documented with a statement written by the Creditor stating, "[Debtor], here is $7,000 as earnest money toward the purchase of Mr. Nice Guy. I hope this shows you how serious I am." The document was signed by the`Creditor and the Debtor and dated May 11, 2004. The Creditor also gave the Debtor two certified checks each in the amount of $4,000 which were dated May 14, 2004.
After receiving the $15,000 down payment, the Debtor turned over the day-to-day operations of the business to the Creditor and eventually left town. While the Creditor operated the store, he rearranged the inventory and changed the displays.
At some point during May, 2004, the Creditor and the Debtor met with a lawyer selected by the Debtor to draft the paperwork associated with the sale of the business. The parties agreed to a closing date of June 1, 2004.
While the Creditor was operating the store, but before a sale agreement was signed or a closing occurred, the Debtor called the Creditor from another county within the state and asked the Creditor to take $1,200 out of the business because the Debtor was in jail and needed bail money. The Creditor complied with the request *512 and gave $1,200 cash to a friend of the Debtor's to deliver to the jail.
The parties never returned to the lawyer's office, never signed a purchase agreement, and never closed the deal. Instead, the Debtor refused to complete the sale. In June, 2004, the Creditor returned the operation of the store to the Debtor at the Debtor's request. The Creditor wrote a statement that said, "I, [Creditor], gave [Debtor] 15,000 for earnest money in purchasing Mr. Nice Guy smoke shop. We did not sell the shop, so this is for the return of payment of $15,000." The document was signed by the Creditor and the Debtor and dated June 24, 2004. The parties agreed the Debtor would repay the $15,000 at the rate of $1,000 per week. The Debtor never made any payments to the Creditor.
The Debtor eventually filed a petition for bankruptcy relief. The Creditor filed a complaint seeking to have the $15,000 debt excepted from discharge as a debt for money obtained by fraud under Section 523(a)(2)(A) of the Bankruptcy Code. The matter was tried and, at the conclusion of the evidence, the judge stated that the matter came down to a question of credibility and that he believed the Debtor was not credible and never intended to sell the business to the Creditor. The court ruled orally in favor of the Creditor excepting the $15,000 debt from discharge as having been incurred through fraudulent inducement. The court thereafter entered an order and a judgment in favor of the Creditor excepting the $15,000 debt from discharge.
The Debtor filed a motion to amend, to make additional findings of fact and alter and amend the judgment, or for a new trial. The court denied the post-trial motion and the Debtor filed this appeal.[2]
STANDARD OF REVIEW
We review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. First Nat'l Bank of Olathe, Kansas v. Pontow, 111 F.3d 604, 609 (8th Cir.1997); The Merchs. Nat'l Bank of Winona v. Moen (In re Moen), 238 B.R. 785, 790 (8th Cir. BAP 1999); Tri-County Credit Union v. Leuang (In re Leuang), 211 B.R. 908, 909 (8th Cir. BAP 1997). The determination of whether a requisite element of a claim under Section 523(a)(2)(A) is present' is a factual determination which is reviewed for clear error. Pontow, 111 F.3d at 609; Moen, 238 B.R. at 790. A finding is clearly erroneous when although there is evidence to support the finding, on review of the entire evidence the appellate court is left with the definite and firm conviction that a mistake has been made. Moen, 238 *513 B.R. at 790; Leuang, 211 B.R. at 909. Due regard is given to the trial judge's opportunity to evaluate the credibility of the witnesses. Fed. R. Bankr.P. 8013; Moen, 238 B.R. at 790.
DISCUSSION
Pursuant to Section 523(a)(2)(A) of the Bankruptcy Code, a discharge does not discharge an individual debtor from any debt for money, property, services, or an extension, renewal, or refinancing of credit to the extent obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition. To prevail in a non-dischargeability action under Section 523(a)(2)(A), a creditor must prove by a preponderance of evidence that: (1) the debtor made a false representation; (2) at the time the debtor knew the representation was false; (3) the debtor made the representation deliberately and intentionally with the intention and purpose of deceiving the creditor; (4) the creditor justifiably relied on the representation; and (5) the creditor sustained loss and damage as a proximate result of the representation having been made. Field v. Mans, 516 U.S. 59, 116 S. Ct. 437, 133 L. Ed. 2d 351 (1995)(justifiable reliance); Grogan v. Garner, 498 U.S. 279, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991)(burden of proof); Moen, 238 B.R. at 790(elements of proof under § 523(a)(2)(A)).
The court did not make express findings of fact detailing each element of fraud. We therefore review the record as a whole to determine if each element was established by the Creditor at trial. We defer to the trial court's assessment of credibility. The trial court found the Debtor to be lacking credibility. Accordingly, we accept the Creditor's version of the events surrounding the failed sale and, where the Debtor's version is inconsistent, we disregard it.
The representation at issue is the Debtor's statement that he would sell the business to the Creditor for $70,000. The court found this to be a false statement. We disagree. After agreeing to the sale, the Debtor turned over the operation of the business to the Creditor. In addition he met with a lawyer and requested the lawyer to draft appropriate sale documents. The Debtor's actions after agreeing to the sale are consistent with an intention to sell and do not evidence a lack of intention to follow through with the sale. Without a false statement, no fraud exists.
Even if a false statement is made, no fraud exists unless the maker knows the statement is false at the time the statement is made. Again, the Debtor's actions in turning over the keys to the Creditor and meeting with an attorney to draft a sale agreement after agreeing to the sale do not support a finding that the Debtor knew he had no intention of selling the business at the time he agreed to do so for $70,000.
To amount to fraud, a statement must be made deliberately and intentionally with the intention and purpose of deceiving. Here, the record is void of any evidence that the Debtor intended to deceive the Creditor.
Additionally, the Creditor must have justifiably relied on the representation for fraud to exist. Justification is a matter of the qualities and characteristics of the particular plaintiff and the circumstances of the particular case. Field v. Mans, 516 U.S. at 71, 116 S. Ct. 437 (citing Restatement (Second) of Torts, § 540 (1976)). The record is void of any evidence of justifiable reliance on the part of the Creditor. Yes, the Creditor took over the operation of the business and ran *514 the store on a daily basis. He clearly believed he would be buying the store. However, he knew no sale agreement had been drafted or signed at that time and did not expect the sale to close until some time after he had assumed the responsibilities associated with operating the store. He could not have justifiably relied that the sale was certain at the time he delivered the funds to the Debtor.
The final element is loss. The Creditor clearly suffered damages of $15,000. However, the damages are not the proximate result of fraud. Rather, they are the result of a sloppy transaction which was never consummated. The Creditor gave the Debtor $15,000 without the benefit of a written sale agreement. He also accepted the responsibility of operating the store without any ownership interest therein. By his own documentation, the Creditor acknowledged that the funds delivered were merely a down payment. After the sale fell apart, the Creditor further documented that the sale was never consummated and that he was entitled to the return of funds. Nowhere in his document does he mention anything related to fraud. Rather, he merely states that earnest money was delivered, the sale was not consummated, and that he is entitled to the repayment of the earnest money. The Creditor's own documentation establishes the breach of a contract to sell a business. It does not establish fraud. Debts arising out of contract breaches are not excepted from discharge in bankruptcy.
CONCLUSION
The court erred in finding fraud in connection with this breach of contract case. (3) Accordingly, we REVERSE the judgment and conclude that the Debtor's obligation to the Creditor is not excepted from discharge.
NOTES
[1] The Debtor also complains that his trial counsel did not call a particular witness nor offer certain evidence at trial. This is not a proper issue on appeal of a civil judgment of non-dischargeability.
[2] The Debtor filed the post-trial motion within ten days after entry of the judgment excepting the debt from discharge. The order denying the post-trial motion was entered on June 8, 2006. The Debtor filed the notice of appeal on June 19, 2006, June 18 having fallen on a Sunday. The notice of appeal was file-stamped as received on June 19, 2006; however the notice of appeal was not docketed until June 20, 2006. The Creditor has not challenged the timeliness of the appeal. Nonetheless, we feel the need to point these facts out due to the apparent tardiness of the appeal upon a quick review of the docket. We note that the appeal is timely because the notice was file-stamped as received on a timely basis, regardless of the docket entry.
The court's docket entry also indicates that the appeal relates only to the order denying the post-trial motion. However, the notice of appeal is broadly drafted and both parties have treated the appeal as relating to the merits of the judgment and not limited to the denial of the post-trial motion. Accordingly, we deem the appeal to relate to the merits of the exception of the debt from discharge and not limited to the denial of the post-trial motion as indicated on the trial court's docket sheet entry. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2162895/ | 103 Ill. 2d 133 (1984)
469 N.E.2d 119
THE PEOPLE OF THE STATE OF ILLINOIS, Appellee,
v.
TAFFORD LEE HOLMAN, Appellant.
No. 55539.
Supreme Court of Illinois.
Opinion filed June 29, 1984.
Rehearing denied September 28, 1984.
*134 *135 *136 *137 *138 *139 *140 *141 G. Joseph Weller, Deputy Defender, and Kyle Wesendorf, Assistant Defender, of the Office of State Appellate Defender, of Elgin, and Marilyn Martin, Assistant Public Defender, of Chicago, for appellant.
Neil F. Hartigan, Attorney General, of Springfield, and Edward Petka, State's Attorney, of Joliet (Michael B. Weinstein and Michael V. Accettura, Assistant Attorneys General, of Chicago, of counsel, and Gerald Pluard, law student), for the People.
Affirmed in part and reversed in part; sentences vacated; cause remanded.
JUSTICE SIMON delivered the opinion of the court:
Tafford Holman, the defendant in this capital case, was indicted for the intentional murder of Anthony Townsend (Ill. Rev. Stat. 1979, ch. 38, par. 9-1(a)(1)), armed violence based on the aggravated kidnaping of Antoinette Townsend, Anthony's mother (Ill. Rev. Stat. 1979, ch. 38, pars. 10-1(a)(1), (2), 10-2(a)(3), 33A-2), *142 and home invasion (Ill. Rev. Stat. 1979, ch. 38, par. 12-11(a)(1)). A second indictment was returned four weeks later which added three counts of felony murder (Ill. Rev. Stat. 1979, ch. 38, par. 9-1(a)(3)), all based on the killing of Anthony Townsend and predicated on the felonies of armed robbery (Ill. Rev. Stat. 1979, ch. 38, par. 18-2(a)), burglary with intent to commit a felony (Ill. Rev. Stat. 1979, ch. 38, par. 19-1(a)), and burglary with intent to commit theft (Ill. Rev. Stat. 1979, ch. 38, par. 19-1(a)). Following a jury trial in the circuit court of Will County defendant was found guilty on all counts. A sentencing hearing was held before the same jury, which found the existence of statutory aggravating factors and determined that there were no mitigating factors sufficient to preclude the imposition of the death sentence. (Ill. Rev. Stat. 1979, ch. 38, pars. 9-1(b), (c).) The court thereupon sentenced Holman to death on the felony-murder counts, and also pronounced extended sentences of 60 years' imprisonment on the intentional-murder count and 40 years' imprisonment for armed violence and for home invasion (Ill. Rev. Stat. 1979, ch. 38, pars. 1005-5-3.2(b)(2), 1005-8-2). Holman appeals directly to this court. Ill. Const. 1970, art. VI, sec. 4(b); 87 Ill.2d R. 603.
The pajama-clad body of the victim, Anthony Townsend, was found in the early morning hours of February 22, 1980, in the kitchen of the house in Joliet where he lived with his mother and his younger brother Van. He had been shot in the side of the head and was dead. With the exception of the kitchen door, all of the outside doors to the house were open, including one leading directly into Anthony's bedroom, but a police officer, Gary Schild, who arrived at the murder scene, stated that there were no signs that any of them had been forced open. A woman's purse, identified as belonging to Mrs. Townsend, was found on the living room floor with its *143 contents strewn around it. Officer Schild dusted these items and the kitchen and rear door but found no fingerprints. He found two.25-caliber shell casings in the Townsend home.
Mrs. Townsend was the chief prosecution witness. She testified that she was at home with Anthony and Van on the night of February 21, 1980, and that they were watching television at 11 p.m. when she went to sleep. Sometime in the night she was wakened by a sound. She called out to her sons to see if anything was wrong; receiving no answer she rose from her bed and was confronted by a man in the doorway, whom she later identified as the defendant. The man said, "No, it's me. It's a robbery." He fired one shot in her direction and instructed her not to turn on the light or look at his face. She complied with these directions, and the man next ordered her to show him her purse. The intruder took what he wanted from it and dumped the rest on the floor. He then ordered her to go outside and "drive me." As she crossed the living room toward the door she saw Anthony lying on the floor of the kitchen. The man told her he had shot Anthony because he would not let him inside the house.
Once they were outside the house Mrs. Townsend told the intruder that she did not know how to drive, and the intruder got into the driver's seat of the Townsend car himself and commenced driving eastward from Joliet while holding her at gunpoint next to him. After arriving in Gary, Indiana, he drove around that city for a while. Next, he pulled into an alleyway and ordered Mrs. Townsend to get into the back seat of the car. After a short time a bright light shone through the window. The man ordered Mrs. Townsend out of the car and followed her out at gunpoint. When she attempted to run away, the man fired four shots at her, hitting her twice. She fell to the ground and pretended she was dead. The man *144 walked toward the highway and was picked up by an acquaintance a few minutes later.
According to Mrs. Townsend's testimony, a youth who had been fixing a tire by the side of the road noticed her and covered her with a leather coat which he found in the Townsend automobile, which remained where the assailant had parked it. She testified that the coat belonged to the assailant. The youth called for an ambulance, and it took her to a Gary hospital. Two Gary police detectives examined the coat in the hospital and found two gold rings and a medicine bottle in one of the pockets. The label on the medicine bottle indicated the prescription was made out to Anne Mae Williams, whom Lieutenant Wayne Brown, one of the detectives, visited twice at her Gary address.
On Brown's first visit, according to his testimony, he received no answer to his knock at the door but noticed a letter addressed to "T. Holman" in the open mailbox. He contacted Williams several days later and she took him to another house in Gary, from which she emerged with a photograph of a man wearing two rings on his left hand. This photograph was admitted into evidence over objection. An objection was sustained to Brown's statement that in his opinion the rings were the same as the ones taken from the coat. However, Brown was permitted to testify, over objection, that the man depicted in the photograph was the defendant. Williams did not testify.
During her stay in the hospital Mrs. Townsend was shown several photographs from the police files and identified one photograph as that of her abductor. At trial she was shown the same photographic lineup and identified the defendant as the man whose picture she had picked.
The defendant did not testify at the guilt phase of the trial but did so, against the advice of his attorney, at the *145 first stage of the sentencing hearing. His version of events was that he had been drinking and visited relatives with two men, whose names he gave as Boogie and Zeich, during the evening in question. This was generally corroborated by several of Holman's relatives who also testified at this stage. Holman testified that he also visited his father, and that after this visit he and Zeich proceeded to the Townsend house, apparently because the defendant thought there had been a misunderstanding between Anthony Townsend and the defendant's father. Anthony recognized the defendant and admitted the two men through the door leading into his room, whereupon Holman questioned him about the earlier misunderstanding and an argument ensued. According to Holman's testimony, Zeich shot Anthony with no warning during the argument. Holman, who claimed he was drunk, panicked and tried to find an exit and heard a second shot while he was searching, but by the time he found the front door Zeich had fled and Mrs. Townsend had wakened and recognized him. He decided at this point to abduct her and, after rummaging through her purse for the keys to the Townsend car, he left for Gary, his home city, without taking anything of value from inside the house. He indicated that his intention had been merely to secure her car for getaway purposes and to release Mrs. Townsend once he reached the highway to Gary, but that the appearance of a police car at that point forced him to continue on to Gary before releasing her. He admitted firing one or several shots at her in Gary when she tried to flag down a passing police car.
At the hearing in aggravation and mitigation, evidence was introduced of a 1975 conviction of the defendant for robbery and a 1970 conviction for armed robbery, both of which resulted in prison sentences, and a 1966 adjudication of delinquency in connection with the robbery, abduction and sexual assault of a man. In addition, *146 Thomas Wilson, a former Illinois judge, testified that in 1968 he sentenced Holman to prison for the misdemeanors of reckless conduct and unlawful use of a firearm, to which Holman had pleaded guilty. Judge Wilson could not recall whether Holman was represented by an attorney at any time during the proceedings, and although the docket sheet showed that at one point Holman stated he would obtain his own attorney there was no indication that he had done so.
The warden of the jail at which Holman was being held pending trial in this case testified that he received a note from an inmate which purported to solicit an assault on a lady who lived at Mrs. Townsend's address. The writer mentioned a desire to obtain a gun and gave as a reason for the assault the fact that the lady's son had "jumped on" the writer's father. The inmate who gave the warden the note told him that Holman had written the letter.
Mrs. Townsend testified that she had not heard of Holman prior to the assault and that because the family was a close one Anthony would have told her of any difficulties that he had had with a man named Holman, but he had never mentioned any. She further testified that Anthony was an honor student who had made Who's Who in American High Schools, worked as a salesman part time, and had never been in an altercation to her knowledge.
Officer Brown testified that Williams had told him that Holman had handled her .25-caliber pistol prior to the Townsend incident but had put it back when she had asked him to do so. However, she told Officer Brown that he had been with her in Gary on the night of the shooting, had told her he needed money, and had left without her noticing, and that when she woke up in the morning the pistol was gone along with a bag of ammunition.
*147 Holman resumed the stand and reiterated his earlier testimony that it was Zeich who had killed Anthony. He admitted firing at Mrs. Townsend and writing the note while in custody awaiting trial. He also admitted committing the 1970 armed robbery but denied having sexually assaulted anyone.
This appeal involves numerous issues concerning the propriety of the various murder convictions and the conviction for home invasion, as well as the death sentence and the other sentences imposed. We will treat first those issues common to all of the murder convictions which arose at the guilt portion of the trial.
I. THE GUILT PHASE
Holman first challenges certain testimony which he claims was hearsay. In attempting to establish a link between Holman and the coat which was found in the back seat of the Townsend car, the prosecutor questioned Officer Brown as follows:
"Q. Did you have occasion to show Anne Williams this prescription pill bottle and those marked 12-A and B, the gold and diamond rings?
A. Yes.
Q. Did you ask her if she could identify them?
A. Yes.
Q. And pursuant to your conversation about those rings and that pill bottle, did she take you anywhere?
* * *
A. Yes, she did."
Officer Brown went on to testify about receiving the photograph from Williams; on admission of this photograph into evidence Brown identified Holman as the man portrayed. Brown never testified directly as to Williams' statements, nor did he say that Williams identified Holman as the owner of the rings. However, it is argued that the assertive responses of Williams referred to in *148 Brown's testimony quoted above are tantamount to an identification by Williams, and that the admission of Brown's testimony concerning his half of the conversation with Williams impermissibly "allow[ed] the responses of the other party [Williams] to be a subject for the deductive powers of the trier of fact" (People v. Spivey (1978), 58 Ill. App. 3d 677, 679; People v. Warmack (1976), 44 Ill. App. 3d 243, 246).
The fundamental purpose of the hearsay rule is to test the value of assertions by exposing the source of the assertion to cross-examination by the party against whom it is offered. (People v. Carpenter (1963), 28 Ill. 2d 116, 121; see People v. Rogers (1980), 81 Ill. 2d 571, 577-78; 5 Wigmore, Evidence sec. 1362, at 3-10 (Chadbourn rev. ed. 1974).) Application of the rule to overturn the outcome of a trial supposes that the testimony under attack was offered to establish the truth of a matter asserted or clearly indicated in the testimony and rested for its value upon the credibility of an out-of-court declarant. People v. Rogers (1980), 81 Ill. 2d 571, 577.
While it is possible that the jury might have concluded from Officer Brown's statements that Williams identified the defendant as the man to whom the rings found in the coat belonged, that is only one possible interpretation of her response. According to Brown's testimony, her full response was to give him a picture of a man wearing similar rings; she did not name the man or say in any more assertive fashion either that the rings found in the coat belonged to the man depicted or that the man in the photograph was the defendant. The eventual linking of Holman to the rings and the coat came from Brown's own in-court identification of him as the man in the photograph, not from anything Williams said or indicated: in fact, other than the photograph itself and the words "T. Holman" on an envelope found by chance inside Williams' mailbox, the jury had no evidence *149 from which it could infer that Williams knew Holman at the time it had to decide the question of his guilt.
We conclude that, unlike the testimony in People v. Spivey (1978), 58 Ill. App. 3d 677, on which the defendant relies, the testimony complained of here did not have the natural effect of informing the jury of an identification of the defendant by an out-of-court declarant, but simply had its intended effect of recounting the steps Brown took in investigating the ownership of the coat and providing a background for the photograph whose subject Brown identified. Brown was available for cross-examination at all times, and virtually all of the vital links in the identification could have been tested by cross-examining him. (People v. Rogers (1980), 81 Ill. 2d 571, 579-80; People v. Carpenter (1963), 28 Ill. 2d 116, 121.) There was no impermissible use of hearsay testimony.
Holman next argues that the admission of the photograph into evidence was error because no foundation had been laid for its admission other than Officer Brown's uninformed statement of opinion that the man it depicted was the defendant and his further statement of opinion, stricken following an objection by defense counsel, that the rings depicted in it were the ones found in the coat. In a related contention, the defendant argues that the opinion testimony of Brown as to the identity of the man portrayed was improper because Brown had no personal knowledge of any facts which would have aided him in such an identification.
"In order to have a photograph admitted in evidence it is necessary that the photograph be identified by a witness as a portrayal of certain facts relevant to the issue and verified by such witness on personal knowledge as a correct representation of the facts. The witness need not be the photographer, nor need he know anything *150 of the time or condition of the taking, but he must have personal knowledge of the scene or object in question and testify that it is correctly portrayed by the photograph." (People v. Thomas (1967), 88 Ill. App. 2d 71, 80-81.) In this case the photograph was important not for its depiction of the way the defendant appeared at a certain time, as in People v. Donaldson (1962), 24 Ill. 2d 315, and People v. Beverly (1978), 63 Ill. App. 3d 186, but rather for its depiction of an individual who could be identified as the defendant. It was thus not necessary that Officer Brown be familiar with Holman's appearance at the time the picture was taken or with the circumstances under which the picture was taken as long as he was familiar enough with Holman's general appearance to be able to say with some degree of certainty that the picture was of him. Officer Brown had the opportunity to observe Holman both in the courtroom and before the trial; in fact, he was the arresting officer. It was within the discretion of the trial judge to admit the photograph into evidence on the basis of Brown's identification. People v. Thomas (1967), 88 Ill. App. 2d 71, 81; Brennan v. Leshyn (1964), 51 Ill. App. 2d 132, 139.
For similar reasons we find no fault with the trial court's decision to permit Officer Brown to testify that the photograph depicted Holman. The cases cited by Holman (People v. Garrett (1975), 62 Ill. 2d 151; People v. Wallenberg (1962), 24 Ill. 2d 350) are inapposite, for they involved subjects which required scientific knowledge or knowledge of special facts. No special knowledge other than acquaintance with the person named in the identification is required to identify a person depicted in a photograph. In fact, each juror could have reached the same conclusion by looking at the photograph and the defendant in the courtroom.
Holman next takes issue with the following statement made by the prosecutor in his closing argument to the *151 jury:
"In the Sixth Amendment of the Bill of Rights, there is a small provision which holds and states that the defendant has the absolute right to compulsory process, to process witnesses. He could have produced Anne Williams. All he'd have to do is get a court order from the judge. This judge would order the Sheriff of this County to grab that woman and bring her in a ball and chain and handcuffs, if necessary, and absolutely require her to testify, provided she did not incriminate herself, and there is nothing the State could have done."
This was represented by the State as a response to defense counsel's earlier suggestion in closing argument that because Williams had been available to the State as a witness but had never been called to testify, it could be inferred that her testimony would have been damaging to the prosecution. Holman's objection was overruled.
Ordinarily, the prosecution may not comment unfavorably upon a defendant's failure to produce a witness, at least if it is not made clear that the witness was readily accessible to the defense and not equally accessible to the prosecution with the exercise of ordinary diligence. (See People v. Munday (1917), 280 Ill. 32, 42, 47; People v. Johnson (1968), 102 Ill. App. 2d 443, 454.) However, reviewing courts in this State have consistently held that comment on the failure of a potential defense witness to testify is permitted when made in response to defense counsel's own reference to the State's failure to call the witness to the stand. People v. Smith (1962), 24 Ill. 2d 198, 200; People v. Izzo (1958), 14 Ill. 2d 203, 213-14; People v. Wheeler (1955), 5 Ill. 2d 474, 485-86.
In this case, the prosecutor's comments were in response to defense counsel's argument that "[t]he State says there's an Anne Mae Williams out there somewhere. She's not here. She didn't testify. * * * They didn't bring her here." This statement raised the inference that *152 the prosecutor's case would have been compromised by Williams' appearance. The response was properly limited to the provocation (see People v. Heywood (1926), 321 Ill. 380, 383), and although the description of the mechanics of serving a subpoena was perhaps unnecessarily vivid, the prosecutor did not dwell on defense counsel's failure to produce Williams to such an extent as to reflect unduly on Holman's culpability. We do not feel that a new trial is required because of the prosecutor's comments, especially in view of the convincing nature of the evidence of Holman's guilt of the murder charges which he failed to contradict or rebut in the guilt phase of his trial. See People v. Bartall (1983), 98 Ill. 2d 294, 323.
Holman's next contention is that the selection of his jury according to the principles of Witherspoon v. Illinois (1968), 391 U.S. 510, 20 L. Ed. 2d 776, 88 S. Ct. 1770, which permit the State to exclude for cause all those who indicate that they would automatically vote against the imposition of capital punishment without regard to the evidence that develops at trial or that their attitude toward the death penalty would prevent them from making an impartial decision as to the defendant's guilt, resulted in a jury that was biased in favor of conviction and did not represent a fair cross-section of the community. The argument that a Witherspoon-qualified jury is unduly conviction-prone has been rejected on the basis of the insufficiency of the available statistical evidence by recent decisions of this court (e.g., People v. Free (1983), 94 Ill. 2d 378, 401-02, cert. denied (1983), 464 U.S. 865, 78 L. Ed. 2d 175, 104 S. Ct. 200; People v. Tiller (1982), 94 Ill. 2d 303, 321-22; People v. Lewis (1981), 88 Ill. 2d 129, 147, cert. denied (1982), 456 U.S. 1011, 73 L. Ed. 2d 1308, 102 S. Ct. 2307), as well as by the Federal circuit courts and courts of other States which have considered the issue (e.g., Smith v. Balkcom (5th Cir.1981), 660 F.2d 573, 582; United States ex rel. *153 Clark v. Fike (7th Cir.1976), 538 F.2d 750, 761-62, cert. denied (1977), 429 U.S. 1064, 50 L. Ed. 2d 781, 97 S. Ct. 791; State v. Avery (1980), 299 N.C. 126, 138, 261 S.E.2d 803, 810). Only one court has accepted this contention to date. See Grigsby v. Mabry (E.D. Ark. 1983), 569 F. Supp. 1273.
We note that a considerable amount of scholarly research has been done on the impartiality of Witherspoon-qualified juries since the Witherspoon case was decided. (See studies cited in Grigsby v. Mabry (E.D. Ark. 1983), 569 F. Supp. 1273, 1294-1305, and Hovey v. Superior Court (1980), 28 Cal. 3d 1, 27-60, 616 P.2d 1301, 1315-41, 168 Cal. Rptr. 128, 142-68.) However, Holman has failed either to cite any studies completed since our decisions in Free, Tiller and Lewis were rendered or to explain in any detail what the findings of the earlier studies mean. We adhere to our earlier holdings that the State was properly permitted to conduct death-qualification proceedings on voir dire.
Holman argues that four of the jurors who were excluded for cause as a result of the death-qualification proceedings did not qualify for such exclusion under Witherspoon v. Illinois, and, therefore, he should receive a new trial as to guilt. In both Witherspoon and Adams v. Texas (1980), 448 U.S. 38, 65 L. Ed. 2d 581, 100 S. Ct. 2521, the jury from which jurors were found to have been improperly excluded for cause decided both the question of guilt and the penalty to be imposed. In both cases the Supreme Court reversed the death penalty but did not disturb the verdict of guilt. Although the Supreme Court has never held squarely that such a verdict is not subject to challenge on grounds of failure to comply with Witherspoon, there is likewise no indication from its holdings that it views the question as an open one. For these reasons we decline to treat his contention that there were Witherspoon violations in the selection *154 of his jury as a proper ground for vacating the verdicts of guilt.
Holman's final argument concerning the propriety of his convictions is that the indictment under which he was tried should have been dismissed because of improper delaying tactics on the part of the prosecution which resulted in failure to hold a preliminary hearing. Holman was first charged with the murder of Anthony Townsend in a complaint issued on February 25, 1980, and following his arrest in November 1980 and his first appearance in the Will County circuit court on February 14, 1981, a preliminary hearing was set for March 9, 1981. On March 5 the prosecution moved to have Anne Mae Williams certified as a witness to compel her attendance at a March 18 grand jury proceeding and requested that the preliminary hearing be continued for two weeks pending her appearance before the grand jury. The court continued the preliminary hearing until March 24, 1981. On March 18 the grand jury returned a three-count indictment charging Holman with murder, armed violence and home invasion, without the benefit of Williams' testimony.
Holman contends that Williams' presence was not material or necessary because she was never called before the grand jury, and that Dave Davis, the only witness listed as appearing in the March 18 grand jury proceedings, was available to the State at all times prior to that date. The motion for certification, he therefore reasons, was but a subterfuge for the purpose of delaying the preliminary hearing. He argues first that the Illinois Constitution requires the dismissal of charges as a sanction for bad-faith delay of a preliminary hearing.
Our constitution provides:
"No person shall be held to answer for a crime punishable by death or by imprisonment in the penitentiary unless either the initial charge has been brought by indictment *155 of a grand jury or the person has been given a prompt preliminary hearing to establish probable cause." (Ill. Const. 1970, art. I, sec. 7.)
This court has recognized that continuance of a preliminary hearing for the sole purpose of permitting a grand jury to indict a defendant being held in custody is not to be condoned under this provision and has suggested that "appropriate sanctions might be considered" to deter such conduct by the prosecution. (People v. Hood (1974), 59 Ill. 2d 315, 324.) However, this court has ruled that dismissal with prejudice is not available to a defendant as a sanction. (People v. Howell (1975), 60 Ill. 2d 117, 120; People v. Hendrix (1973), 54 Ill. 2d 165, 169.) Rather, the existence of other possible remedies for this type of delay, such as presuming the involuntariness of any statements made by the defendant during the delay and applying an exclusionary rule to them, have been noted. This court has held, however, that the fashioning of a remedy is a legislative rather than a judicial matter. (People v. Howell (1975), 60 Ill. 2d 117, 122-23.) As of the time the trial court passed on Holman's motion to dismiss the indictment, the legislature had not acted on this subject, although it has since (Pub. Act 83-644, eff. Jan. 1, 1984).
Holman urges us to follow People v. Kirkley (1978), 60 Ill. App. 3d 746, in which the appellate court expressed the view that dismissal of the charges with prejudice was the only effective way of implementing the constitutional guarantee here at issue because of the legislature's failure to provide guidelines in the matter of sanctions. This case is not comparable to Kirkley, in which the return of the indictment 176 days after the defendants' arrest and 148 days after the originally scheduled date for the preliminary hearing prompted the observation that the violation of the constitutional provision guaranteeing a prompt preliminary hearing was the *156 worst that had ever occurred. Holman's indictment was returned only nine days after the originally scheduled date for the preliminary hearing, and Holman has not contended that the length of time intervening between his arrest and the date originally set for the hearing was in any way attributable to the State. Thus, even if the constitutional provision requires that the determination be made by preliminary hearing whenever a grand jury indictment is not initially returned (see People v. Hood (1974), 59 Ill. 2d 315, 324; 7 Record of Proceedings, Sixth Illinois Constitutional Convention 2600 (1970)), it would be inappropriate for this court to take the matter of sanctions into its own hands where, as here, probable cause was determined with reasonable promptness by a grand jury (People v. Howell (1975), 60 Ill. 2d 117, 119; see People v. Rush (1980), 91 Ill. App. 3d 366), and the defendant has made no attempt to show how the delay of nine days prejudiced him.
Holman also argues that the absence of a preliminary hearing in this case violated Federal guarantees of due process (U.S. Const., amends. V, XIV) so as to require dismissal of the charges. This argument is based on the suggestion made in United States v. Marion (1971), 404 U.S. 307, 324, 30 L. Ed. 2d 468, 481, 92 S. Ct. 455, 465, that due process "would require dismissal of the indictment if * * * the delay [in bringing it] was an intentional device to gain tactical advantage over the accused" and the recognition in United States v. Lovasco (1977), 431 U.S. 783, 795, 52 L. Ed. 2d 752, 762, 97 S. Ct. 2044, 2051, that a due process inquiry must include consideration of the reasons for the delay as well as an assessment of the prejudice the defendant suffered. The defendant, however, must bear the initial burden of showing that he has been significantly prejudiced, and only after such a showing does the burden shift to the government to demonstrate the reasonableness of the *157 delay. See People v. Lawson (1977), 67 Ill. 2d 449, 459; United States v. Townley (5th Cir.1982), 665 F.2d 579, 581-82, cert. denied (1982), 456 U.S. 1010, 73 L. Ed. 2d 1307, 102 S. Ct. 2305; United States v. King (7th Cir.1979), 593 F.2d 269, 272.
Just as "`[a] general allegation of loss of witnesses and failure of memories is insufficient to establish prejudice'" (United States v. McGough (5th Cir.1975), 510 F.2d 598, 604), an undocumented assertion, such as Holman makes, that a preliminary hearing would have produced a "possibly impeaching transcript" had it been held likewise falls short of establishing prejudice. Holman has not otherwise explained how he has suffered actual and substantial prejudice as a result of his having failed to receive a preliminary hearing, and we therefore need not inquire into the motives for the State's actions. People v. Lawson (1977), 67 Ill. 2d 449, 459-60.
No error during the guilt phase of the trial has been demonstrated. We therefore affirm the finding that Holman was guilty of Anthony Townsend's murder, as well as the conviction of armed violence which is not challenged further in this appeal.
II. THE HOME INVASION CONVICTION
Holman argues that his convictions of home invasion and felony murder based on burglary cannot stand because the evidence fails to establish beyond a reasonable doubt that his entry into the Townsend home was unauthorized. (See People v. Medreno (1981), 99 Ill. App. 3d 449, 455.) He contends that the consensual nature of his entry is established by the absence of any physical evidence of force near any of the doors at the time the police arrived, Mrs. Townsend's testimony that the door to Anthony's room was open when she and Holman left the house through it, and the stipulated testimony of a Gary police officer that shortly after she was brought to the *158 hospital Mrs. Townsend told him that Anthony had let Holman into the house to use the telephone.
This argument is without merit. The absence of physical signs of forced entry does not necessarily indicate that an entry was consented to. The evidence in this case is not inconsistent with Mrs. Townsend's version of events based on what she stated Holman told her, which was that he shot Anthony and that he had forced his way into the house after Anthony had opened his door part way and decided not to allow him to enter. In addition, Mrs. Townsend denied telling anyone, as Holman contended she had, that Anthony had let Holman in to use the telephone and stated that, inasmuch as Holman had not himself told her this, she did not know how she could have known it. The jury could reasonably have believed her testimony at trial and found beyond a reasonable doubt that Holman entered the house without authority. The conviction of home invasion is affirmed. Ill. Rev. Stat. 1979, ch. 38, par. 12-11(a)(1).
III. THE EXTRA MURDER CONVICTIONS
Holman and the State agree that because only one homicide occurred, three of the four convictions of murder must be vacated. (See People v. Brownell (1980), 79 Ill. 2d 508, 524; People v. Bone (1982), 103 Ill. App. 3d 1066, 1068; People v. Jacobs (1976), 44 Ill. App. 3d 290, 291.) They also agree that two of the felony-murder convictions based on burglary should be vacated, and we approve this agreement.
Holman argues that the third felony-murder conviction, the one based on armed robbery, should also be vacated in favor of the intentional-murder conviction. The State, on the other hand, contends that this felony-murder conviction should stand because the aggravating factor on which it relied for purposes of seeking the death penalty was that the murder took place in the course of *159 an armed robbery (Ill. Rev. Stat. 1979, ch. 38, par. 9-1(b)(6)). The disagreement between the parties is difficult to understand inasmuch as the aggravating factor relied upon requires the State to establish not only that the murder occurred in the course of one of various specified felonies, but also that it was committed "by the defendant and not by another party to the crime" (Ill. Rev. Stat. 1979, ch. 38, par. 9-1(b)(6)(a)) and was committed "intentionally or with the knowledge that the acts which caused the death created a strong probability of death or great bodily harm" (Ill. Rev. Stat. 1979, ch. 38, par. 9-1(b)(6)(b)) to the victim or another individual, factors which are not elements of felony murder and are not proved by a conviction of felony murder standing alone. However, because we find it necessary to remand the cause for a new sentencing hearing and because any of the murder convictions might support a death sentence under the facts of this case, we believe the State has the right to elect which of the convictions should be retained.
Holman contends that the State cannot rely upon any of the felony-murder convictions because the procedure used to obtain the indictment which added those counts was improper. Specifically, he argues that the prosecutor's request to the grand jury to recollect the testimony it had heard four weeks earlier, unaccompanied by any summary of that testimony or any presentation of new testimony by live witnesses, violated the due process guarantees of the Federal Constitution. He also argues that because only 18 grand jurors were present at the original proceeding while 20 were present at the second, it is not possible to determine that a quorum of 16 grand jurors out of the original panel of 23 had the information necessary to return the felony-murder indictments, as Holman argues is required by the statutes of this State. See Ill. Rev. Stat. 1979, ch. 78, par. 16.
*160 This attack upon the grand jury proceedings is not valid in this case. The quorum requirement mentioned by Holman refers only to how many jurors of the panel of 23 must be present to "constitute" a grand jury at any one time. The same act provides that "[n]o grand jury shall make presentments of their own knowledge, upon the information of a less number than 2 of their own body." (Ill. Rev. Stat. 1979, ch. 78, par. 19.) This section controls the instant case, and from the numbers recited above it is apparent that no fewer than 15 of the members of the second grand jury quorum attended the first grand jury proceeding and heard the evidence presented there.
Holman, citing People v. Rodgers (1982), 92 Ill. 2d 283, and People v. Curoe (1981), 97 Ill. App. 3d 258, urges that an indictment may not be based solely on the recollection of the grand jurors of the testimony presented to them at an earlier date. There are significant differences between this case and Rodgers and Curoe. In Rodgers this court ruled only that an indictment had to be supported by some evidence tending to show the existence of probable cause. In Curoe, a case in which the second grand jury was different from the first and was apprised of the relevant facts only by the unsworn testimony of the prosecutor summarizing testimony adduced before the first grand jury, the appellate court dismissed the indictment because no competent testimony had been presented to the second grand jury and there was "[no] evidence that the [second] grand jury indicted defendant on the basis of the personal knowledge of two or more of [its] members" (97 Ill. App. 3d 258, 268-69). In this case at least 15 members of the second grand jury heard both the prosecutor's request and the earlier testimony of which he reminded the jurors: the earlier testimony served as evidence bearing on the existence of probable cause, while the grand jurors' recollection of it certainly *161 constituted "personal knowledge of two or more" of them so as to satisfy the statutory requirement underlying the Curoe decision.
For similar reasons we find the Federal cases cited by Holman not in point. United States v. Hodge (5th Cir.1974), 496 F.2d 87, United States v. Mahoney (E.D. Pa. 1980), 495 F. Supp. 1270, United States v. Braniff Airways, Inc. (W.D. Tex. 1977), 428 F. Supp. 579, and In re Grand Jury Investigation (D. Md. 1963), 214 F. Supp. 856, all involved two distinct grand juries, the second of which learned the relevant facts only through a summary of testimony presented to the first. Nor is it a matter of concern in this case that the predicate felonies for the three felony-murder charges were not charged by the grand jury when it first convened. As we have stated, a grand jury may indict a defendant on the basis of the personal knowledge of two or more of its members. Holman has not demonstrated that the information which the 15 or more grand jurors who heard the original testimony gained from it would not qualify as personal knowledge relevant to those felonies.
IV. THE SENTENCING PHASE
We next consider errors that Holman asserts occurred in the sentencing phase of his trial. These errors require a new sentencing hearing.
Holman points to various statements made by the prosecutor in his initial closing argument in the second stage of the sentencing hearing which highlighted the possibility that Holman might kill again if he were sentenced to prison rather than executed. At various points in his argument the prosecutor said:
"The reason that I [believe capital punishment serves a useful purpose] is that there are other potential victims, innocent people, whose lives are out there. They have done nothing that deserves being executed by cold-blooded *162 killers, and if we have capital punishment in this State and in this country, it is my contention that some of those innocent people, not all, but some of those innocent people's lives may be spared.
* * *
I contend this, if capital punishment does not deter others, and we execute someone who is convicted of murder, the only thing that we have done I don't mean to take that lightly the only thing that we have done is to execute a person who most needs deterrence, a person who has already killed. We will not afford him an opportunity to escape from prison. We will not afford him the opportunity to kill the prison guards * * *.
* * *
[A]nd we can show and we believe that capital punishment deters some killings, so that some future victims', our fellow citizens' in this county and this State and land, lives will be spared.
What we have, in effect, done by not imposing capital punishment in the proper case is to slaughter, ensure that other innocent people will be killed.
Now, * * * if we are to spare a convicted murderer's life because we suddenly feel that the sanctity of that convicted killer's life is such that it should not be forfeited when you kill someone else, then what we are, in effect, saying is that the sanctity of life of a convicted killer means more than the sanctity of life of an innocent future victim.
Think about that. You will come down on the side of a convicted killer, a convicted murderer, and say, no, he should not be put to death, even though this is the proper case, thereby, virtually, guaranteeing down the road future innocent victims will be slaughtered." (Emphasis added.)
While these remarks were made in the context of the prosecutor's explanation of the deterrence rationale for the death penalty, the italicized passages can only be interpreted as referring to Holman; the State does not contend otherwise. The clear import of the prosecutor's *163 words is that the jury, by sentencing Holman to prison, would run the risk that he would kill a prison guard or would escape and kill again.
The United States Supreme Court has emphasized that "[i]t is of vital importance to the defendant and to the community that any decision to impose the death sentence be, and appear to be, based on reason rather than caprice or emotion." (Gardner v. Florida (1977), 430 U.S. 349, 358, 51 L. Ed. 2d 393, 402, 97 S. Ct. 1197, 1204.) To conform to this mandate as well as to insure "that degree of respect due the uniqueness of the individual" (Lockett v. Ohio (1978), 438 U.S. 586, 605, 57 L. Ed. 2d 973, 990, 98 S. Ct. 2954, 2965), courts have required that the focus in death penalty hearings be on the character and record of the offender and the facts and circumstances surrounding the offense (Woodson v. North Carolina (1976), 428 U.S. 280, 304-05, 49 L. Ed. 2d 944, 961, 96 S. Ct. 2978, 2991; People v. Szabo (1983), 94 Ill. 2d 327, 366; People v. Walker (1982), 91 Ill. 2d 502, 515; People v. Gleckler (1980), 82 Ill. 2d 145, 162; People v. Carlson (1980), 79 Ill. 2d 564, 590). This court has frequently stressed that evidence must be excluded from the sentencing hearing if it does not bear on the aggravating or mitigating factors in a given case, the circumstances of the offense or the character or rehabilitative potential of the particular defendant. People v. Szabo (1983), 94 Ill. 2d 327, 366-67; People v. Walker (1982), 91 Ill. 2d 502, 515; see also People v. Riley (1941), 376 Ill. 364, 367-68.
Parties in closing argument may not go beyond the scope of the evidence presented and facts fairly inferable therefrom (People v. Beier (1963), 29 Ill. 2d 511, 517; People v. Rothe (1934), 358 Ill. 52, 56), and it may not be assumed in the absence of evidence that a person convicted of murder will escape from prison or commit another murder. In this case the only evidence which could *164 even remotely support the prosecutor's assertions is the testimony that defendant was found guilty of various violent crimes prior to the one for which he was tried here and the fact that the letter containing the solicitation of Mrs. Townsend's death was Holman's second indication that he wanted to take her life. Nowhere is there any suggestion that Holman would escape from prison or kill a guard, and inasmuch as his unrebutted testimony was that he had plans to kill Mrs. Townsend while he was in custody only because he feared that she would testify against him, we consider the fact of his attempts on her life to be at best an unreliable indicator of his likely conduct toward her or anyone else if he were someday released from prison.
Even if the prosecutor's statements were supported by evidence, their prejudicial effect outweighs their probative value. On the basis of the record before us the future behavior of Holman as referred to by the prosecutor was merely "a speculative possibility that may or may not occur" (People v. Walker (1982), 91 Ill. 2d 502, 515). The likely, if not the inevitable, effect of such graphic remarks is to focus the jury's attention on extraneous fears and divert it from considering the aggravating and mitigating factors presented by the case, the character and record of the defendant and the nature and circumstances of his offense. (People v. Szabo (1983), 94 Ill. 2d 327, 366; see People v. Walker (1982), 91 Ill. 2d 502, 515.) The likelihood that this occurred is increased here, where the prosecutor's statements appear not once but several times in the course of closing argument and culminate in the bald assertion that by not sentencing the defendant to death the jury would be "virtually, guaranteeing down the road future innocent victims will be slaughtered."
In both Szabo and Walker this court decided that it was reversible error to call to the jury's attention the *165 possibility that if sentenced to prison the defendant might be paroled. In Walker the death sentence was reversed even though the State had argued credibly that defense counsel's argument invited the prosecutor's remarks. In Szabo we observed:
"The role of the State's Attorney is not to speculate as to what might happen should the death penalty not be invoked. * * *
* * *
* * * The sentencing hearing is not intended to provide a soap box on which counsel can prey upon the fears of the jurors that the defendant may soon walk the streets again in search of another victim." (94 Ill. 2d 327, 366-67.)
Unsupported predictions as to the kind of crimes the defendant will commit if not executed are even more to be condemned than references to the possibility of parole, for they convey more directly to jurors the vivid, but misleading, message that the death penalty is the only way to protect society from the defendant and forestall his violence. (See People v. Murtishaw (1981), 29 Cal. 3d 733, 773, 631 P.2d 446, 470, 175 Cal. Rptr. 738, 762, cert. denied (1982), 455 U.S. 922, 71 L. Ed. 2d 464, 102 S. Ct. 1280.) The statements made here had no function other than to appeal to the passions and fears of the jury and increase the likelihood that the sentence it would recommend would be based on emotion rather than on reason.
To somewhat similar if less graphic effect were statements made by the prosecutor in rebuttal closing argument, ostensibly in reply to an argument by defense counsel that Holman's impoverished background was to blame for his actions:
"* * * [Y]ou can get ahead in this country if you truly try, if you try to make something of yourself.
Mrs. Townsend told you about her family. Tony, Who's Who in America. He made that, and that's a very *166 high honor. He graduated early with honors. Another son, who is a planner in the Department of Children and Family Services, and they're black, but there's a little bit of difference between Antoinette Townsend and her kind and that savage killer there.
Mrs. Townsend has something that is a necessary component, in my opinion, of being a decent human being. She has religious moral fiber. * * *"
Examination of the record reveals, however, that defense counsel did not argue to the jury that Holman's poverty was a cause of his actions; he merely contended that Holman was drunk when he was inside the Townsend house and that his criminal activity was due to his having developed a "penitentiary life-style" while serving his earlier prison sentences. The prosecutor's comments were not invited by the defense, and we believe that the discussion of Anthony Townsend's accomplishments and surviving members of his family was an improper appeal to the emotions of the jurors.
In People v. Bernette (1964), 30 Ill. 2d 359, 371, a death case, this court stated that it has "consistently condemned the admission of evidence that the deceased left a * * * family, inasmuch as such evidence has no relationship to the guilt or innocence of the accused or the punishment to be inflicted upon him, but serves ordinarily only to prejudice him in the eyes of the jury." (See, e.g., People v. Gill (1973), 54 Ill. 2d 357, 368; People v. Gregory (1961), 22 Ill. 2d 601, 605-06; People v. Dukes (1957), 12 Ill. 2d 334, 340; Filippo v. People (1906), 224 Ill. 212, 217.) In this case the prosecutor informed the jury not only that the deceased had a brother who worked for the State, but also that his mother had "religious moral fiber" (suggesting, as made clear by the prosecutor's very next words, that Holman's failure to appreciate her "talking about religion" made him more deserving of the death penalty) and that the murder victim *167 was unusually bright and had received various honors (suggesting that the family's loss was the greater and that Holman's crime was therefore more heinous). Each of these diatribes in the course of a fairly short rebuttal had potential for distracting the jurors from their task of balancing aggravating and mitigating factors and "arous[ing] in them anger, hate and passion" for Holman (People v. Dukes (1957), 12 Ill. 2d 334, 340) and sympathy for the Townsends. These arguments were not necessary to illustrate the prosecutor's contention to the jury that "you can get ahead in this country if you truly try, if you try to make something of yourself," a proposition which, if not self-evident, was illustrated by the prosecutor's reference to his grandparents and to the jurors' ancestors which immediately preceded the quoted remarks. (See Filippo v. People (1906), 224 Ill. 212, 217.) Nor can the remarks be justified as fair commentary on properly admitted testimony. Even if Mrs. Townsend's testimony at the sentencing hearing, in which she mentioned Anthony's scholastic record and awards as well as the names and occupations of her husband and her other five children, were properly admitted to rebut Holman's testimony that Anthony had had a dispute with his father and became hostile when Holman approached him in his house, the context of the prosecutor's remarks shows that they were not designed to rebut Holman's story.
Holman next points out three instances in the prosecutor's closing argument when the jury was misled as to the legal basis for imposing the death penalty. In his initial closing argument the prosecutor stated:
"In the first part of this proceeding, the trial of this case, there was a lot of to-do, a lot made of the fact that what we were dealing with here, not a felony murder, it was for lack of a better word, simple murder, because if you found it to be a murder without the statutory aggravating factors for forcible felonies there would be no death *168 penalty hearing, and last Friday, you returned unanimous verdicts of all six counts finding three counts of felony murder and one count of murder."
The context of this comment shows that it was made in an attempt to remind the jury that it had already determined that Holman was guilty of murder and had found as an aggravating factor that the murder was committed in the course of various felonies. Such a reminder is permissible, and we do not question that the remark was made in good faith with this in mind. However, by emphasizing the four convictions rather than simply the jury's finding that Holman was guilty of a murder committed in the course of one or more forcible felonies, the remark might have led the jury to focus on the multiple convictions rather than on the finding of guilt and the aggravating factor. This possibility is enhanced by the fact that the trial judge, in his admonitions to the jury at the beginning of the sentencing hearing, reminded it that it had "previously found the defendant guilty of murder, as well as * * * three separate counts of felony murder" and informed it that while it was to disregard the count of "murder" it was to "participate in the sentencing proceeding pertaining to the verdicts of guilty of felony murder." In fact, there appears to have been confusion on the part of the judge himself, as evidenced by the fact that in imposing an extended sentence on the intentional-murder count he considered "the factor [that there] has been a homicide for which he's been sentenced to death" as contributing to a finding of heinous conduct. In view of this it seems not unlikely that the jury was similarly led astray.
In his rebuttal closing argument the prosecutor also argued:
"Counsel says that if you strip away deterrence and retribution there is no justification for capital punishment.
*169 Well, ladies and gentlemen, the State of Illinois recognizes something known as self-defense. Self-defense, basically, is a situation where the State will sanction the taking of a human life where there is no other realistic alternative left.
For example, if tonight you were to return home and a loved one of yours, perhaps a daughter or son, is being viciously attacked, being sexually molested, and being knived, you don't have to tap that person on the shoulder and say, sir, pardon me, would you cease your attack upon my child.
The laws recognize an unquestioned right for us to use deadly force, if necessary, to prevent the killing of your child, as long as all realistic alternatives have been exhausted.
What does this have to do with this? Well, ladies and gentlemen, in my opinion, capital punishment is suicidal self-defense. We have a right, in fact, we have a duty to defend ourselves from the unprovoked malicious, savage attacks that were exhibited in this case.
* * *
In my opinion, we have the right to use deadly force and send Mr. Holman to the electric chair if it will save other people's lives."
A short time afterward, the prosecutor stated:
"* * * [I]n fact, mercy is afforded sometimes in fact, in many cases where human lives are taken. The reason that mercy is afforded is that reasonable people can sit down and say, we understand that you killed someone, but we also understand why you did it. Therefore, we're not going to take your life, even though you took someone else's life.
A perfect example of that, ladies and gentlemen, is a situation where a spouse discovers that another spouse is cheating, in fact, catches him in the act. In a heat of passion and rage, just kills the other spouse or partner, if you will.
We call it voluntary manslaughter. It's still killing, and it's as a suicidal act of mercy, yes, sir, we know that you killed, killing is not a nice thing, it is a terrible thing, *170 but we afford you the mercy."
Holman argues, and we agree, that these statements misinformed the jury of the circumstances which make the death penalty appropriate. The prosecutor's argument focused the jury's attention on the legal concepts of self-defense and voluntary manslaughter, concepts which were not issues in the case and concerning which it was never instructed by the court. He conveyed the erroneous idea that the death penalty was proper in all cases except those which constituted voluntary manslaughter, and the equally erroneous notion that the jury had the same right to use deadly force against a defendant convicted of murder that an individual has against a person who threatens imminent bodily harm to him or to another. The likelihood of misleading the jury was enhanced by the prosecutor's explicit equation of "mercy" in sentencing with factors that mitigate a murder to manslaughter. While mercy is a relevant concept in deciding whether to impose the death penalty, it is determined in the context of the factors in aggravation and mitigation which the jury finds and weighs, factors which are not limited to the two that are pertinent in assessing whether a homicide constitutes voluntary manslaughter (see Ill. Rev. Stat. 1979, ch. 38, par. 9-2) or even to the ones specifically listed in the death penalty statute (Ill. Rev. Stat. 1979, ch. 38, par. 9-1(c)). Such misstatements of the law in closing argument are improper, particularly where, as here, the legal principle misstated is a critical one in the case. United States v. Bohle (7th Cir., 1971), 445 F.2d 54, 71.
Holman finally points to numerous instances in which the prosecutor advanced his personal beliefs concerning the desirability of the death penalty. The prosecutor commenced his initial closing argument by stating, "[B]efore I get into the facts of this case and discuss some testimony *171 [or] some of the inferences, * * * I'd like to talk to you about the death penalty. I'd like to share with you some of my thoughts, opinions, and hopefully persuade you to adopt those." He then initiated a general discussion of the various rationales for and against capital punishment, during which he said:
"I'd like to talk to you about another argument that is sometimes used, the death penalty simply does not deter. Folks, we cannot not [sic] statistically prove that capital punishment deters. I'll make that as a flat statement.
Oh, there are some studies which indicate perhaps one way or perhaps another, and there are some studies which strongly indicate that capital punishment deters and other studies conducted by some sociologist, penologist, perhaps not, but I see one big fallacy in that. When Mr. Lou here or Mr. Gallop called people on the phone, taking an opinion, he said, hey, have you ever thought about killing anyone today? Did you ever think about it in the past about going out and killing, and then deciding you wouldn't do it because we got the death penalty in the State of Illinois?
Do you really think that someone is going to tell you that he thought about killing someone but had decided not to do it because of capital punishment? Probably not.
So, let's examine the concept of deterrence, and let's approach it from what I consider to be a common sense point of view."
He then related that he had taken his seven-year-old son to view an electric chair on exhibit at the Will County fair and described his reaction as follows:
"My [son] looked at me and he asked me what it was, and I told him an electric chair, and he asked me what it does, and I told him now, he was seven years old. I said, son, the electric chair kills people who kill other people. If you kill someone in this State, you may have to die and give up your own life.
It was very apparent to myself from just looking at his response that something was sinking in, because I assume those of you who have raised a family have probably *172 told your children when you were rearing them that people who kill other people may forfeit their own lives. It is certainly a possibility. Hopefully, this thought is shared by millions throughout the country and hundreds of millions."
Shortly after this he stated:
"[B]ut what if capital punishment serves as a deterrent, as I believe it does, if it is the proper case for the imposition of the death penalty, and we can show and we believe that capital punishment deters some killings, so that some future victims', our fellow citizens' * * * lives will be spared."
Later in his rebuttal, in response to defense counsel's suggestion to the jury that it was unjust for Holman to receive capital punishment while multiple murderers such as Charles Manson and Richard Speck did not, he argued:
"I want to tell you something. Those guys [Speck and Manson] certainly deserve[d] that. Just because the United States Supreme Court began hallucinating about the death penalty in 1972, and in my opinion, is what they did, they made a very ...
MR. MARKESE [defense counsel]: I object to that, your Honor.
THE COURT: The word is inappropriate. You may comment on it, but not with that type of language, Mr. Petka.
MR. PETKA [State's Attorney]: In my opinion, they made a very tragic mistake, but the legislatures in this country were quick to react to their decision. Three quarters of the legislatures in this nation quickly reimposed the death penalty statute.
MR. MARKESE: I object to that argument, also.
THE COURT: He may make it. Objection overruled.
MR. PETKA: Because they felt capital punishment was appropriate."
In argument to the jury, counsel may not express his personal opinion concerning issues in the case unless his *173 opinion is based on the evidence. (E.g., People v. Vriner (1978), 74 Ill. 2d 329, 344, cert. denied (1979), 442 U.S. 929, 61 L. Ed. 2d 296, 99 S. Ct. 2858; People v. Prim (1972), 53 Ill. 2d 62, 77, cert. denied (1973), 412 U.S. 918, 37 L. Ed. 2d 144, 93 S. Ct. 2731.) The reasons for this rule at the guilt phase of a criminal trial include preventing the introduction of new material by a witness who cannot be cross-examined (People v. Bitakis (1972), 8 Ill. App. 3d 103, 108), preventing the jury from being led to believe that counsel has other information not presented at trial which might make his case more plausible (United States v. Creamer (7th Cir.1977), 555 F.2d 612, 617, cert. denied (1977), 434 U.S. 833, 54 L. Ed. 2d 93, 98 S. Ct. 118), and simply discouraging appeals to the jurors' emotions. The rule is no less essential at the sentencing phase of a criminal case because of the substantial risk that a statement of opinion, if interpreted as supplemental evidence justifying a sentence of death, will distract the jury from properly weighing the aggravating and mitigating factors. See State v. Woomer (1981), 277 S.C. 170, 175, 284 S.E.2d 357, 359.
The prosecutor's reference to various studies and public opinion polls concerning the death penalty was improper for all of these reasons. At no point were any studies or polls introduced into evidence, and there was thus no evidentiary basis either for the prosecutor's description of the results of the scientific studies or for his speculation as to the reliability of the Harris and Gallup polls or the way they were taken. As the prosecutor's sources could not be checked, the jury had to accept on his own authority the assertions he made, assertions clearly intended to convince the jury to accept his opinion that capital punishment deters crime.
In addition, although the State may urge the imposition of death as a deterrent to murder (People v. Lewis (1981), 88 Ill. 2d 129, 149, cert. denied (1982), 456 U.S. 1011, *174 73 L. Ed. 2d 1308, 102 S. Ct. 2307), we held in People v. Szabo (1983), 94 Ill. 2d 327, 363-65, that description of a statistical relationship between the number of executions and the number of homicides in a jurisdiction served to focus undue attention on the notion of general deterrence at the expense of factors bearing on the individual defendant's character and crime. In this case, unlike what occurred in Szabo, no numerical statistics were recited, but a fairly lengthy general reference was made to scientific studies and two named polls whose methods were compared and whose conclusions were contrasted in the course of a long discussion of the deterrence rationale. Our observations in Szabo are relevant here:
"The prosecutor's reference to the supposed general deterrent effect of the death penalty could only divert the jury's attention from the aggravating and mitigating factors * * * and focus it upon an extraneous consideration. * * *
The remarks * * * were also inflammatory and prejudicial. * * * [They] created a grave risk that the jury would be influenced to impose the death penalty out of fear and a sense of outrage, not toward this particular defendant or his acts, but towards criminal defendants in general." 94 Ill. 2d 327, 364-65.
We find the other passages that we have quoted inappropriate for similar reasons. There was no evidence adduced at trial as to any individual's reaction to the possibility that killing another may lead to the forfeiture of one's own life; the prosecutor could not be meaningfully questioned concerning his description of his son's reaction, which lent undue credence to his contention that capital punishment deters crime generally. In addition, his reference to his small boy may have served to enlist the jury's sympathy. The statement that "we can show and we believe that capital punishment deters some killings" similarly *175 had no evidentiary basis and suggested to the jury that the prosecutor had reliable information, outside the record, which proved his assertion. The prosecutor's opinion that the United States Supreme Court's 1972 decisions declaring capital punishment under existing statutes unconstitutional were "a very tragic mistake" resulting from "hallucinat[ions] about the death penalty" was clearly likely to elicit an emotional response, particularly when combined with the observation that "three quarters of the legislatures in this nation quickly reimposed the death penalty statute." The prosecutor's critical remarks went far beyond what defense counsel may fairly be said to have invited by his reference to Manson and Speck; in the context of rebuttal argument where the jury could assume that it was relevant to the sentencing decision, giving the jury the impression that the death penalty was favored by a significant majority of the nation's citizens distracted the jury from giving this case the individualized consideration essential in all death cases.
The State answers all of Holman's contentions with two arguments. The first is that because Holman offered no evidence of any mitigating factor the evidence in favor of the penalty that was imposed was overwhelming and the errors in closing argument, if there were any, were harmless beyond a reasonable doubt. (People v. Dukett (1974), 56 Ill. 2d 432, cert. denied (1974), 419 U.S. 965, 42 L. Ed. 2d 180, 95 S. Ct. 226; People v. Skorusa (1973), 55 Ill. 2d 577.) At the time it was to sentence Holman the jury had before it his claim, supported by his own testimony and that of his cousin and her husband, that he had been drinking prior to the events at the Townsend home and was drunk during the killing. This claim was rendered plausible by Mrs. Townsend's testimony at the guilt phase that Holman drove the wrong way on an interstate highway for a while before he realized what he was doing, and while she testified that Holman's eyes were not dilated she described *176 their appearance as "wild" and admitted that his breath smelled faintly of alcohol. This evidence of intoxication, if believed by the jury, would have established a factor which could have been used in mitigation. (People v. Gleckler (1980), 82 Ill. 2d 145, 169-71; People v. Walcher (1969), 42 Ill. 2d 159, 166; compare Ill. Rev. Stat. 1979, ch. 38, par. 9-1(c)(2) (diminished capacity in the form of "extreme mental or emotional disturbance" is a mitigating factor).) We also note that Holman for the first time in the sentencing hearing raised the contention that another person committed the homicide; any reasonable doubts the jury may have had as to whether Holman was the triggerman could have been considered in mitigation even though they came too late to be inconsistent with a verdict of guilt. Although this version of events does strike us as somewhat implausible, it is not so inherently so as to convince us that no reasonable-minded juror could have believed it. In any event, we cannot say, as the State does in its brief, that the evidence in favor of the death penalty in this case was "overwhelming" or conclude with conviction that the jury would have balanced the aggravating and mitigating factors in the same way had the prosecutor not made the remarks we have identified. The errors were therefore not harmless. See People v. Lampkin (1983), 98 Ill. 2d 418, 430-31; People v. Walker (1982), 91 Ill. 2d 502, 517; People v. Mills (1968), 40 Ill. 2d 4, 14.
The State's second response is that, with the one exception noted, Holman failed to object to any of the prosecutor's statements. Ordinarily, a contention not made in the trial court is waived on appeal (see, e.g., People v. Jackson (1981), 84 Ill. 2d 350, 358-59; People v. Carlson (1980), 79 Ill. 2d 564, 576). While our rules permit a reviewing court, in its discretion, to consider "[p]lain errors or defects affecting substantial rights" even though no objection was made to them at trial (87 Ill.2d R. 615(a)), such consideration is normally granted only when "it [is] plainly apparent *177 from the record that an error affecting substantial rights was committed" (People v. Jackson (1981), 84 Ill. 2d 350, 359; People v. Foster (1979), 76 Ill. 2d 365, 380). However, because of the qualitative difference between death and other forms of punishment and the "`high standard of procedural accuracy [that] is required in determining whether or not [the death] penalty will be imposed'" (People v. Davis (1983), 97 Ill. 2d 1, 26-27; People v. Walker (1982), 91 Ill. 2d 502, 517; see Woodson v. North Carolina (1976), 428 U.S. 280, 303-04, 49 L. Ed. 2d 944, 961, 96 S. Ct. 2978, 2991), this court has elected to address errors in death penalty cases which might have affected the decision of the sentencing jury. Thus in People v. Szabo (1983), 94 Ill. 2d 327, 354-55, 363-65, we considered several alleged errors, including the prosecutor's statements concerning the possibility of parole, notwithstanding the absence of any objection at trial and despite the absence of evidence which proved that the jury actually relied on them in imposing sentence. Similarly in People v. Davis (1983), 97 Ill. 2d 1, 26-27, we addressed the admission of evidence pertaining to an improper aggravating factor and prosecutorial references to the victim's family, errors whose potential for prejudicing the jury "should not be tolerated" (97 Ill. 2d 1, 27). Compare People v. Free (1982), 94 Ill. 2d 378, 425, cert. denied (1983), 464 U.S. 865, 78 L. Ed. 2d 175, 104 S. Ct. 200, and People v. Lewis (1981), 88 Ill. 2d 129, 149, cert. denied (1982), 456 U.S. 1011, 73 L. Ed. 2d 1308, 102 S. Ct. 2307, in which alleged errors which were held to have been waived were nonetheless considered by this court.
The errors we have discussed, considered together, require a new sentencing hearing. (See People v. Ramirez (1983), 98 Ill. 2d 439, 473; People v. Walker (1982), 91 Ill. 2d 502, 517.) Most of the improper comments occurred in the course of a long discussion of the justifications for the death penalty in general, a circumstance which itself might *178 tend to distract a jury's attention from the individual character of the defendant and his crime. The prejudicial effect of warning the jury that Holman might kill a prison guard and escape to kill again was probably such that it could not have been cured by an admonition to the jury following an objection. (See People v. Yates (1983), 98 Ill. 2d 502, 538.) Moreover, the objection which Holman did raise to the statement concerning the Supreme Court's disapproval of our 1972 death penalty statute failed to elicit such an admonition or occasion the striking of the offending remarks.
Having determined that Holman is entitled to a new sentencing hearing on the murder conviction, we should not consider whether there were Witherspoon violations in the selection of his jury or whether Holman received effective assistance of counsel at the sentencing hearing. (People v. Ramirez (1983), 98 Ill. 2d 439, 459.) Nor need we consider whether Officer Brown's testimony in the sentencing hearing was proper or whether the death penalty statute is constitutional, in view of the possibility that those issues may not arise again in the proceedings following the remand. Similarly, we do not address Holman's contention that his 1968 conviction on a guilty plea of reckless conduct and unlawful use of a firearm may not be used as an aggravating factor in this case because he was not represented by counsel on that occasion and did not validly waive his right to counsel. We have no way of knowing what the record will show in this regard in the new sentencing hearing.
V. THE SENTENCES ON THE NONCAPITAL CONVICTIONS
Holman finally requests us to remand the convictions of armed violence and home invasion for resentencing. He contends that the trial judge improperly imposed extended sentences for both offenses based on a finding of heinousness made solely in the context of one of them *179 and pronounced a sentence for armed violence in excess of the maximum extended term which can be imposed for the underlying Class 1 felony of aggravated kidnaping (Ill. Rev. Stat. 1979, ch. 38, pars. 10-2(b)(2), 1005-8-2(a)(3)). As the State specifically agrees with these contentions and concurs in Holman's request, we direct the circuit court to also resentence Holman on the armed-violence and home-invasion convictions.
VI. CONCLUSION
We affirm Holman's conviction of felony murder based on armed robbery, as well as his convictions of armed violence and home invasion. We vacate the death penalty and the convictions of intentional murder and felony murder based on burglary, and remand the cause for resentencing on the murder, armed-violence and home-invasion convictions consistent with what is said in this opinion.
Affirmed in part and reversed in part; sentences vacated; cause remanded, with directions.
CHIEF JUSTICE RYAN, concurring in part and dissenting in part:
I concur in that portion of the opinion upholding the conviction of the defendant; however, I dissent from the majority's conclusion that the death penalty must be vacated.
Once again, I deplore the lack of consistency in the application of waiver-plain error demonstrated by the opinions of this court. I wrote at length on this subject by way of dissent in People v. Szabo (1983), 94 Ill. 2d 327, 369 (Ryan, C.J., concurring in part and dissenting in part). This lack of consistency is demonstrated by Szabo and People v. Free (1983), 94 Ill. 2d 378, which appear one following the other in the Illinois Reports. Both *180 were death penalty cases. Free held that the failure of the defendant to object to the introduction of certain evidence and the comments made by the prosecutor during final argument prevented the raising of those questions on appeal. (People v. Free (1983), 94 Ill. 2d 378, 419, 425.) However, the Szabo court held that unobjected-to remarks by the prosecutor in closing argument could be urged as error on appeal by virtue of the plain error doctrine. (People v. Szabo (1983), 94 Ill. 2d 327, 362.) In my partial dissent in Szabo I noted the inconsistencies in Szabo and Free and stated that there was a compelling need for this court to establish a degree of certainty in the application of plain error. People v. Szabo (1983), 94 Ill. 2d 327, 370. (Ryan, C.J., concurring in part and dissenting in part.)
The continuation of the uncertainty of the application of plain error in capital cases, as demonstrated by the opinion in the case now before us, raises a further serious question. One commentator had this to say to this court's vacillation on the waiver-plain-error question:
"Many modern [Illinois] cases are implicitly or explicitly contradictory, exemplifying a basic conflict among the various justices of the Illinois court regarding interpretation of the plain error exception. This conflict among the justices has led to the problems predicted by writers who, with great prescience, asserted that discretion in the context of procedural defaults in a sure road to unfair and arbitrary results." Wangerin, "Plain Error" and "Fundamental Fairness": Toward a Definition of Exceptions to the Rules of Procedural Default, 29 DePaul L. Rev. 753, 784 (1980).
The author quoted above suggested in the article that the impression given by the opinions of this court on the plain error issue and the differences of opinion among the members of this court on that subject may have produced some judgments that may well be based merely *181 upon the "luck of the draw"; that is, the result may depend upon which judge writes the opinion. If this is the case, are we not perilously close to the situation described by the oft-quoted statement of Justice Stewart:
"These death sentences are cruel and unusual in the same way that being struck by lightning is cruel and unusual." Furman v. Georgia (1972), 408 U.S. 238, 309, 33 L. Ed. 2d 346, 390, 92 S. Ct. 2726, 2762 (Stewart, J., concurring).
In the case now before us, as in Szabo, the comments of the prosecutor which the opinion finds objectionable were not objected to. The court in this case has conjectured as to what the effect of these unobjected-to comments may have been. The opinion contains such language as "the likelihood that this occurred," "had potential for distracting the jurors," "the remarks might have led the jury," "this possibility is enhanced," "it seems not unlikely that the jury," "the likelihood of misleading the jury was enhanced," "may have served to enlist the juror's sympathy," and several other such speculative statements.
That the prosecutor's comments "might" or "might not" have had such conjectured effect on the jury is not the test used in determining whether or not the plain error exception is to be applied. If an alleged trial error is not objected to, the rule is that it cannot be raised on review. Waiver, or "procedural default," as it is sometimes referred to, constitutes the general rule. The plain error doctrine is a limited exception to this rule. The alleged error, in order to fall within this exception, must be so serious that it reasonably appears that the jurors have "been influenced or prejudiced to the extent that they could not be fair or impartial." People v. Carlson (1980), 79 Ill. 2d 564, 578.
We have held in our decisions that it is appropriate to consider on review unobjected-to trial error: (1) which *182 deprives an accused of a substantial means of enjoying a fair and impartial trial or (2) which occurs in criminal cases in which the evidence is closely balanced. People v. Carlson (1980), 79 Ill. 2d 564, 576-77; People v. Howell (1975), 60 Ill. 2d 117, 121; People v. Pickett (1973), 54 Ill. 2d 280, 283.
Likewise, the Federal cases recognize that plain error is a doctrine to be strictly and sparingly applied. The Supreme Court has stated that plain error "grants the courts of appeals the latitude to correct particularly egregious errors on appeal regardless of a defendant's trial default." (Emphasis added.) (United States v. Frady (1982), 456 U.S. 152, 163, 71 L. Ed. 2d 816, 827, 102 S. Ct. 1584, 1592.) The Federal courts of appeal have also recognized that plain error must be used sparingly and only in situations where it is necessary to prevent a great miscarriage of justice. See United States v. Gerald (5th Cir.1980), 624 F.2d 1291, 1299; United States v. DiBenedetto (8th Cir.1976), 542 F.2d 490, 494; United States v. Mooney (8th Cir.1969), 417 F.2d 936, 939; Eaton v. United States (5th Cir.1968), 398 F.2d 485, 486; Black v. United States (8th Cir.1962), 309 F.2d 331, 342.
Conjecturing that the unobjected-to comments of the prosecutor may have had some prejudicial effect upon the jury just does not satisfy the rigid standards that have been established for the application of plain error. Plain error was created to ameliorate the hardships of the waiver (procedural default) rule. It was not created for the purpose of authorizing a nitpicking excursion through the record to find some conjectured prejudice upon which to base the reversal of a conviction or, as in this case, the vacation of a death penalty. The vacation of the death sentence in this case is based solely upon some conjectured prejudice stemming from statements by the prosecutor to which the defense counsel at trial *183 elected not to object.
My dissent is not based solely on the fact that the majority elected to apply plain error instead of holding that the alleged errors were waived. I have examined the final arguments of both the prosecutor and defense counsel in detail, and I do not consider that the comments of the prosecutor constituted reversible error.
The opinion, under the heading, "The Sentencing Phase," first discusses the statements made by the prosecutor concerning the justifications for the death penalty. The discussion centers on the arguments the prosecutor made concerning deterrence as a justification. The majority quotes a paragraph of the prosecutor's argument, which is followed by three asterisks indicating that some of the argument was omitted. (103 Ill.2d at 161-62.) The part of the argument omitted, as represented by those three asterisks, constitutes six pages of the transcript. The paragraph quoted constitutes a part of the argument which refutes the general contention of those opposed to the death penalty that capital punishment serves no useful purpose. It does not relate specifically to the subject of deterrence. Following the quoted paragraph in the transcript is a discussion refuting the argument that the death penalty should not be imposed because a killer may be rehabilitated. This part of the argument is not quoted in the opinion. This is followed then by a discussion refuting the contention that the death penalty does not deter. This also is not set out in this part of the opinion. The second paragraph quoted in the opinion which appears below the three asterisks relates to the prosecutor's argument refuting this contention that the death penalty does not deter and is introduced by the following statement not quoted in the opinion: "But let's now approach it from the point of view of those who are opposed to the death penalty, [who] state that capital punishment does not deter other *184 people and we simply shouldn't have it." The part of the argument which is then quoted in the opinion below the three asterisks (103 Ill.2d at 162) sets forth the justification for the death penalty, even if one accepts the fact that the death penalty does not act as a deterrent to others. This is again followed by three asterisks between the paragraphs. The quoted part of the argument following these asterisks seems to be an assertion that "we can show and we believe that capital punishment deters some killings." This is not the context in which that statement was made. The part omitted, as indicated by the asterisks, ties these two paragraphs together all as a part of the same argument. The part omitted immediately following the words "prison guards" in the paragraph preceeding is as follows, "but what if capital punishment serves as a deterrent, as I believe it does if it is a proper case for the imposition of the death penalty." These two paragraphs then, when read in proper context, simply argue that even if we accept the view of those who oppose the death penalty that capital punishment does not deter other people, capital punishment is justified for the reasons stated in that paragraph. If it does serve as a deterrent, then it is justified as stated in the second paragraph. This entire argument is simply and clearly a statement by the prosecutor that the death penalty is a justified form of punishment whether or not it has a deterrent effect on others. To say, as the majority does, that "the clear import of the prosecutor's words is that the jury, by sentencing Holman to prison, would run the risk that he would kill a prison guard or would escape and kill again" is a gross distortion. Holman was never referred to in this part of the argument. This was a general discussion of the death penalty, the sanctity of human life, and deterrence and retribution. It was not until some three pages later in the transcript that the prosecutor stated, "now I'd like to talk a *185 little bit about this case." He then turned from the general discussion I previously mentioned to the specifics of this case. The statements which the opinion finds objectionable were simply arguments by the prosecutor pointing out to the jury the justifications for the imposition of the death penalty. In People v. Lewis (1981), 88 Ill. 2d 129, 149, this court held that a prosecutor could properly urge the imposition of death as a deterrent to murder.
The opinion next finds something wrong in certain references by the prosecutor in his rebuttal closing argument to the fact that the decedent and his family had substantial accomplishments in spite of adversity. (103 Ill.2d at 165-66.) The opinion finds that these statements and reference to the decedent's family were not invited by the defense counsel's closing argument and constitute error. I do not agree. As to the references to the decedent's family, defense counsel in his closing argument, urging that the death penalty not be applied in this case, stated, "and it is not just the fact that Tafford Holman has a young baby, it's not just the fact that he does have family somewhere. He's got sisters." After having made the defendant's family a focal point in arguing against the death penalty in this case, it is no wonder that defense counsel did not object to the incidental reference to the decedent's family. Further, a substantial part of defense counsel's argument was based on the contention that our criminal justice system had failed. Counsel talked about the defendant's experience in the courts as a juvenile and about rehabilitation. He concluded by urging that we "correct the aberrations in our society that have created the Tafford Holmans and Richard Specks and the Mansons." Defense counsel placed the blame on society for the fact that Holman had killed. It was a logical response to that argument for the prosecutor to state "you can get ahead in this country if you truly try to make something of yourself." He then *186 went on to refer to Mrs. Townsend and her children as an example of the truth of that statement. I cannot understand how the majority can conclude that the statements by the prosecutor were not invited by the argument of defense counsel to the effect that because of unfortunate circumstances and the errors of society the defendant Holman never had a chance.
The majority conjectures that the prosecutor's reference to four convictions of murder might have "led the jury to focus on the multiple convictions rather than on the finding of guilt and the aggravating factor." (103 Ill.2d at 168.) I do not understand what deficiency in the prosecutor's argument the majority finds to be erroneous. The jury knew that only one person had been killed. It was also well aware of the fact that it had returned verdicts of guilty on three counts of felony murder and one count of murder. To say that some prejudice might have flowed from the prosecutor's simple recital of facts already within the jury's knowledge is just pure speculation.
The opinion also takes issue with the prosecutor's discussion of self-defense, voluntary manslaughter, and mercy. (103 Ill.2d at 168-70.) The opinion refers to these remarks as misstatements of the law. They are not. The discussion of the prosecutor concerning self-defense was in response to the defense counsel's statement: "If you strip away deterrence and retribution there is no justification for capital punishment." The prosecutor responded that self-defense is justifiable homicide. He then gave an example of self-defense and likened the death penalty to a form of societal self-defense. He concluded that argument by urging that "we have the right to use deadly force and send Mr. Holman to the electric chair if it will save other people's lives."
The above argument had nothing to do with the argument concerning mercy and voluntary manslaughter, although *187 the opinion sets them out as though they are all a part of the same argument. The prosecutor's statement concerning mercy and voluntary manslaughter were in response to what he characterized as the defense counsel's plea for mercy. The prosecutor argued that despite the fact that the defendant was utterly merciless, in that he had shot the 17-year-old boy and left him to die on the floor, and had then tried to kill the boy's mother, his counsel was urging the jury to have mercy. The prosecutor went on to state that if the jury chose to afford Mr. Holman mercy, it was within its power to do so. The prosecutor followed that statement with the part of the mercy argument that is set forth in the opinion. (103 Ill.2d at 169-70.) With this background we have a better understanding of the nature of the argument. The discussion by the prosecutor in no way limited mercy to the factors pertinent in assessing whether a homicide constitutes voluntary manslaughter as the opinion suggests. The voluntary-manslaughter example is clearly labeled in the argument as only an example. There clearly was no misstatement of legal principles critical to the case as the opinion asserts.
The opinion next refers to "numerous instances in which the prosecutor advanced his personal beliefs concerning the desirability of the death penalty." (103 Ill.2d at 170.) The personal beliefs which the prosecutor allegedly asserted were general statements concerning the death penalty. This is not a case where the prosecutor stated his opinion as to the guilt of the defendant or as to the truth or falsity of particular facts in issue or evidence presented, all of which have been held to constitute error. (See People v. Vriner (1978), 74 Ill. 2d 329, 344; People v. Prim (1972), 53 Ill. 2d 62, 77.) The desirability of the death penalty was not an issue in this case. That had been decided by the legislature of this State. The prosecutor was simply restating arguments in favor *188 of the penalty.
As to deterrence, the prosecutor did not assert the specific results of any studies or any public opinion polls concerning the death penalty. He made no reference "to various studies and public opinion polls concerning the death penalty" as the opinion asserts. (103 Ill.2d at 173.) Thus the facts in this case are in no way similar to those references to statistics not in evidence which were held to be error in People v. Szabo (1983), 94 Ill. 2d 327, 363-64. The prosecutor's reference to Mr. Harris and Mr. Gallup was not a reference to public opinion polls taken by those pollsters. Nor was there any implication as to the results of any such poll. It was simply a reference to the manner in which such polls are taken and the possibility that those polled would be reluctant to answer completely and fairly.
The prosecutor stated that as to the deterrent effect of the death penalty it cannot be statistically proved that capital punishment deters. He stated that there were studies that indicated both that it was a deterrent and that it was not. Defense counsel, in his final argument in response to the prosecutor's statement that it cannot be statistically proved that capital punishment deters, stated, "He's right. Where is the evidence?" Thus, there was no assertion to the jury that there were statistics that proved that capital punishment acted as a deterrent on the criminal activities of others, and the response by defense counsel agreeing with the prosecutor's statement could leave the jury with only one impression, that is, that there was no such statistical evidence. The opinion acknowledges that this case, unlike Szabo, recited no statistics but somehow seems to think that the law as announced in Szabo also condemns the general argument made to the jury in this case.
The opinion asserts that the prosecutor's reference to his small boy "may have served" to enlist the jury's *189 sympathy. (103 Ill.2d at 174.) However, the defense counsel likewise referred to his son by stating in his closing argument:
"My young child asked me what I had been doing for the past four or five weeks. I told him about my client, and I, quite frankly, told him that I pleaded for a condemned man. I would like to think that there is hope."
It would therefore appear that any sympathy that might have been envoked by the prosecutor's comments was evenly offset by the remarks of defense counsel. The unobjected-to comment by the prosecutor opened the door for defense counsel to make his sympathy-evoking argument. Now the majority of this court finds error in the prosecutor's even though used to defendant's advantage.
The opinion likewise finds error in the prosecutor's critical comments concerning the Supreme Court's decision outlawing the death penalty. (103 Ill.2d at 172.) During defense counsel's argument to the jury he raised the question as to why Speck and Manson had not received the death penalty since they had committed multiple murders, whereas Holman had committed only one murder. The prosecutor had the right to tell the jury that Speck and Manson were not sentenced to death because the death penalty statutes in existence at that time had been held unconstitutional. (See People v. Speck (1972), 52 Ill. 2d 284; People v. Manson (1976), 61 Cal. App. 3d 102, 132 Cal. Rptr. 265.) He stated that the Supreme Court "began hallucinating about the death penalty in 1972." Defense counsel objected, and the court struck the word "hallucinating" but permitted the prosecutor to comment on the action of the Supreme Court. The prosecutor then stated, "In my opinion, they made a very tragic mistake." This was not an expression of opinion on an issue in the case. It was simply a statement on the controversial issue that was and is constantly aired in the media and of which the jury had to *190 be aware. I cannot see how this statement could have prejudiced the jury. The opinion also states that in his statement on this subject the prosecutor gave "the jury the impression that the death penalty was favored by a significant majority of the nation's citizens." (103 Ill.2d at 175.) There is not one word in the prosecutor's final argument that implies that "the death penalty was favored by a significant majority of the nation's citizens." What he did state, and this is a matter of general public knowledge, is that "three-quarters of the legislatures in this nation quickly reimposed the death penalty statute." The use of the phrase "three-quarters of the legislatures" may not be exactly accurate, although it is approximately so. A recital of this matter of general public knowledge which is not misleading certainly cannot be said to have prejudiced the defendant.
I have attempted to point out that the comments found by the majority to constitute reversible error not only did not constitute plain error, warranting their consideration in the absence of an objection, but also did not constitute error warranting reversal even if they had been properly preserved by objections. The majority opinion has combed the final argument of the prosecutor, has lifted statements out of context, has applied unreasonable inferences to statements that were made, and has used the plain error concept as an instrument for vacating a death penalty, when all else failed.
The legislature, as a body representative of the people of this State, has decreed that death is an appropriate penalty for murder when certain aggravating factors are present. This court has held that the death penalty statute enacted by the legislature is constitutional. (People ex rel. Carey v. Cousins (1979), 77 Ill. 2d 531.) Our criminal justice system is founded on an adversarial basis. Certain procedural rules have come to be accepted as the means of maintaining an appropriate balance in *191 such an adversarial system and of insuring a fair trial to both the defendant and the People. These procedural rules include the principles of waiver and plain error. It is the court's function to apply the constitutional laws enacted by the legislature, and in doing so, it should follow established rules of procedure. As distasteful as the penalty of death may be, we must, nonetheless, apply it in cases in which it has been properly found by the sentencing body to be appropriate. We should not bend or distort the accepted procedural rules in order to circumvent that penalty in a particular case. Also, we must not construe procedural rules, or apply them in such a rigid manner, that we thwart the will of the people by making it nearly impossible to apply the death penalty statute enacted by the legislature. By applying the test of what prejudicial effect the prosecutor's argument "might or could have had" on the jury, by examining each statement of the prosecutor out of context, and by drawing conjectured inferences therefrom, it is doubtful if any final argument for the prosecution could be found free from error. I therefore dissent from that portion of the majority opinion which vacates the penalty of death.
UNDERWOOD and MORAN, JJ., join in this partial concurrence and partial dissent. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1941208/ | 232 B.R. 127 (1999)
In re Donna Mae ANDRESEN, Debtor.
Donna Mae Andresen, Appellee,
v.
Nebraska Student Loan Program, Inc., Appellant.
No. 98-6095NE.
United States Bankruptcy Appellate Panel of the Eighth Circuit.
Submitted March 3, 1999.
Decided March 30, 1999.
*128 Paul J. Peter, Gary L. Young, Lincoln, NE, for appellant.
Richard Register, Fremont, NE, for appellee.
Before KRESSEL, SCHERMER, and DREHER, Bankruptcy Judges.
KRESSEL, Bankruptcy Judge.
The Nebraska Student Loan Program, Inc., appeals from the September 2, 1998, and October 16, 1998, orders of the bankruptcy court[1] holding that two of the debtor's student loans were discharged in her Chapter 7 case under the undue hardship provision of § 523(a)(8) of the Bankruptcy Code.
We review the bankruptcy court's factual findings for clear error and its conclusions of law de novo. Johnson v. Border State Bank (In re Johnson), 230 B.R. 608 (8th Cir. BAP 1999); Eilbert v. Pelican (In re Eilbert), 162 F.3d 523, 525 (8th Cir.1998). A determination of undue hardship is a factual determination, and is reversible only if we find clear error.[2]
Because we conclude that the bankruptcy court correctly interpreted § 523(a)(8) as applying to each student loan individually and not to an aggregate obligation of cumulative student loan debt, and because the bankruptcy court's determination that the debtor would experience undue hardship if two of her student loans were excepted from discharge is not clearly erroneous, we affirm.
*129 BACKGROUND
The debtor, Donna Mae Andresen, obtained three student loans,[3] one each year in 1986, 1987, 1988, while attending school to become a licensed practical nurse. The loans were each guaranteed by NSLP, which is still the holder of the three loans. The loans are not consolidated.
Andresen filed her Chapter 7 bankruptcy petition on January 7, 1991. In 1993, Andresen sustained a severe back injury with a disability rating of 43% for workers' compensation purposes. After her injury, Andresen was unable to find work in Nebraska and commenced a nationwide job search. Eventually she found an employer willing to accommodate her disability, and she moved to Nevada to take that job.
On May 1, 1996, Andresen filed this adversary proceeding seeking determination of dischargeability of her three student loans pursuant to the undue hardship provisions of § 523(a)(8). The bankruptcy court tried the matter on June 16, 1998. On September 2, 1998, the court entered an order finding that Andresen had satisfied the requirements of § 523(a)(8) for a hardship discharge of two of her three student loans, and found that she could pay the third loan without undue hardship.[4]
NSLP contends that the bankruptcy court erred when it found that excepting Andresen's student loans from discharge would impose undue hardship on her and her dependents, and argues that the court had no authority to grant "partial discharge" of Andresen's student loan debt. For the reasons set forth below, we affirm the judgment of the bankruptcy court.
DISCUSSION
Partial Discharge
Section 523(a)(8) provides:
A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for any obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents.
See 11 U.S.C. § 523(a)(8).[5]
Across jurisdictions there is wide disparity among treatments of student loans under § 523(a)(8). For the past two decades, a split has developed regarding whether a court may partially discharge a debtor's student loan or whether the courts are restricted to all-or-nothing dischargeability.
The courts practicing revision of student loans, granting partial discharges, and fashioning other case-specific equitable relief have found authority to do so implicit in § 523(a)(8) due to its policy objectives, and alternatively in the discretionary equitable powers reserved to the bankruptcy court by § 105(a). See Thad Collins, Note, Forging Middle Ground: Revision of Student Loan Debts in Bankruptcy as an Impetus to Amend 11 U.S.C. § 523(A)(8), 75 Iowa L. Rev. 733, 757-61 (1990).
*130 Critics of the partial discharge theories, however, note the "well-accepted principle that if Congress is able to specify something in the statute but does not, then its silence controls." Id. at 758, citing NLRB v. Bildisco, 465 U.S. 513, 522-23, 104 S. Ct. 1188, 79 L. Ed. 2d 482 (1984). Accordingly, if Congress had intended revision or partial discharge to be options for the court to consider under § 523(a)(8), then Congress could have expressly enumerated those options or included broader language in order to reveal that policy objective and enable the bankruptcy courts to effectuate it.[6]
The legislative history clearly identifies the policies behind the exception to discharge for student loans. Congress excepted student loans from discharge in order to close what it deemed a loophole in the student loan program. Id. at 734; see also Johnson v. Missouri Baptist College (In re Johnson), 218 B.R. 449, 451-54 (8th Cir. BAP 1998). This so-called loophole permitted graduates to escape their student loan obligations by filing bankruptcy on the eve of a lucrative career. Id. The exception to discharge was created to "rescu[e] the student loan program from insolvency, and [to] prevent[] abuse of the bankruptcy process by undeserving student debtors." See Raymond L. Woodcock, Burden of Proof, Undue Hardship, and Other Arguments for the Student Debtor Under 11 U.S.C. § 523(A)(8)(B), J.C. & U.L. 377, 381-84 (1998).
Nevertheless, as clear as the legislative history is, it suffers a lack of scope. While it identifies the legislative purpose of excepting student loans from discharge, the legislative history offers little to define the nature of the exception (undue hardship) to the exception (nondischargeability). That Congress wanted to save the student loan programs and bar the undeserving student borrower from abusing the bankruptcy process does not directly identify how Congress intended the discharge to be granted in cases of undue hardship.[7] The legislative purposes do not illustrate the legislative position on the propriety of partial discharge and other revisions of student loans in undue hardship cases under § 523(a)(8).
Nevertheless, some courts have found that revising student loans, partially discharging them, or deferring payments by maintaining or extending the automatic stay, are proper applications of the undue hardship exception to the nondischargeability of student loans because such manipulation upholds the policies behind nondischargeability generally and attributes *131 significance to the fresh start policy at the same time.[8] These courts find that partial discharge of student loans protects the solvency of the student loan programs and deters undeserving debtors while protecting the honest but unfortunate debtor better than the all-or-nothing approach which can lead to harsh results, either for the creditor or the debtor depending on the whether the outcome is all or nothing. See, e.g., Georgia Higher Educ. Assistance Corp. v. Bowen (In re Bowen), 37 B.R. 171, 173 (Bankr.M.D.Fla.1984) (acknowledges that the literal language of the statute does not create the leeway to exercise equitable powers, but concludes that it is nevertheless appropriate and within the policy of the statute to hold the debt nondischargeable but restructure repayment because the either/or results are unnecessarily harsh).
Other courts granting partial discharge and other partial relief under § 523(a)(8) rely on the equitable powers of § 105(a), which provides, in relevant part, "The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title . . . shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate . . . to prevent an abuse of process." See, e.g., Conner v. Illinois State Scholarship Commission (In re Conner), 89 B.R. 744, 750 (Bankr.N.D.Ill.1988) (Section 105(a) cited as authority without elaboration).
However, § 105(a) has been found by some courts to be restricted to exercising equitable powers only within the enumerations of the Code. See Johnson v. First Nat'l Bank of Montevideo, 719 F.2d 270, 273 (8th Cir.1983) (bankruptcy court erred when it stayed a state authority period of redemption pursuant to § 105(a); bankruptcy court's broad equitable powers may only be exercised in a manner which is consistent with the provisions of the Code). Indeed, the Supreme Court has also said as much. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206, 108 S. Ct. 963, 99 L. Ed. 2d 169 (1988) (whatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of the Bankruptcy Code).
Accordingly, the question arises whether § 105(a) provides authority for a bankruptcy court to grant an undue hardship discharge under § 523(a)(8) in any manner less than full discharge when the language of § 523(a)(8) does not itself include any particular limiting or broadening language. On its face, the statute asks only whether or not excepting the loan at issue from discharge will impose undue hardship upon the debtor or the debtor's dependents. The telling word in the section is unless, which therefore casts the determination as: if excepting the student loan from discharge will impose undue hardship, then the debt is discharged.
In spite of the unstable foundation upon which rests the authority, if any, to revise student loans or partially discharge student loan debt, courts continue to do so on the basis of implicit statutory policy or § 105(a) discretion because the literal interpretation and its sometimes harsh results seem at odds with the legislative intentions for § 523(a)(8) and with the purposes of the Code overall.[9] These courts, *132 at least, have apparently deemed fairness principles a concern supreme to arbitrary or unpredictable results and consistent with, or within the confines of, express provisions of the Code. See Collins at 761 (whether or not revision or partial discharge of student loans pursuant to § 523(a)(8) constitutes intolerable judicial lawmaking depends on whether the practice furthers or corrupts the legislative intent).
For example, in Tennessee Student Assistance Corp. v. Hornsby (In re Hornsby), 144 F.3d 433, 439-40 (6th Cir.1998), the Sixth Circuit Court of Appeals recently held that the bankruptcy court should not have discharged the debtors' entire student loans because, pursuant to § 105(a), "[i]n a student-loan discharge case where undue hardship does not exist, but where facts and circumstances require intervention in the financial burden on the debtor, an all-or-nothing treatment thwarts the purpose of the Bankruptcy Act." The court concluded that bankruptcy courts have the equitable power to: (1) partially discharge student loans, either by discharging an arbitrary amount of the principal, interest accrued, or attorney fees; (2) institute a repayment schedule (presumably modifying the repayment terms of the loan); (3) defer repayment; (4) acknowledge that the debtor may re-open the proceedings to revisit the question of a hardship discharge; or (5) fashion any appropriate remedy. Id. at 440. The court noted that "[i]mplicit in this practice of revising student loan debts is the notion that a rigid, all-or-nothing interpretation does not sufficiently or effectively address the array of facts and circumstances that appear before the courts." Id. at 439, n. 9, citing Collins at 736.
A number of courts finding partial discharge and other modifications of student loans appropriate rely on Heckathorn v. United States Dept. of Educ. (In re Heckathorn), 199 B.R. 188, 194-95 (Bankr. N.D.Okla.1996), which stayed accrual of interest for three years and stayed collection of the debtor's student loans for five years. See, e.g., Rivers v. United Student Aid Funds, Inc. (In re Rivers), 213 B.R. 616, 618-19 (Bankr.S.D.Ga.1997); Jones v. Catholic University of America (In re Jones), 1997 WL 52188 (Bankr. D.D.C.1997). The bankruptcy court in Heckathorn reasoned that because the bankruptcy discharge is an injunction, the provisions "which effectively shape the injunction, [such as the exceptions to discharge under § 523], should be read as an expression of the equitable nature, function, and (it necessarily follows) behavior of the injunctive remedy." Heckathorn, 199 B.R. at 194.
Construing the exceptions to discharge "in light of equity" requires that bankruptcy court to recognize that the relief that Congress afforded the debtor under § 523(a)(8) centers around undue hardship, which is necessarily a "matter of degree." Id. at 195. "Financial hardship is not all-or-nothing, but is more or less." Id. The Heckathorn court further relied on the premise that partial discharge or other revision of student loan debt accomplishes both legislative policy objectives, fresh start and maximum repayment of student loans, instead of "[i]nsisting on complete discharge or complete repayment [and] unnecessarily sacrific[ing] one policy to the other." Id. Finally, the Heckathorn *133 court relied on the general canon of statutory interpretation that a court should not interpret a statute plainly if so doing would lead to an absurd result, "meaning a result which furthers no purpose, i.e. is arbitrary or fortuitous." Id.
The theory of partial discharge and its progeny of assorted other equitable responses by courts facing debtors for whom a whole discharge seems overly generous (usually due to the debtor's potential for increased future earnings) appears to have begun with the bankruptcy court's opinion in Littell v. State of Oregon Bd. of Higher Educ. (In re Littell), 6 B.R. 85, 89 (Bankr. D.Or.1980). The court in Littell offered no authority for its position, but merely held that "[i]nstead of the all-or-nothing approach [prevailing in nearly every case to date], the courts should consider whether only part of the debt should be nondischargeable and what monthly payment the debtor could afford." Id. The court ordered a partial discharge of the debtor's loans by first reducing the payments and then, interestingly, calculating the number of payments to be made so that payments would terminate at the end of the five year nondischargeable period. Id.
Since the Littell opinion in 1980, the number of courts granting partial discharges and other equitable relief under § 523(a)(8) has increased considerably. See, e.g., Wetzel v. New York Higher Educ. Services Corp. (In re Wetzel), 213 B.R. 220, 226-27 (Bankr.N.D.N.Y.1996) (bankruptcy court has discretion to consider the extent to which student loans are nondischargeable); Oderkirk v. Northwest Educ. Loan Ass'n., Fin. Assistance, Inc. (In re Oderkirk), 1995 WL 241338 (Bankr.D.Idaho 1995) (bankruptcy courts have the equitable power to either restructure or partially discharge student loans); Dennehy v. Sallie Mae (In re Dennehy), 201 B.R. 1008, 1012-13 (Bankr.N.D.Fla.1996) (debtor's student loans nondischargeable, but collection and accrual of interest deferred for two years); Cheesman v. Tennessee Student Assistance Corp. (In re Cheesman), 25 F.3d 356, 360-61 (6th Cir.1994) (debtor's student loans nondischargeable, but court's order stayed for 18 months); In re Roberson, 999 F.2d 1132, 1138 (7th Cir.1993) (affirmed bankruptcy court's order deferring student loans for two years, without comment on the source of authority); Woyame v. Career Educ. & Management (In re Woyame), 161 B.R. 198, 203 (Bankr.N.D.Ohio 1993) (partial discharge of student loans); Griffin v. Eduserv (In re Griffin), 197 B.R. 144, 147 (Bankr. E.D.Okla.1996) (bankruptcy court has the authority to modify the repayment terms and/or the amount owed) (citations omitted); Silliman v. Nebraska Higher Educ. Loan Program (In re Silliman), 144 B.R. 748, 752 (Bankr.N.D.Ohio 1992) (partial discharge of student loan debt); Bakkum v. Great Lakes Higher Educ. Corp. (In re Bakkum), 139 B.R. 680, 683-84 (Bankr. N.D.Ohio 1992) (bankruptcy court has the discretion to excuse any portion of the debtor's student loan obligation which would create an undue hardship).
Contrariwise, other courts have found that there is absolutely no authority for the bankruptcy court to do anything but make the undue hardship determination and accordingly find the student loan at issue either discharged or excepted from discharge. In Hawkins v. Buena Vista College (In re Hawkins), 187 B.R. 294, 300-01 (Bankr.N.D.Iowa 1995), the bankruptcy court held that it did not have the power to rewrite loan repayment terms. "The court's authority under § 523 is to determine dischargeability. This is an all-or-nothing proposition." Id. at 300. The court noted that the Littell opinion, upon which many subsequent opinions have expressly relied, justified its decision on equitable grounds but offered no analysis of the lack of express authority in § 523 to do other than decide dischargeability. Id. at 300-01.
In construing § 523(a)(8) and concluding that it does not authorize the courts to fashion partial discharges, the Hawkins court noted that "Congress has not given *134 bankruptcy courts the authority to rewrite student loans," and that "Congress could have provided that student loans will be dischargeable `to the extent' excepting such debt will impose undue hardship upon a debtor and her dependents," especially in light of the fact that "Congress used that phrase numerous times elsewhere in the Bankruptcy Code, including three other subdivisions of the dischargeability statute, 11 U.S.C. §§ 523(a)(2), 523(a)(5), and 523(a)(7)." Id. at 301. The court noted the well-known canon of statutory construction that "Congress' failure to include language is presumed intentional where it has used the language elsewhere in the same statute." Id.; citing Bildisco, 465 U.S at 522-23, 104 S. Ct. 1188. Regarding the court's statutory equitable powers, the Hawkins court stated that "the bankruptcy court's power under § 105 is not a limitless authorization to do whatever seems equitable," and noted the rule that "[t]he court may not use § 105 to effect a result in conflict with other sections of the Bankruptcy Code." Hawkins, 187 B.R. at 301, citing United States v. Energy Resources Co., Inc., 495 U.S. 545, 549-50, 110 S. Ct. 2139, 109 L. Ed. 2d 580 (1990).
In Skaggs v. Great Lakes Higher Educ. Corp. (In re Skaggs), 196 B.R. 865, 866-67 (Bankr.W.D.Okla.1996), the court held that its "authority to determine dischargeability of student loans is limited strictly to a determination of whether a discharge of the entire debt is required." Id. at 867 (emphasis added). The Skaggs court relied on the well-known canon of statutory interpretation that "[a] court must confine the scope of its inquiry to the language of a particular statute unless it is ambiguous on its face." Id. at 866, citing United States v. Ron Pair Enter., Inc., 489 U.S. 235, 241, 109 S. Ct. 1026, 103 L. Ed. 2d 290 (1989). The court concluded § 523(a)(8)(B) is clear and unambiguous, and determined that its literal application is not "demonstrably at odds" with the legislative scheme. Skaggs, 196 B.R. at 866, citing Griffin v. Oceanic Contractors, 458 U.S. 564, 571, 102 S. Ct. 3245, 73 L. Ed. 2d 973 (1982).
Finally, the court in Skaggs explained that § 523(a)(8) is so clearly unambiguous on its face that the limit on the court's power "to act only on the entire student loan" is self-evident: "`Debt' is defined in section 101(12) of the Bankruptcy Code as `liability on a claim.' Plainly understood, `liability on a claim' encompasses the entire liability, not merely some portion of the debt or merely selected terms of repayment. Congress might have used language to authorize the discharge of partial liability or the modifications of conditions of liability but did not." Skaggs, 196 B.R. at 866.
Interestingly, few opinions, including Skaggs which included consideration of the statutory definition of debt and analysis of the meaning of liability on a claim, address the premise that a debtor's liability on a claim for repayment of a student loan made, or of another educational debt or obligation (or overpayment), as provided by § 523(a)(8), speaks to one or to each loan. Many of the cases on both sides of the issue completely overlook the apparently express wording of the statute which mandates an undue hardship evaluation for each individual educational loan obligation. The cases deal with the debt in aggregate, perhaps misled merely because multiple loans are often held by one lender, servicer or guarantor which may subtly manage to blend multiple liabilities on actually different claims into one single debt.
Other courts have distinguished among a single debtor's multiple loans but nevertheless held that the all-or-nothing rule requires the hardship discharge to operate on either all or none of the debtors loans. In Young v. PHEAA (In re Young), 225 B.R. 312, 317-18 (Bankr.E.D.Pa.1998), the bankruptcy court held that declaring some of the debtor's eight loans dischargeable but leaving nondischargeable those the court deemed her able to pay would constitute "an exercise of § 105(a) powers in contradistinction to the language of *135 § 523(a)(8)(B)." Id. at 318. The court suggested that the only permissible way to accomplish a partial discharge in this manner would be for the lender to voluntarily withdraw its objections to the discharge of certain loans.
In Brown v. Salliemae Serv. Corp. (In re Brown), 227 B.R. 540, 547-48 (Bankr. S.D.Cal.1998), the debtor had several different loans, owing to at least two different lenders, for which he was seeking an undue hardship discharge. The court deemed the case "a classic situation in which [it] should order that a portion of the student loans be repaid by Plaintiffs [because a] partial discharge approach is the best means of protecting the interests of all involved." Id. at 547. The court indicated that it would have preferred to require the debtor to devote all of his disposable income to repayment of the loans for five years thereby "provid[ing] some return to the lenders yet reliev[ing] Plaintiffs of what would otherwise be a life-long financial burden." Id.
However, the court deferred to the Ninth Circuit BAP's holding that the plain language of § 523(a)(8) precluded partial discharge of a student loan, and accordingly discharged all of the debtor's student loans. See United Student Aid Funds, Inc. v. Taylor (In re Taylor), 223 B.R. 747, 753 (9th Cir. BAP 1998). Unfortunately, the Brown court did not read § 523(a)(8) plainly enough to distinguish a requirement that an individual undue hardship determination for each of the debtor's student loans could warrant the conclusion that some but not all of a debtor's student loans were properly discharged. It could certainly have done so and still followed the all-or-nothing rule as set forth by the BAP in Taylor.
In Taylor, the Ninth Circuit BAP did indeed hold that the plain language of § 523(a)(8) does not authorize a partial discharge of student loans. Taylor, 223 B.R. at 753. The BAP agreed with the reasoning and the statutory construction applied by the courts in the Skaggs and Hawkins opinions, and disagreed with the courts that have deemed the statute ambiguous and/or applied the equitable powers of § 105(a) in order to find partial discharges and fashion other revisions of student loans. Id. at 752-54.
However, the BAP in Taylor did not hold that individual treatment of each of a debtor's student loans under § 523(a)(8) constituted partial discharge. The BAP did not define partial discharge with that much particularity. The BAP simply did not address whether the statute's undue hardship exception, to the otherwise general exception to discharge of student loans, is to be applied all-or-nothing as to the debtor's "debt for an educational . . . overpayment or loan," as opposed to a debtor's summed debts or aggregate debt for educational overpayments or loans. 11 U.S.C. § 523(a)(8).
The debtor in Taylor originally borrowed educational funds from different lenders, and some of the loans were later consolidated. Taylor at 749. Accordingly, the BAP in Taylor also overlooked the significance, if any, of the effect of consolidation on some or all of a debtor's student loans. The court did not answer whether or not, for purposes of applying the all-or-nothing undue hardship rule, consolidation transforms a debtor's original several loans into a single loan. Its treatment of the debtor's student loans nevertheless, was comprehensive in that the all of all-or-nothing included all of the debtor's student loans, consolidated and not, as opposed to all (dollars) of each loan.
The Eight Circuit Court of Appeals has not specifically decided the issue of partial dischargeability. However, in Pagnac v. Minnesota Dep't. of Revenue (In re Pagnac), 228 B.R. 219, 223 (8th Cir. BAP 1998), we found the argument that the debtor's tax obligation "be partially discharged based on some hardship theory" unavailing because courts that have permitted partial discharge of certain debts "exist only in the context of sections *136 523(a)(8) and 523(a)(15), governing discharge of student loans and divorce obligations, where hardship exists as a statutorily created issue[,]" whereas "[s]ection 507(a)(8), governing priority of certain taxes, has no hardship provision." Id. While we acknowledged the application of a theory of partial discharge by some courts under §§ 523(a)(8) and (a)(15), we did not, in Pagnac, endorse the theory.
The cases finding partial discharges and crafting a myriad of equitable relief varieties illustrate the unpredictability and lack of uniformity of outcomes resulting from courts not following an all-or-nothing rule. While the courts endorsing theories of a broad grant of discretion or an implicit prevailing policy objective rely on principles of fairness and lack of better way to properly address the multitude of factors unique to each student loan bankruptcy case, the pervasive lack of certainty and the diversity of results may in fact produce an entirely different set of in equities. It seems reasonably possible that Congress in fact wrote § 523(a)(8) as plainly as it did because the all-or-nothing approach actually strikes a superior equilibrium by sorting student loan cases along a bright-line and containing judicial discretion within the confines of defining and determining undue hardship, rather than vesting the bankruptcy court with the authority, much less the duty, to interfere as much as the judicial tinkering demonstrated by the cases practicing partial discharge and other revision of student loans.
In this case, we hold that the bankruptcy court did not grant Andresen a "partial discharge" of her student loan debt, at least not in the sense contemplated by NSLP or contained by the term of art definition of partial discharge as it has developed over the last twenty years. The language of § 523(a)(8) expressly refers to a student loan, an overpayment, or any obligation. The words provided in the section are clearly singular. The Code does not refer to a debtor's sum of student loans, aggregate student loan debt, or other accumulated, consecutive, or consolidated loan obligations.[10]
The bankruptcy court found that Andresen's Chapter 7 discharge operated on two of her three individual student loans by reason of the undue hardship provision of § 523(a)(8). The court found that one of her student loans was excepted from the discharge because paying that loan would not cause undue hardship to her or her dependents.[11] This is not a case where a court found that the discharge operated to relieve part of a single loan, or part of a sum of consolidated loans, by some pro *137 rata, percentage or other truly partial measure.
We hold that the bankruptcy court's application of § 523(a)(8) to each of Andresen's educational loans separately was not only allowed, it was required.
To determine whether § 523(a)(8) permits partial discharge is to determine whether the statute permits a single student loan to be divided into discharged and excepted portions due to the undue hardship that would otherwise be imposed upon the debtor and her dependents if the whole single obligation were excepted. While it appears plain to us that there is no authority in the Code or elsewhere for partial discharge or other revision of a debtor's individual educational loan obligations, that question is not before us and we therefore decline to decide it.
Undue Hardship
Undue hardship is not defined in the Bankruptcy Code. The legislative history demonstrates that Congress was concerned about abusive student debtors and protecting the solvency student loan programs, but the history does not shed light on exactly what Congress meant by the use of the term undue hardship. See Veryl Victoria Miles, Fairness, Responsibility, and Efficiency in the Bankruptcy Discharge: Are the Commission's Recommendations Enough? 102 Dick.L.Rev. 795, 824-830 (1998).
Primary arguments over enactment of § 523(a)(8) addressed the lack of empirical evidence of student debtors in fact constituting a threat to the continued viability of student loan programs and whether the exception to discharge was actually a collection device for lenders not being aggressive enough with collection efforts. Id. Appreciation for the fact that undue hardship would accordingly be "subject to disparate multi-factor approaches" has occurred only with the benefit of hindsight. Id. at 828, citing Bankruptcy: The Next Twenty Years, National Bankruptcy Review Commission, Final Report, ch. 5 at 52 (Oct. 20, 1997) (dissent).
Indeed, a number of tests for undue hardship have been developed over the last two decades, each trying to accurately reflect and enforce the policies Congress intended by enacting the exception to the exception, and yet each containing significant differences. See Robert F. Salvin, Student Loans, Bankruptcy, and the Fresh Start Policy: Must Debtors be Impoverished to Discharge Educational Loans? 71 Tul.L.Rev. 139, 170 (1996) (Undue hardship is an empty vessel, susceptible to being filled with whatever policy objectives courts deem appropriate).
The Brunner Test
In its determination, the bankruptcy court relied on the test set forth by the Second Circuit Court of Appeals in Brunner v. New York State Higher Educ. Serv. Corp., 831 F.2d 395, 396 (2nd Cir.1987). The court found that Andresen satisfied all three elements of the Brunner undue hardship test: (1) she could not maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if forced to repay the loans; (2) her current state of affairs was likely to persist for a significant portion of the repayment period of the student loans; and (3) she had made a good faith effort to repay the loans. Id.
Many bankruptcy courts, including several in the Eighth Circuit, have followed the Brunner test. See e.g., In re Rose, 227 B.R. 518, 524 n. 7 (Bankr.W.D.Mo. 1998) (citations omitted); Hawkins v. Buena Vista College (In re Hawkins), 187 B.R. 294, 297-298 (Bankr.N.D.Iowa 1995); Zlotopolski v. Dressel (In re Dressel), 212 B.R. 611, 615-616 (Bankr.E.D.Mo.1997).
The Johnson Test
The Brunner test is a popular variation of what appears to be the first § 523(a)(8) undue hardship test, articulated years earlier by the bankruptcy court for the Eastern District of Pennsylvania, in Pennsylvania Higher Educ. Assistance Agency v. *138 Johnson (In re Johnson), 5 B.C.D. 532 (Bankr.E.D.Pa.1979). The Johnson test considers: 1) a mechanical analysis of the debtor's past and probable future financial resources; 2) the debtor's good faith, including the debtor's best efforts to repay the loan and minimize expenses; and 3) a policy analysis of the debtor's motives in filing, including whether the debtor derived financial benefits from the education received by virtue of the loans. Id. If the bankruptcy court finds against the debtor on any of the three tests, the inquiry ends and the student loan is not dischargeable. Id. Some courts have adopted or modified the Johnson test as preferable to Brunner. See, e.g., Cossette v. Higher Educ. Assistance Found. (In re Cossette), 41 B.R. 689, 691 (Bankr.D.Minn.1984); North Dakota State Bd. of Higher Educ. v. Frech (In re Frech), 62 B.R. 235, 240-41 (Bankr. D.Minn.1986).
The Bryant-Poverty Test
On the other hand, some courts have declined to follow Johnson or Brunner. In 1987, the bankruptcy court in Bryant v. Pennsylvania Higher Educ. Assistance Agency (In re Bryant), 72 B.R. 913, 916-17 (Bankr.E.D.Pa.1987) noted its dissatisfaction with the "unbridled subjectivity" at work in the good faith analysis element of undue hardship cases. Id. at 915. The Bryant court therefore introduced the poverty test under which a debtor's student loans were presumptively nondischargeable if the debtor's income exceeded the Federal poverty guidelines, unless the debtor could prove extraordinary circumstances meriting discharge in spite of a lack of poverty. Id. at 916-19.
Miscellaneous Variations
Other courts have added other levels of precision to certain factors of different tests, perhaps clarifying an ambiguity within the test a jurisdiction applies but adding to the confusion overall. For example, in 1993, the Seventh Circuit Court of Appeals held that the Brunner analysis of future income potential requires certain and not temporary hopelessness in order for a discharge to operate of a debtor's student loans. See In re Roberson, 999 F.2d 1132, 1135 (7th Cir.1993). The court also added that the Brunner good faith inquiry requires applying the rule that if the debtor's inability to repay his student loans is due to his own negligence or irresponsibility in conducting his financial affairs, then discharge must be denied. Id. at 1136.
In 1995, the Third Circuit defined undue hardship as unconscionable hardship. See PHEAA v. Faish (In re Faish), 72 F.3d 298, 303-05 (3d Cir.1995). In Jones v. Catholic University of America (In re Jones), 1997 WL 52188, at *1 n. 2 (Bankr. D.Dist.Col.1997), the court stated that it disagreed "with the Brunner test to the extent that it looks to the `repayment period of the loan' to determine whether the debtor's undue hardship situation is likely to persist." The court noted that § 523(a)(8) "speaks to the `debt' and not to the repayment period of the loan itself," and that "[t]he real issue is whether the debt should be discharged because there is no hope for the debtor to repay it in the future." Id.
The Cheesman and Pena Tests
In 1997, the Ninth Circuit Bankruptcy Appellate Panel rejected Brunner in favor of the test enunciated by the Sixth Circuit in Cheesman v. TSAC (In re Cheesman), 25 F.3d 356, 359 (6th Cir.1994). See United Student Aid Funds, Inc. v. Pena (In re Pena), 207 B.R. 919, 922 (9th Cir. BAP 1997). It seems to us that the court in Cheesman applied the Brunner test, but the Ninth Circuit BAP found a distinction arising from wording in Brunner, absent from Cheesman, that "additional circumstances exist indicating that this state of [the debtor's financial] affairs is likely to persist for a significant portion of the payment period of the student loans." Pena, 207 B.R. at 922, citing Brunner, 831 F.2d at 396 (emphasis added). "[R]igid adherence by the court to a particular test robs the court of the discretion envisioned by Congress in drafting § 523(a)(8)(B). The *139 Court finds that the more equitable approach is to view each case in the totality of the circumstances involved." Pena, 207 B.R. at 922. (citations omitted).
The Pena court also rejected Brunner based on its good faith test limitation, as enunciated by the district court in that case, precluding the debtor from offering evidence that the education for which the loans paid was of little or no use or benefit to the debtor. Id. at 923, citing Brunner, 46 B.R. 752, 755 n. 3 (S.D.N.Y.1985). Instead, the BAP in Pena held that the test for undue hardship was flexible enough to properly consider the value of a debtor's education to the extent that doing so was part of determining the debtor's future earning ability. Pena, 207 B.R. at 923 (the debtor's education had not materially helped him improve his employment and his current financial situation was likely to continue).
The Rule in the Eighth Circuit: Andrews
The Eight Circuit Court of Appeals has not expressly adopted or rejected the Brunner or any other test for undue hardship. However, we think the Eighth Circuit expressed its preference for a totality of the circumstances test a long time ago in Andrews v. South Dakota Student Loan Assistance Corp. (In re Andrews), 661 F.2d 702, 704 (8th Cir.1981). Although Andrews was decided two years after Johnson, the Court did not mention the Johnson test. Instead, the Court relied on recommendations to Congress by The Commission on the Bankruptcy Laws of the United States when § 523(a)(8) was enacted,[12] and the opinions of the bankruptcy courts in In re Wegfehrt, 10 B.R. 826, 830 (Bankr.N.D.Ohio 1981) (each student loan undue hardship case must be examined on the facts and circumstances surrounding the particular bankruptcy, and the court must determine whether there would be anything left from the debtor's estimated future income to enable the debtor to make some payment on his/her student loan without reducing what the debtor and his/her dependents need to maintain a minimal standard of living). In re Bagley, 4 B.R. 248, 250-51 (Bankr. D.Ariz.1980). See Andrews, 661 F.2d at 704.
The Eight Circuit's opinion in Andrews resulted in a test for undue hardship under § 523(a)(8) that requires an analysis of (1) the debtor's past, present, and reasonably reliable future financial resources; (2) calculation of the debtor's and his dependents' reasonable necessary living expenses; and (3) any other relevant facts and circumstances surrounding that particular bankruptcy case. Id. The Eighth Circuit's Andrews case, while not a finely detailed test as those pronounced in Brunner or Frech, is the authority in this circuit on the matter of undue hardship discharge under § 523(a)(8).
Moreover, the Andrews test is less restrictive and less narrow, yet it maintains the essential core considerations. For example, the Frech test asks whether and to what extent the debtor received benefit from his or her education financed by the loans sought to be discharged. We think that, absent unique circumstances, this inquiry would ordinarily be irrelevant. On the other hand, it may speak to a debtor's future earning capacity. The Brunner *140 test extends the issue of the debtor's ability to repay to the term of repayment of the loan. We think this limitation may not be appropriate in every case.
Totality of the Circumstances
There are many courts applying a totality of the circumstances test for undue hardship under § 523(a)(8).[13] For example, in Law v. Educational Resources Inst. Inc. (In re Law), 159 B.R. 287, 292-293 (Bankr.D.S.D.1993), the bankruptcy court for the district of South Dakota rejected the Brunner test opting instead for a "case-by-case" and "fact-sensitive" approach that considers a debtor's good faith, financial resources, and necessary expenses as well as any other circumstances. The court explained that a totality test "affords a determination that contextually considers both the debtor's situation and the policies underlying § 523(a)(8)" and better "ensures an appropriate, equitable balance [between] concern for cases involving extreme abuse and concern for the overall fresh start policy."
In Strauss v. Student Loan Office Mercer University (In re Strauss), 216 B.R. 638, 641 (Bankr.N.D.Cal.1998), the bankruptcy court rejected the Brunner and Cheesman tests. The court found that the Ninth Circuit BAP in Pena had recognized the potential pitfalls of an overly narrow test and endorsed the application of a totality of the circumstances test when the particular situation of a given case contained issues that would not be properly addressed by consideration under one of the more rigid approaches. Id. at 642. "[U]nder these circumstances [before the court in Strauss], applying the three pronged Cheesman test . . . would work a substantial injustice and be contrary to the policies of the Bankruptcy Code. Instead, a `totality of the circumstances' test should be applied." Id.
Finally, the bankruptcy court in In re Rose, 227 B.R. 518, 524 (W.D.Mo.1998), recently noted that Eight Circuit's controlling opinion in Andrews and characterized "the test as questioning whether the debtor's future resources would sufficiently provide for a `minimal standard of living' and still leave something to pay the educational debt." Rose, 227 B.R. at 524. "The Eighth Circuit ultimately approved an inquiry that considered the debtor's present employment and financial situation (including assets, expenses and earnings) along with the prospect for future changes (either positively or negatively) in the debtor's financial position." Id.
The test for undue hardship binding bankruptcy courts in the Eighth Circuit is that held by the Court of Appeals in Andrews. We interpret Andrews to require a totality of the circumstances inquiry with special attention to the debtor's current and future financial resources, the debtor's necessary reasonable living expenses for the debtor and the debtor's dependents, and any other circumstances unique to the particular bankruptcy case.
A careful review of the record in this case reveals that the bankruptcy court, although it explicitly applied the Brunner test, did not err when it found that excepting two of Andresen's student loans from discharge would impose undue hardship on Andresen and her dependents. The Brunner test and the Andrews test are similar, with the controlling Andrews test simply allowing a broader consideration of the case and any factors specific to a given debtor's particular situation. We find that the bankruptcy court's finding of undue hardship is supported by the evidence under either test.
*141 We reject NSLP's contention that Andresen did not prove that her financial situation is unlikely to improve in the future. The bankruptcy court specifically found that due to her disability, Andresen's income will not likely increase "at any time in the future." Moreover, the bankruptcy court noted that although Andresen's son would soon reach the age of majority and no longer be her legal responsibility, the child support she receives for his care will also be eliminated at that time.
Finally, although NSLP argues that Andresen will have extra income in three years when her second mortgage is paid off, the bankruptcy court noted that Andresen's minor daughter has medical problems the treatment of which results in extraordinary expenses from time to time. This may indicate that although Andresen's legal responsibility for that child will terminate before the second mortgage is satisfied, she may nevertheless be required to continue caring for the child, or face accrued medical bills, and without the benefit of the child support she currently receives for that child.
The bankruptcy court made a careful analysis of the debtor's situation. Without second guessing the bankruptcy court, we cannot find that its factual findings are clearly erroneous. Based on those findings, we agree that excepting the loans from discharge would impose undue hardship on Andresen and her dependents.
CONCLUSION
Because the bankruptcy court did not allow a partial discharge of a student loan, we need not address the issue of the permissibility under the Code of partial discharges of student loans under § 523(a)(8).
The court's factual findings are not clearly erroneous but are supported by the record and indicate that, under the Andrews totality of the circumstances test for undue hardship, Andresen and her dependents would suffer undue hardship if two of her student loans were excepted from discharge. Accordingly, we affirm the judgment of the bankruptcy court.
NOTES
[1] The Honorable John C. Minahan, Jr., United States Bankruptcy Judge for the District of Nebraska.
[2] But see Cheesman v. Tennessee Student Assistance Corp. (In re Cheesman), 25 F.3d 356, 359 (6th Cir.1994) (determination that excepting student loans from discharge will impose undue hardship is a question of law subject to de novo review; factual findings underlying the determination are reviewed for clear error). We do not agree with this narrow distinction. While defining undue hardship is a question of law, we think that the determination of whether excepting a student loan from discharge will result in undue hardship for the debtor and the debtor's dependents is a question of fact.
[3] The original dates and principal balances of the loans are:
March 31, 1986 $2,500.00
February 10, 1987 $2,625.00
April 7, 1988 $1,177.00
[4] The debtor does not appeal this part of the court's judgment.
[5] The noted version of the statute became effective October 7, 1998. The earlier version contained a provision controlling the dischargeability of student loans the due date of which arose more than seven years prior to filing the bankruptcy petition. That provision was repealed and undue hardship is now the only basis for discharge of student loans. However, the prior version of the statute would not produce a different result in this case. Andresen filed her Chapter 7 petition less than seven years after her student loans first became due.
[6] See, e.g., 11 U.S.C. § 523(a)(5) includes the language "but not to the extent that ..." in order to qualify the exceptions to the nondischargeability of debts to the debtor's children, spouse or former spouses, and other matrimonial related debts. Such language presumably vests the bankruptcy court with the latitude and duty to find which parts of a debt under this section are discharged and not, as opposed to limiting the outcome of the determination to all-or-nothing. Section 523(a)(7) also includes "to the extent" language to preclude the all-or-nothing discharge and presumably require the court to make specific findings as to the extent to which the debt is nondischargeable.
[7] In this regard, it is worth noting the significance of § 523(a)(8) prior to its most recent amendment: the original section allowed student loans to be discharged without demonstrating undue hardship as long as a period of 5 years (subsequently amended to 7 years and most recently completely eliminated) following the first due date of the loans had expired. That the original statute contemplated a point at which a debtor could discharge student loans completely and without a showing a undue hardship may explain the apparent all-or-nothing approach to the undue hardship discharge exception. Congress simply wasn't contemplating any situation in which a loan would require revision by a bankruptcy court because either a loan would be fully dischargeable before the five (or seven) years on the basis of undue hardship, or it would be fully dischargeable in any event upon expiration of the applicable number of years. Under the original statute, therefore, a debtor would be unlikely to seek relief in bankruptcy prior to the expiration of the applicable number of years since repayment on a student loan became due, unless the debtor's undue hardship made it imperative.
[8] But see Craig A. Gargotta, Column, Affairs of State, Congress Amends § 523(A)(8) to Elimibate Seven-Year Discharge Provisions for Student Loans, 17-NOV Am.Bankr.Inst.J. 8 (1998) (Congress now views undue hardship not as a debtor protection, but rather as a creditor protection, and consequently fresh start is no longer the issue, but whether the non-payment of the student loans violates public policy).
[9] Interestingly, there are so many cases in which bankruptcy courts have granted partial discharge under § 523(a)(8) that some commentators and even some courts in cases addressing the exception to discharge for non-support divorce debts under § 523(a)(15) have recognized a partial discharge theory operating in § 523(a)(8) and applied it to § 523(a)(15) by analogy. See Stephen Joseph, How Courts Have Interpreted the Phrases "Ability to Pay" and "Outweighs the Detrimental Consequences" Under 11 U.S.C. § 523(a)(15)(A) and (B) of the Bankruptcy Code in Cases Involving Non-Dischargeable Divorce Obligations Part I, 103 Conn.L.J. 67, 78 (1998); Richard H.W. Maloy, Using Bankruptcy Court to Modify Domestic Relations Decrees: Problems Created by § 523(A)(15), 31 Fam.L.Q. 433, 453 (1997); Comisky v. Comisky (In re Comisky), 183 B.R. 883, 884 (Bankr. N.D.Cal.1995); but see McGinnis v. McGinnis (In re McGinnis), 194 B.R. 917, 921 (Bankr. N.D.Ala.1996) acknowledges the analogy between § 523(a)(8) and (a)(15) but appears to rely exclusively on legislative history and statutory interpretation of (a)(15), regardless of the noted analogy to (a)(8), to hold that the court has discretion to modify the debt as opposed to being restricted to an all-or-nothing determination of dischargeability.
[10] At least one other court appreciates this distinction. See Hinkle v. Wheaton College (In re Hinkle), 200 B.R. 690, 693 (Bankr. W.D.Wash.1996) (bankruptcy court cannot restructure loans, but there is no reason that it cannot treat each one separately for the purpose of dischargeability). The Hinkle court stated that it found the language of § 523(a)(8) sparse but unambiguous, especially in light of Congress glaring omission of "to the extent" wording, and it rejected § 105 powers as authority to restructure student loans or grant partial discharges. Id. The court also limited its holding to loans that have not been consolidated. Id.
[11] But see Raimondo v. New York State Higher Educ. Serv. Corp. (In re Raimondo), 183 B.R. 677, 679-81 (Bankr.W.D.N.Y.1995). The court in Raimondo expressly noted that § 523(a)(8) "requires that the Court consider the dischargeability of each loan as a separate obligation," and [n]othing in its text expressly authorizes the division of a single claim ... into dischargeable and nondischargeable parts. Id. at 680. Nevertheless, the court found that "[n]o statute dictates a disparity of result as among educational lenders. Rather equity demands an identical treatment for these similarly situated creditors." Id. The court held that § 523(a)(8) "permits the discharge, on a pro rata basis, of only that portion" of the debt that exceeds what the debtor could pay without hardship. Id. at 681. We respectfully disagree with the Raimondo court. Creditor protection is accomplished by the exception to discharge; the exception to the exception operating in circumstances of undue hardship is a debtor protection. The loan-by-loan all-or-nothing application of hardship discharge effects the level of debtor-creditor equilibrium that Congress intended when it drafted the unambiguous § 523(a)(8).
[12] The Eighth Circuit relied on the Commission's recommendation that student loans "should not as a matter of policy be dischargeable before (the debtor) has demonstrated that for any reason he (or she) is unable to earn sufficient income to maintain himself (or herself) and his (or her) dependents and to repay the educational debt." Andrews, 661 F.2d at 704 (emphasis added). The Court also stated that, "[i]n order to determine whether the nondischargeability of the student loan would impose an `undue hardship' on the debtor, the Commission stated that: ... the rate and amount of (the debtor's) future resources should be estimated reasonably in terms of ability to obtain, retain, and continue employment and the rate of pay that can be expected ... The total amount of income, its reliability, and the periodicity of its receipt should be adequate to maintain the debtor and (the debtor's) dependents, at a minimal standard of living within their management capability, as well as to pay the educational debt." Id.
[13] See, e.g., Moorman v. Kentucky Higher Educ. Assistance Auth. (In re Moorman), 44 B.R. 135, 137-38 (Bankr.W.D.Ky.1984); D'Ettore v. Devry Inst. of Tech. (In re D'Ettore), 106 B.R. 715, 718 (Bankr.M.D.Fla.1989); Coleman v. Higher Educ. Assistance Found. (In re Coleman), 98 B.R. 443, 451 (Bankr. S.D.Ind.1989); Ford v. Tennessee Student Assistance Corp. (In re Ford), 151 B.R. 135, 138-40 (Bankr.M.D.Tenn.1993); Evans v. Higher Educ. Assistance Found. (In re Evans), 131 B.R. 372, 375-76 (Bankr.S.D.Ohio 1991). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1961456/ | 255 B.R. 696 (2000)
In re Gloria JOHNSON, Debtor.
Comerica Bank, Plaintiff,
v.
Gloria Johnson, Defendant.
Bankruptcy No. 99-45486. Adversary No. 99-4499.
United States Bankruptcy Court, E.D. Michigan, Southern Division.
April 6, 2000.
Hugh Robert Pierce, Royal Oak, MI, for defendant.
Darryl J. Chimko, Elizabeth M. Abood, Rochester Hills, MI, for plaintiff.
DECISION and ORDER
BURTON PERLMAN, Bankruptcy Judge.
This adversary proceeding arises in a Chapter 7 case and seeks to hold nondischargeable a debt owed by debtor/defendant to plaintiff. Defendant had filed a prior Chapter 7 case in connection with which she had entered into a Reaffirmation Agreement with plaintiff. Defendant did not complete payments to plaintiff under the Reaffirmation Agreement and has now filed another Chapter 7 case within the time limits permitted by the Bankruptcy Code. Defendant has listed the remaining debt owing plaintiff in her bankruptcy *697 schedules and seeks to have it discharged. Plaintiff here contests dischargeability of that debt and has filed the present complaint for that purpose. The parties have filed cross-motions for summary judgment which came on for hearing before the court. At the conclusion of the hearing, the court reserved decision. The court now rules on the cross-motions for summary judgment.
The essential facts in the case emerge from the allegations of the complaint which are largely admitted in defendant's answer. Thus, defendant admits the following allegations of the complaint:
5. On March 18, 1992, Defendant filed a previous Chapter 7 Petition for Relief, case number 92-03463-R.
6. Plaintiff was a Creditor of Defendant in the previous Chapter 7 case.
7. On April 27, 1992, Defendant executed a Reaffirmation Agreement and Declaration Regarding Reaffirmation whereby Defendant "agreed and understood that this Agreement is entered into in full settlement and satisfaction of Creditor's claim that this debt is nondischargeable pursuant to 11 U.S.C. 523." A copy of the Reaffirmation Agreement and Declaration Regarding Reaffirmation are attached as Exhibit A and incorporated herein by reference.
8. The documents attached as Exhibit A were filed with this Court on May 7, 1992.
9. Defendant lists Plaintiff as a Creditor in the present case based upon the balance still owing on the Reaffirmation Agreement.
* * * * * *
12. On the date Defendant filed her subsequent Petition for Relief on April 2, 1999, Defendant was indebted to Plaintiff in the amount of Three Thousand Two Hundred Sixteen and 24/100 ($3,216.24) Dollars.
Defendant denies the following allegations:
10. Defendant's reaffirmation acted as a waiver of this debt under 11 U.S.C. 524(c).
11. The debt is nondischargeable in the within proceeding pursuant to 11 U.S.C. 523(a)(10) and/or 11 U.S.C. 523(b).
The text of the Reaffirmation Agreement, attached as Exhibit A to the complaint, in its entirety states:
I/We, Gloria Johnson, notwithstanding the fact that I/we have filed for relief under Chapter 7 of the Bankruptcy Reform Act of 1978, as amended, in the United States Bankruptcy Court, do hereby reaffirm and promise to pay to Comerica Incorporated, Creditor herein, the sum of $2,000.00, at 12% rate of interest set forth in the original document evidencing the transaction between the parties.
The aforementioned sum shall be payable in monthly installments of $40.00. The first monthly installment shall be due on the 1st day of June, 1992. Subsequent monthly installments shall be due on the 1st day of each month thereafter until the entire reaffirmed amount plus interest is paid in full.
In the event that any payment is more than fifteen (15) days late, as promised above, the terms of this Agreement shall be deemed to be in default, and there shall be forthwith due and payable all sums remaining upon principal and interest according to the terms of this Agreement.
It is agreed and understood that this Agreement is entered into in full settlement and satisfaction of Creditor's claim that this debt is non-dischargeable pursuant to 11 U.S.C. 523. Debtor (a) fully acknowledge(s) that he/she/they has/ have the right to litigate this matter but has concluded that it is in his/her/their best interest to enter into this negotiated settlement. Debtor(s) shall not incur further charges/cash advances.
Debtor(s) herein further agrees and understands that THIS REAFFIRMATION AGREEMENT MAY BE RESCINDED *698 WITHIN SIXTH (60) DAYS AFTER SAID AGREEMENT IS FILED WITH THE COURT, OR AT ANY TIME PRIOR TO DISCHARGE, WHICHEVER OCCURS LATER. RESCISSION CAN ONLY BE MADE BY SENDING WRITTEN NOTIFICATION OF RESCISSION TO: SHERMETA, CHIMKO, & KILPATRICK, P.C. 445 S. LIVERNOIS, STE. 221, ROCHESTER HILLS, MI 48307, AND BY FILING COPY OF SAME WITH THE COURT.
If Debtor(s) herein exercises the aforementioned right of rescission, all payments made herein up to the time of said rescission shall be considered as compensation to Creditor herein for its act of forbearance. In either/any case, the payment shall not be refunded.
-----------------------------
EDWARD SHAW (P43061)
Attorney for Debtor
------------------------------
GLORIA JOHNSON
Debtor
-------------------------------
DARRYL CHIMKO (P31016)
Attorney for Creditor
Dated: 4-27-92
No order was entered by the court on this agreement.
On its motion for summary judgment, plaintiffs position is that the Reaffirmation Agreement was a determination that the debt was nondischargeable, and that determination is res judicata in the present case. Alternatively, plaintiff argues that by entering into the Reaffirmation Agreement, defendant for all time waived her right to discharge the reaffirmed debt. Plaintiff says, then, that the debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(10) and/or § 523(b).
These Code sections state:
§ 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt
(10) that was or could have been listed or scheduled by the debtor in a prior case concerning the debtor under this title or under the Bankruptcy Act in which the debtor waived discharge, or was denied a discharge under section 727(a)(2), (3), (4), (5), (6), or (7) of this title, or under section 14c(1), (2), (3), (4), (6), or (7) of such Act;
* * * * * *
(b) Notwithstanding subsection (a) of this section, a debt that was excepted from discharge under subsection (a)(1), (a)(3), or (a)(8) of this section, under section 17a(1), 17a(3), or 17a(5) of the Bankruptcy Act, under section 439A of the Higher Education Act of 1965, or under section 733(g) of the Public Health Service Act in a prior case concerning the debtor under this title, or under the Bankruptcy Act, is dischargeable in a case under this title unless, by the terms of subsection (a) of this section, such debt is not dischargeable in the case under this title.
Defendant for her part contests the positions of plaintiff, but then expends considerable discussion upon a separate issue, the propriety of settling the earlier controversy between the parties by means of a Reaffirmation Agreement.
After reviewing the record made by the parties, we have come to the conclusion that the document entered into between the parties, while entitled Reaffirmation Agreement, is by its terms a settlement agreement. What the instrument is called does not determine its effect. See, e.g., Heryford v. Davis, 102 U.S. 235, 244, 26 L. Ed. 160 (1880) (cited with approval in Hyman v. Semmes, 26 F.2d 10, 11 (6th Cir.1928); Matter of Porter, 202 B.R. 109, 119 (N.D.Ind.1996)); 17A Am.Jur.2d Contracts § 391 (1991). The document itself says that "this Agreement is entered into in full settlement *699 and satisfaction of Creditor's claim that this debt is nondischargeable." The document then goes on to say that debtor, defendant here, acknowledges that she "has the right to litigate this matter but has concluded that it is in his/her/their best interest to enter into this negotiated settlement."
It is elementary that once parties to litigation settle their controversy, their rights are defined by the contract of settlement into which they have entered and are governed by principles of contract law. See e.g., Bamerilease Capital Corp. v. Nearburg, 958 F.2d 150 (6th Cir.1992); Mikonczyk v. Detroit Newspapers, Inc., 238 Mich.App. 347, 605 N.W.2d 360 (Mich. Ct.App.1999). By entering into the agreement, the plaintiff gave up its right to pursue the full amount of its claim in exchange for "the sum of $2,000.00 at 12% interest to be paid in monthly installments of $40.00 beginning June 1, 1992." What defendant got by means of the settlement agreement was freedom from the litigation. The contract between the parties, in addition to spelling out the respective rights of the parties, provided for the consequences of default on the part of defendant. The consequences of default were that all sums remaining upon principal and interest according to the terms of this agreement would be due and payable.
When defendant subsequently filed bankruptcy, she had the right to include the debt on a contract owing to plaintiff in her schedules. See 11 U.S.C. § 101(12) and (5); F.R.B.P. 1007. Because plaintiff holds nothing more than a contract right to payment, it is dischargeable in the present bankruptcy. See 11 U.S.C. § 727(b). There is no basis for plaintiff's contention that its claim at this time in any way relates back to its original position that it had a nondischargeable claim against defendant. It gave up the right to take such a position when it entered into the settlement agreement with defendant.
Plaintiff seeks to avoid the outcome we have reached by asserting that because the parties entered into a Reaffirmation Agreement, different consequences should follow. First, plaintiff urges that the Reaffirmation Agreement should be given res judicata effect here. This argument cannot avail plaintiff for the doctrine of res judicata requires that there be a prior judgment, see Bittinger v. Tecumseh Prod. Co., 123 F.3d 877, 880 (6th Cir.1997), and there is none here. In support of its argument in this respect, plaintiff relies upon In re Klasinski, 215 B.R. 181 (Bankr. C.D.Ill.1997) and In re Saler, 205 B.R. 737 (Bankr.E.D.Pa.1997). In each of those cases, however, there was a prior court order which was given preclusive effect. See Klasinski, 215 B.R. at 182; Saler, 205 B.R. at 739-40.
Plaintiff's second argument is that the Reaffirmation Agreement constituted a waiver by defendant of his right to deny nondischargeability in his second bankruptcy. This argument is also without merit. A case cited by plaintiff, McIntosh v. Webb (In re Webb), 157 B.R. 614 (Bankr. N.D.Ohio 1993), itself refutes this argument. The court there expressly held that to be effective, a waiver must be in writing and approved by the court, and there is no such waiver in evidence. Webb, 157 B.R. at 616. See also In re Lones, 50 B.R. 801 (Bankr.W.D.Ky.1985).
Accordingly, defendant's motion for summary judgment is granted and that of plaintiff is denied. The complaint is dismissed.
So Ordered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1552333/ | 239 B.R. 911 (1999)
In re Larry Kenneth ALEXANDER, Debtor.
Larry Kenneth Alexander, Debtor Appellant,
v.
Mary Jo A. Jensen-Carter, Trustee Appellee.
BAP No. 99-6051-MN.
United States Bankruptcy Appellate Panel of the Eighth Circuit.
Submitted August 27, 1999.
Decided October 21, 1999.
*912 Larry Kenneth Alexander, St.Paul, MN, pro se.
Mary Jo A. Jensen-Carter, St.Paul, MN, for appellee.
Before WILLIAM A. HILL, SCHERMER, and SCOTT, Bankruptcy Judges.
WILLIAM A. HILL, Bankruptcy Judge.
Debtor Larry Kenneth Alexander appeals from the bankruptcy court's[1] June 30, 1999, order sustaining the chapter 7 trustee's objection to Alexander's claimed homestead exemption.[2] We have jurisdiction over this appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth below, we affirm.
BACKGROUND
On June 18, 1998, debtor Larry Kenneth Alexander filed a chapter 13 bankruptcy petition which listed his address as 175 N. Lexington Parkway, St. Paul, Minnesota. The debtor then filed Schedule C on July 6, 1998, claiming a homestead exemption for property located at 875 Laurel Avenue, St. Paul, Minnesota. The chapter 13 trustee filed a timely objection to the debtor's homestead exemption, asserting that as the debtor was living at the Lexington Parkway residence at the time of petition filing, he could not claim the Laurel Avenue residence for a homestead exemption. On November 30, 1998, an evidentiary hearing was held wherein the debtor admitted that at the time he filed his chapter 13 petition, he was living at the Lexington Parkway residence but that his family was living at the Laurel Avenue residence. By an order dated December 3, 1998, the bankruptcy court sustained the chapter 13 trustee's objection and involuntarily converted the case to chapter 7. At the time of conversion, the debtor was living at the Laurel Avenue residence. The debtor appealed the bankruptcy court's order of December 3, 1998, to the district court, asserting, inter alia, that the bankruptcy court erred in (1) denying confirmation of the debtor's chapter 13 plan; (2) sustaining the chapter 13 trustee's objection to the debtor's homestead exemption; and (3) converting the case to chapter 7. By an order dated August 4, 1999, the district court affirmed the bankruptcy court's order of December 3, 1998, in all respects.
On December 21, 1998, the debtor filed a Schedule C in the converted chapter 7 case, claiming a homestead exemption for his Laurel Avenue residence. The section 341 creditors' meeting in the converted chapter 7 case was held on January 25, 1999. On February 22, 1999, the chapter 7 trustee filed an objection to the debtor's homestead exemption on the same basis that was asserted by the chapter 13 trustee; namely, that the debtor's Laurel Avenue residence did not qualify for a homestead exemption in the converted chapter 7 case because the debtor was living elsewhere at the time he filed his chapter 13 petition. On March 17, 1999, the bankruptcy court conducted a hearing to determine whether the debtor could exempt his Laurel Avenue residence as a homestead in the converted chapter 7 case and thereafter issued the order now on appeal, *913 which sustained the trustee's objection to the debtor's homestead exemption for the Laurel Avenue residence. The debtor now argues, inter alia, that his entitlement to a homestead exemption for the Laurel Avenue residence in the converted chapter 7 case is governed by Armstrong v. Lindberg (In re Lindberg), 735 F.2d 1087 (8th Cir.1984). In addition, the debtor raises various procedural issues for our consideration. We shall first dispose of these issues before moving on to the substantive basis for the appeal.
STANDARD OF REVIEW
On appeal, we review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Fed. R. Bankr.P. 8013; In re Usery, 123 F.3d 1089, 1093 (8th Cir.1997); O'Neal v. Southwest Mo. Bank (In re Broadview Lumber Co.), 118 F.3d 1246, 1250 (8th Cir.1997).
DISCUSSION
I. Debtor's "Motion to Strike"
By a letter dated August 16, 1999, the chapter 7 trustee (the appellee in this case) submitted to this Court a copy of the U.S. District Court's opinion and order of August 4, 1999. The debtor responded by filing a "motion to strike," seeking to bar this Court from taking into consideration the district court's opinion and order of August 4, 1999. The debtor asserts that the district court's opinion should be excluded from our consideration because it is prejudicial and because it was not a part of the record developed before the bankruptcy court when it issued its order of June 30, 1999 the order from which the present appeal was taken.
"Ordinarily an appellate court should base its decision on the facts as they existed at the time the trial court made its decision." Frankfurth v. Cummins (In re Cummins), 20 B.R. 652, 653 (9th Cir. BAP 1982). In extraordinary circumstances, however, an appellate court may "take judicial notice of developments in a case on appeal which have occurred in the district court after the appeal was filed." Cummins, 20 B.R. at 653 (quoting Samuel v. University of Pittsburgh, 506 F.2d 355, 360 n. 12 (3rd Cir.1974)). "[T]he on-going nature of bankruptcy proceedings, on occasion, creates situations where the reviewing court may take notice of fundamental events occurring after the entry of the judgment from which the appeal was taken." Cummins, 20 B.R. at 653. Moreover, appellate courts regularly take similar judicial notice of post-appeal developments which trigger the mootness doctrine. Id. at 653 (citing Landy v. Federal Deposit Ins. Corp., 486 F.2d 139, 151 (3rd Cir.1973)).
In Cummins, a real estate broker brought an adversary proceeding against the debtors to recover his real estate commission. Cummins, 20 B.R. at 652-53. The bankruptcy court entered judgment in favor of the debtors based on a conclusion that the real estate broker was a professional person who failed to receive court approval of his employment as required by § 327(b) of the Bankruptcy Code. Id. The real estate broker appealed that judgment to the Ninth Circuit Bankruptcy Appellate Panel. Id. Subsequently, while the appeal was pending, the debtors' voluntarily dismissed their bankruptcy petition. Id. The dismissal was brought to the appellate panel's attention during a telephonic hearing and again during oral argument. Id. at 654. The debtors argued that the appellate panel could not consider the dismissal of the debtors' bankruptcy petition because the dismissal had occurred after the bankruptcy court's decision in the adversary proceeding. Id. Nevertheless, the appellate panel took notice of the voluntary dismissal, and that fact formed the basis for the panel's decision to reverse and remand the case. Id. at 653-54.
In the present case, the debtor's argument closely resembles the argument made by the debtors in Cummins, and a similar result is appropriate. The debtor has not demonstrated how his present appeal *914 to this Court would be prejudiced by our taking notice of the district court's opinion and order of August 4, 1999. Accordingly, we take judicial notice of the aforementioned decision, and the debtor's "motion to strike" is denied. Moreover, although our inquiry regarding the homestead exemption issue may be similar to that of the district court, our procedural context is different. The district court was concerned with the chapter 13 trustee's objection to the debtor's homestead exemption. Thus, the district court was not squarely faced with the issue of whether a debtor may claim a homestead exemption in a converted chapter 7 case based on residency at the time of conversion. Because the district court did not address this issue, its opinion need not be given preclusive effect and should not impede this Court's determination of the issue now presented. The present appeal arises in the context of the converted chapter 7 case wherein the debtor has attempted to exempt the homestead where he resided at the time of conversion. Therefore, this Court is in a proper procedural context to address the debtor's argument that homestead exemption eligibility is determined according to the date of conversion. First, however, we will dispose of the debtor's argument that the chapter 7 trustee's objection was untimely filed.
II. Timeliness of the Chapter 7 Trustee's Objection
On December 21, 1998, the debtor filed an amended Schedule C, claiming his Laurel Avenue homestead as exempt in the converted chapter 7 case. On January 25, 1999, the creditors' meeting for the converted chapter 7 case was held. On February 22, 1999, the trustee in the converted chapter 7 case filed an objection to the debtor's homestead exemption. The debtor asserts that the chapter 7 trustee's objection was untimely under Rule 4003(b) because it was not filed within 30 days after the debtor filed his amended schedule. The debtor argues that objections to exemptions must be filed within 30 days after an amendment to Schedule C or within 30 days after the original creditors' meeting in the chapter 13 case, citing In re Ferretti, 230 B.R. 883 (Bankr.S.D.Fla. 1999) in support of his position. Apparently interpreting Rule 4003(b) according to its plain meaning, the bankruptcy court concluded that the trustee's objection to the debtor's homestead exemption was timely filed because it occurred within 30 days after the creditors' meeting in the converted chapter 7 case. See In re Alexander, 236 B.R. 679, 681 (Bankr.D.Minn. 1999).
The trustee or any creditor may file objections to a debtor's claimed exemptions within 30 days after the conclusion of the section 341 creditors' meeting, or within 30 days after the filing of any amended schedules. Fed. R. Bankr.P. 4003(b). A trustee who fails to timely file an objection to an exemption pursuant to Rule 4003(b) is precluded from objecting at a later time, and the disputed asset is exempt. Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). "Because an order of conversion constitutes an order for relief under the chapter to which the case is converted, Rule 2003(a) mandates the United States trustee to call a meeting of creditors." Ferretti, 230 B.R. at 887. In the context of conversion from chapter 11 to chapter 7, the chapter 7 trustee may file objections to exemptions within 30 days after the creditors' meeting in the converted chapter 7 case. See LaRossa v. Leydet (In re Leydet), 150 B.R. 641 (Bankr.E.D.Va.1993); In the Matter of Bergen, 163 B.R. 377 (Bankr.M.D.Fla. 1994); In re de Kleinman, 172 B.R. 764 (Bankr.S.D.N.Y.1994). But see In re Brown, 178 B.R. 722 (Bankr.E.D.Tenn. 1995); In re Halbert, 146 B.R. 185 (Bankr. W.D.Tex.1992). Similarly, in the context of conversion from chapter 13 to chapter 7, the chapter 7 trustee may timely file an objection to the debtor's claimed exemptions within 30 days after the creditors' meeting in the converted chapter 7 case. Weissman v. Carr (In re Weissman), 173 *915 B.R. 235, 237 (M.D.Fla.1994); In re Jenkins, 162 B.R. 579, 580-81 (Bankr. M.D.Fla.1993). But see In re Beshirs, 236 B.R. 42 (Bankr.D.Kan.1999); Ferretti, 230 B.R. at 891 (holding that the chapter 7 trustee in a case converted from chapter 13 cannot file objections to exemptions unless the case was converted in bad faith or amended schedules were filed following conversion).
Leydet, Bergen, Kleinman, Weissman, and Jenkins stand for the proposition that the trustee in a converted chapter 7 case may timely file objections to exemptions within 30 days after the creditors' meeting in the converted case. Halbert reached a different conclusion based largely on the idea that once property is successfully exempted by the debtor in possession in the chapter 11 case, it is no longer part of the bankruptcy estate, and an objection in the converted chapter 7 case would not be sufficient to bring the previously exempted property back into the estate. Halbert, 146 B.R. at 188-89. Brown adopted this reasoning from Halbert. Brown, 178 B.R. at 726-27. However, the concern raised in Brown and Halbert is not present in this case because the debtor did not successfully exempt his Laurel Avenue property within the context of his chapter 13 case. Therefore, Brown and Halbert are less applicable to the present case.
Furthermore, part of the basis for the Ferretti court's decision was that a different holding would "have the effect of setting aside and emasculating" a previous order by the bankruptcy court in that case. Ferretti, 230 B.R. at 890. The present case raises a similar concern. In the chapter 13 context of this case, the bankruptcy court ruled that the debtor could not exempt the Laurel Avenue property under Minnesota law. The applicable legal standard remains the same in the context of the converted chapter 7 case. Therefore, it would be illogical to hold that a debtor in a converted case may reverse a previous ruling of the bankruptcy court simply by filing an amended schedule. To quote the court in Ferretti, "[s]uch a result nullifies the principle of law of the case" and "ignores the statutory mandate that property of a converted case is to be determined as of the date of the original petition." Ferretti, 230 B.R. at 890.
Finally, we are unpersuaded by the reasoning of the court in Beshirs. As the court observed in Leydet, nothing in the Bankruptcy Code or Bankruptcy Rules restricts the term "meeting of creditors" in Rule 4003(b) to refer only to the original meeting of creditors that occurred before conversion. Leydet, 150 B.R. at 643. The argument that the trustee in a converted chapter 7 case is precluded from filing objections to exemptions because Rule 1019(2) fails to provide a new filing period after conversion is unpersuasive. Id. Stating a new filing period in Rule 1019(2) would be unnecessary and repetitious because the plain meaning of Rule 4003(b) already provides for a new filing period after the meeting of creditors pursuant to Rule 2003(a) in the converted case. Id. Moreover, discovering improper exemptions is one of the primary purposes for conducting a meeting of creditors. Thus, precluding the trustee from filing objections to exemptions in a converted chapter 7 case runs contrary to the role of the chapter 7 trustee in bankruptcy and needlessly compromises the rationale for conducting section 341 meetings in converted cases. Id. at 644. Accordingly, we affirm the bankruptcy court's conclusion that the trustee's objection to the debtor's homestead exemption in the converted chapter 7 case was timely filed pursuant to Rule 4003(b).
III. Debtor's Homestead Exemption
At the time the original chapter 13 petition was filed, the debtor was living at his Lexington Parkway property. At the time of conversion, the debtor was living at his Laurel Avenue property. The debtor asserts that he can claim a homestead exemption for his Laurel Avenue property, citing Armstrong v. Lindberg (In re Lindberg), *916 735 F.2d 1087 (8th Cir.1984) in support of his proposition that facts existing at the time of conversion control homestead exemption eligibility.
In Lindberg, the court ruled that when a case is converted from chapter 13 to chapter 7, the date of conversion controls what exemptions may be claimed in the converted chapter 7 case. Lindberg, 735 F.2d at 1090-91. When Lindberg was decided, the majority of courts agreed that property of the converted chapter 7 bankruptcy estate was determined at the time of conversion, and the Lindberg decision relied heavily on this principle. Lindberg, 735 F.2d at 1090 (citations omitted). As the Lindberg court stated, "[o]nly if the same date controls what is property of the estate and what exemptions may be claimed can the debtor make full use of exemption laws." Id.
However, later decisions by the Eighth Circuit cast doubt on the Lindberg decision's continued viability in light of the 1994 amendments to the Bankruptcy Code. See Armstrong v. Harris (In re Harris), 886 F.2d 1011, 1013 (8th Cir.1989); Armstrong v. Peterson (In re Peterson), 897 F.2d 935, 937-38 (8th Cir.1990). Without expressly overruling Lindberg, the Harris court stated that the interplay of section 522(b)(2)(A) and section 348(a) "indicates that the date of petition controls exemption eligibility." Harris, 886 F.2d at 1013. Furthermore, the Peterson court ruled unequivocally that exemption eligibility is determined according to the facts and exemption laws applicable at the time a bankruptcy petition is filed. Peterson, 897 F.2d at 937-38. However, neither the Harris court nor the Peterson court specifically addressed the situation where a bankruptcy case was converted from one chapter to another.
In 1994, the Bankruptcy Code was amended to include the following provision:
. . . [W]hen a case under chapter 13 of this title is converted to a case under another chapter of this title
(A) property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion;
. . .
11 U.S.C. § 348(f)(1)(A) (italics added). Moreover, conversion of a case from one chapter to another "does not affect a change in the date of the filing of the petition." 11 U.S.C. § 348(a). The Bankruptcy Code clearly indicates that in a case converted from chapter 13, property of the estate in the converted case is determined according to the filing date of the original chapter 13 petition. Therefore, exemption eligibility should also be determined as of the original chapter 13 filing date. This principle is consistent with the Harris decision, the Peterson decision, and the Lindberg court's reasoning that property of the estate and exemption eligibility should be determined as of the same date. Indeed, other courts have concluded that Lindberg has been superseded by the 1994 Bankruptcy Code amendments and that exemption eligibility is determined as of the date the original chapter 13 petition was filed. See Lowe v. Sandoval (In re Sandoval), 103 F.3d 20 (5th Cir.1997); In re Weed, 221 B.R. 256 (Bankr.D.Nev.1998); In re Ferretti, 230 B.R. 883 (Bankr. S.D.Fla.1999); In re Beshirs, 236 B.R. 42 (Bankr.D.Kan.1999). Therefore, we affirm the bankruptcy court's conclusion that Lindberg is no longer good law.
CONCLUSION
Based on the foregoing, the debtor's "motion to strike" is denied, and the bankruptcy court's order of June 30, 1999, is affirmed.
NOTES
[1] The Honorable Dennis D. O'Brien, Chief Judge, United States Bankruptcy Court for the District of Minnesota.
[2] See In re Alexander, 236 B.R. 679 (Bankr. D.Minn.1999). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1678252/ | 633 F.Supp.2d 949 (2009)
In Re: NATIONAL SECURITY AGENCY TELECOMMUNICATIONS RECORDS LITIGATION.
This Document Relates To All Cases Except:
Al-Haramain Islamic Foundation, Inc. v. Bush, No. C 07-0109; Center for Constitutional Rights v. Bush, No. C 07-1115; Guzzi v. Bush, No. C 06-6225; Shubert v. Bush, No. C 07-0693; Clayton et al. v. AT & T Communications of the Southwest, Inc., et al., C 07-1187; *950 United States v. Clayton, C 07-1242; United States v. Reishus, C 07-1323; United States v. Farber, C 07-1324; United States v. Palermino, et al., C 07-1326; United States v. Volz, et al., C 07-1396.
MDL Docket No. 06-1791 VRW.
United States District Court, N.D. California.
June 3, 2009.
*952 Timothy L. Alger, Quinn Emanuel Urquhart Oliver & Hedges, Clare Iris Pastore, ACLU Foundation of Southern California, Peter Jay Eliasberg, Lisa Robin Jaskol, Los Angeles, CA, Timothy M. Bechtold, Bechtold Law Firm, William A. Rossbach, Rossbach & Whiston, Missoula, MT, James J. Brosnahan, Morrison & Foerster LLP, Cindy Ann Cohn, Electronic Frontier Foundation, Maria V. Morris, Rosen, Bien & Galvan, LLP, Karl Olson, Ram & Olson LLP, Marc Ver Der Hout, Ver Der Hout & Brigagliano, Barry R. Himmelstein, Eric B. Fastiff, Michael W. Sobol, Lieff Cabraser Heimann & Bernstein LLP, Ann Brick, Mark Schlosberg, American Civil Liberties Union Foundation of Northern California Inc., Laurence F. Pulgram, Candace J. Morey, Jennifer Lloyd Kelly, Fenwick & West LLP, Cindy Ann Cohn, Corynne McSherry, James Samuel Tyre, Kevin Stuart Bankston, Kurt Bradford Opsahl, Electronic Frontier Foundation, Elena Maria Dimuzio, Covington & Burling LLP, Richard Roy Wiebe, Law Office of Richard R. Wiebe San Francisco, CA, Eric A. Isaacson, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, Matthew Joseph Zevin, Stanley Mandel & Iola LLP, John David Blair-Loy, Derek John Emge, Emge & Associates, San Diego, CA, Jeff D Friedman, Reed R. Kathrein, Shana E. Scarlett, Hagens Berman Sobol Shapiro LLP, Lee Tien, Attorney at Law, Berkeley, CA, Thomas Edward Moore, III, The Moore Law Group, Palo Alto, CA, Jodi W. Flowers, Vincent Ian Parrett, Kimberly B. Baden, Motley Rice, LLC, Mount Pleasant, SC, Steven Edward Schwarz, Law Offices of Steven E. Schwarz, Harvey Michael Grossman, Adam D. Schwartz, Wendy Sangbee Park, Roger Baldwin Foundation of ACLU, Inc., Daniel Martin Feeney, Marc Oliver Beem, Zachary J. Freeman, Miller Shakman & Beem LLP, F. Thomas Hecht, James M. Carlson, Michael James Philippi, Ungaretti & Harris LLP, Clinton Arthur Krislov, William Joel Vander Vliet, Krislov & Associates, LTD., Myron Milton Cherry, Jacie C. Zolna, Myron M. Cherry & Associates LLC, Cary Neal Goldberg, Law Offices of Cary N. Goldberg, Daniel J. Becka, Beigel Schy Lasky Rifkind Goldberg & Fertik LTD., Donald A. Statland, Chicago, IL, Ilann Margalit Maazel, Matthew Delmont Brinckerhoff, Emery *953 Celli Brinckerhoff & Abady LLP, Shayana Devendra Kadidal, Alexander E Barnett, Jonathan L. Hafetz, Michael Ratner, William Goodman, New York, NY, R. James George, Jr., D. Douglas Brothers, George & Brothers, L.L.P., Austin, TX, Robert Carl Hilliard, Hilliard & Munoz, LLP, Robert J Patterson, Mikal C. Watts, Watts Law Firm, LLP, Darrell Lee Barger, Hartline Acus et al., Corpus Christi, TX, Roger L. Mandel, Martin Darren Woodward, Stanley Mandel & Iola LLP, Dallas, TX, Michael C. O'Malley, Siben & Siben, LLP, Bayshore, NY, Michael J. Ross, Slater Ross, Christopher Slater, Andrew S. Kierstead, Attorney at Law, Jessica Ashlee Albies, Steenson Schumann Tewksbury Creighton & Rose PC, Steven Goldberg, Portland, OR, Michael Alan St. Pierre, Revens Revens & St. Pierre, Warwick, RI, Nicholas John Paul Wagner, Law Offices of Wagner & Jones, Fresno, CA, Conrad S.P. Williams, III, Melanie G. Lagarde, Joseph G. Jevic, III, St. Martin, Williams & Bourque, Houma, LA, Nicole A. Ozer, ACLU of Northern California, San Jose, CA, Bert Voorhees, Theresa M. Traber, Esq., Traber & Voorhees, Pasadena, CA Peter Wasylyk, Law Offices of Peter Wasylyk, Amato A. Deluca, Deluca & Weizenbaum, LTD., Donald A. Migliori, Motley Rice LLC, Providence, RI, Edward Morgan Carstarphen, III, Ellis Carstarphen et al., Houston, TX, Anthony D. Irpino, Irpino Law Firm, Justin Isreal Woods, Gainsburgh, Benjamin, David, Meunier & Warshauer, Val Patrick Exnicios, Amy Collins Fontenot, Gerald E. Meunier, New Orleans, LA, Linda S. George, Laudig George Rutherford & Sipes, W. Russell Sipes, Todd C. Barnes, George & Sipes, Indianapolis, IN, Ari Y. Brown, Hagens Berman Sobol Shapiro LLP, Matthew Phineas Bergman, Law Office of Matthew Bergman, Seattle, WA, Gary E. Mason, The Mason Law Firm, LLP, Carl J. Nichols, United States Department of Justice, Nicholas A. Migliaccio, David Cole, Washington, DC, John C. Whitfield, Whitfield & Cox PSC, Madisonville, KY, Joshua Graeme Whitaker, Griffin Whitaker LLP, Edward Nelson Griffin, Silver Spring, MD, Michael D. Donovan, Donovan Searles, LLC, Philadelphia, PA, John Richard Gillespie, Jr., Broad and Cassel, Fort Lauderdale, FL, M. Stephen Turner, Broad & Cassel, Kelly Overstreet Johnson, Tallahassee, FL, Jacob B. Perkinson, Johnson & Perkinson, South Burlington, VT, Bruce Ira Afran, Bruce Afran, Attorney at Law, Carl J. Mayer, Princeton, NJ, David H. Sternlieb, Shapiro & Sternlieb, LLC, Manalapan, NJ, Sidney M. Bach, Asheville, NC, Joseph Richard Dulle, Sam Jonathan Alton, Stone, Leyton & Gershman, P.C., St. Louis, MO, Jon B. Eisenberg, Eisenberg & Hancock, Oakland, CA, Thomas Howard Nelson, Welches, OR, Zaha S. Hassan, Law Offices of Zaha Hassan, Lake Oswego, OR, James M. Evangelista, David J. Worley, Page Perry LLC, David L. Balser, McKenna Long & Aldridge, LLP, Atlanta, GA, Michael Avery, National Lawyer's Guild, Boston, MA, Jennifer Leigh Heintz, Missouri Public Service Commission, Jefferson City, MO, Victoria S. Shin, U.S. Attorney's Office, New Haven, CT, Irene E. Dowdy, Office of the US Attorney, Trenton, NJ, Susan J. Steele, United States Attorney's Office, Newark, NJ, Michael P. Drescher, Office of the US Attorney, Burlington, VT, Brian Hugh Adler, Bader Stillman & Adler PL, Margate, FL, for Plaintiffs.
Aimee Athena Feinberg, Munger, Tolles & Olson, Marc H. Axelbaum, Bruce A. Ericson, David Lloyd Anderson, Jacob R. Sorensen, Pillsbury Winthrop Shaw, San Francisco, CA, C.J. Johnson, Kalkstein Law Firm, Missoula, MT, Henry Weissmann, Susan Rochelle Szabo, Munger Tolles & Olson LLP, Robert John Benson, Hogan & Hartson L.L.P., Los Angeles, CA, John Beisner, O'Melveny & Myers LLP, Samir Chandra Jain, Wilmerhale, *954 Brian Matthew Boynton, Catherine M.A. Carroll, Randolph D. Moss, Kalea Seitz Clark, Wilmer Cutler Pickering Hale and Dorr LLP, Edward Robert McNicholas, Eric Alan Shumsky, Bradford Allan Berenson, David L. Lawson, Peter D. Keisler, Sidley Austin LLP, Anthony Joseph Coppolino, Renee S. Orleans, Tracy Rupa Tumlin-Bhattacharyya, Paul Gerald Freeborne, Andrea Marie Gacki, J. Marcus Meeks, U.S. Department of Justice, Civil Division, John G. Kester, Brendan V. Sullivan, Daniel D. Williams, Eric A. Reicher, Williams & Connolly LLP, Christopher Robert Zaetta, Ty Cobb, Hogan & Hartson, Washington, DC, Elizabeth Rogers Brannen, Wilmer Cutler Pickering Hale & Dorr LLP, Mark D. Flanagan, Wilmerhale, Daniel John Richert, Pillsbury Winthrop Shaw Pittman LLP, Palo Alto, CA, Randal S. Milch, William P. Barr, Verizon Communications Inc., Baskin Ridge, NJ, Michael P. Kenny, Alston & Bird LLP, Atlanta, GA, Alan Norris Salpeter, Sheila Marie Finnegan, Michele L. Odorizzi, Tyrone C. Fahner, Mayer, Brown, Rowe & Maw, Jonathan D. King, DLA Piper Rudnick Gray Cary LLP, David William Carpenter, Craig Allen Knot, Sidley Austin LLP, Thomas P. Walsh, United States Attorney's Office NDIL, Chicago, IL, Albert L. Frevola, Jr., Vanessa Dawn Sloat-Rogers, Gordon Hargrove & James, Fort Lauderdale, FL, Michael R. Fruehwald, Barnes & Thornburg, Raymond A. Basile, Stephen E. Arthur, Harrison & Moberly, A. David Stippler, Brian W. Welch, Bingham McHale, LLP, Indianapolis, IN, Ted W. Stroud, Oade Stroud & Kleiman PC, East Lansing, MI, Anthony J. Zarillo, Jr., Courter, Kobert & Cohen, PC, Hackettstown, NJ, Joseph R. Knight, Baker Botts LLP, Austin, TX, Philip J. John, Jr., Baker & Botts, Shira R. Yoshor, Houston, TX, Jason S. Ritchie, Holland & Hart, Billings, MT, Steven K. Blackhurst, Ater Wynne Hewitt Dodson & Skerritt, Portland, OR, Harry Rosenberg, Phelps Dunbar, LLP, Nancy Scott Degan, Matthew A. Woolf, Paul Lee Peyronnin, Baker Donelson Bearman Caldwell & Berkowitz, PC, New Orleans, LA, Lauren A. Stern, Steven Chung & Associates LLLC, Honolulu, HI, Michael E. Kipling, Kipling Law Group PLLC, Seattle, WA, Lori McAllister, Dykema Gossett PLLC, Lansing, MI, F. Larkin Fore, Sarah M. Fore, Fore, Miller & Schwartz, Louisville, KY, Amanda J. Hettinger, Stephen B. Higgins, Sharon B. Rosenberg, Thompson Coburn LLP, John F. Medler, Jr., Southwestern Bell Telephone Company, St. Louis, MO, Andrew M. Carlson, Thomas Erik Bailey, Briggs & Morgan, PA, Minneapolis, MN, John G. Haines, Tatiana Damianova Eirmann, Attorney General's Office, William Lynch Vallee, Jr., State of Connecticut Office of Consumer Counsel, New Britain, CT, Robert B. Flynn, Tyler, Cooper & Alcorn, New Haven, CT, Robert J. Metzler, II, Tyler Cooper & Alcorn, Andrew M. Schatz, Seth R. Klein, Wayne T. Boulton, Schatz Nobel Izard P.C., Renee Colette Redman, American Civil Liberties Union, Hartford, CT, Richard C. Fipphen, Verizon Communications, Inc., Robert Jude Demento, Hogan & Hartson, LLP, New York, NY, Stanley A. Twardy, Jr., Terence J. Gallagher, Day Pitney LLP, Stamford, CT, Christopher C. Taub, Linda J. Conti, Maine Attorney General, Peter B. Lafond, Augusta, ME, William D. Hewitt, Pierce Atwood LLP, Zachary Lee Heiden, MCLU Foundation, John M.R. Paterson, Bernstein Shur, Christopher B. Branson, Murray Plumb & Murray, Portland, ME, Patrick Dealmeida, Office of the NJ Attorney General, Trenton, NJ, Mark J. Distefano, Michael Nicholas Donofrio, Vermont Attorney General's Office, Montpelier, VT, Michael L. Burak, Burak Anderson & Melloni PLC, Peter H. Zamore, R. Jeffrey Behm, Sheehey Furlong & Behm P.C., Burlington, VT, for Defendants.
*955 Wayne R. Jortner, William C. Black, Maine Public Advocate Office, Augusta, ME, Lawrence S. Lustberg, Gibbons Del Deo Gregginer & Vecchione, Newark, NJ, Brian H. Chun, Lafayette & Kumagai LLP, San Francisco, CA, for Movant.
Alexander Kenneth Haas, United States Department of Justice, Washington, DC, Stephen Laudig, Law Offices of Stephen Laudig, Honolulu, HI, for Plaintiffs and Defendants.
Kathryn Potter, pro se.
James E. Chadden, Sr., pro se.
Ron Antosko, pro se.
Mark E. Guzzi, pro se.
Jane Youd, pro se.
Mark Youd, pro se.
ORDER
VAUGHN R. WALKER, Chief Judge.
The United States has moved to dismiss "all claims against the electronic communication service providers" in the cases in this multidistrict litigation (MDL) matter brought by individuals against telecommunications companies. Doc. #469 at 23. The single ground for dismissal in the government's motion is section 802 of FISA, part of the FISA Amendments Act of 2008, Pub. L. No. 110-261, 122 Stat 2436 (FISAAA), enacted July 10, 2008 and codified at 50 U.S.C. § 1885a. In response to the government's motion to dismiss, plaintiffs, alleged to be customers of the various telecommunications companies named as defendants in these actions, have advanced a variety of constitutional challenges to the provisions of FISAAA upon which the government relies in seeking dismissal. Doc. # 483. For the reasons presented herein, these challenges must be rejected and the government's motion to dismiss GRANTED.
I
A
In December 2005, news agencies began reporting that President George W Bush had ordered the National Security Agency (NSA) to conduct eavesdropping of some portion of telecommunications in the United States without warrants and that the NSA had obtained the cooperation of telecommunications companies to tap into a significant portion of the companies' telephone and e-mail traffic, both domestic and international. See, e.g., James Risen and Eric Lichtblau, Bush Lets U.S. Spy on Callers Without Courts, N.Y. Times (Dec. 16, 2005). In January 2006, the first of dozens of lawsuits by customers of telecommunications companies were filed alleging various causes of action related to such cooperation with the NSA in warrantless wiretapping of customers' communications. See, e.g., Hepting v. AT & T Corp., C 06-0672 VRW, 2006 WL 324036 (N.D.Cal.2006). Several such cases were originally venued in the Northern District of California; others were filed in federal district courts throughout the United States. The cases typically alleged federal constitutional and statutory violations as well as causes of action based on state law such as breach of contract, breach of warranty, violation of privacy and unfair business practices.
The course of the Hepting case before the establishment of the MDL for these cases is illustrative for purposes of summarizing the procedural history of these cases. The United States moved to intervene in the case and simultaneously to dismiss it, asserting the state secrets privilege (SSP) and arguing, in essence, that the SSP required immediate dismissal because no further progress in the litigation was possible without compromising national security. C 06-0672 VRW Doc. ## 122-125. The telecommunications *956 company defendants in the case also moved to dismiss on other grounds. C 06-0672 VRW Doc. # 86. On July 20, 2006 the court denied the motions to dismiss and certified its order for an interlocutory appeal pursuant to 28 U.S.C. § 1292(b). Hepting v. AT & T Corp., 439 F.Supp.2d 974 (N.D.Cal.2006). The court denied the United States' request for a stay of proceedings pending appeal.
On August 9, 2006, the Judicial Panel on Multidistrict Litigation ordered all cases arising from the alleged warrantless wiretapping program by the NSA transferred to the Northern District of California and consolidated before the undersigned judge.
On January 5, 2007, the court ordered the plaintiffs in the cases brought against telecommunications company defendants to prepare, serve and file master consolidated complaints for each telecommunications company defendant. See master consolidated complaints at Doc. # 123 (T-Mobile and related companies), Doc. # 124 (Sprint and related companies), Doc. # 125 (MCI & Verizon companies), Doc. # 126 (Bellsouth) and Doc. #455 (Cingular & ATT Mobility companies). Unlike the remaining cases in this MDL matter, no government entities were named as defendants in these actions; rather, the United States made itself a party by intervening in these actions in order to obtain a posture from which to seek their dismissal.
On July 7, 2008, after months of election-year legislative exertion that received considerable press coverage, Congress enacted FISAAA. The new law included an immunity provision for the benefit of telecommunications companies that would be triggered if and when the Attorney General of the United States certified certain facts to the relevant United States district court.
On September 19, 2008, the United States filed its motion to dismiss all claims against telecommunications company defendants in these cases, including the pending master consolidated complaints. The two categories of cases not targeted for dismissal in the United States' instant motion to dismiss are those brought against governmental entities (Al-Haramain Islamic Foundation, Inc v. Bush, No. C 07-0109; Center for Constitutional Rights v. Bush, No. C 07-1115; Guzzi v. Bush, No. C 06-6225; Shubert v. Bush, No. C 07-0693) and those brought by the United States against state attorneys general (United States v. Clayton, C 07-01242; United States v. Palermino, C 07-01326; United States v. Farber, C 07-01324; United States v. Reishus, C 07-01323; United States v. Volz, C07-01396; Clayton v. ATT, C 07-01187). The latter six actions by the United States against states are the subject of a separate motion for summary judgment brought under section 803 of FISAAA, 50 U.S.C. § 1885b (Doc. # 536) and a separate order by the court.
B
FISAAA contains four titles. The government's motion rests on a provision of Title II, which bears the heading "Protections for Electronic Communication Service Providers" and contains section 802, concerning "procedures for implementing statutory defenses under [FISA]."[1]
Section 802(a) contains the new immunity provision upon which the United States relies in seeking dismissal:
(a) REQUIREMENT FOR CERTIFICATION.Notwithstanding any other provision of law, a civil action may not lie or be maintained in a Federal or State court against any person for providing *957 assistance to an element of the intelligence community, and shall be promptly dismissed, if the Attorney General certifies to the district court of the United States in which such action is pending that
(1) any assistance by that person was provided pursuant to an order of the court established under section 103(a)directing such assistance;
(2) any assistance by that person was provided pursuant to a certification in writing under section 2511(2)(a)(ii)(B) or 2709(b) of title 18, United States Code;
(3) any assistance by that person was provided pursuant to a directive under section 102(a)(4), 105B(e), as added by section 2 of the Protect America Act of 2007 (Public Law 110-55), or 702(h) directing such assistance;
(4) in the case of a covered civil action, the assistance alleged to have been provided by the electronic communication service provider was
(A) in connection with an intelligence activity involving communications that was
(i) authorized by the President during the period beginning on September 11, 2001, and ending on January 17, 2007; and
(ii) designed to detect or prevent a terrorist attack, or activities in preparation for a terrorist attack, against the United States; and
(B) the subject of a written request or directive, or a series of written requests or directives, from the Attorney General or the head of an element of the intelligence community (or the deputy of such person) to the electronic communication service provider indicating that the activity was
(i) authorized by the President; and
(ii) determined to be lawful; or
(5) the person did not provide the alleged assistance.
The government has submitted a public certification by former Attorney General Michael Mukasey which includes the following statement: "I hereby certify that the claims asserted in the civil actions pending in these consolidated proceedings brought against electronic communication service providers fall within at least one provision contained in Section 802(a)." Doc. # 469-3 at 2. In addition, the government has submitted classified certifications (Doc. # 470) in support of its motion.
Section 802(b)(1) sets out the standard for judicial review of a certification: "A certification under subsection (a) shall be given effect unless the court finds that such certification is not supported by substantial evidence provided to the court pursuant to this section." The statute does not define "substantial evidence," so courts presumably are to employ definitions of that standard articulated in other contexts. The United States, for example, cites a social security case, McCarthy v. Apfel, 221 F.3d 1119, 1125 (9th Cir.2000) (Doc. # 469 at 22), which defines the substantial evidence standard as "such relevant evidence as a reasonable mind might, upon consideration of the entire record, accept as adequate to support a conclusion." The substantial evidence standard appears to have been in use for nearly a century in federal courts in a form closely resembling that in use today. In 1912, the Supreme Court applied the standard in Int. Com. Comm. v. Union Pacific RR, 222 U.S. 541, 548, 32 S.Ct. 108, 56 L.Ed. 308 (1912) ("not that its decision * * * can be supported by a mere scintilla of proof, but the courts will not examine the facts further than to determine whether there was substantial evidence to sustain the order"); see also Edison Co. v. Labor Board, 305 U.S. 197, 229, 59 S.Ct. 206, 83 *958 L.Ed. 126 (1938) ("Substantial evidence is more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.")
Section 802(c) specifies the manner in which the court is to deal with classified information. If the Attorney General files an unsworn statement under penalty of perjury that disclosure of the certification and related materials would harm the national security, the court is obligated under section 802(c) to do two things: (1) review the certification and any supplemental materials in camera and ex parte; and (2) limit public disclosure concerning such certification and the supplemental materials, including any public order following such in camera and ex parte review, to a statement whether the case is dismissed and a description of the legal standards that govern the order, without disclosing the specific subparagraph within subsection (a) that is the basis for the certification.
Section 802(d) provides, regarding the role of the parties, that any plaintiff or defendant in a civil action may submit to the court "any relevant court order, certification, written request, or directive" for review and "shall be permitted to participate in the briefing or argument of any legal issue in a judicial proceeding conducted pursuant to this section, but only to the extent that such participation does not require the disclosure of classified information to such party." It also requires the court to review any relevant classified information in camera and ex parte and to issue orders or parts of orders that "would reveal classified information" in camera and ex parte and maintain them under seal.
C
The United States and the telecommunications company defendants quote extensively from the October 26, 2007 report of the Senate Select Committee on Intelligence to accompany Senate Bill 2248 (SSCI Report), S.Rep. No. 110-209, 110th Cong., 1st Sess. (2007). Doc. # 469 & 508, passim; SSCI report docketed at # 469-2. Senate Bill 2248 was the original Senate bill that, together with the House bill (H 3773), resulted in the compromise legislation that ultimately passed both houses on July 8, 2008 (H 6304). See FISA Amendments of 2008, HR 6304, Section-by-section Analysis and Explanation by Senator John D Rockefeller IV, Chairman of the Select Committee on Intelligence. Doc. # 469-2 at 51.
The SSCI Report included among the committee's recommendations for legislation amending FISA that "narrowly circumscribed civil immunity should be afforded to companies that may have participated in the President's program based on written requests or directives that asserted the program was determined to be lawful." Doc. #469-2 at 4. The SSCI Report included a lengthy summary of the instant MDL cases, leaving no room for doubt that these cases were the intended target of the new immunity provision:
BACKGROUND ON PENDING LITIGATION
CIVIL SUITS AGAINST ELECTRONIC COMMUNICATION SERVICE PROVIDERS
After the media reported the existence of a surveillance program in December of 2005, lawsuits were filed against a variety of electronic communication service providers for their alleged participation in the program reported in the media. As of the date of this Committee report, more than forty lawsuits relating to that reported surveillance program had been transferred to a district court in the Northern District of California *959 by the Judicial Panel on Multidistrict Litigation.
The lawsuits allege that electronic communication service providers assisted the federal government in intercepting phone and internet communications of people within the United States, for the purpose of both analyzing the content of particular communications and searching millions of communications for patterns of interest. Some of the lawsuits against the providers seek to enjoin the providers from furnishing records to the intelligence community. Other suits seek damages for alleged statutory and constitutional violations from the alleged provision of records to the intelligence community. Collectively, these suits seek hundreds of billions of dollars in damages from electronic communication service providers.
The Government intervened in a number of these suits to assert the state secrets privilege over particular facts, including whether the companies being sued assisted the Government. The Government also sought to dismiss the suits on state secrets grounds, arguing that the very subject matter of the lawsuits is a state secret. Ultimately, this Government assertion of the state secrets privilege seeks to preclude judicial review of whether, and pursuant to what authorities, any particular provider assisted the Government.
Although the Government has sought to dismiss these suits, the future outcome of this litigation is uncertain. Even if these suits are ultimately dismissed on state secrets or other grounds, litigation is likely to be protracted, with any additional disclosures resulting in renewed applications to the court to allow litigation to proceed.
* * *
SUITS AGAINST THE GOVERNMENT
In addition to the lawsuits involving telecommunications providers, a small number of lawsuits were filed directly against the Government challenging the President's surveillance program. These suits allege that the President's program violated the Constitution and numerous statutory provisions, including the exclusivity provisions of the Foreign Intelligence Surveillance Act. These cases are at a variety of different stages of district court and appellate review. Nothing in this bill is intended to affect these suits against the Government or individual Government officials.
Id. at 8-9.[2]
II
FISAAA's section 802 appears to be sui generis among immunity laws: it creates a retroactive immunity for past, completed acts committed by private parties acting in concert with governmental entities that allegedly violated constitutional rights. The immunity can only be activated by the executive branch of government and may not be invoked by its beneficiaries. Section 802 also contains an unusual temporal limitation confining its immunity protections to suits arising from actions authorized by the president between September 11, 2001 and January 7, 2007. The government contends that section 802 is valid and enforceable and fully applicable to all the cases in the MDL brought by individuals against telecommunications companies. *960 The government now invokes section 802's procedures in seeking dismissal of these actions.
In opposing the motion to dismiss, plaintiffs advance a number of challenges to the constitutionality of section 802, asserting that constitutional defects make the statute unenforceable. These challenges are properly presented and considered in the context of the instant motion to dismiss and are addressed on their merits in this order. In the alternative, plaintiffs contend that section 802 is not applicable to, or does not require dismissal of, the cases against the telecommunications company defendants.
A
The court turns first to plaintiffs' argument, for which they cite Marbury v. Madison, 5 U.S. 137, 1 Cranch 137, 2 L.Ed. 60 (1803), and Boumediene v. Bush, 553 U.S. ___, 128 S.Ct. 2229, 171 L.Ed.2d 41 (2008), that Congress and the executive branch have improperly taken actions that leave no path open for adequate judicial review of plaintiffs' constitutional claims. Plaintiffs assert that in enacting FISAAA, Congress has "refused to provide any alternative forum or remedy" for their constitutional claims. Doc. # 483 at 11-15. The United States and the telecommunications company defendants counter that while suits against telecommunications companies are foreclosed, neither the statute nor the government's actions prevent plaintiffs from seeking redress for their constitutional claims against the government actors and entities. Doc. # 520 at 12. Lest any further reassurance be necessary, the SSCI report states: "The committee does not intend for [section 802] to apply to, or in any way affect, pending or future suits against the Government as to the legality of the President's program." Doc. # 469-2 at 9.
The court agrees with the United States and the telecommunications company defendants on this point: plaintiffs retain a means of redressing the harms alleged in their complaints by proceeding against governmental actors and entities who are, after all, the primary actors in the alleged wiretapping activities. Indeed, the same plaintiffs who brought the Hepting v. AT & T lawsuit (C 06-0672 VRW) are now actively prosecuting those claims in a separate suit filed in September 2008 against government defendants before the undersigned judge. Jewell v. United States, C 08-4373 VRW, filed September 18, 2008. Jewell thus joins several other cases in this MDL which seek relief only against government defendants. Al-Haramain Islamic Foundation, Inc v. Bush, No. C 07-0109; Center for Constitutional Rights v. Bush, No. C 07-1115; Guzzi v. Bush, No C 06-6225; Shubert v. Bush, No. C 07-0693. Plaintiffs' argument that section 802 violates constitutional principles by leaving plaintiffs no recourse for alleged violations of their constitutional rights is therefore without merit.
B
Among their constitutional arguments, plaintiffs advance three based on the separation-of-powers principle. They argue that Congress has usurped the judicial function, has violated a principle of law prohibiting Congress from dictating to the judiciary specific outcomes in particular cases and has impermissibly delegated lawmaking power to the executive branch. The court addresses these three arguments in turn.
1
Plaintiffs assert that section 802(a) impermissibly attempts to "make [Congress] and the executive branch the final arbiters of what the First and Fourth Amendments require," citing United *961 States v. United States District Court (Keith), 407 U.S. 297, 92 S.Ct. 2125, 32 L.Ed.2d 752 (1972), as requiring "prior judicial scrutiny by a neutral and detached magistrate." Doc. # 483 at 15-22. Specifically, plaintiffs argue that "the other branches [of government] may not take actions that have the effect of nullifying the Judiciary's constitutional interpretation and superseding it with their own, different judgment," id. at 17, and assert that "[u]nder section 802, those who collaborate with the executive branch no longer need comply with the Supreme Court's decisions in Keith and other cases interpreting the First and Fourth Amendments." Id. at 18.
The court finds no merit in this argument. Congress has created in section 802 a "focused immunity" for private entities who assisted the government with activities that allegedly violated plaintiffs' constitutional rights. In so doing, Congress has not interpreted the Constitution or affected plaintiffs' underlying constitutional rights. Moreover, plaintiffs' alarm about prospective disregard for the Constitution by private entities is largely misplaced given that the immunity for warrantless electronic surveillance under section 802(a)(4) is not available for actions authorized by the president after January 17, 2007, before FISAAA became law.
2
Plaintiffs argue that Congress, in enacting section 802, impermissibly directed the judiciary to adjudicate these pending cases in a particular way, thus running afoul of the doctrine first set forth in United States v. Klein, 80 U.S. (13 Wall) 128, 20 L.Ed. 519 (1872), a case in which the United States Supreme Court refused to give effect to a statute that was said to "prescribe rules of decision to the Judicial Department of the government in cases pending before it." Id. at 146.
In Klein, the executor of the estate of a person who had been sympathetic to the Confederate cause sought return of government-seized property under the Abandoned and Captured Property Act, a 1863 statute that provided for return of property or its proceeds to its original owner "on proof that he had never given aid or comfort to the rebellion." Id. at 139. In December 1863, the President issued a proclamation granting a full pardon, including the restoration of property rights, to those who took an oath to support the Union. Id. at 131-32. In 1869, the Supreme Court affirmed a return of property under the Act because the proclamation had "cured [the claimant's] participation in the rebellion." United States v. Padelford, 76 U.S. 531, 542, 9 Wall. 531, 19 L.Ed. 788 (1869). But the following year, Congress enacted legislation declaring that pardons did not restore property rights and requiring courts to treat pardons as conclusive proof of disloyalty to the Union. See Klein, 80 U.S. at 136-44.
The Supreme Court refused in Klein to give effect to Congress' requirement that the Court view pardons of evidence of disloyalty, as the requirement prevented the Court from giving "the effect to evidence which, in its own judgment, such evidence should have." Id. at 147. The Court delicately noted: "We must think that Congress has inadvertently passed the limit which separates the legislative from the judicial power." Id. The Supreme Court contrasted the circumstances presented in Klein with those in Pennsylvania v. Wheeling Bridge Co., 54 U.S. 518, 13 How. 518, 14 L.Ed. 249 (1851), in which Congress had deemed the eponymous bridge a "post road" to avoid the consequences of a condemnation action against it as a "bridge." The Supreme Court upheld the new law because "[n]o arbitrary rule of decision was prescribed * * * but the court was left to apply its ordinary *962 rules to the new circumstances created by the act." Klein, 80 U.S. at 146-47.
The rather oblique discussion in Klein has benefitted from elaboration by twentieth-century court decisions, discussed below, to become of some practical use to courts. Subsequent decisions note that Klein contains two central ideas: legislation that creates new circumstances does not prescribe a rule of decision but legislation that prevents courts from determining the effects of evidence may do so. These concepts are easier to articulate than to apply. Two amici curiae have submitted briefs to the court on opposite sides of the question whether section 802 runs afoul of Klein. Doc. ## 501, 507.
More than a century later, a unanimous Supreme Court illuminated the scope of Klein to some degree in Robertson v. Seattle Audubon Society, 503 U.S. 429, 112 S.Ct. 1407, 118 L.Ed.2d 73 (1992). In response to litigation challenging proposed timber harvesting in national forests, Congress had enacted the Northwest Timber Compromise in which subsection 318(b)(6)(A) of the Department of the Interior and Related Agencies Appropriations Act of 1990, 103 Stat 745, "popularly known as the Northwest Timber Compromise," 503 U.S. at 433, 112 S.Ct. 1407, provided that
management of areas according to subsections (b)(3) and (b)(5) of this section on the thirteen national forests in Oregon and Washington and Bureau of Land Management lands in western Oregon known to contain northern spotted owls is adequate consideration for the purpose of meeting the statutory requirements that are the basis for the consolidated cases captioned Seattle Audubon Society et al. v. F. Dale Robertson, Civil No 89-160 and Washington Contract Loggers Assoc et al. v. F Dale Robertson, Civil No 89-99 * * * and the case Portland Audubon Society et al. v. Manuel Lujan, Jr., Civil No 87-1160-FR.
In response to motions to dismiss based on the new statute, plaintiffs argued that the above-quoted provision violated Article III of the Constitution. Id. at 436, 112 S.Ct. 1407. The district courts upheld the statute and dismissed the respective lawsuits, but the Ninth Circuit (on consolidated appeals) reversed, holding that the compromise violated the separation-of-powers principle under Klein because "the first sentence of § 318(b)(6)(A) `does not, by its plain language, repeal or amend the environmental laws underlying this litigation,' but rather `directs the court to reach a specific result and make certain factual findings under existing law in connection with two [pending] cases.'" Id.
The Supreme Court reversed, holding that "subsection (b)(6)(A) compelled changes in law, not findings or results under old law" because "under subsection (b)(6)(A), the agencies could satisfy their MBTA obligations in either of two ways: by managing their lands so as neither to `kill' nor `take' any northern spotted owl within the meaning of § 2, or by managing their lands so as not to violate the prohibitions of subsections (b)(3) and (b)(5)." Id. at 438, 112 S.Ct. 1407. The Supreme Court did not directly address the Ninth Circuit's reading of Klein in Robertson. Instead, it reversed on the grounds that the statute amended applicable law, thus passing constitutional muster. Id.
The Supreme Court further developed the connection between Robertson and Klein in Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 115 S.Ct. 1447, 131 L.Ed.2d 328 (1995): "Whatever the precise scope of Klein * * * later decisions have made clear that its prohibition does not take hold when Congress `amend[s] applicable law.'" Id. at 218, 115 S.Ct. 1447, citing Robertson, 503 U.S. at 441, 112 S.Ct. 1407. Plaut *963 thus sets forth the principle that a statute that amends applicable law, even if it is meant to determine the outcome of pending litigation, does not violate the separation-of-powers principle. And under Robertson, Congress amends applicable law when it creates a new method to satisfy existing statutory requirements, i e, when "compliance with certain new law constituted compliance with certain old law." Robertson, 503 U.S. at 440, 112 S.Ct. 1407.
In Ecology Center v. Castaneda, 426 F.3d 1144 (2005), the Ninth Circuit applied Robertson and Klein to facts like those in Robertson: with litigation pending, Congress had enacted a forest-specific management act which changed the criteria for approving timber sales. Id. at 1149. The Ninth Circuit held that the Act changed the underlying law because it did not "direct particular findings of fact or the application of old or new law to fact" but still left to the district court the role of determining whether the new criteria were met. Id. Ecology Center noted that a separation-of-powers problem appears where "Congress has impermissibly directed certain findings in pending litigation, without changing any underlying law." Id. at 1148, quoting Robertson, 503 U.S. at 429, 112 S.Ct. 1407. See also Gray v. First Winthrop Corp., 989 F.2d 1564, 1569-70 (9th Cir.1993) ("Robertson indicates a high degree of judicial tolerance for an act of Congress that is intended to affect litigation so long as it changes the underlying substantive law in any detectable way.").
The court reads Klein, Plaut, Robertson and Ecology Center to mean that the court's inquiry must be whether Congress has, in enacting section 802, directed certain findings of fact in pending litigation or, instead, changed the underlying law.
One amicus argues that Congress has not changed the underlying substantive law; the other argues that it has. The former contends that if the Attorney General were to decline to submit a certification under section 802, telecommunication companies would remain liable under old law and that this somehow means Congress has not changed the underlying law. Doc. # 501 at 6. The latter amicus argues that section 802 does not amend the substantive federal law that provides plaintiffs' claim of right but rather creates an affirmative defense that changes applicable law in a detectable way by altering the overall substantive legal landscape pertinent to the subject matter at issue. Doc. # 507 at 10.
The court agrees with the view that section 802 amends substantive federal law. The Attorney General's role is examined in detail in the next section; for the reasons stated therein, the Attorney General does not have the authority to "change the law" or legislate under section 802. The court does not agree, however, with the characterization of the substantive change in law as the creation of an affirmative defense; rather, as already noted, section 802 creates an immunity, albeit one that is activated in an unusual way.
Plaintiffs, meanwhile, contend that section 802 is unconstitutional under the principles articulated in Klein because "section 802 * * * forbids the Court from engaging in independent fact-finding," Doc. # 483 at 30, and "section 802 violates the separation of powers because it permits the Executive to dictate that the Judiciary dismiss these actions without allowing the Judiciary to make an independent determination of the facts on which the dismissal is based." Doc. # 483 at 29. The United States counters that "it is the Court that `finds' whether the Attorney General's certification is supported by substantial evidence provided under Section 802 and, thus, whether dismissal will be granted." Doc. # 520 at 17. Plaintiffs nonetheless contend that a "substantial evidence" standard of review *964 of the Attorney General's certification, i.e., his fact-finding, is "an unconstitutional attempt to direct * * * particular findings of fact," citing Robertson, 503 U.S. at 438, 112 S.Ct. 1407. Doc. # 483 at 30.
One amicus also argues that Congress, in enacting section 802, acted in a self-interested manner by "hiding unconstitutional and unlawful conduct" and "hop[ing] for dismissal behind a facade of judicial process" because of "intensive lobbying," "targeted fundraising efforts" and "contributions" and that this somehow makes section 802 unconstitutional. Doc. # 501 at 12-15. But the court's role is limited to examining the product of the legislative process to determine whether it accords with Constitutional rules for the exercise of legislative power, not to second-guess that process.
In enacting section 802, Congress created a new, narrowly-drawn and "focused" immunity within FISA, thus changing the underlying law in a "detectable way." Gray, 989 F.2d at 1570. The statute, moreover, provides a judicial role, albeit a limited one, in determining whether the Attorney General's certifications meet the criteria for the new immunity created by section 802; it does not direct the court to make specified findings. The court may reject the Attorney General's certification and refuse to dismiss a given case if, in the court's judgment, the certification is not supported by substantial evidence. Accordingly, the court finds that section 802 does not violate the separation-of-powers principle examined in Klein.
3
Plaintiffs assert that section 802(a) violates the "nondelegation doctrine" under which Congress may not delegate law-making power to the executive branch, citing Youngstown Sheet and Tube Co. v. Sawyer, 343 U.S. 579, 587, 72 S.Ct. 863, 96 L.Ed. 1153 (1952). Doc. # 483 at 22-23. Plaintiffs also quote Marshall Field & Co. v. Clark, 143 U.S. 649, 692, 12 S.Ct. 495, 36 L.Ed. 294 (1892), the seminal case in which the Supreme Court wrote: "That Congress cannot delegate legislative power to the President is a principle universally recognized as vital to the integrity and maintenance of the system of government ordained by the Constitution." This is the most serious of plaintiffs' challenges.
Plaintiffs specifically assert, somewhat confusingly, that Congress "has not changed the law governing plaintiffs' causes of action," but, rather, "[b]y the act of filing certifications in this Court, the Attorney General has purported to amend the statutes governing plaintiffs' actions long after Congress enacted FISAAA and the President signed it." Doc. #483 at 24-25. As the court understands plaintiffs' contention, section 802(a) specifies a good many things that the Attorney General must do should he choose to seek dismissal of a "covered civil action," but it does not actually direct the Attorney General to take any steps up to and including filing certifications, nor does it appear to establish any basis for his exercise of discretion in determining whether to do so in a particular case.
Notwithstanding the non-delegation doctrine's sweeping prohibition on delegations of law-making power, congressional delegations of law-making authority to administrative agencies are commonplace and those agencies create enormous bodies of law including, but not limited to, the entire Code of Federal Regulations. One treatise comments thusly about the current status of the non-delegation doctrine: "The real law is pretty close to acceptance of any delegation of authority," but "the doctrine's theoretical foundation is very sound and scholars continue to argue about a more robust nondelegation doctrine." 33 Charles A. Wright & Charles H. Koch, Jr., Federal Practice *965 and Procedure § 8365 at 264-65 (Thomson/West 2006). Id. at 265. There are, in short, limits to what Congress may permissibly delegate to the executive branch, although the courts are rarely called on to enforce those limits. In 1928, Chief Justice Taft wrote, in an opinion upholding the power of Congress to delegate to the executive the authority to adjust import tariffs:
If Congress shall lay down by legislative act an intelligible principle to which the person or body authorized to fix such rates is directed to conform, such legislative action is not a forbidden delegation of legislative power. If it is thought wise to vary the customs duties according to changing conditions of production at home and abroad, it may authorize the Chief Executive to carry out this purpose, with the advisory assistance of a Tariff Commission appointed under congressional authority.
Hampton & Co. v. United States, 276 U.S. 394, 409, 48 S.Ct. 348, 72 L.Ed. 624 (1928). Chief Justice Taft's "intelligible principle" test became the guiding principle for non-delegation challenges and, indeed, remains so. See Whitman v. American Trucking Assns., Inc., 531 U.S. 457, 487, 121 S.Ct. 903, 149 L.Ed.2d 1 (2001) (Thomas, dissenting) ("this Court since 1928 has treated the `intelligible principle' requirement as the only constitutional limit on congressional grants of power to administrative agencies * * *").
Congressional enactments during the 1930s and 1940s prompted a number of non-delegation challenges; in just two of them, the Supreme Court determined that Congress had delegated too much legislative authority. Panama Refining Co. v. Ryan, 293 U.S. 388, 430, 55 S.Ct. 241, 79 L.Ed. 446 (1935) (statute authorizing regulation of interstate and foreign commerce in petroleum invalid because "the Congress has declared no policy, has established no standard, has laid down no rule. There is no requirement, no definition of circumstances and conditions in which the transportation is to be allowed or prohibited.") Schechter Corp. v. United States, 295 U.S. 495, 55 S.Ct. 837, 79 L.Ed. 1570 (1935) (statute authorizing the President, upon application by "one or more trade or industrial associations or groups," to approve a code of fair competition for that trade or industry, violations of which were subject to criminal penalties, invalid). It is tempting to view Panama Refining and Schechter as akin to twin blips on an otherwise flatlined electrocardiogram for the non-delegation doctrine, given that no other statute has been invalidated by the courts on this ground before or since. See generally Mistretta v. United States, 488 U.S. 361, 373-74, 109 S.Ct. 647, 102 L.Ed.2d 714 (1989). The telecommunications company defendants have certainly pressed this view (see, for example, Doc. # 508 at 22). But the federal courts have been presented with non-delegation challenges with regularity thereafter and they are no rarity in the contemporary period.
In reviewing a statute against a nondelegation challenge to an act of Congress, "the only concern of courts is to ascertain whether the will of Congress has been obeyed." Yakus v. United States, 321 U.S. 414, 425, 64 S.Ct. 660, 88 L.Ed. 834 (1944). In Mistretta, the Court upheld the Sentencing Reform Act of 1984 (as amended, 18 U.S.C. § 3551 et seq. and 28 U.S.C. §§ 991-98), which created the United States Sentencing Commission and authorized the Sentencing Guidelines. In finding the statute a proper exercise of congressional authority, the Supreme Court reaffirmed Chief Justice Taft's "intelligible principle" test as the touchstone for determining non-delegation challenges to congressional enactments and quoted American Power & Light Co. v. SEC, 329 U.S. 90, 105, 67 S.Ct. 133, 91 L.Ed. 103 (1946) thusly: "This Court has deemed it *966 `constitutionally sufficient if Congress clearly delineates the general policy, the public agency which is to apply it, and the boundaries of this delegated authority.'" 488 U.S. at 373, 109 S.Ct. 647.
The Court's Mistretta opinion identified in the Sentencing Reform Act of 1984 three "goals," four "purposes," the prescription of a specific tool for the Sentencing Commission to use in carrying out its responsibilitiesthe sentencing "ranges" later embodied in the Sentencing Guidelinesseven "factors" to be considered in the formulation of offense categories and "[i]n addition to these overarching constraints * * * even more detailed guidance to the Commission about categories of offenses and offender characteristics" such as recidivism, multiple offenses and other aggravating and mitigating factors. 488 U.S. at 377, 109 S.Ct. 647. The Court held that the statutory scheme had set forth "more than merely an `intelligible principle' or minimum standards" and quoted with approval from the district court's opinion in United States v. Chambless, 680 F.Supp. 793, 796 (E.D.La.1988): "The statute outlines the policies which prompted establishment of the Commission, explains what the Commission should do and how it should do it, and sets out specific directives to govern particular situations." 488 U.S. at 379, 109 S.Ct. 647.
In this century, the Supreme Court considered a non-delegation challenge in Whitman v. American Trucking Assns., 531 U.S. 457, 121 S.Ct. 903, 149 L.Ed.2d 1 (2001), this time to the Environmental Protection Agency's National Ambient Air Quality Standards. The DC Circuit had determined that section 109(b)(1) of the Clean Air Act, under which the standards were promulgated, lacked an "intelligible principle" to guide the agency's exercise of authority. The Supreme Court reversed, finding that § 109(b)(1)'s directive to the EPA to establish an air quality standard at a level "requisite to protect public health from the adverse effects of the pollutant in the ambient air" was "well within the outer limits of our nondelegation precedents." Id. at 473-74, 121 S.Ct. 903.
In considering the instant motion, the court regarded the nondelegation challenge to section 802 as substantial enough to warrant additional briefing. Doc. ##559, 571-573. The nondelegation problem presented in the instant cases is different from that in the above-referenced authorities in that section 802 contains no charge or directive, timetable and/or criteria for the Attorney General's exercise of discretion, a point the United States admits: "Congress left the issue of whether and when to file a certification to the discretion of the Attorney General." Doc. # 466 at 22. The statute does not explicitly confine the Attorney General's authority in any manner or, indeed, offer any direction to the Attorney General other than to prohibit him from delegating his "authority and duties" under section 802 to anyone other than the Deputy Attorney General (§ 802(g)). Rather, the statute's commands are directed to the courts and to the parties. Yet the Attorney General's action triggers the dramatic consequence of dismissal of a number of lawsuits seeking substantial damages against the telecommunications company defendants.
The United States' primary argument in its supplemental brief is that section 802 does not delegate legislative power, but rather "permit[s], but do[es] not require, the Attorney General to certify facts to a court, triggering consequences determined by Congress." Doc. # 572 at 7. Therefore, the United States asserts, "the non-delegation doctrine and its `intelligible principle' standard are simply inapplicable." Id. Like plaintiffs, they cite Marshall Field & Co v. Clark, but contend that section 802 is like the tariff law upheld in that case. *967 They point to that opinion's emphasis on "factfinding" as a permissible delegation to the executive branch:
The proper distinction * * * was this: "The legislature cannot delegate its power to make a law, but it can make a law to delegate a power to determine some fact or state of things upon which the law makes, or intends to make, its own action depend. To deny this would be to stop the wheels of government. There are many things upon which wise and useful legislation must depend which cannot be known to the law-making power, and must therefore be a subject of inquiry and determination outside of the halls of legislation."
143 U.S. 649, 694, 12 S.Ct. 495, 36 L.Ed. 294 (1892). The United States contends that section 802 is like other statutes "that permit, but do not require, the Attorney General to certify facts to a court, triggering consequences determined by Congress." Doc. # 572 at 7.
The United States cites the following specific examples: 28 U.S.C. § 2679(d) (when Attorney General certifies that a defendant federal employee was acting within the scope of his office or employment in a civil action, United States "shall be substituted" as the party defendant); 18 U.S.C. § 5032 (unless the Attorney General "after investigation" certifies facts to the United States district court, juveniles may not be prosecuted in the United States courts); 28 U.S.C. § 1605(g)(1)(A) (upon request of the Attorney General together with certification that a discovery order would significantly interfere with a criminal case or national security operation, court "shall stay" discovery against the United States); Classified Information Procedures Act § 6(a), 18 U.S.C. App. 3 (authorizing the Attorney General to certify that a public hearing regarding use of classified information may result in disclosure of such information, automatically triggering an in camera hearing). Doc. # 572 at 7-8 n 2.
The telecommunications company defendants similarly contend that section 802 provides only for the certification of facts by the executive branch that then triggers consequences determined by Congress, and not delegated legislative or rulemaking activity. They contend that the Attorney General's authority under section 802 is similar to that of the Secretary of State recently upheld by the DC Circuit in Owens v. Republic of the Sudan, 531 F.3d 884 (D.C.Cir.2008). But in Owens, the court considered a challenge on vagueness grounds to a congressional charge to the Secretary of State in 50 U.S.C. App. § 2405(j)(1)(A) authorizing her to label a country a "state sponsor of terrorism" and found the terms at issue "intelligible" under Whitman. 531 F.3d at 893.
The telecommunications company defendants also rely on a New Deal-era case, Currin v. Wallace, 306 U.S. 1, 59 S.Ct. 379, 83 L.Ed. 441 (1939), in which the Supreme Court upheld the Tobacco Inspection Act of August 23, 1935, which provided for the Secretary of Agriculture to inspect and certify tobacco for sale, but only in markets in which two-thirds of the growers had voted in favor of such action in a special referendum. Id. at 6, 59 S.Ct. 379. The telecommunications company defendants characterize the congressional grant to the executive branch in Currin as turning "not only upon discretionary factual determinations by the Executive, but also upon the favorable vote of private citizens." Doc. # 508 at 22. But defendants misread Currin in describing the Secretary of Agriculture's factual determinations as "discretionary." The Court rejected just such a characterization of the Act: "We find no unfettered discretion lodged with the administrative officer. * * * [T]he Secretary acts merely as an *968 administrative agent in conducting the referendum. The provision for the suspension of a designated market * * * sets forth definite as well as reasonable criteria." 306 U.S. at 17, 59 S.Ct. 379. The Court was untroubled by the Act's provision for referenda, observing that the predication of executive action on the outcome of a vote had been upheld in Hampton & Co. Id. at 16, 59 S.Ct. 379.
In these and other examples advanced in support of section 802, the statute at issue undeniably contains a charge to the executive branch which is challenged as insufficiently clear or restrictive; section 802 contains no such charge.
As a secondary argument, the United States asserts that an intelligible principle governing the Attorney General's exercise of discretion can be discerned in section 802, pointing to the narrow scope of cases in which the Attorney General is authorized to act under section 802 as defined in the five conditions set forth in subsections (a)(1)-(a)(5). While there is no question that the criteria for certification are narrowly-drawn, the lack of a charge to the Attorney General remains a problem that the United States does not directly acknowledge. The United States contends, however, that legislative history may be used to supply an intelligible principle. This requires putting aside the usually applicable canon that statutory language alone controls a court's interpretation absent ambiguity. Lamie v. United States Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004). For its contention, the United States accurately cites a footnote in Mistretta:
[The] legislative history, together with Congress' directive that the Commission begin its consideration of the sentencing ranges by ascertaining the average sentence imposed in each category in the past, and Congress' explicit requirement that the Commission consult with authorities in the field of criminal sentencing provide a factual background and statutory context that give content to the mandate of the Commission.
488 U.S. at 376, 109 S.Ct. 647. As noted above, however, the Court determined in Mistretta that the statute itself met the Yakus standard while section 802 does not appear to do so. Nonetheless, the quoted language from Mistretta plainly authorizes courts to consult the legislative history in construing the scope of a congressional authorization or mandate to an executive agency, even absent ambiguity in the statute. See also Owens, 531 F.3d at 890:
When we review statutes for an intelligible principle that limits the authority delegated to a branch outside the legislature, we do not confine ourselves to the isolated phrase in question, but utilize all the tools of statutory construction, including the statutory context and, when appropriate, the factual background of the statute to determine whether the statute provides the bounded discretion that the Constitution requires.
The United States does not contend that the legislative history should be read to confer a mandatory duty on the Attorney General to prepare certifications for all telecommunications company defendants for which it is possible to do so. (Indeed, while the telecommunications company defendants urge such an interpretation, the United States specifically declines to join in or endorse that argument. Doc. # 572 at 17 n 9.) Rather, the United States contends that a discretionary authorization to act, as opposed to a mandate to do so, "to protect intelligence gathering ability and national security information," Doc. # 572 at 11, can be found in the legislative history of section 802 and that this is sufficient to withstand plaintiffs' nondelegation challenge.
*969 The United States describes section 802 as "strikingly similar to the grant of authority to the Attorney General" upheld by the Supreme Court in Touby v. United States, 500 U.S. 160, 111 S.Ct. 1752, 114 L.Ed.2d 219 (1991). In Touby, the Court considered a challenge to § 201(h) of the Controlled Substances Act, 21 U.S.C. § 811(h), under which the Attorney General may schedule a substance on a temporary basis when doing so is "necessary to avoid an imminent hazard to the public safety." But petitioners in Touby had conceded that this language constituted an "intelligible principle" and unsuccessfully challenged the provision on other grounds. 500 U.S. at 163, 111 S.Ct. 1752. The United States pushes the analogy to Touby too far when it asserts that section 802 "authorizes the Attorney General to act to protect intelligence gathering ability and national security information." Doc. # 572 at 11. The quoted standard in Touby was explicit in the statute; the proffered standard for section 802 is absent from the statute. At best, something of the kind may be gleaned from the legislative history of section 802, but the United States does not cite anything from the legislative history that directly states the proposition the United States would have the court accept as Congress' charge to the Attorney General. Touby, therefore, is not helpful here.
The telecommunications company defendants argue that the court can and should construe section 802 to contain a tacit mandate requiring the Attorney General to file certifications in all possible cases (e.g., "Congress * * * imposed on the Attorney General the responsibility to determine when evidence exists that would satisfy the statutory standards and to submit that evidence to the a court," Doc. # 508 at 2). The court is not aware of any precedent for such a reading and, on the contrary, finds the absence of such a charge striking in the context of FISAAA as a whole.
Congress could have made the authorization for the executive branch to certify facts pursuant to an explicit charge to the agency in question. An example of this type of statute is 50 U.S.C. App. § 2405(i), which provides that special licensing requirements come into play for exports to countries for which the Secretary of State has made specific determinations of a factual nature (e.g., "The government of such country has repeatedly provided support for acts of international terrorism"); but the authority is in furtherance of a charge from Congress spelled out elsewhere in the same act:
In order to carry out [enumerated policies], the President may prohibit or curtail the exportation of [] goods, technology or other information * * * to the extent necessary to further significantly the foreign policy of the United States or to fulfill its declared international obligations
and the subsection lists the specific executive branch agencies authorized to carry out the charge. 50 U.S.C. App. § 2405(a)(1).
Congress could in this manner have included language in section 802 specifically directing the Attorney General to undertake review and to submit to the court the specified certifications. The absence of a congressional charge to the Attorney General in section 802 is all the more surprising for the fact that numerous other provisions of FISAAA contain directives to the Attorney General and other agency heads: section 702(a) authorizes the Attorney General and the Director of National Intelligence to target "persons reasonably believed to be located outside the United States"; section 702(g) requires the Attorney General and the Director of National Intelligence to complete written certifications prior to implementing a § 702(a) authorization; section 702(l)(3) requires the *970 "head of each element of the intelligence community" to complete specified annual reviews; section 707(a) requires the Attorney General to provide a semiannual report to congressional committees; section 105(a) authorizes the Attorney General to authorize emergency employment of electronic surveillance under specified circumstances; section 301 requires Inspectors General of Department of Justice, Office of Director of National Intelligence, National Security Agency, Department of Defense and other inspectors general to provide interim reports to Congress within sixty days. The court agrees with plaintiffs (Doc. # 573 at 22) that in light of the many other provisions in FISAAA requiring the Attorney General to perform a range of tasks, construing section 802 to contain a mandate to the Attorney General would be especially inappropriate.
Finally, the telecommunications company defendants argue essentially "no harm, no foul" regarding the statute's lack of standards governing the Attorney General's discretion to submit or not submit a certification: "That the Attorney General might exercise discretion as to whether to tender a certification is * * * purely conjecturalhe has done so hereand not a matter of constitutional significance." Doc. # 508 at 22. The court is not persuaded that a constitutional defect in a statute can be cured by the executive's zealous execution of that statute. See Whitman, 531 U.S. at 472, 121 S.Ct. 903 ("We have never suggested that an agency can cure an unlawful delegation of legislative power by adopting in its discretion a limiting construction of the statute"). The statute's language, legislative history and context must be susceptible of a constitutionally adequate interpretation.
After carefully considering all the briefing, the court concludes that while the nondelegation challenge presents a close question, section 802, properly construed, does not violate the constitutional separation of powers. From the foregoing discussion, the court now distills the following salient points in determining that section 802 is not an unconstitutional delegation by the legislative branch to the executive branch.
Section 802 is not a broad delegation of authority to an administrative agency like the Clean Air Act or the Sentencing Reform Act; rather, its subject matter is intentionally narrow or "focused" in scope. "[T]he degree of agency discretion that is acceptable varies according to the scope of the power congressionally conferred." Whitman, 531 U.S. at 475, 121 S.Ct. 903. While section 802 does not contain a directive to the Attorney General, the United States and the telecommunications company defendants correctly point out that no form of rulemaking is at issue, a fact that limits the potential harm from a vaguely-defined delegation of authority. As the DC Circuit noted in Owens, "the shared responsibilities of the Legislative and Executive Branches in foreign relations may permit a wider range of delegations than in other areas," 531 F.3d at 893. The same can be said of the roles of these two branches in the instant cases, where matters pertaining to national security are concerned. The legislative history provides enough context and content to provide definition for the Attorney General's scope of authority even in the absence of a specific charge to carry out. The Attorney General is not required to file certifications but is authorized to do so. The SSCI report makes clear that Congress wanted to immunize telecommunications companies in these actions. "[G]athering and presenting [] facts" (Doc. # 572 at 7) to the court is a reasonable reading of the Attorney General's role under section 802 and appears authorized by Marshall Field & Co v. Clark and other authorities.
*971 Accordingly, the court concludes that section 802 does not suffer from the constitutional infirmity of excessive delegation to the Attorney General.
C
Plaintiffs next advance arguments under the Due Process Clause of the Fifth Amendment, specifically: (1) their causes of action for violations of the First and Fourth Amendments are property interests protected by the Due Process Clause and that section 802 deprives them of their right to notice and an opportunity to be heard before a "neutral and detached judge in the first instance" (Doc. # 483 at 32-36); and (2) the secrecy provisions allowing for certifications and supporting documentation to be submitted in camera and ex parte violates due process by depriving them of "meaningful notice" of the government's basis for seeking dismissal and a "meaningful opportunity to oppose the government's arguments and evidence" (Doc. # 483 at 36-39). The court addresses these two arguments in turn.
1
Plaintiffs contend that the Fifth Amendment's Due Process Clause entitles them to notice and an opportunity to be heard before a "neutral and detached judge in the first instance" in a proceeding under section 802 seeking dismissal of their claims against the telecommunications company defendants. They argue further that the Attorney General's role makes section 802 constitutionally defective. Doc. # 483 at 32. Relying primarily on Concrete Pipe & Products v. Construction Laborers Pension Trust, 508 U.S. 602, 617, 113 S.Ct. 2264, 124 L.Ed.2d 539 (1993), plaintiffs argue that section 802 creates a scheme in which a "biased decisionmaker [the Attorney General] makes an initial decision that a later, unbiased decisionmaker is forbidden from reviewing de novo but instead must accept under a deferential standard of review." Id. They contend, moreover, that Concrete Pipe requires de novo review in the face of an initial decision-maker's alleged bias.
Plaintiffs acknowledge that Congress "is free to create defenses or immunities to statutory causes of action" because the legislative process satisfies Due Process requirements. Doc. # 524 at 27 n 16. They contend, however, that the Attorney General, not Congress, has "changed the law governing plaintiffs' lawsuits." Id.
As previously discussed in this order, Congress has manifested its unequivocal intention to create an immunity that will shield the telecommunications company defendants from liability in these actions. The Attorney General, in submitting the certifications, is acting pursuant to and in accordance with that congressional grant of authority, in effect, to administer the newly-created immunity provision. Plaintiffs acknowledge that "Congress * * * is free to create defenses or immunities to statutory causes of action because it is `the legislative determination [that] provides all the process that is due.'" Doc. # 524 at 27 n 16, quoting Logan v. Zimmerman Brush Co., 455 U.S. 422, 430, 102 S.Ct. 1148, 71 L.Ed.2d 265 (1982). With regard to section 802, Congress held hearings and plaintiffs' counsel testified in opposition to the proposed immunity legislation. Doc. #531 (RT, hearing held December 2, 2008) at 63. To the extent that plaintiffs' due process argument rests on the idea that the Attorney General has "changed the law" due to an allegedly improper delegation of legislative authority, moreover, the court rejected that particular challenge in the preceding section. This part of plaintiffs' due process argument is therefore without merit.
2
Plaintiffs argue as a second Due Process challenge that the secrecy provisions allowing for certifications and supporting *972 documentation to be submitted in camera and ex parte violates due process. They cite Brock v. Roadway Express, Inc., 481 U.S. 252, 264, 107 S.Ct. 1740, 95 L.Ed.2d 239 (1987) and Hamdi v. Rumsfeld, 542 U.S. 507, 124 S.Ct. 2633, 159 L.Ed.2d 578 (2004). Those cases held that the constitutional requirement of meaningful opportunity to respond necessitates notice of the factual basis for the government's position, but neither opinion directly concerned evidence having national security implications.
The United States responds that courts have "uniformly" upheld laws and procedures providing for ex parte use of classified evidence because of the compelling state interest in protecting national security, citing recent cases from the Seventh and DC Circuits.
The parties' contrasting positions highlight the tension between the government's concern for national security and the civil litigant's due process rights. While both interests are of great importance, the United States' argument prevails here. Other statutes providing for ex parte, in camera procedures have withstood due process challenges in other contexts having national security implications. For example, in Holy Land Foundation for Relief & Development v. Ashcroft, 333 F.3d 156, 164 (D.C.Cir.2003) the DC Circuit upheld the exclusion from an administrative proceeding of classified information, which was subject instead to ex parte, in camera review under 50 U.S.C. § 1702(c). See also Global Relief Foundation, Inc. v. O'Neill, 315 F.3d 748, 754 (7th Cir.2002) (also rejecting due process challenge to ex parte, in camera review procedures in 50 U.S.C. § 1702(c)); People's Mojahedin Organization of Iran v. Department of State, 327 F.3d 1238, 1242 (D.C.Cir.2003) (in camera, ex parte submissions of classified information in a designation proceeding under the Antiterrorism and Effective Death Penalty Act of 1996 did not violate due process, which requires "only that process which is due under the circumstances of the case," specifically access to the unclassified portions of the administrative record); National Council of Resistance v. Department of State, 251 F.3d 192, 208 (D.C.Cir.2001) (in the process of designating a foreign terrorist organization under 8 U.S.C. § 1189, the Secretary of State could forego pre-designation notice to the organization "[u]pon an adequate showing to the court * * * where earlier notification would impinge upon the security and other foreign policy goals of the United States" without offending the Constitution).
Section 802(d) provides for parties to submit documents and briefs to the court in connection with a proceeding under section 802. Section 802 is not, therefore, a fully ex parte procedure in the sense that the process for securing a FISA warrant under 50 U.S.C. § 1804 or an arrest warrant in the criminal context is ex parte. Section 802 evinces a clear congressional intent that parties not have access to classified information. Given the special balancing that must take place when classified information is involved in a proceeding, the court is not prepared to hold that the Constitution requires more process than section 802 provides in the circumstances of this case.
D
Plaintiffs also contend that Congress' enactment of the secret filing and evidence provisions of section 802 violates a First Amendment right of access to documents in a civil proceeding because "only a court, and not the Attorney General or Congress," can apply strict scrutiny to a proposed ban on public access to court records (Doc. # 483 at 40-45), and thereby also trenches on the authority of federal courts under Article III. Several news organizations *973 (Associated Press, Los Angeles Times, San Jose Mercury News, USA Today) that have intervened in this lawsuit have joined in this part of plaintiffs' motion (Doc. # 523). Plaintiffs cite Globe Newspaper Co. v. Superior Court, 457 U.S. 596, 606-07, 102 S.Ct. 2613, 73 L.Ed.2d 248 (1982) for the proposition that the government's basis for secrecy must be "a compelling governmental interest * * * narrowly tailored to serve that interest." Doc. # 483 at 42.
The United States asserts, as it has throughout this litigation, that the executive branch is responsible for the protection and control of national security information, citing Department of the Navy v. Egan, 484 U.S. 518, 108 S.Ct. 818, 98 L.Ed.2d 918 (1988), and counters that "no First Amendment right exists to receive or disclose classified information in general, let alone the classified information filed in this court under express congressional authorization." Doc. # 520 at 28.
The United States further posits that the applicable Supreme Court rule is not Globe Newspaper, but that set forth in Press-Enterprise Co. v. Superior Court, 478 U.S. 1, 106 S.Ct. 2735, 92 L.Ed.2d 1 (1986), which, like Globe Newspaper, concerned records in criminal proceedings. Doc. # 520 at 29. Under the Press-Enterprise formulation, courts must consider whether the "particular proceeding in question passes [] tests of experience and logic," including "whether the place and process have historically been open to the press and general public" and "whether public access * * * plays a particularly significant positive role in the actual functioning of the process" in question. 478 U.S. at 8-11, 106 S.Ct. 2735. The United States also notes that the Ninth Circuit has never found a First Amendment right of access to civil judicial proceedings, a point plaintiffs have conceded. Doc. # 520 at 28; Doc. # 483 at 42 n. 10.
The court agrees with the United States that Globe Newspaper gives plaintiffs little ground to stand on in the instant context. The majority opinion in Globe Newspaper mapped the contours of the constitutional right of access to criminal trials on the part of the press and general public announced in Richmond Newspapers, Inc. v. Virginia, 448 U.S. 555, 100 S.Ct. 2814, 65 L.Ed.2d 973 (1980). The Globe Newspaper opinion discussed criminal proceedings specifically and noted that "features of the criminal justice system, emphasized in the various opinions in Richmond Newspapers, together serve to explain why a right of access to criminal trials in particular is properly afforded protection by the First Amendment." 457 U.S. at 605, 102 S.Ct. 2613. Justice O'Connor's concurrence was at pains to state, moreover, "I interpret neither Richmond Newspapers nor the Court's decision today to carry any implications outside the context of criminal trials." Id. at 611, 102 S.Ct. 2613. This is neither a criminal proceeding nor a trial; Globe Newspaper therefore does not apply.
The court also agrees with the United States' reading of Egan in this context. While "Egan recognizes that the authority to protect national security information is neither exclusive nor absolute in the executive branch," In Re National Security Agency Telecommunications Litigation, 564 F.Supp.2d 1109, 1121 (N.D.Cal.2008), Egan observes that "unless Congress specifically has provided otherwise, courts traditionally have been reluctant to intrude upon the authority of the Executive in military and national security affairs." 484 U.S. at 530, 108 S.Ct. 818. By enacting section 802, Congress has specified that certain documents in these cases are to be reviewed ex parte and in camera. The court is therefore more than usually reluctant to disturb the judgment of the executive branch on First Amendment grounds given this affirmative direction by *974 the legislative branch, and especially so without any judicial precedent.
The idea that there is a presumptive right of public and press access to court proceedings as discussed in some of the cases plaintiffs cite (e.g., Grove Fresh Distributors, Inc. v. Everfresh Juice Co., 24 F.3d 893, 897 (7th Cir.1994)) as a common-law tradition and a tenet of good government seems uncontroversial, but plaintiffs' attempt to attach a strict scrutiny standard to limitations on access in the present context is not well-founded. It is fair to say that there is an equally uncontroversial presumption that the public and the press will not have access to court proceedings involving classified information. The court concludes that Congress' resolution of these competing presumptions in section 802, a focused and narrowly-drawn enactment, does not offend the Constitution.
Plaintiffs raise two other, related, objections to subsections 802(c) and (d) based on the First Amendment in this part of their brief. Subsection (d) requires the court to use ex parte, in camera procedures to prevent the disclosure of classified information. Subsection (c) restricts public access to the certifications and/or supplemental materials filed pursuant to section 802 if the Attorney General files a sworn affidavit asserting that disclosure "would harm the national security of the United States." This provision appears consistent with the principles set forth in Egan; the court, accordingly, sees no basis for finding them constitutionally defective on First Amendment grounds.
E
Plaintiffs contend that the Attorney General's filing of a certification under section 802(a) is "a final agency action" that requires adherence to the rules for final agency actions under the Administrative Procedures Act (APA), 5 U.S.C. § 551 et seq, and that this in effect grafts additional standards of review onto the review procedures set forth in section 802 itself standards allegedly not met here. Doc. # 483 at 58-59. Specifically, plaintiffs assert that the court must review the "whole record" and determine whether the agency action was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," "in excess of statutory... authority[] or limitations," or "contrary to constitutional right, power, privilege, or immunity." Id., citing 5 U.S.C. § 706.
The United States does not argue that the Department of Justice is not an agency or that the filing of the certifications is not an action; rather, the United States counters that "section 802 and its express terms, including the procedures applicable to these proceedings, govern these cases," but cites no authority in support of the notion that section 802's procedures automatically displace those required by the APA. Doc. # 520 at 35. But because "the APA applies even if the enabling act does not mention it and the applicable procedural law is determined by the APA whether or not the enabling act incorporates that law" and "[e]ven if the enabling act provides procedures, the APA affects those requirements," 32 Charles A. Wright & Charles H. Koch, Federal Practice and Procedure: Judicial Review § 8135 at 94, more examination of this question is required.
Specific statutory procedures providing for judicial review of agency action apply in context, and the APA's general provisions fill in the interstices. 5 U.S.C. § 704 provides: "Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review." In Bowen v. Massachusetts, 487 *975 U.S. 879, 903, 108 S.Ct. 2722, 101 L.Ed.2d 749 (1988), the Supreme Court explained:
§ 704 * * * makes it clear that Congress did not intend the general grant of review in the APA to duplicate existing procedures for review of agency action. As Attorney General Clark put it the following year, § 704 "does not provide additional judicial remedies where the Congress has provided special and adequate review procedures."
Accord, Edmonds Institute v. United States Department of the Interior, 383 F.Supp.2d 105 (D.D.C.2005) ("clear and simple remedy" offered by Freedom of Information Act sufficient, making separate action under APA unavailable). Section 802 contains highly detailed procedures for judicial review of the Attorney General's actions. "The fact that a suit is brought by the government * * * does not fundamentally change the nature of the review of the underlying administrative decision." 33 Wright & Koch, Federal Practice § 8300 at 46. Therefore, separate APA review is not available in these cases.
Regarding the scope of judicial review, 5 U.S.C. § 706 provides that the reviewing court "shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action." The reviewing court must set aside "agency action, findings, and conclusions" it finds to meet one of six criteria: arbitrary, capricious, an abuse of discretion; contrary to constitutional right; in excess of statutory jurisdiction; without observance of procedure required by law; "unsupported by substantial evidence in a case subject to section 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute"; or unwarranted by the facts as determined pursuant to de novo review. Section 802, in providing for review under the substantial evidence standard, appears consistent with section 706 of the APA and therefore may be understood to take the place of APA review.
In summary, plaintiffs' contention that the APA imposes requirements additional to section 802 is without merit.
F
Finally, plaintiffs make a series of arguments to the effect that, on the merits and putting alleged infirmities in section 802 aside, the Attorney General's certifications are inadequate under section 802's own terms to support dismissal of these actions.
Specifically, plaintiffs contend that: (1) substantial evidence cannot support dismissal under Section 802(a)(5) in that, whereas the Attorney General's public certifications state, inter alia, "because there was no content-dragnet, no provider participated in that alleged activity" (Doc. # 469-3 at 5), plaintiffs' evidence establishes that there was, in fact, dragnet-type surveillance by one or more of the defendant telecommunications service providers (Doc. # 483 at 48-52); (2) substantial evidence cannot support dismissal under section 802(a)(4) in that the alleged dragnet surveillance program could not have been "designed to detect or prevent a terrorist attack, or activities in preparation for a terrorist attack, against the United States," because its "objective features * * * were not designed for the specific function of detecting or preventing a terrorist attack but for the broader purpose of acquiring as many communications and communications records as possible, regardless of whether [they] bear any connection to terrorism at all," id. at 54; and (3) substantial evidence cannot support dismissal under any of the first three subsections of section 802 because the constraints imposed by the Fourth Amendment as interpreted by Keith, 407 U.S. 297, 92 S.Ct. 2125, would not allow the *976 alleged dragnet to be lawfully authorized under any of the five prongs of section 802(a)(1)-(5).
While plaintiffs have made a valiant effort to challenge the sufficiency of certifications they are barred by statute from reviewing, their contentions under section 802 are not sufficiently substantial to persuade the court that the intent of Congress in enacting the statute should be frustrated in this proceeding in which the court is required to apply the statute. The court has examined the Attorney General's submissions and has determined that he has met his burden under section 802(a). The court is prohibited by section 802(c)(2) from opining further. The United States' motion to dismiss must therefore be, and hereby is, GRANTED.
Because, however, section 802's immunity provision may only be invoked with regard to suits arising from actions authorized by the president between September 11, 2001 and January 7, 2007, the dismissal is without prejudice. On May 15, 2009, plaintiffs submitted a "notice of new factual authorities in support of plaintiffs' opposition to motion of the United States" to dismiss. Doc. #627. In the notice, plaintiffs cite news articles published in 2009 reporting post-FISAAA warrantless electronic surveillance activities by the NSA. Plaintiffs argue that these articles constitute "proof that the certification of former Attorney General Michael Mukasey that is the sole basis for the government's pending motion to dismiss is not supported by `substantial evidence.'" Doc. # 627 at 3. The court disagrees. The court believes that the Attorney General has adequately and properly invoked section 802's immunity to the extent that the allegations of the master consolidated complaints turn on actions authorized by the president between September 11, 2001 and January 7, 2007. The court also believes, however, that plaintiffs are entitled to an opportunity to amend their complaints if they are able, under the ever-more-stringent pleading standards applicable in federal courts (see, e.g., Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)), to allege causes of action not affected by the Attorney General's successful invocation of section 802's immunity.
III
For the aforestated reasons, the United States' motion to dismiss (Doc. #469) is GRANTED. Also for the reasons set forth herein, plaintiffs' hearsay objections to the SSCI report and to the public and classified declarations submitted by the United States (Doc. # 477) are OVERRULED; these documents are admissible for the purposes discussed herein.
Plaintiffs may amend the master consolidated complaints in a manner consistent with this order within thirty (30) days of the date of this order.
IT IS SO ORDERED.
NOTES
[1] This provision is codified at 50 U.S.C. § 1885 (definitions), 50 U.S.C. § 1885a (procedures for implementing statutory defenses), 50 U.S.C. § 1885b (preemption) and 50 U.S.C. § 1885c (reporting).
[2] The SSCI report also contained (at 8-9) several paragraphs describing the suits by the United States seeking to enjoin investigations by state attorneys general into alleged warrantless wiretapping activities conducted with the cooperation of telecommunications companies. These suits, referred to in Part I A above, are part of this MDL and are addressed separately. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1698682/ | 788 So.2d 134 (2000)
COLONIAL BANK
v.
R.D. PATTERSON.
R.D. Patterson
v.
Colonial Bank.
1990237, 1990293.
Supreme Court of Alabama.
November 17, 2000.
Rehearing Applications Denied January 12, 2001.
*135 Samuel H. Franklin and Sara Anne Ford of Lightfoot, Franklin & White, L.L.C., Birmingham, for appellant/cross appellee Colonial Bank.
L. Vastine Stabler, Jr., Birmingham, for appellee/cross appellant R.D. Patterson.
LYONS, Justice.
R.D. Patterson sued Colonial Bank ("Colonial"), alleging negligence, breach of contract, conspiracy, wrongful dishonor of a check, and intentional interference with business relations. In response, Colonial filed a counterclaim to collect a debt Patterson owed Colonial. Colonial moved for a summary judgment; the trial court granted its motion as to the claims alleging negligence, breach of contract, and wrongful dishonor. The case proceeded to trial on the claims alleging conspiracy and intentional interference with business relations. At the close of Patterson's case, Colonial moved for a judgment as a matter of law ("JML"). The trial court entered a JML in favor of Colonial on its counterclaim, but denied a JML as to the rest of the claims. Patterson's claim alleging intentional interference with business relations was submitted to the jury,[1] which returned a verdict in favor of Patterson, awarding him compensatory damages in the amount of $60,640, and punitive damages in the amount of $939,000. The trial court set off the amount of Colonial's counterclaim, $27,274.54, and entered a judgment based on the verdict. After it set off the amount of Colonial's counterclaim, the court entered a judgment for Patterson for $972,365.46. Colonial renewed its motion for a JML and moved, in the alternative, for a new trial or a remittitur of the damages award. The trial court denied the JML, but ordered a remittitur of the punitive-damages award in the amount of $575,160, thereby reducing the punitive-damages award to $363,840. The plaintiff accepted the remittitur.
Colonial appealed. It argues: (1) that the trial court erred by not entering a JML on Patterson's claim alleging intentional interference with business relations; (2) that the trial court erred in submitting Patterson's punitive-damages claim to the jury; and (3) that the trial court erred by not ordering a total, or substantially greater, remittitur of the punitive-damages award. Patterson cross-appealed from the trial court's order of remittitur, contending the remittitur is not supported by the law or facts of the case. (See Rule 59(f), Ala. R.Civ.P.) We reverse the judgment for Patterson, because the trial court erred in denying Colonial's motion for a JML, and *136 we render a judgment for Colonial; we dismiss the cross-appeal as moot.
Patterson and Steve Nordness were equal owners and the only members of the board of directors of Resource 100 Management Group, Inc. ("Resource 100"), an employee-leasing agency. Nordness was the president of the corporation, and Patterson was the secretary and treasurer. Resource 100 presented its certificate of incorporation to Colonial and opened a business account. Originally, Nordness was the sole signatory on the account, but later Patterson was added. Nordness and Patterson began having strained business relations. Nordness informed Patterson that Resource 100 was in a bad financial condition and could no longer pay either of them a salary. Patterson thereupon began paying his own salary, from the Resource 100 account, using counter checks. Nordness discovered by conversation with Randy Watts, who handled Resource 100's books, that counter checks were being written on the account. Nordness asked Colonial to find out who the payee was on these counter checks, and Colonial informed him that it was Patterson.
Nordness asked Steve Blake, a Colonial representative, how he could have Patterson's name removed from the account. Blake advised him that he had several options-that he could: (1) take the money out of the account and open a new account; (2) take the money out of the account and deposit it in another bank; or (3) present Colonial with a corporate resolution removing Patterson's name from the account. Nordness chose this third alternative. He returned to the bank with two documents: one purporting to dismiss Patterson from the company, and another representing that a resolution by the board of directors had removed Patterson as a signatory on the account. The resolution was signed by Nordness as president and as secretary of Resource 100.
Colonial responded by authorizing a stop order on all counter checks. In early 1997, Patterson presented to the bank a counter check payable to himself. Colonial refused to honor the counter check and informed Patterson that his name had been taken off the account. Patterson then contacted Blake, who explained that the documents received by Colonial indicated that Patterson had been removed from Resource 100's board of directors and had been removed as a signatory on the account. Patterson told Blake that these documents were erroneous and that he had never been informed of a board-of-directors meeting and had not consented to the action purportedly taken by the board.
Patterson claims that Colonial was involved in helping Nordness "shove" Patterson out of Resource 100. He argues that Colonial and Nordness engaged in discussions concerning Nordness's possibly "buying" Patterson out of the business. Patterson claims that Blake created a plan that would give Nordness control of the company and would aid Colonial in recovering its money on several unpaid loans it had made to Patterson. Patterson claims that Blake suggested that Colonial lend Nordness the money to purchase Patterson's interest in Resource 100 and that the loan transaction be conducted in such a way that at closing a check could be written by Nordness directly to Colonial covering Patterson's indebtedness. Nordness eventually did approach Patterson and offer to buy Patterson's interest in the corporation or to sell Patterson Nordness's own interest. Patterson refused Nordness's initial offer, but eventually he sold his stock in the company to Nordness for less than Nordness's original offer.
Colonial argues that the trial court erred in denying its JML motion *137 because, it argues, Patterson did not present substantial evidence as to all of the elements of his claim alleging intentional interference with a business relationship. To defeat a JML motion directed to such a claim, a plaintiff must present substantial evidence of the following elements: (1) the existence of a contract or business relation; (2) the defendant's knowledge of the contract or business relation; (3) intentional interference by the defendant with the contract or business relation; (4) the absence of justification for the defendant's interference; and (5) damage to the plaintiff resulting from the interference. Soap Co. v. Ecolab, Inc., 646 So.2d 1366, 1370-71 (Ala.1994).
The tort of intentional interference with business relations was recognized so as to provide a remedy in the situation where a third party intentionally interferes with the relationship of two contracting parties. Cahaba Seafood, Inc. v. Central Bank of the South, 567 So.2d 1304, 1306 (Ala.1990). Moreover, a party to a particular contract cannot, as a matter of law, be liable for tortious interference with that contract. Bama Budweiser of Montgomery, Inc. v. Anheuser-Busch, Inc., 611 So.2d 238, 247 (Ala.1992).
In Bama Budweiser, the owner of Bama Budweiser, Schilleci, sued Anheuser-Busch, alleging the tort of intentional interference with business relations. Anheuser-Busch had assigned different areas of primary responsibility to its wholesalers. Schilleci approached one of Anheuser-Busch's wholesalers, Daniel, about purchasing two of the wholesale beer distributorships in Alabama. The two came to an agreement regarding the sale, an agreement contingent upon Anheuser-Busch's approval of Schilleci as a wholesaler. Eventually, Schilleci was approved as a transferee of the wholesale beer distributorships. The parties signed an agreement, and Schilleci was given his territory. Soon after Schilleci began distributing in his assigned territory, he discovered that he was not the sole distributor in the area and that an informal agreement had been made between Daniel and Horn, another wholesale beer distributor, by which Horn would be allowed to distribute in that particular territory. Schilleci sent a letter to Anheuser-Busch, asking that it resolve the problem. Anheuser-Busch, however, recommended that Horn be allowed to continue distributing in that area. Schilleci argued that Anheuser-Busch had interfered with the contract between Schilleci and Daniel by allowing the holder of another of Anheuser-Busch's accounts to work in Schilleci's territory. This Court held that Anheuser-Busch was a party to the contract between Daniel and Schilleci because, without Anheuser-Busch's approval, neither Schilleci nor Daniel could market or sell Anheuser-Busch products. By accepting the assignment of Daniel's contract with Anheuser-Busch, Schilleci bound himself to the terms of that agreement.
In the present case, Patterson's claim alleging intentional interference with business relations revolves around the dishonor of a counter check that Patterson presented to Colonial on the Resource 100 account. This dishonor forms the basis of Patterson's argument. Patterson argues that Colonial dishonored the counter check, as a means to accomplish an interference with Patterson and Nordness's stockholder relationship and their negotiations over the sale of stock. He claims that by not releasing any funds from the Resource 100 account to Patterson, Colonial forced Patterson to sell his share of the business because, he says, without funds from that account he had no income, and the sale of his stock allowed Colonial to recover the unpaid balances on its loans to Patterson.
Early in the business relationship, and after the Resource 100 account had been *138 established, Patterson and Nordness entered into an agreement with Colonial by which each would be a signatory on the account. Each of them signed documents that related to the account and defined the rules governing the account. The signature-card contract, which both Patterson and Nordness also signed, incorporated Colonial's "Rules and Regulations for Depository Accounts."
These rules and regulations regarding "Business and Organization Account Authorized Representatives" provide:
"You agree that each authorized representative shall have full authority, subject to the provisions of the signature card and supporting documents, for all actions relating to your account, including, but not limited to, checks, closing the account, stopping payment, assigning the account or overdrawing the account for both savings and checking accounts....
"If there is a dispute between the authorized representative(s) who has signed a signature card, or if one of the authorized representative(s) demands that we not allow other(s) to withdraw money from the account, or if there is a dispute about who is authorized to make withdrawals from an account, we may refuse to allow certain withdrawals by anyone until we are satisfied that the dispute is resolved or the demand is withdrawn. We will not be responsible for any damages you may suffer as a result of our refusal to allow you to withdraw money due to the dispute or demand...."
(Emphasis added.)
Clearly, Colonial had the prerogative to choose not to honor Patterson's counter check.[2] It is evident in the rules, which both Nordness and Patterson signed, that Colonial reserved the right to withhold funds at the onset of any dispute between authorized representatives, such as Nordness and Patterson. Moreover, Nordness and Patterson agreed, when they signed the signature contract card, that any authorized representative would have full authority for all actions relating to the account. Thus, Nordness, by virtue of the contract between Resource 100 and Colonial, had the authority to inform Colonial to place a stop order on all counter checks; he exercised that authority and Colonial placed the stop order.
Colonial, acting under the authority of the contract signed by both Patterson and Nordness as signatories on the account, chose not to honor the counter check presented by Patterson. Patterson argues that the interference arose in regard to the separate relationship between Nordness and him, a relationship as to which, he says, Colonial was not a party. However, when tripartite relationships exist and disputes arise between two of the three parties, then a claim alleging interference by the third party that arises from conduct by the third party that is appropriate under its contract with the other two parties is not recognized. Bama Budweiser, 611 So.2d at 247; see, also, Ex parte Blue Cross & Blue Shield of Alabama, 773 So.2d 475 (Ala.2000).
Patterson also contends that Colonial had the burden to show that its actions were taken without malice or with justification. First, his argument improperly *139 presupposes that he had a cause of action for interference, and, therefore, the relevance of the defense of justification.[3] Second, this argument would superimpose on a wrongful-interference claim a requirement of good faith that would compel a party to forgo any reliance on a legal right conferred by the agreement underlying the depositor relationship.
Colonial had the legal right to do exactly as it did, given the clear language of the Rules and Regulations for Depository Accounts and the undisputed evidence regarding a dispute between Patterson and Nordness. The conduct of Colonial that Patterson condemns is specifically allowed by the agreement, and Patterson, by characterizing that conduct as conduct taken in bad faith, cannot defeat Colonial's right to take that action. Government St. Lumber Co. v. AmSouth Bank, N.A., 553 So.2d 68, 73 (Ala.1989) ("`The obligation to act in good faith does not bar a party from enforcing whatever legal rights he possesses. In the name of good faith, a party cannot be required to [forgo] or surrender a right that he otherwise possesses.'" (quoting Rigby Corp. v. Boatmen's Bank & Trust Co., 713 S.W.2d 517, 535 (Mo.App.1986))).
For Patterson to succeed on his attempt to limit the scope of the rules and regulations so as to prevent them from applying to this transaction, we would have to alter some unambiguous language. The rules regarding restrictions on withdrawals begin with the phrase "In the event of any controversy" (emphasis added), and while they contain an illustration concerning a dispute over who makes withdrawals, to confine the operation of the rules to such a circumstance would be to rewrite the agreement.[4] The rules and regulations preclude our imposing on Colonial a liability for refusing to allow withdrawal of money. The dishonor of Patterson's check had precisely that effectPatterson could no longer draw checks on the business account in order to pay his salary.
Because Patterson's claim alleging intentional interference with business relations is based on Colonial's dishonoring the counter check, and because Colonial, as a party to the business relationship with Patterson and Nordness, had the legal right to take that action, the trial court should have granted Colonial's motion for a JML on Patterson's claim alleging a wrongful interference with a business relationship. The judgment is reversed and a judgment is rendered for Colonial. The cross-appeal is dismissed as moot.
1990237REVERSED AND JUDGMENT RENDERED FOR COLONIAL BANK.
1990293DISMISSED AS MOOT.
HOOPER, C.J., and MADDOX, COOK, and JOHNSTONE, JJ., concur.
NOTES
[1] The trial court did not charge the jury on the claim of conspiracy, and Patterson did not object to the court's failing to do so. Thus, the jury deliberated only on the claim of intentional interference with business relations. Because Patterson did not object to the jury charges, we do not address the merits of that claim.
[2] In fact, the trial court instructed the jury that Colonial had acted within its contractual rights, in accordance with the rules and regulations governing the checking account, in refusing to allow Patterson to withdraw money from the account while there was a dispute between Patterson and Nordness as to who was authorized to withdraw money from the account.
[3] Cases dealing with a malicious abuse of a lawful privilege are therefore not applicable here. See, e.g., Pegram v. Hebding, 667 So.2d 696 (Ala.1995).
[4] The pertinent portion of the section of the rules and regulations regarding "Withdrawals" provides:
"In the event of any controversy between those of you who have signed a signature card for a joint account or the authorized representatives who have signed a signature card for a non-personal account, such as a dispute over who has the right to make withdrawals from the account or who is the owner of the funds on deposit in the account, we may (but do not have to) refuse to allow certain withdrawals until we are satisfied that the dispute is resolved or the demand is withdrawn. We will not be responsible for any damages you may suffer as a result of our refusal to allow you withdraw money due to the dispute or demand...." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2453753/ | 362 F.Supp.2d 291 (2005)
Devvy KIDD, Plaintiff,
v.
DEPARTMENT OF JUSTICE, Defendant.
No. CIV. A. 03-1976 (HHK).
United States District Court, District of Columbia.
March 30, 2005.
*292 *293 Devvy Kidd, Annapolis, MD, Pro se.
MEMORANDUM OPINION
KENNEDY, District Judge.
Plaintiff, Devvy Kidd ("Kidd"), proceeding pro se, brings this action against defendant, the United States Department of Justice ("DOJ"), under the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552 et seq. Kidd alleges that DOJ has improperly withheld documents in responding to her request for written communications between the Attorney General, the Secretary of the Treasury, the Commissioner of the Internal Revenue Service, their staffs, and various other government officials "dealing with Bob Schulz and the We the People Foundation." Compl. ¶¶ 5-6. Presently before the court are the parties' cross-motions for summary judgment [# 4, 9]. Upon consideration of the motions, the oppositions thereto, and the record of this case, the court concludes that DOJ's motion for summary judgment must be granted, while Kidd's motion must be denied.
I. FACTUAL BACKGROUND
On March 10, 2002, Kidd filed two FOIA requests with DOJ's Office of Information and Privacy ("OIP"). Her first request sought "copies of all notes, which include hand-written material, memorandums, directives, correspondence, inter-agency memorandums, phone records and correspondence" generated by then-Attorney General John Ashcroft ("Ashcroft") and his staff, directed to then-Assistant Attorney General for Legislative Affairs Daniel J. Bryant ("Bryant"), then-Secretary of the Treasury Paul H. O'Neill, and then-IRS Commissioner Charles O. Rossotti, "dealing with Bob Schulz and the We the People Foundation." Id. ¶ 5; Ex. 1. Kidd also requested records Ashcroft and his staff received from the other named government officials. Kidd's second FOIA request sought the same types of communication generated by or directed to Bryant "dealing with Bob Schulz and the We the People Foundation." Id ¶ 6; Ex. 2. Kidd limited both requests to the time period between July 1, 2001 and March 1, 2002.
OIP received both of Kidd's requests on April 1, 2002. On April 10, 2002, OIP sent a letter to Kidd acknowledging receipt of her requests, and began its search for potentially responsive documents. On September 4, 2002, OIP dispatched a letter informing Kidd that "no responsive records were located" corresponding to her first request. Compl., Ex. 7. In response to this letter, Kidd combined her two FOIA requests and filed a single administrative appeal on September 16, 2002, stating that DOJ's failure to locate responsive documents "absolutely defies reality." Id. ¶¶ 12-13; Ex. 9. On October 18, 2002, OIP informed Kidd that her administrative appeal had been received but had not yet been processed due to a "substantial backlog of pending appeals received prior to yours." Id., Ex. 10. Kidd wrote back to OIP on December 8, 2002, stating that she would file suit if she did not receive the documents she initially requested within twenty days of OIP's receipt of her letter. Kidd states she received a letter dated December 20, 2002, indicating that her appeal "had not even been assigned for processing yet." Id. ¶ 15. On February 5, 2003, Kidd filed suit in the Federal District Court for the Eastern District of California, seeking a court order compelling production of the requested documents.
*294 By letter dated March 5, 2003, OIP affirmed its underlying "no responsive records" determination for Kidd's first FOIA request. Pl.'s Mot. for Summ. J. ("Pl.'s Mot."), Ex. 4. On March 11, 2003, OIP belatedly addressed Kidd's second FOIA request, notifying her that a search of four offices within DOJ had located twenty-one documents, totaling eighty-six pages, all records of the agency's Office of Legislative Affairs. OIP provided Kidd with nine of those documents, containing fifty-six pages, "without excision." Def.'s Mot. at 5; Pl.'s Mot., Ex. 5. In addition, OIP enclosed a one-page document "with an excision made pursuant to Exemption 6 of FOIA, 5 U.S.C. § 552(b)(6), which pertains to information the release of which would constitute a clearly unwarranted invasion of the personal privacy of others." Id. OIP also informed Kidd that five draft documents (totaling seven pages) would be withheld pursuant to Exemption 5 of FOIA, and that six additional documents (totaling twenty-two pages) were still under review pending consultation "with other components." Id. Finally, on April 9, 2003, OIP provided its final response to Kidd's second FOIA request. Along with this letter, OIP released, without excision, the twenty-two pages previously held for review. Id. The agency also released, with redactions, one of the seven pages previously withheld under Exemption 5, as well as several additional documents located pursuant to a supplemental search of agency records. Id.; Def.'s Statement of Material Facts not in Dispute ¶¶ 18-22. On September 24, 2003, this action was transferred from the Eastern District of California to this district.
II. ANALYSIS
A. Standard of Review
FOIA provides for de novo review of an agency determination by the district court, and places the burden on "the agency to sustain its action." 5 U.S.C. § 552(a)(4)(B). The agency may meet this burden by submitting affidavits or declarations that describe the withheld material in reasonable detail and explain why it falls within the claimed FOIA exemptions. See Summers v. Dep't of Justice, 140 F.3d 1077, 1080 (D.C.Cir.1998). Where the pleadings and affidavits or declarations show that there is no genuine issue of fact and that the moving party is entitled to judgment as a matter of law, summary judgment is the appropriate mechanism for resolving FOIA disclosure disputes. See Fed.R.Civ.P. 56(c); Alyeska Pipeline Service Co. v. EPA, 856 F.2d 309, 313-14 (D.C.Cir.1988). In addition, a district court may determine if a FOIA exemption is properly invoked on the basis of affidavits or declarations submitted by the government, see Goland v. CIA, 607 F.2d 339, 352 (D.C.Cir.1978), so long as the affidavits "describe the justifications for nondisclosure with reasonably specific detail, demonstrate that the information withheld logically falls within the claimed exemption, and are not controverted by either contrary evidence in the record [] or by evidence of agency bad faith." Landmark Legal Found. v. IRS, 87 F.Supp.2d 21, 23 (D.D.C.2000) (citing Miller v. Casey, 730 F.2d 773, 776 (D.C.Cir.1984)) (internal quotation marks omitted).
B. Adequacy of the Search
To prevail in a FOIA action, an agency must show that it made a good faith effort to search for the records requested, and that its methods were "reasonably expected to produce the information requested." Oglesby v. U.S. Dep't of Army, 920 F.2d 57, 68 (D.C.Cir.1990). The crucial determination in evaluating an agency's response to a document request is *295 "whether the search for those documents was adequate," not whether other possibly responsive documents might exist. Steinberg v. U.S. Dep't of Justice, 23 F.3d 548, 551 (D.C.Cir.1994) (internal quotation marks and citation omitted), Perry v. Block, 684 F.2d 121, 128 (D.C.Cir.1982); see also Truitt v. Dep't of State, 897 F.2d 540, 542 (D.C.Cir.1990) (agency need not conduct exhaustive search). Affidavits that explain "in reasonable detail the scope and method of the search conducted by the agency will suffice to demonstrate compliance" with FOIA. Perry, 684 F.2d at 127.
DOJ presents the declaration of Melanie Ann Pustay, the Deputy Director of OIP, whose name also appears on the agency's letters to Kidd dated September 4, 2002; March 11, 2003; and April 9, 2003. For both of Kidd's FOIA record requests, this declaration attests to the records and databases searched, Def.'s Mot., Pustay Decl. ¶ 5; the general processes employed in the searches, id. ¶ 6; the search terms used, id. ¶¶ 7-8; the dates the searches were performed, id. ¶¶ 5, 8-10; the offices which conducted searches, id. ¶¶ 5, 9-11; and the records located, id. ¶¶ 14-17. These details are sufficient to establish the adequacy of DOJ's search as a preliminary matter, and in the absence of any argument from Kidd, the court grants summary judgment for DOJ on this issue.
C. Exemption 5
Exemption 5 of FOIA permits an agency to withhold "inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency." 5 U.S.C. § 552(b)(5). This provision applies to all documents which are normally privileged from discovery. See NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 148, 95 S.Ct. 1504, 44 L.Ed.2d 29 (1975). While Exemption 5 should be construed as narrowly as possible, see Coastal States Gas Corp. v. Dep't of Energy, 617 F.2d 854, 868 (D.C.Cir.1980), the "deliberative process" privilege falls squarely within this exemption. See Senate of Puerto Rico v. Dep't of Justice, 823 F.2d 574, 584-85 (D.C.Cir.1987).
The deliberative process privilege may be invoked by an agency upon the showing that the communication in question is both predecisional and deliberative. Mapother v. Dep't of Justice, 3 F.3d 1533, 1537 (D.C.Cir.1993) (citing Petroleum Info. Corp. v. Dep't of the Interior, 976 F.2d 1429, 1434 (D.C.Cir.1992)). A decision will be considered predecisional if "it was generated before the adoption of an agency policy." Coastal States, 617 F.2d at 866. Deliberative communications are those "reflecting advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated." Sears, Roebuck & Co., 421 U.S. at 150, 95 S.Ct. 1504. Documents protected by the privilege are those which would prematurely reveal the personal opinions of the author or the views of the agency on a decision not yet finalized at the time the document was created. See Coastal States, 617 F.2d at 866. "Draft documents, by their very nature, are typically predecisional and deliberative." Exxon Corp. v. Dep't of Energy, 585 F.Supp. 690, 698 (D.D.C.1983).
The rationale behind the deliberative process privilege is that public disclosure would prevent "the full and frank exchange of ideas" from "flow[ing] freely." Mead Data Cent. v. Dep't of Air Force, 566 F.2d 242, 256 (D.C.Cir.1977). The privilege serves to assure agency employees that they can provide a decisionmaker with their uninhibited opinion without fear of public scrutiny, to prevent premature disclosure of proposed policies, and to protect *296 against public confusion through the disclosure of document advocating or discussing reasons for policy decisions that were ultimately not adopted. See Am. Petroleum Inst. v. EPA, 846 F.Supp. 83, 88 (D.D.C.1994).
In this case, Kidd seeks the complete disclosure of the five withheld draft documents, consisting of six pages, as well as an unredacted copy of an already-released facsimile cover sheet, all used in formulating the final letter sent by Bryant to Congressman Roscoe Bartlett.[1] Def.'s Mot. at 15-16. DOJ asserts that these documents should be protected from disclosure by Exemption 5. Id. The agency submits that the draft letters "represent a preliminary and incomplete view of the ultimate position taken by DOJ regarding meetings with Schulz and his organization." Id. at 16. The agency justifies non-disclosure on the basis of its belief that the release of the documents would "inhibit drafters from freely exchanging ideas, language choices, and comments in drafting documents." Id.
Kidd's response to the agency's invocation of Exemption 5 is unconvincing. Kidd states that "[t]here is no reason why all documents shouldn't be released to Plaintiff except to protect information Defendant doesn't want the people to know, but that the people have the absolute right to know," and that "[t]his government belongs to the people and defendant works for the people of these united States of America [sic]." Pl.'s Resp. to Def.'s Mot. at 3 (emphasis original). While the court agrees with Kidd that "[t]his government belongs to the people and defendant works for the people of these united States of America [sic]," the court disagrees with her pronouncement that "[t]here is no reason why all documents shouldn't be released to Plaintiff except to protect information Defendant doesn't want the people to know." The reason for not requiring disclosure of all the documents Kidd seek is because the pertinent law exempts them from disclosure. The court concludes that DOJ's invocation of Exemption 5 to FOIA is appropriate, and denies Kidd's effort to compel disclosure of the five draft documents or the unredacted facsimile cover sheet.
D. Exemption 6
Kidd also claims that OIP improperly redacted material under Exemption 6 in four of the documents it released to her. Exemption 6 of the FOIA serves to protect "personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy." 5 U.S.C. § 552(b)(6). Courts have broadly interpreted the term "similar files" to include most information that "applies to a particular individual." Dep't of State v. Wash. Post Co., 456 U.S. 595, 602, 102 S.Ct. 1957, 72 L.Ed.2d 358 (1982). In order to determine whether an agency properly invokes Exemption 6, the court must balance the privacy interest in non-disclosure against the public interest in the release of the information. Lepelletier v. FDIC, 164 F.3d 37, 46 (D.C.Cir.1999).
Here, Kidd seeks to compel the agency to re-release three documents without the redactions OIP made pursuant to Exemption 6. The first document is a copy of an electronic mail message from Bryant to Patrick O'Brien. Def.'s Opp. at 18. The agency released the document to Kidd, redacting only Bryant's home telephone number. Id. While DOJ concedes that federal employees have a reduced expectation *297 of privacy, the agency still seeks to protect certain personal information. Id. In balancing Bryant's strong interest in maintaining the privacy of his home telephone number against a weak public interest in learning such information, the court believes that disclosure has little bearing on the public's understanding of the way in which the Department of Justice or the Attorney General's office conducts its affairs or why any particular meeting was or was not held. See Judicial Watch, Inc. v. Dep't of Commerce, 337 F.Supp.2d 146, 176 (D.D.C.2004) (upholding agency decision to redact personal information such as home addresses and telephone numbers). As such, the court finds that DOJ properly invoked Exemption 6 to FOIA and therefore denies Kidd's motion to compel disclosure of an unredacted copy of the electronic mail message.
The second and third documents for which Kidd seeks to compel full disclosure are two constituent letters written by third parties to then-Senator Strom Thurmond and Congresswoman Ellen Tauscher regarding the "We the People Foundation." Def.'s Mot. at 18. The agency released both letters to Kidd, redacting only the names and home addresses of the letter writers. Id. DOJ argues that it withheld the names and addresses of the constituents because "[w]hen communicating with their Senator or Congressperson, these individuals did not expect that their names or home addresses would be subject to public scrutiny." Id. at 19. Providing personal identifying information commonly found in constituent letters does not advance the purposes of FOIA and, as such, may be withheld from FOIA requests. Voinche v. FBI, 940 F.Supp. 323, 329-30 (D.D.C.1996) ("There is no reason to believe that the public will obtain a better understanding of the workings of various agencies by learning the identities of ... private citizens who wrote to government officials...."); see also Lakin Law Firm, P.C. v. FTC, 352 F.3d 1122, 1125 (7th Cir.2003) (finding that the core purposes of FOIA would not be served by the release of the names and addresses of persons who complained to FTC).
Kidd misconstrues the applicability of Exemption 6 in this case by arguing that "[t]he only person whose privacy could be at issue in this litigation is Bob Schulz ... [who] has no objection to any documents regarding him possessed by Defendant being provided to me." Pl.'s Mot., Kidd Decl. at 3. Here, the personal privacy which DOJ seeks to protect from "unwarranted invasion" does not involve Schulz, but rather third-party individuals who wrote private letters to their representatives. Kidd asserts no public interest in the disclosure of the names or addresses of these individuals. Accordingly, the court concludes that OIP properly redacted this information from the constituent letters pursuant to FOIA Exemption 6.
III. CONCLUSION
For the foregoing reasons, the court concludes that the United States Department of Justice's motion for summary judgment must be granted and Kidd's motion for summary judgment must be denied. An appropriate order accompanies this memorandum opinion.
NOTES
[1] The final, signed letter sent from Assistant Attorney General Bryant's office to Congressman Bartlett has been released in full to Kidd. Def.'s Mot. at 16; Pustay Decl.¶ 20. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1867077/ | 376 B.R. 708 (2007)
In re Matthew E. COLLINS, Julie E. Collins, Debtors.
Matthew E. and Julie E. Collins, Plaintiffs,
v.
Educational Credit Management Corporation, and the Educational Resources Institute, Inc., Defendants.
Bankruptcy No. 06-30822, Adversary No. 06-3492.
United States Bankruptcy Court, D. Minnesota.
October 1, 2007.
*709 *710 David G. Keller, Grannis & Hauge, Eagan, MN, for Debtors/Plaintiffs.
ORDER FOR JUDGMENT
DENNIS D. O'BRIEN, Bankruptcy Judge.
This matter came before the Court for trial on the debtors' complaint seeking discharge of student loans pursuant to 11 U.S.C. § 523(a)(8). David G. Keller appeared on behalf of the plaintiffs, debtors Matthew and Julie Collins. Henry T. Wang and A.L. Brown appeared on behalf of defendant Educational Credit Management Corporation (ECMC).[1] At the conclusion of the trial, the Court took the matter under advisement. Based upon all of the files, records and proceedings herein, the Court being now fully advised makes this Order pursuant to the Federal and Local Rules of Bankruptcy Procedure.
I. FINDINGS OF FACT
Debtor Matthew Collins is a doctor of chiropractic (D.C.). Collins obtained his D.C. and B.S. degrees, following completion earlier of an Associates of Arts degree, in 1999 from Northwestern College of Chiropractic. Soon thereafter, he passed his board exams and became a licensed chiropractor in Minnesota. In *711 2004, Collins successfully completed a rehabilitative chiropractic certification program and become one of only fifteen chiropractors in Minnesota holding the certified diploma from the American Chiropractic Rehabilitation Board in that specialty care area. Collins financed his education largely through student loans, which he consolidated following graduation. At the time of trial, his outstanding student loan debt was approximately $117,074.53, plus daily interest of $22.86 (about $685 every month).
Since earning his D.C. in 1999, Collins has remained employed, usually relatively lucratively, as a doctor of chiropractic. He began as a solo and relief practitioner, and then took an associate position at a well established chiropractic practice known as Snelling Chiropractic Clinic. He earned $54,600 annually plus commissions as an employee from 2000-2002, and then he purchased the practice. Collins operated the Snelling clinic until it failed and ceased operations in 2006. During those years, Collins and his wife reported adjusted gross income of $64,330 (2002), $28,250 (2003), $49,744 (2004), $58,256 (2005), and $52,429 (2006).[2]
Following the demise of Snelling Chiropractic, Collins worked full time as an associate chiropractor, from March 2006 through January 2007, for Premier Health Services. His annual salary there was $50,000 before commissions. He was fired at the end of January 2007, but within three weeks he had entered into an agreement with chiropractic offices known as Vital Injury and Wellness to operate a solo practice there at a cost of 25% gross receipts for rent and overhead, plus a 2% provider tax. So far, his gross receipts as a solo practitioner have been $2,531 (March); $2,976 (April); $3,995 (May); and $3,560 (June). Accordingly, his take home pay, not including income or employment taxes or expenses associated with trying to market and grow the practice, recently ranges from $1,848 to $2,916 per month, and mostly reflects steadily increasing receipts.
Collins is just 33 years old and in good health. His wife, Julie, is 30 years of age and also in good health. Neither suffers from any condition prohibitive of an ability to work. The Collins have three healthy Children, ages 5 years, 2½ years, and 6 months. Julie works one day a week, but otherwise spends her time caring for the children. The family rents a two bedroom town home from Julie's father at cost, and makes payments to him on a loan for one of their cars,[3] as well. The Collins are apparently $6,505 behind on rent, and also owe Julie's father for the $5,000 retainer plus accruing fees for counsel in this proceeding. Julie graduated from the University of Iowa with a degree in sports health studies. She too had student loans, but they have been satisfied by her father.
*712 The Collins claim the following essential monthly expenses of $4,609.00:
rent $1083
association (trash removal, water/sewer, exterior
maintenance) $ 210
utilities $ 201
telephone $ 35
home repair $ 27
food and sundry daily supplies $ 800
clothing $ 100
laundry/dry cleaning $ 30
rent insurance $ 35
life insurance $ 116
health insurance $ 718
non-covered medical/dental $ 75
health savings account $ 241
car insurance $ 110
transportation-gasoline only $ 250
car payment $ 200
car maintenance and repairs $ 32
TERI student loan payment $ 50
internet service & $ 58
malpractice insurance $ 117
15.9% self employment tax (amount unknown/
uncertain) ----
continuing education (expense based on $500/
year for 20 credits) $ 42
chiropractic license renewal fee ($200/year) $ 17
rehabilitation certificate renewal expenses ($140/
year plus $1200 conference every other year) $ 62
Julie has not sought full time work outside caring for the children because the cost of full time daycare for all three children would be $665 weekly. The Collins do not believe that Julie could net more than the $35,000 annual daycare expense to the extent necessary to make it worthwhile. In past, Julie has worked a part time, $7/hour fitness expertise related positions, such as a personal trainer. She has also worked through temp agencies performing data entry, as well as providing administrative and bookkeeping services for her husband in the chiropractic business. Her current one-day-a-week job is as a receptionist.
Collins claims that his historical income demonstrates perpetual lack in meeting his family's minimal costs. He opines that the industry of chiropractic practice is in decline and that a career therein is increasingly difficult to successfully initiate and sustain. In sum, Collins claims that his ability to supply his family's basic needs is severely compromised now and for the foreseeable future such that requiring repayment of his student loan debt to ECMC will constitute an undue hardship.
In fact, the field of chiropractic is not in decline. State of Minnesota projections indicate a 30.4% increase from 2004 to 2014, which is more than double the growth rate for all occupations in general. A median reasonable income to expect of Collins today with his education and experience is $65,000 annually,[4] whether as a solo practitioner or in a group. In a group, Collins is certain to earn more both at the outset and sustained over time. At the time of trial, there were no less than four associate chiropractor positions in group practices available in the Twin Cities, as well as one nearby in Wisconsin, none of which Collins had discovered or pursued. Moreover, his credentials make viable a career outside of chiropractic in related health fields such as, for example, fitness and health club management, or medical equipment sales.[5]
*713 Collins claims that he has brought this complaint in good faith, consistent with his ever attendant cognizance of keeping costs to a minimum throughout his education, within his family, and in his chiropractic practice. He claims that the capitalizing interest on the student loans and his inability to repay the loans will result in an eternal negative amortization and inescapable compromised credit. ECMC contends that Collins has strong earning capacity, now and going forward, and that the availability of the Income Contingent Repayment Program will safely escort Collins and his family through this difficult financial period until their situation improves.
II. DISCUSSION
Section 523(a)(8) provides:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for
(A) (i) an, educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual.
See 11 U.S.C. 523(a)(8).
Dischargeability of student loans under § 523(a)(8) is a well developed area of law in the Eighth Circuit. Under the totality of the circumstances test, "the court considers (1) the debtor's past, present and future financial resources, (2) the debtor's reasonable and necessary living expenses, and (3) any other relevant circumstances." See In re Reynolds, 425 F.3d 526, 529 (8th Cir.2005). The burden of proving undue hardship lay with the debtor, by a preponderance of the evidence. Id.
"Each bankruptcy case involving a student loan must be examined on the facts and circumstances surrounding that particular bankruptcy for the Court to make a determination of `undue hardship.'" Reynolds, 425 F.3d at 531, citing Andrews v. S.D. Student Loan Assistance Corp., 661 F.2d 702, 704 (8th Cir.1981); quoting In re Wegfehrt, 10 B.R. 826, 830 (Bankr.N.D.Ohio 1981). "The bankruptcy court must determine whether there would be anything left from the debtor's estimated future income to enable the debtor to make some payment on his/her student loan without reducing what the debtor and his/her dependents need to maintain a minimal standard of living." Id.
"Simply put, if the debtor's reasonable future financial resources will sufficiently cover payment of the student loan debt while still allowing for a minimal standard of living then the debt should not be discharged." Reynolds, 425 F.3d at 532, citing In re Long, 322 F.3d 549, 554-555 (8th Cir.2003). "Certainly, this determination will require a special consideration of the debtor's present employment and financial situation including assets, *714 expenses, and earnings along with the prospect of future changes positive or adverse in the debtor's financial position." Id.
"[A] court must consider a spouse's income in deciding whether a student loan constitutes an undue burden." See In re Sweeney, 304 B.R. 360, 362 (D.Neb.2002). "For reasons of sound authority and sound public policy, the court must view undue hardship in light of the total income of the family." Sweeney, 304 B.R. at 363.[6] Likewise, the earning capacity of an unemployed spouse is a relevant inquiry.
Looking strictly at the current expenses and income of the Collins family, and assuming for the moment that the claimed expenses are reasonable and necessary, there is an appearance of a very significant negative monthly cash flow and no surplus from which to fund any payment against the student loan debt. Undue hardship has been found on lesser scales.[7] However, this case is unique because of the compelling element of earning capacity. Matthew Collins has excellent earning capacity. Julie Matthews is also not without earning capacity, regardless of her primary role as full time tare provider of the three Collins children.
"[S]ignificant earning capacity [is] a fact which the Court must consider in the undue hardship analysis." See In re Winsborough, 341 B.R. 14, 18 (Bankr. W.D.Mo.2006), citing Weller v. Texas Guaranteed Student Loan Corp. (In re Weller), 316 B.R. 708, 716 (Bankr.W.D.Mo. 2004) (Court must look beyond the debtor's present to the foreseeable future and consider debtor's education, training, employment history and ability to earn); Chapelle v. Educational Credit Mgmt. Corp. (In re Chapelle), 328 B.R. 565, 571-72 (Bankr.C.D.Cal.2005) (Court declines to discharge student loan debt where debtor has a law degree, is healthy and has 13 years before retirement age during which she has the potential to secure employment and make payments on her student loans).
At trial, Collins made much of the failure of his operation of Snelling Chiropractic and repeatedly claimed it as evidence of an irreparably damaged poor work experience record and ultimately of his "low" earning capacity. Indeed, there were significant losses associated with the initiation of that venture, and some level of loss incurred each year and through the collapse. But, such numbers are relative matters. Even taking into account that tax returns failed to realistically account for all the legitimate expenses of the business, such as principal payments on business *715 loans for example, gross receipts and individual adjusted gross income overwhelmingly reflect substantial sums revenue and income surely out of reach of almost all "garden variety" debtors.
Perhaps Collins was too much a novice at business when he took on Snelling. Perhaps he was inexperienced and ineffective at marketing himself and mistakenly relied upon the long established reputation of the practice he purchased. Perhaps he made many mistakes. However, it does not appear that Collins erred as a chiropractor. He continued throughout operation of Snelling to generate revenue, he quickly found full-time salaried replacement work at Premier when the Snelling enterprise failed, and he just as quickly established a solo practice when the Premier group let him go. That is not to say that Collins' financial situation at the time of filing and at the present time is not difficult and troubling. But, the current financial "burden is temporary for the Collins family, a "bump in the road," as ECMC put it. The general discharge will provide the necessary fresh start, and a combination of belt tightening and income maximization will provide a substantial opportunity for full financial rehabilitation in due time.
The Court rejects the argument that Collins has a history of inadequate earning capacity. While it may be true that he has not always managed to fund his family's basic annual expenses of more than $55,000 net, he has nevertheless grossed approximately $50-65,000 almost every year (except 2003 and this year) since he began working as a chiropractor. Moreover, the field of chiropractic is prosperous and growing in Minnesota, contrary to his assertions at trial. And, Collins has a specialty that only fourteen other chiropractors in Minnesota also offer, and there are multiple associate positions in group practices, which are more lucrative, available in the local community. Collins has also not adequately explored alternative careers appropriate to his education, and instead has voluntarily selected the road most difficult, time consuming, and costly, the solo practice.
While the Court takes no position with respect to family choices such as size and child care, there was no evidence proffered that Julie Collins has exhausted her earning capacity. At the present time, Matthew Collins commits approximately 28 hours each week to actually seeing patients, and purportedly devotes up to another 37 hours each week managing his solo practice and attempting to market it. He makes himself available one shift a week to babysit while Julie works as a receptionist. Presumably different choices could be made now to enable Julie to work out of the home on weekends or evenings, or in some capacity while at home.
Barring such arrangements and the high cost of day care for three small children, the situation will naturally change in the coming years: the oldest child will go to school full days next year, the middle child in four years, and the youngest in six years, with each transition rendering child care more affordable and full-time work for Julie an ever nearer possibility. She will be just 36 years old when her youngest child heads off to first grade. There is no indication in the record that she is now or will be in the future compromised from obtaining gainful employment. She is college educated and has experience both in her field of study as well as in various office management and support functions.
The discussion of this case is not complete without consideration of the expenses claimed. At a glance, there are no luxury or similarly suspect, questionable items. However, there are a great many expenses related to Collins as a chiropractor, and in *716 particular to his status as a solo practitioner, that may be substantially reduced (or possibly eliminated as a net family expense) if he either joined a group practice or sought alternative employment. Sizeable self employment tax is not even an actual figure in the current expense calculation, and as it stands many major expenses often part of an employment package are currently being funded by Collins individually.
While the line by line review of family expenses is not particularly offending, the monthly sum total is quite steep, even for a family size of five.[8] The Collins maintain numerous expenses that most ordinary family debtors manage for considerably less (food, housing and utilities, clothing, gasoline), or simply do without (health savings account). Were earning capacity not the controlling circumstance in this case, the Court would be inclined to evaluate the expenses much more precisely and thoroughly. However, the Court finds that the Collins' earning capacity is or will soon be sufficient to meet and likely exceed actual basic needs, and will eventually be adequate to meet or exceed the full claimed expenses as well.
"[T]he availability of the ICRP is `but one factor to be considered in determining undue hardship, but it is not determinative.'" See In re Lee, 352 B.R. 91, 95 (8th Cir. BAP 2006), citing In re Korhonen, 296 B.R. 492, 496 (Bankr.D.Minn. 2003); In re Thomsen, 234 B.R. 506, 509-10 (Bankr.D.Mont.1999). "Placing too much weight on the ICRP would have the effect in many cases of displacing the individualized determination of undue hardship mandated by Congress in § 523(a)(8) [because] the payments on, a student loan will almost always be affordable, i.e., not impose an undue hardship on a Debtor." Lee, 352 B.R. at 95-96.[9]
"[T]he availability and terms of the ICRP should not be given undue weight under the totality of circumstances analysis because it serves a fundamentally different purpose than the discharge provisions (and exceptions thereto) of the Bankruptcy Code." Lee, 352 B.R. at 96. "A survey of the legislative history behind legislation related to the ICRP indicates that its primary goal is to assist borrowers in avoiding default." Id., citing S. Rep. 102-447, at 371-72 (1992); H. Rep. 103-111, at 158 (1993); H. Rep. 109-231, at 141 (2005). "In contrast, the Bankruptcy Code serves to provide a fresh start to `honest but unfortunate debtors,' most of whom have already defaulted on their obligations (including student loans)." Lee, 352 B.R. at 96. "The ICRP provides temporary relief from the burden of a student loan, but it does not offer a fresh start." Id. at 97. See also, In re Cumberworth, 347 B.R. 652, 660-661 (8th Cir. BAP 2006).
Collins has declined the ICRP because of the negative amortization resultant from nonpayment or small payments for an extended period of time concurrent with substantial capitalizing daily interest accrual in excess of principal reduction. He also *717 complains that his income to debt ratio while remaining obligated on his student loans will, render him credit unworthy and cause him suffering in the credit consumer driven marketplace and business environment. In some cases, those are very powerful arguments, completely appropriate and ultimately effective. This is not such a case.
Under the ICRP, based on household size of five and 2006 adjusted gross income of $52,429, Collins' required income-based monthly payment on his student loans would be $471.65. Based on his current income, the required payment would be nothing. According to Collins' current claimed expenses, there would be no funds to make the $471.65 even if his current income was $52,429. But, the Court is not persuaded that the expenses have been adequately mitigated. The Court is convinced that the Collins family earning capacity does exceed or will soon exceed actual, expenses. If family revenues remain low, so too will the ICRP payment. As family income rises and the required minimum ICRP payment rises, Collins will have the means to afford the ICRP payment without undue harm to himself or his dependents.
The income to debt ratio occasioned by the student loans is also not so much of a problem because the Collins have had all other debts discharged as a result of the bankruptcy. Besides ordinary expenses, Collins has no debt but for one small car payment, and no mortgage. Therefore the student loan balance is not so burdensome on Collins' overall credit. In addition, participation in the ICRP is designed to assist the borrower in remaining out of default status, a necessity for maintaining good credit. Besides the established poverty level schedule of income-based payment formulation under the ICRP, there is also an avenue to submit "special circumstances" by which to request reduced payments, and nonpayment deferment or forbearance periods which constitute a "current" repayment status are also available.
Collins argues that, should he participate in the ICRP and be granted forgiveness of any remaining loan balance at the conclusion of the 25 year life of the payment plan, he will then suffer debilitating income tax consequences. While the question of whether loan cancellation at the end of an ICRP term is always a taxable event or subject to a solvency requirement has yet to be conclusively determined in this context, it is of no moment here because the Court cannot reasonably countenance Collins participating in the ICRP to such an end. Instead, it is more plausible that Collins will entirely satisfy and retire the debt at, sometime prior to the end of his ICRP term, should he decide to select that repayment program after all.
Interestingly, in closing at trial, ECMC unexpectedly stipulated to allow Collins an unrestricted period of two years (presumably from the date of this decision) during which no payments would be required and no interest or fees would accrue. In other words, ECMC unilaterally agreed that, for two years, Collins' total outstanding loan balance would be stayed. The rationale for this apparently generous alteration in terms was not in concession, but simply strategic: ECMC proceeded on the basis of this changed circumstance to argue that the Court was thereby compelled to shift the undue hardship determination two years forward.
The Court is not inclined to allow counsel to make fractious attempts to interfere with the analysis in this manner. The law on § 523(a)(8) is perhaps someways controversial, and can be factually difficult depending on the case, but it is fairly well settled nonetheless. In any event, a core *718 part of the assessment is looking ahead to a debtor's reasonable future earnings. Two years, ahead is already part of the evaluation. At best, by staying payments and fees, the creditor is inserting into the factual circumstances a certain and noncontingent provision of temporary relief, and raising the question of whether such a transitory escape from the debt increases or decreases its otherwise burdensome qualities. In the present case, that question is entirely irrelevant because the outcome of this proceeding would be the same regardless of the two year freeze, though surely the Collins are no doubt pleased by the unqualified last-minute extended reprieve.
This case presents precisely the sort of debt the discharge of which § 523(a)(8) was designed to preclude. Collins is young, healthy, highly educated, and accomplished and experienced in a successful, growing and lucrative career field. He has demonstrated a consistent ability to earn a large income. He has worked continuously as a doctor of chiropractic since he entered the work force as such, and there is no reason to suspect he will not maintain a steady and increasing practice going forward and generate a rising income, especially if he goes to a group practice.
Similarly, Julie Collins is young, healthy, college educated, and adequately and variously experienced such that she will be able to secure work befitting her schedule preferences and eventually worthy of her full time when the children are all in school. Having now the benefit of a general discharge of debts, the Collins have the fresh start they need, within which they have a new chance to maximize the opportunities afforded by the strong earning capacities just described. Under these circumstances, the Court must reasonably conclude that repayment of the student loan debt to ECMC will not constitute an undue hardship upon the debtors or dependents of the debtors.
III. DISPOSITION
IT IS HEREBY ORDERED:
1. The student loan debts of Matthew E. Collins owing to creditor Educational Credit Management Corporation (ECMC), in the approximate amount of $117,074.53 plus interest, do not constitute an undue hardship pursuant to 11 U.S.C. 523(a)(8), and are accordingly nondischargeable and are excepted from the general discharge entered in main case BKY 06-30822.
LET JUDGMENT BE ENTERED ACCORDINGLY.
NOTES
[1] This proceeding as it relates to defendant The Education Resources Institute, Inc. (TERI), has already been determined and concluded on stipulation between the parties, as noted in the case file.
[2] The business apparently failed because, when the original proprietor sold the practice to Collins and left the operations, the injury referrals to the clinic also ceased. Collins was purportedly unable to adequately advance his own reputation to secure those referral sources, or was unable to otherwise restore former revenues. However, tax returns illustrate a somewhat different situation and indicate major losses only during the initial takeover and for the following year. Snelling reported total income in 2002 (Sept-Dec) of $41,529 and income after costs of $28,114; $191,503/$8,010 in 2003; $282,170/ $46,525 in 2004; and $248,812/$30,334 in 2005. While gross revenues generally increased over time, substantially from 2002-2004, costs appear to have advanced much more rapidly.
[3] The Collins own outright a 1997 Oldsmobile with in excess of 220,000 miles, and make payments to Julie's father on a 1999 Dodge Caravan with approximately 120,000 miles.
[4] The reasonable annual salary expectation of $65,000 for Collins is based on a level 2 practitioner placement, just a step above entry-level (which earning expectation would be $54,000 annually), and does not account for his advanced and uncommon rehabilitation certification, which increases his available billable services and adds value to his marketability.
[5] Income in such fields is typically commission driven, but in addition to generous guaranteed base salaries similar to those in the chiropractic environment.
[6] "Overwhelming authority requires that a court consider the spouse's income." Sweeney, 304 B.R. at 362-363. "The court in White v. United States Department of Education, et al., 243 B.R. 498 (Bankr.N.D.Ala. 1999) cites no less than forty-nine (49) cases in which courts have held that a court must consider the earnings of both the debtor and his spouse in evaluating whether a student loan creates an undue hardship." Sweeney, 304 B.R. at 363, citing White, 243 B.R. 498 at n. 9.
[7] See, e.g., Sweeney, 304 B.R. at 365 (4 children and total family monthly income of $3,350 and a student loan debt of over $45,000 constitutes undue hardship), citing In re Cline, 248 B.R. 347 (8th Cir. BAP 2000) (no children/not married; $1,578 monthly income; $53,500 student loans); In re Coats, 214 B.R. 397 (Bankr.N.D.Okla.1997) (3 children; $4,218 monthly income, including social security and child support; $39,000 student loans); In re Skaggs, 196 B.R. 865 (Bankr.W.D.Okla.1996) (3 children; $3,000 monthly income; $47,000 student loans); and In re Cooper, 167 B.R. 966 (Bankr.D.Kan. 1994) (3 children; $2,600 income; $9,000 student loans).
[8] The poverty level for a family of five is just under approximately $24,130, or less than half the $55,308 net annual expenses Claimed by Collins.
[9] "[A] key difference between the ICRP and the undue hardship inquiry under § 523(a)(8) . . . is that they employ different standards for measuring a debtor's ability to pay." Lee, 352 B.R. at 96. "Under the ICRP, a debtor is presumed to have the ability to pay 20% of the difference between her adjusted gross income and the poverty level for her family size, or the amount the debtor would pay if the debt were repaid in twelve years, whichever is less." Id. "In contrast, a bankruptcy court engages in a case-by-case analysis of, a debtor's income in relation to her reasonable expenses." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2217308/ | 409 Mich. 639 (1980)
297 N.W.2d 387
BAKER
v.
GENERAL MOTORS CORPORATION
COLLIER
v.
GENERAL MOTORS CORPORATION
SEIDELL
v.
GENERAL MOTORS CORPORATION
Docket Nos. 59861-59863. (Calendar No. 8).
Supreme Court of Michigan.
Argued January 10, 1979.
Decided October 16, 1980.
John A. Fillion, Jordan Rossen, M. Jay Whitman, Leonard Page; Marston, Sachs, Nunn, Kates, Kadushin & O'Hare, P.C. (by Charles Looman); and Altshuler & Berzon (by Fred H. Altshuler, Stephen P. Berzon and Evelyn R. Frank) for plaintiffs.
Otis M. Smith, General Counsel, J.R. Wheatley, E.L. Hartwig, E.J. Dilworth, W.B. Rogers, W.R. *646 Tucker, M.J. Connolly, and M. Alice McCann for defendant General Motors Corporation.
Amicus Curiae:
Rudolph L. Milasich, Jr., Carl B. Frankel, and Kasoff, Young, Gottesman, Kovinsky & Walkon (Bernard Kleiman, of counsel) for United Steel-workers of America.
LEVIN, J.
The issue in this case is whether the payment by union members of temporarily increased "emergency dues", authorized by an amendment to the union constitution, required as a condition of union membership and collected in designated amounts as part of the members' monthly dues, into a union strike fund during an ongoing national strike against another employer, disqualifies those members from receiving unemployment compensation benefits when they subsequently become unemployed because local issue strikes in other establishments operated by their employer result in layoffs at the members' own establishments, and when the local issue strikers at the other establishments receive strike benefits from the fund into which the "emergency dues" were paid.
Plaintiffs are members of a national union representing workers in the automobile industry and were employed at General Motors plants in Michigan in early 1968. When plaintiffs were laid off in the wake of local strikes at other GM plants, their eligibility for unemployment benefits was contested because of certain dues payments they had made to their union strike fund several months before, in the midst of a national strike against Ford Motor Company.
This controversy arises under the labor dispute disqualification provision of the Michigan Employment *647 Security Act,[1] subsection 29(8),[2] which, at the time, provided in pertinent part:
"(8) An individual shall be disqualified for benefits for any week with respect to which his total or partial unemployment is due to a labor dispute in active progress, or to shutdown or start-up operations caused by such labor dispute, in the establishment in which he is or was last employed, or to a labor dispute (other than a lockout) in active progress, or to shutdown or start-up operations caused by such labor dispute, in any other establishment within the United States which is functionally integrated with such establishment and is operated by the same employing unit. No individual shall be disqualified under this subsection 29(8) if he is not directly involved in such dispute.
"(a) For the purposes of this subsection 29(8), no individual shall be deemed to be directly involved in a labor dispute unless it is established that:
* * *
"II. He is participating in or financing or directly interested in the labor dispute which causes his total or partial unemployment. The payment of regular union dues (in amounts and for purposes established prior to the inception of such labor dispute) shall not be construed as financing a labor dispute within the meaning of this subparagraph * * *." 1967 PA 254.[3]
*648 The application of subsection 29(8) to the facts of this case potentially raises three connected questions:
(1) Was plaintiffs' unemployment "due to" labor disputes in active progress at other establishments operated within the United States by the same employing unit and functionally integrated with the establishments where plaintiffs were employed?
(2) If so, were plaintiffs' emergency dues payments to the strike fund sufficiently connected with the labor disputes which caused their unemployment to constitute "financing" of those labor disputes unless excepted by the terms of subparagraph 29(8)(a)(II)?
(3) If so, are plaintiffs' temporary emergency dues payments excepted from the category of "financing" because they were "regular union dues (in amounts and for purposes established prior to the inception of such labor dispute)"?
We conclude that plaintiffs' unemployment was due to labor disputes in active progress at functionally integrated domestic GM plants. The basic disqualification provision of subsection 29(8) disqualifies an individual whose unemployment is *649 claimed to result from a labor dispute if that labor dispute is shown to be a substantial contributing cause of his or her unemployment. While the Legislature did not intend to withhold benefits from individuals who would have been unemployed even if an apparently related labor dispute had not occurred, the dispute need not be the sole cause of the unemployment.
Before considering whether the emergency dues payments may be regarded as having financed the labor disputes that caused plaintiffs' unemployment, we seek to determine whether those payments are specifically exempted from treatment as financing by the second sentence of subparagraph 29(8)(a)(II). We agree with the Court of Appeals that that provision requires union dues to satisfy two conditions in order to be exempted as a matter of law from possible classification as financing a labor dispute: the dues must be (1) regular and (2) in amounts and for purposes established prior to the inception of the labor dispute that caused the claimant's unemployment.
We further agree with the Court of Appeals that the temporary emergency dues paid by UAW members in October and November, 1967 were not "regular" but extraordinary. The Legislature chose the term "regular" to exclude from possible treatment as financing those dues payments required uniformly of union members and collected on a continuing basis without fluctuations prompted by the exigencies of a particular labor dispute or disputes. The payments in question, enacted as a temporary emergency measure to build the union strike fund in the midst of a national strike against Ford Motor Company, cannot properly be described as "regular". We therefore need not decide whether the emergency dues were established *650 "prior to the inception of [the] labor dispute".
The referee, the appeal board and the Court of Appeals all implicitly assumed that unless the emergency dues payments fell within the specific exemption for "regular union dues (in amounts and for purposes established prior to the inception of such labor dispute)" the payments would constitute financing because the union strike fund had paid strike benefits to workers involved in the labor disputes that caused plaintiffs' unemployment.
The determination that the emergency dues payments are not exempted from treatment as financing by the second sentence of subparagraph 29(8)(a)(II) does not, however, require the conclusion that plaintiffs financed the local labor disputes which caused their unemployment.
Since the appeal board, the tribunal with the most experience and expertise in the application of the act, did not discuss the meaning of "financing", we remand this matter to the board's successor for further explication of the term "financing".
In supplemental briefs filed after oral argument, the parties have addressed the question whether federal labor policy prohibits a state from disqualifying union members for unemployment compensation benefits because they have made required payments into a union's general strike fund. We do not decide whether the federal labor law preempts the application of the "financing" disqualification of the Employment Security Act because the construction given the term "financing" after remand may make it unnecessary to address the federal preemption issues.
We retain jurisdiction.
*651 I
Every three years the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America and the three major automakers (General Motors, Ford and Chrysler) negotiate new national collective bargaining agreements. The case has its roots in events contemporaneous with and subsequent to the 1967 automobile industry contract negotiations.
In June, 1967, the UAW notified each of the three major automakers by letter of its intent to terminate all national and local collective bargaining agreements when they expired on September 6, 1967. GM and the UAW began negotiations toward a new national agreement on July 15, 1967.
In a vote taken during the latter part of August, the UAW's GM membership authorized strikes, if necessary, on national and local issues. However, the expiration of the agreements did not immediately result in strikes at GM plants because Ford, not GM, was selected as the strike target for that year.
On October 8, 1967, while a nationwide UAW strike against Ford was in progress, a special UAW convention amended article 16 of the union's constitution to provide for "emergency dues".[4] The new dues, effective immediately and continuing "during the current collective bargaining *652 emergency as determined by the International Executive Board and thereafter, if necessary, until the International Union Strike Insurance Fund has reached the sum of Twenty-Five Million Dollars ($25,000,000)", increased each member's monthly contribution to the union Strike Insurance Fund from $1.25 to $11.25 or $21.25, depending upon the average hourly wage at the member's plant. After the emergency ended or the $25,000,000 goal was reached, each member's monthly dues would consist of two hours' "straight time" pay, with 40% earmarked for the member's local union and 30% each allocated to the International Union's Administrative and Strike Funds.
UAW members employed at GM plants in Michigan, including each of the plaintiffs, paid the emergency dues in October and November, 1967.
*653 On November 30, 1967, the UAW determined that there would be no nationwide strike at GM plants during December, 1967 and waived collection of the emergency dues during December, 1967 and January, 1968. However, the letter informing GM of the waiver noted that "the collective bargaining emergency is not yet ended".[5]
The UAW and GM reached agreement on all national issues by December 15, 1967. Following ratification by the membership, the new national agreement took effect on January 1, 1968. However, local bargaining issues at a number of plants remained unresolved.
During January, 1968, GM foundries at Saginaw, Michigan; Defiance, Ohio; and Tonawanda, New York, were each shut down for approximately 10 days because of strikes called by the UAW over local issues. It is stipulated that the striking UAW members at these establishments received strike benefits from the strike fund in which the emergency dues collected in October and November were deposited. The local strikes at the foundries were followed by shutdowns or cutbacks in production at 24 other GM plants in Michigan and over 19,000 workers, including the plaintiffs, were laid off from their employment in the affected plants.
The Michigan Employment Security Commission *654 approved plaintiffs' applications for unemployment compensation benefits. GM appealed to a hearing referee who reversed the Commission's decision and ruled that plaintiffs were disqualified under subsection 29(8) of the Michigan Employment Security Act because they had financed the labor disputes which caused their unemployment.[6] The referee found that plaintiffs' increased contributions to the union's strike fund during October and November, 1967 were not "regular union dues" within the meaning of the subparagraph 29(8)(a)(II) exception because they were not "in amounts and for purposes established prior to the inception of such labor dispute". The referee's opinion did not discuss what activities were intended to fall under the heading of "financing" but, rather, implicitly assumed that the dues in question were financing unless expressly excepted by the statute.
The Michigan Employment Security Appeal Board agreed with the referee that the emergency dues could not properly be described as "regular union dues". Like the referee, the appeal board treated the parenthetical language "(in amounts and for purposes established prior to the inception of such labor dispute)" as an explanation of the word "regular". The board focused upon the meaning of that language and the associated question when "such labor dispute" has its inception, and, rather than explicating the concept of "financing", *655 assumed that the emergency dues payments disqualified plaintiffs unless the stated exception applied. Declaring that the inception of the labor dispute had preceded the adoption of the increased strike fund dues, the board upheld the referee's decision disqualifying plaintiffs.
On appeal to circuit court, the board's decision was affirmed by the Ingham Circuit Court and reversed by the Genesee and Wayne Circuit Courts.
The Court of Appeals, construing the subparagraph 29(8)(a)(II) exclusion of "regular union dues" from the definition of financing as evidence of a legislative intent to treat non-regular or extraordinary union dues as financing a labor dispute if used to support a strike, held that the increased strike fund dues paid during October and November, 1967 were not "regular" as that term is ordinarily understood. Finding that the referee and the appeal board had correctly determined that claimants were disqualified for financing the labor dispute which caused their unemployment, the Court of Appeals affirmed the Ingham Circuit Court and reversed the Genesee and Wayne Circuit Courts. Having concluded that the emergency dues were extraordinary rather than regular, the Court of Appeals found it unnecessary to explore the parenthetical language or to decide when the labor dispute causing plaintiffs' unemployment had its inception.[7]
We granted leave to appeal, limited to the following issues:
"(1) Did payment of the dues in question constitute financing of the labor dispute as a matter of law;
*656 "(2) Was plaintiffs' unemployment caused by a labor dispute in active progress?" 402 Mich 828 (1977).
II
Every state's unemployment compensation statute includes some provision disqualifying from benefits an individual whose unemployment results from a labor dispute.[8] Most provisions are patterned after the corresponding section of the draft bills published by the Social Security Board[9] following passage of the Social Security Act of 1935,[10] which provided federal funding for state unemployment insurance programs.[11] The concept of labor dispute disqualification and the various statutes embodying it have engendered substantial litigation[12] and commentary.[13]
The Michigan statute declares the basic condition of labor dispute disqualification in its introductory sentence:
*657 "An individual shall be disqualified for benefits for any week with respect to which his total or partial unemployment is due to a labor dispute in active progress, or to shutdown or start-up operations caused by such labor dispute, in the establishment in which he is or was last employed, or to a labor dispute (other than a lockout) in active progress, or to shutdown or start-up operations caused by such labor dispute, in any other establishment within the United States which is functionally integrated with such establishment and is operated by the same employing unit."[14]
But under our statute, as under most statutes, determining whether a claimant's unemployment falls within the terms of the basic disqualification is the beginning, not the end, of the inquiry.[15] The seemingly categorical disqualification principle of the first sentence is tempered by the language that follows it:
"No individual shall be disqualified under this subsection 29(8) if he is not directly involved in such dispute."
The statute requires that "direct involvement" be shown by establishing one of four enumerated circumstances. This case concerns but one aspect of the second of the listed alternatives:
"II. He is participating in or financing or directly interested in the labor dispute which causes his total or partial unemployment. The payment of regular union dues (in amounts and for purposes established prior to the inception of such labor dispute) shall not be construed *658 as financing a labor dispute within the meaning of this subparagraph * * *."[16] (Emphasis supplied.)
III
Because the basic disqualification provision of subsection 29(8) applies only if the claimant's unemployment is "due to a labor dispute in active progress" in the establishment where he is or was last employed, or in a functionally integrated establishment operated within the United States by the same employing unit, the threshold consideration is whether the facts of this case evidence the requisite causal link between plaintiffs' unemployment and a dispute in active progress.[17] Absent that causal connection, plaintiffs are not disqualified.
The Court of Appeals regarded the appeal board's finding that plaintiffs' unemployment was due to a labor dispute in active progress at a *659 functionally integrated plant as conclusive because supported by competent, material and substantial evidence on the whole record.[18] We agree with the Court of Appeals assessment of the evidence but find its conclusion only partially responsive to plaintiffs' arguments. We understand plaintiffs to assert not only that the appeal board erred in finding a causal connection in fact, but also that the board and all courts except the Wayne Circuit Court[19] misunderstood the legal standard of causation required by this subsection.
Plaintiffs argue that a claimant may be disqualified under subsection 29(8) only if a labor dispute in active progress is the sole cause of the claimant's unemployment. They assert that their unemployment was due not only to the labor disputes in progress at the functionally integrated foundries and plants, but also to the seniority provisions of the national and local agreements, which marked them as the first to be laid off, and to a combination of GM business decisions, particularly the choice not to replace materials supplied by the struck establishments through purchases in the open market. Plaintiffs urge us to conclude that the causal connection required to support the *660 threshold finding of disqualification has therefore not been established.
We disagree. An individual is disqualified for benefits under the basic provision if a disqualifying labor dispute is shown to be a substantial contributing cause of his or her unemployment. The dispute need not be the sole cause of the unemployment.
The decisions of this Court relied on by the plaintiffs establish only that disqualification is inappropriate where other circumstances unrelated to the labor dispute would themselves have been sufficient to cause the unemployment for which benefits are claimed.[20] The Legislature did *661 not intend to withhold benefits from individuals who would have been unemployed even if an apparently related labor dispute had not occurred. Those decisions all support the conclusion that the Legislature intended the basic disqualification provision to apply when a claimant's unemployment was caused by a labor dispute and no independent and sufficient cause for the unemployment could be shown.[21]
The seniority provisions and management decisions which plaintiffs identify as contributing causes of their unemployment would not themselves *662 have caused plaintiffs' unemployment or any unemployment were it not for the labor disputes in active progress at the functionally integrated foundries. But for those disputes, materials would have been available at plaintiffs' places of employment, the work force at those establishments would not have been reduced, and the seniority provisions would not have become operative. The labor disputes in active progress at the foundries were shown by competent, material and substantial evidence to have been substantial contributing causes of the layoffs which idled plaintiffs. We affirm the board's finding that plaintiffs' unemployment was "due to a labor dispute in active progress" within the meaning of subsection 29(8).
IV
Once it has been determined that the basic disqualification provision applies, the inquiry progresses to whether the claimant is directly involved in the labor dispute which caused his or her unemployment. In this case, plaintiffs' emergency dues payments to the strike fund are alleged to constitute "financing" of the local disputes at the foundries a disqualifying direct involvement under subparagraph 29(8)(a)(II). That subparagraph, however, also declares that certain kinds of union dues payments may not be construed as "financing a labor dispute". Since plaintiffs would escape disqualification if their emergency dues payments fall within the protective provision, we consider whether those payments are specifically exempted from treatment as "financing" before attempting to determine whether they may be affirmatively classified under that heading.
*663 Subparagraph 29(8)(a)(II) states that the "payment of regular union dues (in amounts and for purposes established prior to the inception of such labor dispute) shall not be construed as financing a labor dispute * * *". Except for the parenthetical language, which was added in 1963,[22] this proviso has been part of Michigan's unemployment compensation act since 1937.[23]
The referee and the appeal board both treated the parenthetical language as a limitation that would preclude labeling certain payments "regular" union dues and concluded that the payments in question did not satisfy the parenthetical condition. The Court of Appeals reasoned that the express exclusion of "regular union dues" from the category of "financing" evidenced a legislative intent to leave every other type of union assessment used to support a labor dispute within the terms of the subsection 29(8) disqualification, and that the language added in 1963 only qualified the "regular union dues" exception further. Employing the word "regular" as the first branch of a two-pronged test completed by the parenthetical language, the Court of Appeals declared that "`regular' is synonymous with `normal', `typical' and `natural' to the extent that they all mean `being of the sort or kind that is expected as usual, ordinary or average'", and concluded that the increased dues paid pursuant to the October, 1967 constitutional amendment did not meet that description.
Plaintiffs attack the Court of Appeals reliance upon everyday meanings of the word "regular" and urge us to construe the term "regular union dues" as the equivalent of "periodic dues" under *664 § 8(a)(3) of the National Labor Relations Act,[24] a term which they assert means "those uniformly levied union dues which are enforceable through a union security clause and which may be required of union members as a condition of continued employment".[25] In plaintiffs' view, it is immaterial whether the amount of the dues is temporary or permanent, fixed or variable, so long as they are part of the union's constitutionally adopted dues structure rather than separately imposed special assessments. Plaintiffs contend, alternatively, that the Legislature intended the parenthetical language added in 1963 to explain the meaning of "regular union dues".
The parties direct us to no legislative history which would aid us in reaching a more precise understanding of the meaning of "regular union dues" or the relationship between that phrase and the parenthetical language added in 1963. Mindful of the remedial purpose of the Michigan Employment Security Act to provide relief from the hardship caused by involuntary unemployment,[26] we seek a liberal construction that will effectuate that legislative purpose,[27] yet be consonant with reason and good discretion.[28]
*665 We conclude, as did the Court of Appeals, that the parenthetical language states a separate test that union dues must meet in order to be exempted as a matter of law from possible classification as financing a labor dispute. In order to be exempt under all circumstances, union dues must be both (1) regular and (2) in amounts and for purposes established prior to the inception of the labor dispute that caused the claimant's unemployment. We further agree with the Court of Appeals that the temporary emergency dues paid in October and November, 1967 were not "regular" union dues.
Every word of a statute should be given meaning and no word should be treated as surplusage or rendered nugatory if at all possible.[29] Before the 1963 amendment, the word "regular" described a type of union dues, payment of which would not expose a union member to potential disqualification for financing however the dues payments were used. Had the Legislature intended the parenthetical phrase added in 1963 to be a complete definition of "regular", it should have made that intention clear or supplanted the word "regular" altogether.[30] It did not. We conclude that the word retains independent significance as a limitation upon the types of union dues automatically exempted from potential classification as financing.
The words of the Employment Security Act, like other statutes, are to be given their plain and ordinary meaning absent some indication that the Legislature intended otherwise.[31] We perceive no *666 evidence of a legislative intention to equate "regular union dues" with "periodic dues" enforceable through a union security agreement under § 8(a)(3) of the NLRA. The federal statute's reference to "periodic dues" was not inserted until ten years after the "regular union dues" proviso was added to the Michigan Employment Security Act.[32] We conclude that the Legislature chose the term "regular" to exclude from possible treatment as financing those dues payments required uniformly of union members and collected on a continuing basis without fluctuations prompted by the exigencies of a particular labor dispute or disputes.[33] Such a construction is consistent with ordinary usage and the common understanding of the word and serves to distinguish between sums customarily and continually collected and unusual collections for the purpose of supporting a labor dispute.
In Burrell v Ford Motor Co,[34] this Court approved the appeal board's determination that UAW members had not financed local labor disputes which caused their unemployment merely because a portion of their monthly membership dues had been allocated to a union strike insurance fund from which payments were disbursed to strikers involved in the unemployment-producing local disputes. The appeal board had stated:
"We believe that any differentiation between administrative *667 dues and Strike Insurance Fund dues is merely an internal designation by the union and still establishes that the regular union dues are established to be $5 monthly under Article 16, Section 2 * * *."
The record in Burrell disclosed that each UAW member's $5 monthly dues consisted of $3.75 in administrative dues ($1.75 of which was forwarded to the international union) and $1.25 for the union's strike insurance fund.[35] There was no indication that the dues had been increased at any time relevant to the labor dispute in question. Monthly dues continued to be $5 per member until the union constitution was amended on October 8, 1967.[36]
We are persuaded that the October and November, 1967 strike fund dues are not comparable to the strike fund portion of the pre-amendment monthly dues. The text of the amendment shows that each member's strike fund dues were increased from $1.25 per month to $11.25 or $21.25 per month[37] for the duration of the then existing collective bargaining emergency and perhaps until the fund contained 25 million dollars. It was not contemplated that the increased amounts would be collected indefinitely; following the emergency, dues would be set at "two hours straight time pay per month". The emergency dues provided by the amendment constituted a marked deviation from the regular pattern of dues collection; they were a temporary emergency measure whose obvious purpose was to replenish the union strike fund. The *668 Court of Appeals correctly concluded that these payments could not properly be termed "regular".
V
Because the emergency dues payments were not "regular union dues", we need not decide whether they were "in amounts and for purposes established prior to the inception of [the] labor dispute". We turn to the question whether payment of the emergency dues constituted "financing" of the local labor disputes which caused plaintiffs' unemployment.
While the statute does not require that payments made by individuals whose disqualification is in issue be traced into the hands of workers involved in the labor dispute which caused the individuals' unemployment, the term "financing" suggests a meaningful connection between the payment or class of payments said to constitute financing and the labor dispute allegedly financed. The appeal board did not give separate consideration to the meaning of "financing", in general or as applied to this case. We therefore remand this matter to its successor, the tribunal with the most experience and expertise in the application of the act, to reconsider, in light of its own unique familiarity with the act, practical considerations and related issues implicated by this question, whether plaintiffs' emergency dues payments were sufficiently connected with the local labor disputes which caused their unemployment to constitute "financing" of those labor disputes. The parties shall be provided an opportunity to present additional evidence, arguments and briefs.
VI
After this case was argued, this Court granted *669 plaintiffs permission to file supplemental briefs limited to two issues said to "necessarily result from the United States Supreme Court's recent decision in New York Telephone Co v New York State Dep't of Labor, 440 US 519; 99 S Ct 1328; 59 L Ed 2d 553 (1979):
"I. Is the financing proviso of § 29(8)(a)(II) of the MESA, as interpreted by the Court of Appeals, preempted by the National Labor Relations Act (NLRA)?
"II. Alternatively, can and should the financing proviso of § 29(8)(a)(II) be narrowly construed to apply only to direct payments to strikers by those sought to be disqualified thereunder and/or direct payments from a fund specially earmarked for such strikers, as opposed to a nationally established, general and regular strike insurance fund?"
Plaintiffs argue that, if the financing provision of the labor dispute disqualification is construed to disqualify them for the payment of dues required to maintain their union membership, that provision is preempted by federal labor law on two grounds: (1) it penalizes plaintiffs for maintaining membership in and providing financial support to their union, an activity expressly protected under § 7 of the NLRA; (2) under such an analysis, the state burdens and interferes with internal union decisions regarding allocation of dues and the amount and timing of dues increases, matters which Congress intended to leave free from both state and federal regulation.
So far as this Court can determine, federal preemption issues were not raised before the referee or the appeal board, were fleetingly noted in the circuit courts, and were not extensively briefed in the Court of Appeals. Except for a terse conclusory *670 statement by one circuit judge, none of those tribunals addressed these questions.
We are asked, after oral argument, to consider questions not yet decided by any court which have heretofore played a secondary role in the case and which lie in an area where the present direction of the United States Supreme Court is far from clear.[38]
It is unclear what types of cases, other than the few to reach the appellate courts, have presented "financing" issues in the past, and in which of those cases disqualification for financing a labor dispute has been enforced. Nor does it appear whether the financing provision has any practical significance outside of auto industry disputes between the UAW and the major automakers. We should also be better informed concerning the pragmatic consequences that might follow adoption of any possible definitions of "financing".
If plaintiffs did not engage in "financing" as a matter of state law, it may be unnecessary to decide in this case whether federal law preempts that provision of the state unemployment compensation act. And, even if plaintiffs are ultimately held to have financed the labor disputes which caused their unemployment, we are of the opinion that an asserted conflict between state and federal law should not be passed upon until the challenged state provision has been definitively construed. We therefore defer decision of the issues raised in plaintiffs' supplemental brief until after remand.
The briefs of the parties after remand shall *671 include (1) all historical materials that might assist this Court in determining (a) the extent to which Congress intended that the amounts and purposes of union dues should be subject to or free from state regulation or inquiry and (b) the extent to which Congress intended that the states should be permitted to disqualify, or prohibited from disqualifying, claimants from unemployment compensation benefits for financing through union dues the labor disputes that caused their unemployment; (2) any further argument the parties desire to make on the federal preemption issue; and (3) argument on the First Amendment and Equal Protection challenges raised in plaintiffs' and amicus curiae United Steelworkers' supplemental briefs.[39]
We remand to the board of review, the successor to the appeal board,[40] for further proceedings consistent with this opinion. We retain jurisdiction.
COLEMAN, C.J., and WILLIAMS, FITZGERALD, RYAN, and BLAIR MOODY, JR., JJ., concurred with LEVIN, J.
KAVANAGH, J., did not participate in the decision of this case.
NOTES
[1] MCL 421.1 et seq.; MSA 17.501 et seq.
[2] MCL 421.29(8); MSA 17.531(8).
[3] 1974 PA 104 added a new sentence and, along with 1975 PA 110, made minor changes in wording and punctuation of this subsection. The quoted portion of the statute now reads:
"An individual shall be disqualified for benefits for any week with respect to which his total or partial unemployment is due to a labor dispute in active progress, or to shutdown or start-up operations caused by that labor dispute, in the establishment in which he is or was last employed, or to a labor dispute, other than a lockout, in active progress, or to shutdown or start-up operations caused by that labor dispute, in any other establishment within the United States which is functionally integrated with the establishment and is operated by the same employing unit. An individual's disqualification imposed or imposable under this subsection shall be terminated by his performing services in employment with an employer in at least 2 consecutive weeks falling wholly within the period of his total or partial unemployment due to the labor dispute, and in addition by earning wages in each of those weeks in an amount equal to or in excess of his actual or potential weekly benefit rate with respect to those weeks based on his employment with the employer involved in the labor dispute. An individual shall not be disqualified under this subsection if he is not directly involved in the dispute.
"(a) For the purposes of this subsection an individual shall not be deemed to be directly involved in a labor dispute unless it is established that:
* * *
"(ii) He is participating in or financing or directly interested in the labor dispute which causes his total or partial unemployment. The payment of regular union dues, in amounts and for purposes established before the inception of the labor dispute, shall not be construed as financing a labor dispute within the meaning of this subparagraph * * *." MCL 421.29(8); MSA 17.531(8).
[4] The text of the amendments reads, in pertinent part:
"Article 16
"Section 2(a).
"Emergency Dues
"All dues are payable during the current month to the Financial Secretary of the Local Union.
"Commencing with the eighth (8th) day of October 1967 until October 31, 1967, and for each month thereafter during the emergency as defined in the last paragraph of this Subsection, Union administrative dues shall be three dollars and seventy-five cents ($3.75) per month and Union Strike Insurance Fund dues shall be as follows:
"1. For those working in plants where the average straight time earnings * * * is three dollars ($3.00) or more, twenty-one dollars and twenty-five cents ($21.25) per month.
"2. For those working in plants where the average straight time earnings * * * is less than three dollars ($3.00), eleven dollars and twenty-five cents ($11.25).
* * *
"This schedule of dues shall remain in effect during the current collective bargaining emergency as determined by the International Executive Board and thereafter, if necessary, until the International Union Strike Insurance Fund has reached the sum of twenty-five million dollars ($25,000,000), at which time the dues structure established in 2(b), below, shall become effective." (Emphasis supplied.)
Section 2(b) provided in part:
"All dues are payable during the current month to the Financial Secretary of the Local Union. Commencing with the month following the emergency as set out in Section 2(a) and for each month thereafter, minimum Union dues shall be a sum equivalent to two hours straight time pay per month * * *.
"Dues income shall be distributed so that the Local Union shall receive forty (40) per cent, the International Union Strike Insurance Fund shall receive thirty (30) per cent and the General Administrative Fund of the International Union shall receive thirty (30) per cent." (Emphasis supplied.)
[5] The letter stated in part:
"We would like to advise you that the International Executive Board, at a meeting held November 30, 1967, determined that there would not be a strike at General Motors Corporation plants in the United States and Canada at least during the month of December, 1967, that the collective bargaining emergency could be determined to be in suspension and, therefore, the emergency dues would be waived for the month of December, 1967, and the month of January, 1968.
"Since, obviously, the collective bargaining emergency is not yet ended, the dues program is reverting to the basic five dollars ($5.00) per month in effect prior to the October 8, 1967, Convention, and not going to the permanent dues program of two hours' pay per month." (Emphasis supplied.)
[6] The referee who heard the consolidated appeals on plaintiffs' claims took testimony in regard to the circumstances surrounding the layoffs at each plant and rendered separate decisions on the claims filed by the employees of each plant. Some layoffs could not be traced to the labor disputes at the foundries but, instead, were attributed to other local strikes in which the strikers' receipt of benefits from the strike fund was not shown by the record. The referee found that no disqualification applied in these instances and General Motors did not appeal from those adverse rulings.
[7] Baker v General Motors Corp, 74 Mich App 237; 254 NW2d 45 (1977).
[8] Anno: General Principles Pertaining to Statutory Disqualification for Unemployment Compensation Benefits Because of Strike or Labor Dispute, 63 ALR3d 88, 96; Lewis, The "Stoppage of Work" Concept in Labor Dispute Disqualification Jurisprudence, 45 J Urban L 319, 320 (1967).
[9] Lewis, fn 8 supra, p 322, fn 14, cites Social Security Board, Draft Bills for State Unemployment Compensation of Pooled Fund and Employer Reserve Account Types (1936).
[10] 49 Stat 620; 42 USC 301 et seq.
[11] Shadur, Unemployment Benefits and the "Labor Dispute" Disqualification, 17 U Chi L Rev 294 (1950); Lewis, fn 8 supra, pp 320-322.
[12] See, generally, Anno, fn 8 supra.
[13] In addition to the articles by Lewis (see fn 8, supra) and Shadur (see fn 11, supra), see Fierst & Spector, Unemployment Compensation in Labor Disputes, 49 Yale L J 461 (1940); Lesser, Labor Disputes and Unemployment Compensation, 55 Yale L J 167 (1945); Williams, The Labor Dispute Disqualification A Primer and Some Problems, 8 Vand L Rev 338 (1955); Note, Eligibility for Unemployment Benefits of Persons Involuntarily Unemployed Because of Labor Disputes, 49 Colum L Rev 550 (1949).
[14] 1967 PA 254.
[15] Shadur, supra, pp 324-325; Note, fn 13 supra, p 558.
[16] In addition to the activities listed in subparagraph 29(8)(a)(II), the following conduct establishes direct involvement under paragraph 29(8)(a):
"1. At the time or in the course of a labor dispute in the establishment in which he was then employed, he shall in concert with 1 or more other employees have voluntarily stopped working other than at the direction of his employing unit, or
* * *
"III. At any time, there being no labor dispute in the establishment or department in which he was employed, he shall have voluntarily stopped working, other than at the direction of his employing unit, in sympathy with employees in some other establishment or department in which a labor dispute was then in progress, or
"IV. His total or partial unemployment is due to a labor dispute which was or is in progress in any department or unit or group of workers in the same establishment." 1967 PA 254 (emphasis supplied).
[17] "[T]he basic disqualification finding required in the first sentence * * * must be legally made before the proviso relating to `direct involvement' becomes effective, and before considering or applying the tests of direct involvement * * *." Park v Employment Security Comm, 355 Mich 103, 131; 94 NW2d 407 (1959).
[18] Baker v General Motors Corp, supra, 74 Mich App 245, fn 3.
See Const 1963, art 6, § 28; MCL 421.38(1); MSA 17.540(1).
[19] The opinion of the Wayne Circuit Court stated in part:
"Another factor in the layoffs were [sic] the economic situations GM chose to become involved with in the various plants. Much of the business at the Wayne County Plants was dependent upon parts supplied from other, then struck, plants. GM could have purchased the necessary parts on the open market, but chose not to do so.
"In order to uphold the finding from below, it must appear that the strike alone was the reason for the claimants' unemployment and such was not the case. It is the opinion of this court that the claimants herein are entitled to unemployment compensation for the two periods during which they were unemployed in early 1968."
Although plaintiffs advanced the identical argument in the other circuit courts, in the Court of Appeals, and before the appeal board, none of those tribunals specifically addressed it.
[20] In Abbott v Unemployment Compensation Comm, 323 Mich 32, 47; 34 NW2d 542 (1948), the claimants were temporarily laid off during reconversion of the plant where they were employed from wartime to peacetime production. A strike halted reconversion operations on September 8, 1945. The appeal board found as a fact that "the employer's reconversion program had progressed to the point that as of September 29, 1945, all of the employees involved herein would have been recalled to work were it not for the strike then in existence". (Emphasis supplied.) This Court upheld the board's determination that the labor dispute disqualification barred claimants from receiving unemployment benefits from September 29, 1945 through the date the strike was settled.
In Clapp v Unemployment Compensation Comm, 325 Mich 212; 38 NW2d 325 (1949), the claimants were laid off on November 14, 1945 when General Motors shut down its main Buick production line and an associated Fisher Body plant because it was unable to obtain frames from its supplier. On November 21, 1945, before the shortage of frames was remedied, the UAW called a strike at all GM plants; the strike lasted until March 13, 1946. The supplier resumed production of Buick frames in December. GM claimed that it would have recommenced Buick production on December 18, 1945 were it not for the then existing labor dispute and that the claimants were disqualified from and after that date. Payment of benefits for the period during which production was precluded by the frame shortage was not questioned, and this Court did not pass upon the issue. Id., p 219. In affirming the appeal board's determination that the labor dispute disqualification applied from December 18, 1945 onward, the Court noted that there was sufficient evidence "to warrant the finding that all the plaintiffs would have been called back upon resumption of activities on December 18, 1945, had there been no strike". Id., p 226 (emphasis supplied).
In Scott v Budd Co, 380 Mich 29, 37; 155 NW2d 161 (1968), 44 of the 45 claimants were laid off when the employer reduced operations in its hub and drum machining section because a walkout in the foundry section of the same establishment had reduced the supply of brake drums available for machining; those employees fell within the labor dispute disqualification. One claimant employed in a different section was held not disqualified:
"His unquestioned testimony is that he was bumped by someone exercising greater seniority rights, but there is nothing to link the bumping with an employee who exercised such right to bump due to the shutdown operations in the brake drum section. No causal connection between a labor dispute in active progress or between the shutdown or start-up operations caused by such labor dispute, as to claimant Knapp, was established."
The opinion thus intimates that if Knapp's displacement by a fellow employee with greater seniority rights had been occasioned by the dispute-caused shutdown that idled the other claimants, Knapp would also have been disqualified.
To the same effect, see Unemployment Compensation Comm of Alaska v Aragon, 329 US 143, 151-152; 67 S Ct 245; 91 L Ed 136 (1946), where the United States Supreme Court concluded that the employees of two salmon canneries that failed to operate during the 1940 season "only because of their inability to negotiate satisfactory labor agreements" were properly disqualified, but that the employees of another canner whose cancellation of its season "was caused primarily by factors other than the company's inability to negotiate a satisfactory labor contract" were not disqualified.
[21] Abbott and Clapp arose under an earlier version of the basic disqualification provision, which disqualified a claimant if his unemployment resulted from "a stoppage of work existing because of a labor dispute in the establishment in which he is or was last employed". Although this Court's decisions "construing prior language are not applicable except insofar as they may afford guidance", Scott v Budd Co, supra, p 36, Scott appears to have approached the causation question in the same manner as Abbott and Clapp.
[22] 1963 PA 226.
[23] 1937 PA 347.
[24] 29 USC 158(a)(3).
[25] Appellants' brief, p 16.
Only the collection of "the periodic dues and the initiation fees uniformly required as a condition of acquiring or retaining membership", as opposed to fines, special assessments or other penalties, may be enforced through a union security clause under § 8(a)(3). See National Labor Relations Board v Spector Freight System, Inc, 273 F2d 272, 275-276 (CA 8, 1960), cert den 362 US 962; 80 S Ct 879; 4 L Ed 2d 877 (1960). The emergency dues which gave rise to this case were ruled to be "a permissible change in `periodic dues' within the meaning of the Section 8(a)(3) proviso" by the NLRB Regional Director for Region 31 and the NLRB General Counsel.
[26] MCL 421.2; MSA 17.502.
[27] Noblit v The Marmon Group, 386 Mich 652, 654; 194 NW2d 324 (1972).
[28] Collins v Secretary of State, 384 Mich 656, 666; 187 NW2d 423 (1971).
[29] Stowers v Wolodzko, 386 Mich 119, 133; 191 NW2d 355 (1971); Scott v Budd Co, supra, p 37.
[30] If the Legislature so intended, it could have said:
"The payment of union dues in amounts and for purposes established prior to the inception of such labor dispute * * *."
[31] Bingham v American Screw Products Co, 398 Mich 546, 563; 248 NW2d 537 (1976).
[32] Pub L No 101, 80th Cong, 1st Sess (1947); 61 Stat 136 (Labor Management Relations Act). See Gorman, Basic Text on Labor Law: Unionization and Collective Bargaining (St. Paul: West Pub Co, 1976), p 640.
[33] The parenthetical language added in 1963 reflects much the same concern to identify dues increased or imposed in connection with an ongoing labor dispute but, rather than subsuming the distinction between regular and extraordinary dues, extends disqualification to some payments which otherwise would be non-disqualifying regular dues.
[34] Burrell v Ford Motor Co, 386 Mich 486, 494-495; 192 NW2d 207 (1971).
[35] Michigan Supreme Court Records and Briefs (31 October Term, 1971), Joint Appendix, p 309a.
[36] Appeal board decision in this case.
[37] The increased amounts were, respectively, 9 and 17 times the preceding strike fund dues. Overall, each member's monthly dues were either tripled or quintupled.
[38] In the case cited in plaintiffs' request for leave to file supplemental briefs, New York Telephone Co v New York State Dep't of Labor, 440 US 519; 99 S Ct 1328; 59 L Ed 2d 553 (1979), there were three opinions for the result that prevailed, none of which gained more than three signatures, and one dissenting opinion.
[39] These issues, like those involving federal labor law preemption, were not extensively briefed or considered at prior stages of this litigation. In view of the protracted history of this case, we will, after remand, rule upon these issues as well in an effort to bring about a final resolution.
[40] 1977 PA 52; MCL 421.35(3); MSA 17.537(3). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1674154/ | 835 S.W.2d 689 (1992)
J.K. AND SUSIE L. WADLEY RSEARCH INSTITUTE AND BLOOD BANK, D/B/A the Blood Center at Wadley, Appellant,
v.
Esther BEESON, Individually and as Representative of the Estate of Thomas W. Beeson, and Bruce Beeson, Appellees.
No. 05-91-01574-CV.
Court of Appeals of Texas, Dallas.
June 11, 1992.
Rehearing Denied July 21, 1992.
*692 Mickie S. Fleetwood, Michael W. Huddleston, Dallas, for appellant.
Kip A. Petroff, Erin C. Askew, Dallas, for appellees.
Before STEWART, CHAPMAN and ROSENBERG, JJ.
OPINION
STEWART, Justice.
This is a suit against a blood bank resulting from the death of a blood recipient from acquired immunodeficiency syndrome (AIDS) and the subsequent AIDS infection of the recipient's wife. The plaintiffs alleged that the blood bank negligently screened blood donors and tested blood donations for infection.
J.K. and Susie L. Wadley Research Institute and Blood Bank, d/b/a The Blood Center at Wadley (Wadley), appeals from a judgment in favor of appellees, Esther Beeson, individually and as representative of the estate of Thomas W. Beeson, and Bruce Beeson (the Beesons), in the Beesons' suit under the wrongful death and survival statutes. Wadley argues in three points of error that the trial court erred in denying its motion for judgment notwithstanding the verdict because (1) the Beesons' wrongful death and survival causes of action are barred by the applicable statutes of limitations, (2) Esther's personal injury claims are barred by the applicable statutes of limitations, and (3) the evidence is legally insufficient to support the jury verdict with regard to causation. For the reasons given below, we affirm the trial court's judgment.
BACKGROUND FACTS
On April 22, 1983, Dr. William Kraus, a cardiologist, discovered that Tom had severe blockage of two major arteries in his heart and recommended cardiac bypass surgery. During surgery that same day, Tom received seven units of blood by transfusion. In late May 1987, Tom had trouble breathing and chest pain. He was hospitalized on June 5, 1987. Dr. Kraus consulted with two specialists in pulmonary medicine about the unusual pneumonia evident in xrays of Tom's lungs. Because there was a possibility that the lung infection was secondary to AIDS, Tom was tested for HIV. Although Tom had not been formally diagnosed, doctors empirically started him on therapy for AIDS on June 6, 1987. On June 9, 1987, Tom was formally diagnosed as HIV positive. Esther was then tested for HIV, and she learned in June 1987 that she was HIV positive. Tom died on July 2, 1987.
On April 21, 1989, Esther and her son, Bruce, filed suit against Wadley alleging that Tom contracted AIDS from the transfusion of a unit of blood donated at Wadley on April 19, 1983, by a donor identified at trial as John Doe. The parties stipulated at trial that Doe was a sexually active homosexual male with multiple sex partners. On June 7, 1990, the Beesons amended their original petition to contend that Wadley's negligence in testing and screening blood donors caused Esther's contraction of AIDS. At trial, the jury awarded the Beesons $800,000 in damages. Following the trial court's denial of Wadley's motion for judgment n.o.v., Wadley filed this appeal.
STATUTE OF LIMITATIONS
A. Wrongful Death and Survival Claims
Wadley argues in its first point of error that the trial court erred in denying its *693 motion for judgment n.o.v. because the Beesons' wrongful death and survival causes of action are barred by the applicable statutes of limitations. Wadley's pleadings alleged that the Beesons' claims were barred by the "statute of limitations pursuant to the Medical Liability and Insurance Improvement Act of Texas, art. 4590(i)" and by the "common law statute of limitations."
Wadley first argues that Tom's negligence cause of action is a claim for personal injuries barred by the two-year statute of limitations. Tex.Civ.Prac. & Rem.Code Ann. § 16.003(a) (Vernon 1986). The Beesons respond that the allegation that their claims were barred by the "common law statute of limitations" was insufficient to raise the statute of limitations contained in section 16.003(a) as an affirmative defense because it failed to give them fair notice of Wadley's defensive theory. Schley v. Structural Metals, Inc., 595 S.W.2d 572, 586 (Tex.Civ.App.Waco 1980, writ ref'd n.r.e.); Hunter v. Carter, 476 S.W.2d 41, 45 (Tex.Civ.AppHouston [14th Dist.] 1972, writ ref'd n.r.e.). The Beesons maintain that Wadley's failure to properly plead and prove its plea of limitations under section 16.003(a) waived this defense on appeal. Woods v. Mercer, Inc., 769 S.W.2d 515, 517 (Tex. 1988).
We agree that the defendant must state its affirmative defenses in sufficient detail to give the plaintiff fair notice of the defensive issues to be tried. Hunter, 476 S.W.2d at 45. The Beesons, however, should have filed special exceptions if they wanted more specificity. A party waives any defect, omission, or fault in a pleading that is not specifically pointed out by a special exception. Tex.R.Civ.P. 90. Here, because the Beesons did not file special exceptions to Wadley's "common law statute of limitations" pleading, they waived any complaint about its insufficiency. Id. Accordingly, we conclude that we may consider section 16.003(a) on appeal. We next address the Beesons' contention that Wadley failed to prove its statute of limitations defense.
Wadley had the burden of proof on its limitations defense at trial. Woods, 769 S.W.2d at 517. Thus, to prevail on appeal of the denial of a judgment n.o.v., Wadley must demonstrate that the evidence conclusively established that the cause of action was barred as a matter of law. Trenholm v. Ratcliff, 646 S.W.2d 927, 931 (Tex.1983); Miranda v. Joe Myers Ford, Inc., 638 S.W.2d 36, 38 (Tex.App.Houston [1st Dist.] 1982, pet. dism'd). Section 16.003(a) of the Texas Civil Practice and Remedies Code, relied on by Wadley, provides that claims for personal injury must be brought no later than two years after the day the cause of action accrues. Tex.Civ.Prac. & Rem.Code Ann. § 16.003(a) (Vernon 1986). Thus, we must determine when the cause of action accrued before we can determine if Wadley has conclusively established that the Beesons' claims are barred as a matter of law.
A cause of action generally accrues when the wrongful act effects an injury, regardless of when the plaintiff learned of the injury. Robinson v. Weaver, 550 S.W.2d 18, 19 (Tex. 1977). Wadley contends that its alleged wrongful conduct occurred on April 19, 1983, when it collected the unit of HIV-contaminated blood from Doe and that Tom suffered a legal injury when he received that unit of blood by transfusion on April 22, 1983. Therefore, Wadley asserts that Tom's right of redress accrued on April 22, 1983, and that limitations barred his cause of action for negligence as of April 22, 1985. Tex.Civ.Prac. & Rem. Code Ann. § 16.003(a) (Vernon 1986).
The Beesons reply that a cause of action accrues when, and only when, damages are sustained. Atkins v. Crosland, 417 S.W.2d 150, 153 (Tex.1967). They rely on the supreme court's language in Atkins to the effect that the test to determine when limitations begin to run against a tort claim is "whether the act causing the damage does or does not of itself constitute a legal injury, that is, an injury giving rise to a cause of action because it is an invasion of some right of [the pjlaintiff." The court stated that if the act is not unlawful in this sense, the cause of action for subsequent *694 damages arising from the act accrues only when these damages are sustained. The Beesons argue that Tom did not suffer damages when he received the transfusion because the blood saved his life and because provision of the blood was legal since Tom had authorized his physician to order a blood transfusion; therefore, they maintain that the transfusion was not an invasion of Tom's legally protected right. Id. Instead, they argue that only a potential for future injury arose when Tom received the contaminated blood, see Independent Life & Acc. Ins. Co. v. Childs, 756 S.W.2d 54, 55 (Tex.AppTexarkana 1988, no writ), and that he did not suffer an actual injury until the symptoms appeared in May 1987. They assert that Tom could not have sued Wadley the day after he received the blood because he could not have proved that he had suffered any injury; on that day he had endured no pain and had incurred no expense or other damage of any kind due to the blood transfusion. Hence, they conclude that, because the cause of action allegedly could not have accrued on that day for lack of damages, there simply was no cause of action until Tom first suffered damages from the contaminated blood by exhibiting the symptoms of HIV in May 1987.
We agree that Tom did not suffer a legal injury at the time Wadley collected the contaminated blood because the collection itself did not invade any of his legally protected rights. Hence, Wadley's negligent act was not in itself "unlawful" as to Tom, and his cause of action accrued when he sustained damages. Atkins, 417 S.W.2d at 153. However, we agree with Wadley that Tom suffered damages when he received the blood transfusion because at that time he not only received the red blood cells that saved his life, he also received HIV. Tom's receipt of the virus was an invasion of his interest in his own bodily security that is protected against unintentional invasion. Restatement (Second) of Torts § 281 (1965). In other words, Tom's cause of action accrued the moment he received the virus because it was then that he sustained damage by becoming infected with what is currently a fatal disease. Id. Consequently, we hold that Tom's cause of action is barred by the two-year statute of limitations contained in section 16.003(a) unless the discovery rule is both applicable to our case and available to the Beesons under our record.
The Discovery Rule
The discovery rule represents an exception to the general rule that a cause of action accrues when the wrongful act effects an injury, regardless of when the plaintiff learned of the injury. Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 351 (Tex.1990); Robinson, 550 S.W.2d at 19. The discovery rule is a judicially constructed test that is used in determining when a plaintiff's cause of action accrued. Moreno, 787 S.W.2d at 351; Weaver v. Witt, 561 S.W.2d 792, 794 (Tex. 1977). When applied, the discovery rule tolls the statute of limitations until the time that the plaintiff discovers, or through the exercise of reasonable care and diligence should discover, the nature of his injury. Moreno, 787 S.W.2d at 351; Weaver, 561 S.W.2d at 794. Since the discovery rule is a plea in confession and avoidance of the limitations defense, the party asserting the rule must plead, prove, and secure favorable findings with regard to it. Woods v. Mercer, 769 S.W.2d at 518.
We first determine the applicability of the rule to our case. The supreme court has applied the discovery rule to a limited number of cases, including certain medical malpractice cases, in which the plaintiff did not, and could not, know of the injury at the time it occurred. Moreno, 787 S.W.2d at 351. It is undisputed in the case at bar that neither Tom nor his family knew or could know of his injury at the time it occurred; that a test to detect HIV antibodies did not exist until March 11, 1985; and that the blood at issue could not have been tested in 1983 for HIV and was never tested subsequently. Further, AIDS is an inherently undiscoverable disease because of its long latency period. See Woods & Thorton, Deadly Blood: Litigation of Transfusion-Associated AIDS Cases in Texas, 21 Tex.Tech.L.Rev. 667, *695 723 (1990). We hold that the case at bar is the type to which the discovery rule may be applied.
We next determine whether this rule is available to the Beesons to toll the running of limitations. Wadley argues that the discovery rule does not toll the statute of limitations in this case because the Beesons failed to plead, prove, and secure findings on the discovery rule. Woods, 769 S.W.2d at 518. The Beesons first maintain that, if the discovery rule applies, they met their burden to plead facts that raise the discovery rule as a defense to the statute of limitations. Black v. Wills, 758 S.W.2d 809, 816 (Tex. App.Dallas 1988, no writ). In both their original petition and their first amended original petition, the Beesons pleaded that, "[t]he blood supplied to Mr. Beeson was contaminated with the AIDS virus and transmitted such virus to Mr. Beeson, a fact learned by Thomas W. Beeson and his family through medical tests in June, 1987." We agree with the Beesons that they pleaded sufficient facts to put the discovery rule in issue in this case. We note that Wadley also failed to file any special exceptions to the pleadings; hence, it too has waived any pleading defects. Tex.R.Civ.P. 90.
Next, the Beesons argue that they met their burden of proof under the discovery rule. They contend that they conclusively established that Tom and his family did not discover that he had contracted AIDS until he showed symptoms in May 1987 and received the formal diagnosis in June. They assert that because they conclusively established the discovery rule, they had no need to request issues or to obtain favorable findings thereon. Wright v. Gifford-Hill & Co., Inc., 736 S.W.2d 828, 834-35 (Tex.App.Waco 1987, writ ref'd n.r.e.).
There is no evidence in this record that Tom and his family discovered his AIDS infection prior to May 1987. Wadley conceded in oral argument that the Beesons did not discover the infection until 1987, but it argued that, to toll the limitations period, the Beesons had to secure favorable findings that Tom's injury "with reasonable diligence could not have been discovered within the limitations period." We conclude that Wadley misstates the requirements of the discovery rule. The rule tolls the limitations period until the time that the plaintiff discovered, or through the exercise of reasonable care and diligence should discover, the nature of his injury. Weaver, 561 S.W.2d at 793-94. The issue, if preserved, is whether any evidence raises a fact question about when Tom reasonably should have discovered the nature of his injury. Id.
Wadley contends that Esther's testimony raised a fact question of when a reasonable person should have discovered Tom's infection. It relies on her testimony that she and Tom had discussed getting tested for AIDS because they knew "that they didn't have a test for the blood in [19]83 as such and that there was a possibility that he could have gotten it in the blood transfusion." However, in its motion for judgment n.o.v., Wadley alleged that the Beesons "did not adduce evidence at trial or request a jury question regarding when [they] discovered their cause of action." Wadley neither raised the issue of when the Beesons should have discovered through reasonable diligence Tom's injury nor argued this theory in its brief. We conclude that Wadley has not preserved its argument that there is a fact question about when Tom, as a reasonable person, should have discovered the infection.
Further, we also conclude that Tom's and Esther's general knowledge that there was a possibility that he had contracted AIDS from the 1983 blood transfusion, without more, amounted to no more than a scintilla of evidence on the issue of whether Tom should have investigated or made inquiry to see if he had in fact contracted HIV from that transfusion. There is no other evidence in the record to indicate that the Beesons discovered or should have discovered the infection prior to Tom's symptoms appearing in May 1987, and it is undisputed that Tom did not in fact discover that he had HIV until June 1987. Accordingly, we hold that the Beesons conclusively proved *696 under the discovery rule that their cause of action accrued at the earliest in May 1987 when they were first put on notice by Tom's symptoms of the nature of his injury. We further hold that, when the Beesons filed suit on April 21, 1989, they filed within the two-year statute of limitations period set forth in section 16.003(a) of the Texas Civil Practice and Remedies Code.
In the alternative, Wadley argues that Tom's cause of action is barred by the two-year statute of limitations in section 10.01 of the Texas Medical Liability and Insurance Improvement Act. Tex.Rev.Civ. Stat.Ann. art. 4590i, § 10.01 (Vernon Supp. 1992). Section 10.01 provides that no health care liability claim may be commenced unless suit is filed within two years from the occurrence of the breach. Wadley contends that it is entitled to assert this two-year statute of limitations as a bar to the Beesons' cause of action because it is a health care provider that provides services to patients through hospitals. Wadley's argument is premised on its qualification as a health care provider as defined in the Texas Medical Liability and Insurance Improvement Act. Tex.Rev.Civ.Stat.Ann. art. 4590i, § 1.03(a)(3) (Vernon Supp.1992). A health care provider is defined as follows:
any person, partnership, professional association, corporation, facility, or institution duly licensed or chartered by the State of Texas to provide health care as a registered nurse, hospital, dentist, podiatrist, pharmacist, or nursing home, or an officer, employee, or agent thereof acting in the course and scope of employment.
Id. (emphasis added). Wadley does not provide health care in any capacity listed in section 1.03(a)(3). Wadley also does not meet the definition of a hospital in section 1.03(a)(5). See Tex.Rev.Civ.Stat.Ann. art. 4590i, § 1.03(a)(5). Further, a health care liability claim is based on treatment, lack of treatment, or departure from accepted standards of medical or health care. Tex. Rev.Civ.Stat.Ann. art. 4590i, § 1.03(a)(4) (Vernon Supp.1992). A blood bank does not provide medical or health care to the blood transfusion recipient. Thus, we conclude that Wadley is not covered by the provisions of the Medical Liability and Insurance Improvement Act and cannot assert the limitations provision in section 10.01 to bar the Beesons' wrongful death and survival causes of action.
Finally, Wadley argues that Esther's and Bruce's causes of action are barred because their recovery is authorized only if Tom would have been entitled to bring suit. Tex.Civ.Prac. 71.003(a) (Vernon 1986). This contention is untenable because we have overruled its premise. Tom is entitled to bring suit and, therefore, Esther and Bruce are authorized to recover under section 71.003(a). Id. Accordingly, we overrule Wadley's first point of error.
B. Personal Injury Claims
In its second point of error, Wadley argues that the trial court erred in denying its motion for judgment n.o.v. because Esther's personal injury claim is barred by the applicable statute of limitations. Wadley contends that Esther's cause of action is time-barred because it was not brought until more than two years after the latest possible date that her cause of action accrued. Tex.Civ.Prac. & Rem.Code Ann. § 16.003(a) (Vernon 1986). The record reflects that Esther learned of her HIV infection in June 1987 and amended the pleading on June 5, 1990, to assert that Wadley's negligence proximately caused her personal injuries.
In appropriate circumstances, amended and supplemental pleadings relate back to the filing of the original pleading. Tex.Civ.Prac. 16.068 (Vernon 1986). Section 16.068 provides as follows:
If a filed pleading relates to a cause of action, cross action, counterclaim, or defense that is not subject to a plea of limitation when the pleading is filed, a subsequent amendment or supplement to the pleading that changes the facts or grounds of liability or defense is not subject to a plea of limitation unless the amendment or supplement is wholly *697 based on a new, distinct, or different transaction or occurrence.
Id. Thus, an amended pleading alleging a new cause of action relates back to the original filing and is not subject to a limitations defense if the original pleading was filed within the limitations period and if the amendment is not based on a wholly new, distinct, or different transaction. Leonard v. Texaco, Inc., 422 S.W.2d 160, 163 (Tex. 1967); Stevenson v. Koutzarov, 795 S.W.2d 313, 319 (Tex.App.Houston [1st Dist.] 1990, writ denied); Lathem v. Rickey, 772 S.W.2d 249, 255 (Tex.App.Dallas 1989, no writ). Here, we have held that Tom's cause of action was filed within the limitations period. Therefore, we need only address whether Esther's personal injury claim filed in June 1990 is based on a new, distinct, or different transaction or whether it relates back to the original pleading filed in April 1989.
Wadley relies on Harris v. Galveston County, 799 S.W.2d 766 (Tex.App Houston [14th Dist.] 1990, no writ), and Meisler v. Republic of Texas Savings Association, 758 S.W.2d 878 (Tex.App.Houston [14th Dist.] 1988, no writ), to argue that Esther's claim for personal injuries did not arise out of the same transaction as Tom's and that, therefore, she is barred by the statute of limitations. In Meisler, the original cause of action was for breach of a loan commitment, and the amended petition alleged breach of a deed of trust. The court held that the deed of trust cause of action did not relate back to the filing of the original petition because it was based on a separate and distinct transaction from that alleged in the original petition. Meisler, 758 S.W.2d at 882. The original petition in Harris alleged that medical malpractice occurred during surgery, and the amended petition alleged negligence occurring after surgery. The court concluded that the cause of action for post-operative negligence did not relate back to the filing of the original petition because it was based on a separate, new, and distinct transaction. Thus, the later filed negligence cause of action was barred by the statute of limitations. Harris, 799 S.W.2d at 769.
Under the facts of our case, however, Esther's personal injury cause of action is based on Wadley's negligence at the time of the blood donation on April 19, 1983. She does not assert that Wadley's negligence occurred at the unknown time of the sexual transmission of HIV from Tom to her. The original petition and the amendment concerning Esther's personal injury claim are based on the same transaction Wadley's negligent collection of blood donations. Thus, we conclude that Esther's personal injury cause of action relates back to the filing of the original petition on April 21,1989, and is not barred by the statute of limitations. Accordingly, we overrule Wadley's second point of error.
CAUSATION
Wadley argues in its final point of error that the trial court erred in denying Wadley's motion for judgment n.o.v. because the evidence of causation is legally insufficient to support the jury verdict. Wadley contends that the Beesons failed to prove that Doe, the donor, would not have donated blood on April 19, 1983, if Wadley had implemented the screening procedures and blood tests advocated by the Beesons. The Beesons assert that there is competent evidence to support the jury's answers to the causation questions.
Wadley's complaint raising legal insufficiency is a "no evidence" point of error. Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex. 1983). In reviewing "no evidence" points, this Court considers only the evidence and inferences that tend to support the finding and disregards all evidence and inferences to the contrary. Responsive Terminal Sys., Inc. v. Boy Scouts of Am., 11A S.W.2d 666, 668 (Tex.1989). If there is any evidence of probative force to support the finding, the point of error must be overruled and the finding upheld. In re King's Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (1951). Accordingly, if there is more than a scintilla of evidence to support the jury's answers to causation, Wadley's no evidence challenge must fail. Stafford v. Stafford, 726 S.W.2d 14, 16 (Tex. 1987).
*698 Proximate cause includes two essential elements: (1) foreseeability and (2) cause-in-fact. Exxon Corp. v. Quinn, 726 S.W.2d 17, 21 (Tex.1987); McClure v. Allied Stores, 608 S.W.2d 901, 903 (Tex. 1980). Both elements must be present, and both may be established by direct or circumstantial evidence. McClure, 608 S.W.2d at 903. Foreseeability is satisfied by showing that the actor, as a person of ordinary intelligence, should have anticipated the danger to others by its negligent act. Id. Cause-in-fact means that the act or omission was a substantial factor in bringing about the injury and without which no harm would have occurred. Id.
The question of causation is a fact question for the jury. Farley v. M.M. Cattle Co., 529 S.W.2d 751, 756 (Tex.1975). The jury has broad latitude to infer proximate cause from the evidence and the circumstances surrounding an accident especially when it is not possible to produce direct proof of proximate cause or lack of proximate cause. Harris v. LaQuinta-Redbird Joint Venture, 522 S.W.2d 232, 236 (Tex.Civ.App.Texarkana 1975, writ ref'd n.r.e.). In LaQuinta-Redbird, the court recognized that it was not possible in a drowning case to produce direct evidence that a person could have been rescued if a lifeguard or proper lifesaving equipment had been provided. Id. Nevertheless, the court concluded that there was probative evidence of a causal relation and of foreseeability and that the plaintiff was entitled to have a jury issue on proximate cause. Id. at 237. In such a case, the question of causation is for the jury, subject to a court of appeals review for factual sufficiency. Thorenson v. Thompson, 431 S.W.2d 341, 344 (Tex.1968). Because we have no factual sufficiency point, the jury's decision is binding if there is some evidence to support it. Stafford, 726 S.W.2d at 16. Although the jury cannot stack an inference upon an inference, the jury can draw numerous inferences based on a single fact situation. McClure, 608 S.W.2d at 904; Farley, 529 S.W.2d at 757.
Wadley argues that the Beesons' proof of causation is legally insufficient because they failed to prove that: (1) Tom was infected by a blood transfusion from Wadley rather than from other sources; (2) Doe would not have donated blood had a different acknowledgement form been used; (3) Doe would have answered affirmatively in April 1983 if directly questioned about his sexual preference, history, and practices, thereby resulting in his deferment as a blood donor; (4) Doe would not have given blood if different language had been used to describe high-risk groups on the AIDS information sheet; (5) the hepatitis B core antibody was an effective surrogate test for AIDS and that Doe would have tested positive to the test in April 1983, excluding his blood from use for transfusion; and (6) a reasonable blood bank could have foreseen that the use of semantic differences on the acknowledgement forms and AIDS information sheets, the refusal to use direct questions regarding sexual behavior, or the refusal to use the hepatitis B core antibody test would in reasonable probability present a danger to others.
The first five items complain of lack of evidence to prove cause in fact and the sixth complains of no evidence to prove foreseeability. We agree with the Beesons that lack of direct evidence on causation in this case does not amount to legally insufficient evidence of causation. Here, as in LaQuinta-Redbird, there is no direct proof of proximate cause or lack of proximate cause, and there is no way to prove by direct evidence that better procedures and donor education would have changed the result of Doe's visit to Wadley to donate blood in April 1983. Thus, we must examine the record to determine whether there is more than a scintilla of probative evidence of a causal relationship between the transfusion that Tom received and his HIV infection, and more than a scintilla that it was foreseeable that Wadley's conduct in April 1983 could lead to the sale of AIDS-contaminated blood.
We note that Wadley's arguments to support lack of evidence of causation are based in large part on evidence and inferences that do not support the jury findings, while we can consider only evidence and *699 reasonable inferences tending to support those findings. Thus we must disregard much of the evidence relied on by Wadley. Responsive Terminal Sys., Inc., 774 S.W.2d at 668. Wadley also attacks the qualifications of the Beesons' expert witness, Dr. William O'Connor, and argues that his testimony cannot be considered in determining the legal sufficiency of the evidence. However, the Beesons assert that there is ample evidence to support the jury's findings based on the testimony of Dr. Norman Hill, Wadley's president and chief executive officer at the time of Doe's blood donation, and the testimony of other Wadley witnesses. We agree with the Beesons.
After a careful review of the entire record, we conclude that there is legally sufficient evidence to support the jury's finding that Wadley's negligence was a proximate cause of the Beesons' damages. The possibility of AIDS transmission through blood or blood products was raised in mid-1982 as a result of several AIDS cases among hemophiliacs. By January 1983, Wadley knew that AIDS was a "major blood banking issue"; that blood from homosexual or bisexual males should not be accepted under any circumstances; and that a "very significant" number of contaminated units of blood would be accepted if Wadley did not act appropriately. Wadley's written policy was that "donors who volunteer that they are gay" should not be permitted to donate blood. In practice, however, Wadley eliminated only "sexually active homosexual men with multiple sexual partners." Wadley knew that seventy to seventy-five percent of persons with AIDS were homosexuals and that it could eliminate seventy to seventy-five percent of the problems with AIDS-contaminated blood if it excluded all homosexual males as donors.
Wadley also was aware of statements on AIDS issued by the American Association of Blood Banks, the Community Council of Blood Centers, and the Centers for Disease Control in January and in March 1983. Both statements contained suggestions concerning questions for donor screening and recruitment. The January 1983 statement suggested that donor screening include specific questions concerning AIDS symptoms to identify members of high-risk groups, that donor recruitment should not target high-risk groups, and that direct or indirect questions about a donor's sexual preference were inappropriate and were justified only if they demonstrated clearcut benefits. The March 1983 statement included a sample information sheet for distribution at the time of donation. The information sheet identified the high-risk groups, explained that AIDS may be spread through blood products and that there was no way to detect AIDS, and asked members of high-risk groups to voluntarily refrain from donating blood. It further required donors to sign an acknowledgment form stating that the donor had read and understood that members of the high-risk groups had been asked not to donate blood.
Wadley gave copies of the January and March 1983 statements to its donors and added a question to its donor source card to address symptoms indicative of AIDS. Linda Dianne Hall, Wadley's former associate administrator, testified that the donor source card was on a clipboard and that the joint statements and AIDS information sheet were placed on top of the card. Wadley stamped the back of the donor source card with the donor's acknowledgment that he had been provided with AIDS information. Hall explained that the donor screener had to inquire if the donor had read and understood the information before the donor signed the acknowledgment.
Wadley knew that the American Association of Blood Banks (AABB) recommended that prospective donors be asked directly whether they were a member of a high-risk group and that all those answering affirmatively be excluded. However, Wadley never directly asked donors if they were members of recognized high-risk groups or if they had close contact with such members. Wadley did not accept the AABB's recommended donor acknowledgment form or the Food and Drug Administration's "recommendations to decrease the risk of transmitting AIDS from blood donors," which included specific questions designed *700 to detect possible AIDS symptoms or exposure to patients with AIDS. Further, Wadley's donor acknowledgment was different from that developed by the AABB. The AABB form stated that the donor had read the AIDS literature and understood that members of high-risk groups were asked not to donate blood, whereas Wadley's form required the donor to initial the statement stamped on the back of the donor source card that the donor had been provided with AIDS information. A donor was not specifically asked if he had read and understood the AIDS information or if he was a member of a high-risk group.
Doe voluntarily donated blood at Wadley on April 19, 1983, and had given blood at Wadley about once a year without any problem since the early 1970's. Doe did not remember the donor screening procedures at Wadley in April 1983. Doe testified that he did not know that he was at high risk for AIDS, that he would never have given blood if he had known that he was at risk for AIDS, and that he always told the truth in response to Wadley's questions of him.[1] We do not know whether Doe signed the AIDS information acknowledgment because we do not have a copy of the back of the card.[2]
This evidence is some evidence that Wadley's screening procedure did not effectively educate donors and that it would have received direct answers from Doe if it had asked specific questions. The jury could reasonably infer that Wadley's failure to effectively educate Doe and to ask Doe specific questions caused him to donate blood rather than to defer. Further, the foregoing constitutes more than a scintilla of evidence to support a finding that Wadley, despite its knowledge about the dangers of AIDS-contaminated blood, failed to reject gay men; that donor screening was inadequate; and that these omissions were substantial factors in causing Tom's and Esther's HIV infections.
Likewise, there is evidence to support the Beesons' surrogate testing theory even if we discount their expert's testimony on this question. Wadley's own expert, Dr. Herbert Polesky, admitted that more than two out of three sexually active homosexual males would have been excluded from the donor population through the use of the hepatitis B core antibody test. This constitutes scientific proof that there was a sixty-seven percent chance that Doe would have been excluded if such test had been used.
There is also some evidence that Doe's blood contained AIDS. Wadley's own technical director, Jerry Staples, admitted that there was "strong evidence" that the blood Wadley accepted from Doe on April 19, 1983, was contaminated with AIDS. This statement was based on the fact that Doe's blood was broken into two components, with red blood cells given to Tom and fresh frozen plasma given to another recipient six months later, and that both Tom and the plasma recipient subsequently were diagnosed as HIV positive less than six months apart from one another.
In summary, our review of the evidence reveals that the jury could reasonably have concluded that Wadley's negligence was a substantial factor in bringing about the Beesons' injuries and without which no harm would have occurred. McClure, 608 S.W.2d at 903. The Beesons were not required to distinguish all possible inferences. They had to show only that the greater probability was that Wadley's negligent acts probably caused their injuries. Id. at 904. The record also contains more than a scintilla of evidence that Wadley reasonably should have anticipated the danger to others by its negligent acts. Id. at 903. We overrule Wadley's third point of error.
We affirm the judgment of the trial court.
NOTES
[1] Doe testified that he did not realize that he was gay until 1985. Thus, he could not say what he would have considered the truth had Wadley asked him in 1983 about his sexuality.
[2] After five years, Wadley destroys the donor source cards; Wadley microfilms copies only of the front of the card. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1714872/ | 851 So. 2d 453 (2002)
Ex parte Roy Edward PERKINS.
(In re Roy Edward Perkins v. State of Alabama).
1991016.
Supreme Court of Alabama.
November 22, 2002.
Rehearing Denied January 31, 2003.
*454 Sanjay K. Chhablani, Atlanta, Georgia, for petitioner.
William H. Pryor, Jr., atty. gen., and A. Vernon Barnett IV, asst. atty. gen., for respondent.
On Remand from the United States Supreme Court
STUART, Justice.
The United States Supreme Court has vacated our earlier judgment in this case and has remanded the cause for our further consideration in accordance with Atkins v. Virginia, 536 U.S. 304, 122 S. Ct. 2242, 153 L. Ed. 2d 335 (2002). Perkins v. Alabama, 536 U.S. 953, 122 S. Ct. 2653, 153 L. Ed. 2d 830 (mem.).
The facts are set out in their entirety in Perkins v. State, 808 So. 2d 1041, 1052-56 (Ala.Crim.App.1999), and we note them here only briefly: Perkins abducted Cathy Gilliam from her house and shot her in the chest with a .357 Magnum pistol, killing her. Perkins was convicted of murder made capital because it was committed during the course of a first-degree kidnapping, see § 13A-5-40(a)(1), Ala.Code 1975. The jury, by a vote of 10-2, recommended that Perkins be sentenced to death. After weighing the aggravating circumstances and the mitigating circumstances, the trial court sentenced Perkins to death. The Court of Criminal Appeals affirmed Perkins's conviction and sentence. Perkins v. State, supra. This Court, after conducting a thorough plain-error review of Perkins's conviction and sentence, affirmed the judgment of the Court of Criminal Appeals. Ex parte Perkins, 808 So. 2d 1143 (Ala. 2001). The United States Supreme Court granted Perkins's petition for certiorari review, and vacated our earlier judgment and remanded the case for further consideration in light of its recent holding in Atkins that executing a mentally retarded individual violates the ban on cruel and unusual punishments found in the Eighth Amendment to the United States Constitution. Atkins, 536 U.S. at 317-18, 122 S.Ct. at 2250. On September 19, 2002, this Court ordered supplemental briefing from the parties on this issue, and on November 6, 2002, the issue was orally argued.
The United States Supreme Court decided Atkins after we issued our opinion on direct appeal in this case and while this case was pending on certiorari review before the United States Supreme Court; consequently, this issue is raised for the first time on remand from the United States Supreme Court and we apply the plain-error standard of review.
"[T]his Court's review of a death-penalty case allows us to address any plain error or defect found in the proceeding under review, even if the error was not brought to the attention of the trial court. Rule 39(a)(2)(D) and (k), Ala. R.App. P. `"`Plain error' only arises if the error is so obvious that the failure to notice it would seriously affect the fairness or integrity of the judicial proceedings."' Ex parte Womack, 435 So. 2d 766, 769 (Ala.), cert. denied, Womack v. *455 Alabama, 464 U.S. 986, 104 S. Ct. 436, 78 L. Ed. 2d 367 (1983), quoting United States v. Chaney, 662 F.2d 1148, 1152 (5th Cir.1981). The plain-error standard applies only where a particularly egregious error occurs at trial. Ex parte Harrell, 470 So. 2d 1309, 1313 (Ala.), cert. denied, 474 U.S. 935, 106 S. Ct. 269, 88 L. Ed. 2d 276 (1985). When the error `has or probably has' substantially prejudiced the defendant, this Court may take appropriate action. Rule 39(a)(2)(D) and (k), Ala. R.App. P.; Ex parte Henderson, 583 So. 2d 305, 306 (Ala.1991), cert. denied, Henderson v. Alabama, 503 U.S. 908, 112 S. Ct. 1268, 117 L. Ed. 2d 496 (1992)."
Ex parte Minor, 780 So. 2d 796, 799-800 (Ala.2000)(footnote omitted).
Conducting a plain-error review of this issue is consistent with this Court's treatment of the retroactive application of Batson v. Kentucky, 476 U.S. 79, 106 S. Ct. 1712, 90 L. Ed. 2d 69 (1986), mandated by the United States Supreme Court's holding in Griffith v. Kentucky, 479 U.S. 314, 107 S. Ct. 708, 93 L. Ed. 2d 649 (1987), to cases pending on direct review or otherwise not yet final. In Ex parte Watkins, 509 So. 2d 1074 (Ala.1987), this Court conducted a plain-error review of the record to determine if there was any evidence to indicate that the State had exercised its peremptory challenges to remove prospective black jurors from the venire solely on account of their race, which would mandate a remand in light of Griffith. We noted that although the record indicated that the defendant was black and the victim was white, the record was simply devoid of any inference that the State had engaged in the practice of purposeful discrimination. We concluded that the defendant could not establish, and we could not hold, that plain error occurred "when there [was] no indication in the record that the act upon which error [was] predicated ever occurred." 509 So.2d at 1077.
The standard applicable to plain-error review is a stringent one, i.e., the "error has or probably has adversely affected the substantial right of the appellant," Rule 45A, Ala. R.App. P. Applying that standard, we reject Perkins's contention that in light of the holding in Atkins, we must remand this cause for the trial court to conduct a hearing to determine if he is mentally retarded and therefore not subject to the death penalty.
We have conducted a thorough review of the record to determine if there is any inference that Perkins is mentally retarded. Although the Legislature has not had an occasion to address this State's policy on this matter and establish a procedure for determining whether a capital defendant is mentally retarded and, therefore, not subject to the death penalty,[1] we conclude *456 that Perkins does not suffer from mental retardation under the definitions considered by the United States Supreme Court in reaching its holding in Atkins[2] or as defined by any of the state statutes that prohibit the imposition of the death sentence on a mentally retarded defendant.[3]
We agree with the State that this Court can determine, based on the facts presented at Perkins's trial, that Perkins, even under the broadest definition of mental retardation, is not mentally retarded. Those states with statutes prohibiting the execution of a mentally retarded defendant require that a defendant, to be considered mentally retarded, must have significantly subaverage intellectual functioning (an IQ of 70 or below), and significant or substantial deficits in adaptive behavior. Additionally, these problems must have manifested themselves during the developmental period (i.e., before the defendant reached age 18).
The record establishes that Dr. John Goff, a licensed clinical neuropsychologist and clinical psychologist, testified on Perkins's behalf. According to Dr. Goff, Perkins, when tested as an adult, has a full-score IQ of 76, with a verbal score of 80 and a performance score of 74. Dr. Goff stated that Perkins's IQ scores indicate a borderline range of psychometric intelligence, and that his intellectual functioning has probably declined as he has aged because of his abuse of alcohol. Moreover, the record indicates that Perkins earned a GED certificate while he has been in prison and has completed community college courses there. Dr. Goff diagnosed Perkins with a borderline personality disorder and an alcohol dependence; he did not conclude that Perkins was mentally retarded. We find Dr. Goff's diagnosis pivotal in light of the fact that, when the penalty phase of Perkins's trial was conducted, Penry v. Lynaugh, 492 U.S. 302, 109 S. Ct. 2934, 106 L. Ed. 2d 256 (1989), and its progeny were applicable, and evidence of mental retardation established a strong mitigating circumstance to be considered in determining the appropriate sentence.[4]
Additionally, the evidence presented at trial indicates that Perkins did not exhibit "significant" or "substantial" deficits in adaptive behavior before or after age 18. Perkins was able to have interpersonal relationships. Indeed, he was married for 10 years. He maintained a job as an electrician for a short period. Perkins did not present any evidence during the penalty phase of his trial to establish that he was mentally retarded. The record does not create any inference that Perkins is mentally retarded.[5] Because Perkins cannot establish the common requirements for mental retardation, we reject Perkins's contention that we must remand this cause for resentencing.
*457 The Virginia Supreme Court in Emmett v. Commonwealth, 264 Va. 364, 569 S.E.2d 39 (2002), confronted a factual situation similar to the one this Court confronts here. The Court affirmed Emmett's sentence of death, noting:
"The United States Supreme Court in Atkins v. Virginia, 536 U.S. 304, 321, 122 S. Ct. 2242, 2252, 153 L. Ed. 2d 335 (2002), recently held that the execution of mentally retarded persons violates the Eighth Amendment's prohibition against cruel and unusual punishments. The Court did not establish an express standard for determining when an individual would be considered mentally retarded and left to the States the task of developing appropriate ways to enforce this constitutional restriction upon executions. Atkins, 536 U.S. at 317, 122 S.Ct. at 2250. The General Assembly has not had the opportunity to address this matter following the decision in Atkins.
"At trial, Emmett did not assert that he is mentally retarded. Moreover, our review of the record reveals nothing that even suggests that he is mentally retarded. Emmett received a high school equivalency diploma, attended a community college, and was regularly employed during his adult life prior to committing the murder in question. Accordingly, we conclude that Emmett does not suffer from any mental retardation that would constitutionally restrict the imposition of the death sentence in this case."
264 Va. at 376 n. 2, 569 S.E.2d at 47 n. 2.
Applying the plain-error standard of review, we hold that because, applying the most common definitions of mental retardation, we find no indication in the record that Perkins is mentally retarded, no reversible error occurred and the imposition of the death sentence in this case is not unconstitutional. Therefore, we affirm the judgment of the trial court sentencing Perkins to death.
AFFIRMED.
MOORE, C.J., and HOUSTON, SEE, LYONS, BROWN, HARWOOD,[*] and WOODALL, JJ., concur.
JOHNSTONE, J., concurs in the rationale in part and concurs in the judgment.
JOHNSTONE, Justice (concurring in the rationale in part and concurring in the judgment).
But for two exceptions, which do not affect the result, I concur in the main opinion. First, in my opinion, the reason we apply the plain-error standard of review on this particular remand is that Perkins did not contend at trial that mental retardation barred the imposition of a death sentence upon him. Second, I do not necessarily join in that part of footnote 1 urging the Alabama legislature "to expeditiously develop procedures for determining whether a capital defendant is mentally retarded and thus ineligible for execution." I neither encourage nor discourage such legislation. This Court is capable of rightly resolving these issues if and when they are presented, whatever the statutory scheme may be at the time.
NOTES
[1] Although the United States Supreme Court in Atkins barred the execution of mentally retarded defendants, the Court did not provide a definition of mental retardation or a procedure for evaluating whether a defendant's mental retardation is such as to prevent execution. Similar to that Court's approach in Ford v. Wainwright, 477 U.S. 399, 106 S. Ct. 2595, 91 L. Ed. 2d 335 (1986), with regard to the development of safeguards to prevent the execution of the insane, the Supreme Court determined that the states are in the best position to develop "`appropriate ways to enforce the constitutional restriction'" on executing the mentally retarded. 536 U.S. at 317, 122 S.Ct. at 2250, quoting Ford, 477 U.S. at 416-17, 106 S. Ct. 2595.
Both Perkins and the State urge this Court to refrain from making policy decisions with regard to claims of mental retardation by capital defendants. We agree that we should so refrain. As the judicial branch of government, this Court can only interpret the law. We urge the Legislature to expeditiously develop procedures for determining whether a capital defendant is mentally retarded and thus ineligible for execution.
[2] See Atkins, 536 U.S. at 309 n. 3, 122 S.Ct. at 2245 n. 3.
[3] See Ariz.Rev.Stat. § 13-703.02(J)(2) (2001); Ark.Code Ann. § 5-4-618 (Michie 1993); Colo.Rev.Stat. § 18-1.3-1101(2) (2002); Conn. Gen.Stat. § 1-1g (2001); Fla. Stat. Ann. § 921.137(1) (West 2002); Ga.Code Ann. § 17-7-131(a)(3) (1997); Ind.Code. § 35-36-9-2 (1998); Kan. Stat. Ann. § 21-4623(e) (1995); Ky.Rev.Stat. Ann. § 532.130(2) (Michie 1999); Md. Ann.Code of 1957 art. 27 § 412(f)(3) (2001); Mo.Rev.Stat. § 565.030(6) (2001); Neb.Rev.Stat. § 28-105.01(3) (2000); N.M. Stat. Ann. § 31-20A-2.1(A) (Michie 2000); N.Y.Crim. Proc. Law § 400.27(12)(e) (McKinney 2002); N.C. Gen.Stat. § 15A-2005(a)(1)(a)(2001); S.D. Codified Laws § 23A-27A-26.2 (Michie 2002); Tenn.Code. Ann. § 39-13-203(a) (1997); Wash. Rev.Code § 10.95.030(2)(a)(2002).
[4] Penry has been abrogated by Atkins.
[5] Indeed, Perkins did not file an affidavit pursuant to the Retarded Defendant Act, § 15-24-3, Ala.Code 1975.
[*] Although Justice Harwood did not sit at oral argument, he has listened to the tape of oral argument. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1797673/ | 566 S.W.2d 28 (1978)
Wallace HOLYFIELD, Appellant,
v.
MEMBERS MUTUAL INSURANCE COMPANY, Appellee.
No. 19494.
Court of Civil Appeals of Texas, Dallas.
April 4, 1978.
Rehearing Denied May 2, 1978.
James E. Brown, Briggs & Brown, Dallas, for appellant.
Tom J. Stollenwerck, Moore & Peterson, Dallas, for appellee.
Richard S. Geiger, David B. Irons, Thompson, Coe, Cousins & Irons, Dallas, amicus curiae brief for Texas Auto. Ins. Service Office.
*29 ROBERTSON, Justice.
Wallace Holyfield sued Members Mutual Insurance Company, seeking recovery of Personal Injury Protection (PIP) benefits for his son, who was injured in a collision between Holyfield's motorcycle, which he was riding, and an automobile. Although two automobiles were listed as "insured vehicles" under the policy, the motorcycle was not listed. Separate PIP premiums were paid for the two automobiles, but no premium was paid regarding the motorcycle. The trial court rendered a take-nothing judgment for the insurance company, and Holyfield now appeals. We affirm.
The principal question on this appeal is whether an insured may recover PIP benefits for injuries sustained while operating an owned vehicle not listed as an insured vehicle under the policy, and for which no premium has been paid. The policy in this case expressly excludes coverage of injuries sustained while "occupying" a vehicle owned by the named insured which is not an "insured motor vehicle." The policy defines "insured motor vehicle" to mean:
An automobile described in the policy to which bodily injury liability coverage applies and for which a specific premium charge indicates that personal injury protection is afforded. [Emphasis added]
Since the motorcycle was not described or listed on the policy, and no specific premium was charged to insure its operators, coverage is excluded under the policy. However, Holyfield argues that this exclusion is contrary to Article 5.06-3(a) of the Texas Insurance Code, which prohibits delivery of automobile insurance policies which do not include PIP coverage. He urges that the exclusion in his policy cannot be given effect, for to do so would restrict the breadth of coverage mandated by the Code. At least one Texas court of civil appeals has agreed with this argument. See Western Alliance Insurance Company v. Dennis, 529 S.W.2d 838, 840 (Tex.Civ. App.Texarkana 1975, no writ).
In Western Alliance, the Texarkana court reasoned that since our supreme court had decided that an exclusion relating to uninsured motorist protection was an unlawful restriction of the coverage provided by statute,[1] a similar result should be reached regarding PIP coverage. The supreme court case was Westchester Fire Ins. Co. v. Tucker, 512 S.W.2d 679, 686 (Tex.1974), in which the court, on rehearing, said:
As stated in our original opinion, we have concluded that the policy exclusion of injuries sustained by an insured while occupying an owned but unscheduled vehicle is ineffectual to the extent that it deprives a person of coverage required by Article 5.06-1 of the Insurance Code. [Emphasis added]
The problem with this statement is that, despite the court's reference, no such conclusion was reached in the original opinion. In Westchester, the insured claimed benefits under the uninsured motorist insurance coverage for injuries sustained in an owned and scheduled vehicle. The court did not mention owned and unscheduled vehicles in its original opinion, and since the question was not presented, we disagree with the Texarkana court's conclusion that Westchester is authoritative on this point.
Neither can we agree with the Texarkana court's holding that providing coverage only for scheduled vehicles is a denial of coverage provided by Article 5.06-3(a) of the Insurance Code. While we agree that Article 5.06-3 dictates the type of coverage which must be provided, it does not, by its terms, dictate which vehicles the policy must cover or prevent the insurer and insured from agreeing that only certain vehicles will be covered. An insurer is entitled to accurately reflect in the policy the risks being insured and to charge premiums based upon those risks. See Vaughn v. Atlantic Insurance Company, 397 S.W.2d 874 (Tex.Civ.App.Tyler 1966, writ ref'd n. r. e.) quoting Lumbermens Mutual Casualty Co. v. Pulsifer, 41 F. Supp. 249 (D.C.Me. 1941) (purpose of policy exclusion of non-scheduled vehicles is to allow premiums to *30 be based upon known risks, thereby protecting insurer from increased liability occasioned by risks of which it might not be aware). This right would be frustrated if, as Holyfield argues, an insured who owns more than one vehicle could insure and pay premiums based solely on the risk attendant to that vehicle, and thereby render the insurer liable for injuries sustained in or because of other vehicles owned by him. We cannot presume that such a result was intended. A more reasonable reading of Article 5.06-3 is that it merely requires that PIP benefits be provided; the manner in which benefits are provided is left to agreement between the parties. Accordingly, we hold that the exclusion in this case is valid, and that the trial court properly denied recovery under the policy.
Affirmed.
NOTES
[1] Uninsured motorist protection is mandated by Article 5.06-1 of the Texas Insurance Code. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1806367/ | 468 F. Supp. 799 (1979)
Luis PEREZ, Plaintiff,
v.
ARYA NATIONAL SHIPPING LINE, LTD., Defendant.
No. 76 Civ. 3009.
United States District Court, S. D. New York.
April 17, 1979.
Zimmerman & Zimmerman, New York City, for plaintiff; Morris Cizner, New York City, of counsel.
Walker & Corsa, New York City, for defendant; Joseph T. Stearns, New York City, of counsel.
LASKER, District Judge.
Luis Perez, a longshoreman, was injured in August, 1973, while working aboard a *800 vessel owned by the defendant. In March, 1975, the Workmen's Compensation Board entered an order awarding Perez compensation under the Longshoremen's and Harbor Workers' Compensation Act, 33 U.S.C. §§ 901-950 (LHWCA). Some fifteen months after the Board's action, Perez commenced this action against the shipowner, seeking damages for the personal injuries he suffered as a result of his accident.
I.
As amended in 1959, section 33(b) of the LHWCA provides:
"Acceptance of such compensation under an award in a compensation order filed by the deputy commissioner or Board shall operate as an assignment to the employer of all right of the person entitled to compensation to recover damages against such third person unless such person shall commence an action against such third person within six months after such award."
33 U.S.C. § 933(b). The shipowner moves to dismiss the complaint on the grounds that since Perez did not commence this action within six months of the Board's award, his cause of action was assigned to his employer, and he cannot maintain this suit. In response Perez cites Czaplicki v. The Hoegh Silvercloud, 351 U.S. 525, 76 S. Ct. 946, 100 L. Ed. 1387 (1956), which carved an exception to the mandate of section 33(b). The principal question presented here is not whether the exception remains viable, but who bears the burden of proving whether it applies or not in a given case.
Despite the assignment provided for by section 33(b), an employee retains an interest in the cause of action even after he loses the right to sue on it, since section 33(e) of the LHWCA, 33 U.S.C. § 933(e), apportions any recovery secured by the employer between it and the employee. Section 33(e) allows the employer to keep out of any recovery it makes, the expenses it incurred in pressing the suit, expenses for medical care provided the employee, amounts paid or payable to the employee as compensation, and (as a further incentive to pursue its employee's claims vigorously) twenty percent of the balance. The remaining eighty percent goes to the employee.
Until the amendment of the LHWCA in 1959, the employee lost his right to sue immediately upon accepting compensation under an award, rather than six months later. See Pub.L.No. 86-171, 73 Stat. 391 (1959). This was the situation when the Supreme Court rendered its decision in Czaplicki. Noting that "[i]n giving the assignee exclusive control over the right of action . . . the statute presupposes that the assignee's interests will not be in conflict with those of the employee, and that through action of the assignee the employee will obtain his share of the proceeds of the right of action, if there is a recovery," the Court construed section 33(b) as allowing an employee to sue in his own name "where there is such a conflict of interests [and] the inaction of the assignee operates to defeat the employee's interest in any possible recovery." Czaplicki v. The Hoegh Silvercloud, 351 U.S. 525, 531, 76 S. Ct. 946, 950, 100 L. Ed. 1387 (1956).
This "conflict of interest" exception to the mandate of section 33(b) was broadened considerably by lower courts in response to Ryan Stevedoring Co. v. Pan-Atlantic Steamship Corp., 350 U.S. 124, 76 S. Ct. 232, 100 L. Ed. 133 (1956). In Ryan, the Court held that a stevedore was liable to a shipowner for any portion of a recovery against the shipowner by the stevedore's employee which was attributable to the stevedore's breach of its warranty of workmanlike performance. Id. at 132-34, 76 S. Ct. 232. As a consequence of this holding, stevedores were understandably reluctant to sue shipowners on behalf of their employees. The most that the stevedore could hope to recover would be its costs associated with the employee's injury, plus twenty percent of any remaining recovery. In instituting suit, however, the employer opened itself up to the possibility that it would have to indemnify its opponent for part or all of that recovery. The greater the stevedore's recovery, the greater its potential liability *801 to the very party from whom it recovered. Recognizing that "[t]his conflict may well prevent the prosecution of the assignee's action with the vigor and zeal which would result in the maximum recovery for the employee," DiSomma v. N. V. Koninklyke Nederlandsche Stoomboot, 188 F. Supp. 292, 296 (S.D.N.Y.1960), many courts readily ruled that section 33(b) did not preclude an employee from suing on his own behalf. E. g., Potomac Electric Power Co. v. Wynn, 120 U.S.App.D.C. 13, 343 F.2d 295, 297 (1965); Johnson v. Sword Line, Inc., 257 F.2d 541, 544-46 (3d Cir. 1958); Allen v. United States, 235 F. Supp. 950, 954 (N.D. Cal.1963), aff'd 338 F.2d 160 (9th Cir. 1964), cert. denied, 380 U.S. 961, 85 S. Ct. 1104, 14 L. Ed. 2d 152 (1965); DiSomma, supra, 188 F.Supp. at 297.
The defendant shipowner does not argue that the conflict of interest exception is no longer viable. The question presented, rather, is who bears the burden of proving that a conflict does or does not exist. Perez relies on Potomac Electric Power Co. v. Wynn, 120 U.S.App.D.C. 13, 343 F.2d 295 (1965). There the court held that "the employee may bring suit against a third party whenever it is evident that the employer-assignee, for whatever reason, does not intend to bring suit." Id. at 16, 343 F.2d at 298. An alternative approach is that announced in Bandy v. Bank Line Ltd., 442 F. Supp. 882 (E.D.Va.1977), and followed in Rodriguez v. Compass Shipping Co., 456 F. Supp. 1014 (S.D.N.Y.1978). These cases, on which the defendant relies, hold that the employee bears the burden of proving that a conflict exists. 442 F.Supp. at 886-87; 456 F.Supp. at 1023. For several reasons, we find the latter alternative to be the sounder position.
First, the employee seeks the advantage of an exception to a statute which on its face clearly deprives him of the right to sue. In such circumstances, it is appropriate to require the employee to demonstrate that the exception would be appropriate. Second, Perez could have filed suit within six months of the compensation award. He failed to do so, and now seeks, in effect, to extend his time in which to sue. When the conflict of interest exception originated in 1956, an employee who accepted compensation under an award immediately lost his opportunity to sue. The 1959 amendments to the LHWCA diminished the need for an exception to section 33(b): the employee can now avoid the adverse effects of any possible conflict of interest simply by filing suit within six months of the award. An employee who fails to do so should shoulder the burden of proving that he continues nonetheless to have a right to sue. Third, the 1972 amendments to the Act legislatively overruled the Ryan doctrine. See Pub. L.No. 92-576, § 18(a), 86 Stat. 1251 (1972) (codified as 33 U.S.C. § 905(b)). The solicitude towards employees reflected in the liberal application of the conflict of interest exception in cases such as Potomac Electric Power Co. v. Wynn can be attributed largely to the unavoidable conflict of interest created by that doctrine. In view of the 1972 amendments, such solicitude is no longer warranted. Finally, the 1972 amendments substantially increased the compensation payable to an injured longshoreman. Id. § 5(a) (codified at 33 U.S.C. § 906). The compensation now available to a longshoreman is more nearly commensurate with his actual damages, and consequently it is appropriate to require the longshoreman to demonstrate his right to sue after he has already received compensation.
In sum, the employee bears the burden of showing that his employer's interests conflict with his own, and that out of self interest his employer will not properly press the claim. The hearsay affidavit submitted by Perez in an attempt to meet this burden cannot be accepted. See Fed.R.Civ.P. 56(e). However, Perez is granted forty-five days from the filing of this memorandum within which to submit competent evidence establishing that a conflict of interest exists.
II.
Perez also claims that "[t]o grant shipowner's motion to dismiss would be against public policy, in violation of the intent of Congress and the purposes of Section 933 of *802 the Longshoremen's and Harbor Workers' Act as amended."
The LHWCA is intended to provide covered employees the benefits of workmen's compensation, without depriving them of the right to be compensated for their injuries by negligent third parties, or eliminating the incentive for third parties to provide longshoremen a safe place to work. To prevent indirect recovery from the employer, the 1972 amendments to the LHWCA prohibit the employer from indemnifying third parties for damages recovered from them by employees. This ensures that the employer's only liability will be for workmen's compensation, and that it will not otherwise be liable in damages for injuries to its employees.
Perez argues that assignment of the employee's claims against third parties to the employer contravenes the purposes of the LHWCA because it deprives the employee of his right to compensation from negligent third parties, and eliminates an incentive for third parties to avoid negligent conduct. Moreover, Perez contends that the employer, by foregoing a possible recovery against a third party, indirectly "indemnifies" the third party, and, citing Bloomer v. Liberty Mutual Insurance Co., 586 F.2d 908 (2d Cir. 1978) and Cella Partenreederei M. S. Ravenna, 529 F.2d 15 (1st Cir. 1975), neglects its "obligation" under the LHWCA to husband its resources for payment of increased compensation benefits.
Whatever first-blush appeal these arguments may have, on reflection they are unpersuasive. First, whatever the consequences of a failure to sue, an employee who fails to sue within six months of accepting compensation under an award of the Workmen's Compensation Board is as responsible for that failure as an employer who neglects, for whatever reason, to pursue an assigned claim. Second, an employer's failure to recover from a third party for the third party's negligence is not the same thing as an employer's indemnifying a third party on the basis of the employer's own negligence or breach of warranty. The 1972 amendments were intended to ensure that employers would not be liable, not that third parties would be. Finally, there is no reason to assume that an employer's failure to sue necessarily reflects a breach of an obligation, if any exists, to husband its resources. On the contrary, such a failure may mean merely that the chances of winning the case are too remote to warrant suit.
The defendant's motion to dismiss the action is denied, without prejudice to renewal after forty-five days.
It is so ordered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3095520/ | COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-13-00501-CR
Ex parte Francisco Dejesu § From the 371st District Court
§ of Tarrant County (1333725)
§ January 23, 2014
§ Opinion by Justice McCoy
§ (nfp)
JUDGMENT
This court has considered the record on appeal in this case and holds that
the appeal should be dismissed. It is ordered that the appeal is dismissed.
SECOND DISTRICT COURT OF APPEALS
By /s/ Bob McCoy______________
Justice Bob McCoy | 01-03-2023 | 10-16-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2419732/ | 102 F. Supp. 2d 6 (2000)
JUDICIAL WATCH OF FLORIDA, INC., Plaintiff,
v.
UNITED STATES DEPARTMENT OF JUSTICE, Defendant.
No. Civ.A. 97-2869 (RMU).
United States District Court, District of Columbia.
February 22, 2000.
*7 *8 Paul J. Orfanedes, Klayman & Associates, P.C., Washington, DC, for Plaintiff, Judicial Watch of Florida.
Martha Hirschfield, U.S. Dept. of Justice, Civ. Div., Washington, DC, for Defendant, U.S. Dept. of Justice.
MEMORANDUM OPINION
URBINA, District Judge.
Granting in part and Denying in part the Defendant's Motion for Partial Summary Judgment
I. INTRODUCTION
This matter comes before the court on the Defendant's motion for partial summary judgment. This is an action brought by Judicial Watch of Florida ("JWF"), a non-profit corporation incorporated in the District of Columbia, under the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552. In July 1997, JWF filed a FOIA request "seeking access to any and all documents relating to Attorney General Reno's decision" not to appoint an independent counsel to investigate allegations that the Clinton/Gore administration had violated federal campaign-finance laws. See Orfanedes Decl. dated October 4, 1999 at 3, Ex. 3. The defendant, the United States Department of Justice ("DOJ"), moves for summary judgment with respect to all of the requested records which it has withheld or redacted, save for those in the *9 possession of the Federal Bureau of Investigation ("FBI").[1] For the reasons that follow, the court will grant in part and deny in part DOJ's motion. The court also will order DOJ to conduct a supplemental search because DOJ gave an unduly narrow construction to JWF's FOIA request when it conducted its initial search.
II. BACKGROUND
On March 28, 1997, Judicial Watch, Inc. ("Judicial Watch"), filed a FOIA request with DOJ ("the Judicial Watch request"). On April 21, 1997, Judicial Watch filed suit against DOJ for failure to produce all of the information sought in the FOIA request. On July 15, 1997, the plaintiff JWF, a related but separate organization, filed a FOIA request with DOJ ("the JWF request"). The JWF request asked for many of the same categories of materials as the Judicial Watch request. On July 30, 1997, JWF filed the instant suit to effectuate compliance with its July 15 request. On August 6, 1997, Judicial Watch's action was voluntarily dismissed.
DOJ's Office of Information and Privacy ("OIP") and other agencies in possession of records requested by Judicial Watch and JWF withheld and redacted some of the responsive records. DOJ treated those parts of the JWF request that repeated Judicial Watch's earlier request as an update of the earlier request. In other words, DOJ interpreted the JWF request to cover only documents created in the period between the receipt of the two requests (March 28 - July 15, 1997).
By order dated June 3, 1999, this court ordered DOJ to provide Vaughn indices for documents in the possession of OIP and the Executive Office for United States Attorneys ("EOUSA"). DOJ filed the indices on June 15, 1999 ("the June 1999 Vaughn indices").
DOJ now moves for summary judgment with respect to all records sought by JWF's July 15, 1997 request that DOJ withheld or redacted, save for those in the possession of the FBI. In support of its motion, DOJ relies upon FOIA exemptions five, six and seven. See 5 U.S.C. §§ 552(b)(5), (6) and (7).
III. LEGAL STANDARD
Summary judgment shall be granted if the record before the court (including the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits supporting and opposing the motion) shows that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Crawford v. Signet Bank, 179 F.3d 926, 928 (D.C.Cir.1999), cert. den., ___ U.S. ___, 120 S. Ct. 1002, 145 L. Ed. 2d 945 (2000). A fact is material if its existence or nonexistence might affect the outcome of the action. See Anderson v. Liberty Lobby, Inc. 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); Farmland Indus. v. Grain Board, 904 F.2d 732, 735-36 (D.C.Cir.1990). There is no genuine issue as to a material fact if the record presented on motion, taken as a whole, could not lead a rational trier of fact applying the relevant burden of proof to find for the non-moving party. See Anderson, 477 U.S. at 248, 254-55, 106 S. Ct. 2505; Brees v. Hampton, 877 F.2d 111, 117 (D.C.Cir.1989), cert. den., 493 U.S. 1057, 110 S. Ct. 867, 107 L. Ed. 2d 951 (1990). In deciding whether there is a genuine issue of material fact, the court is to view the record in the light most favorable to the party opposing the motion, giving the non-movant the benefit of all favorable inferences that can reasonably be drawn from the record and the benefit of any doubt as to the existence of any genuine issue of material fact. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157-59, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970); Martin v. D.C. Metropolitan Police Dept., 812 F.2d 1425, 1435 (D.C.Cir. *10 1987), vac'd in pt o.g., 817 F.2d 144 (D.C.Cir.), reinstated on recon. o.g., 824 F.2d 1240 (D.C.Cir.1987).
A district court reviews de novo an agency's denial of a FOIA request and the burden is on the agency to show that each disputed withholding or redaction was proper under FOIA. See 5 U.S.C. § 552(a)(4)(B); U.S. Dept. of Justice v. Reporters Committee for Freedom of the Press, 489 U.S. 749, 755, 109 S. Ct. 1468, 103 L. Ed. 2d 774 (1989); King v. U.S. Dept. of Justice, 830 F.2d 210, 217 (D.C.Cir. 1987).
IV. ANALYSIS
A. Scope of the JWF Request
By the terms of the complaint, this action pertains to the FOIA request that JWF filed on July 15, 1997. That request repeated requests for certain categories of records that were requested by Judicial Watch, Inc. in its March 28, 1997 FOIA request. DOJ treated the parts of the JWF request that overlapped with the Judicial Watch request as merely updating the Judicial Watch request. In other words, DOJ construed the JWF request as a request only for records in the repeated categories which were created between the receipt of the Judicial Watch request (April 19, 1997) and the JWF request (July 18, 1997). The JWF request was not so temporally limited by its own terms. JWF argues that its request was improperly treated as an update to the extent it overlapped with the Judicial Watch request. The court agrees that DOJ's construction of JWF's request was unduly narrow. The court concludes that JWF's broader construction of the request is more appropriate.
Under FOIA, an agency must disclose all nonexempt records requested by "any person." 5 U.S.C. § 552(a)(3); National Ass'n of Retired Fed. Employees v. Horner, 879 F.2d 873, 874 (D.C.Cir.1989), cert. den., 494 U.S. 1078, 110 S. Ct. 1805, 108 L. Ed. 2d 936 (1990). A corporation is a person entitled to make FOIA requests. See 5 U.S.C. § 551(2) (which includes "corporations" in the definition of the term "person" for purposes of the Administrative Procedure Act, of which 5 U.S.C. § 552(b)(4) is a part). Judicial Watch and JWF are separate corporations, and each is entitled to request documents under FOIA in its own right.
DOJ argues that it was complying with the law when it chose to treat the JWF request as updating the Judicial Watch request to the extent the two requests asked for the same categories of records. (Reply at 6, 7 n. 4, citing 28 C.F.R. § 16.10(f)). Title 28 C.F.R. § 16.10(f) provided that where an agency "reasonably believes that a requester or a group of requesters acting in concert is attempting to divide a request into a series of requests for the purposes of evading the assessment of fees," the agency "may aggregate any such requests and charge accordingly." 28 C.F.R. § 16.10(f). This regulation is inapposite. Aggregating related requests which were divided by requesters who acted in concert to evade fees is not the same thing as taking similar requests by two separate entities and treating one as merely updating the other. DOJ provides no foundation for believing that Judicial Watch and JWF acted in concert to evade fees by subdividing a single request into multiple requests. Indeed, the two requests did not subdivide related requests but rather duplicated requests, an action poorly calculated to avoid fees.
Since JWF's FOIA request was not properly limited to the period after the receipt of Judicial Watch's request, all documents requested by JWF and withheld or redacted are within the scope of this action. Not all of these withholdings and redactions are before the court on the instant motion. The motion covers only those withholdings and redactions listed in DOJ's Vaughn indices. See Lykins v. U.S. Dept. of Justice, 725 F.2d 1455, 1463 (D.C.Cir.1984) (The index "enables the trial court to fulfill its duty of ruling on the *11 applicability of the exemption, and it enables the adversary system to operate by giving the requester as much information as possible, on the basis of which he can present his case to the trial court."). The Vaughn indices submitted by DOJ in June 1999 catalog only those records withheld or redacted from the categories of records requested by JWF under DOJ's unduly narrow interpretation of the JWF request. The indices thus do not address records that were (1) requested in both the Judicial Watch and JWF requests and (2) created before April 19, 1997, the date DOJ received the Judicial Watch request. Accordingly, the court will order DOJ to conduct a second search in response to JWF's FOIA request. In this second search, DOJ will search for all documents created before April 19, 1997 which could be responsive to JWF's request. If this second search yields responsive documents, DOJ is also required to produce such documents or submit Vaughn indices which state the grounds for each decision to withhold or redact any such documents.
With respect to the withholdings and redactions listed in DOJ's June 1999 Vaughn indices, DOJ's motion will be granted in part and denied in part, as follows.
B. Commerce Document Withheld Pursuant to Exemptions 3 and 5
The Department of Commerce withheld a document that DOJ describes as "a document prepared by an Office of Inspector General ["OIG"] investigator to summarize evidence obtained by that office in conjunction with a criminal investigation." (Mot. for Part.S.J. at 15-16) (emphasis added). Elsewhere, DOJ describes the same document as one sent "by the Assistant U.S. Attorney to an attorney in the [OIG] ... summariz[ing] evidence in an ongoing criminal investigation, in which the OIG has been participating under the direction of the DOJ Campaign Finance Task Force." (Declaration of Brenda Dolan dated Aug. 27, 1999 ("Dolan Decl.") ¶ 9) (emphasis added). DOJ contends this document was properly withheld under FOIA exemption three, which provides for the exemption of "matters that are ... specifically exempted by statute...." 5 U.S.C. § 552(b)(3). In its reply memorandum, DOJ states, "Commerce has now determined that this document does not require protection under Exemption 3." (Reply at 10-11). The reply argues instead that the document was properly withheld under the attorney-client privilege (FOIA exemption five) and states that "JWF ... has not contested defendant's claim of Exemption 5 with respect to this document." (Reply at 11). JWF's failure to so contest is understandable. Nowhere in DOJ's current motion for partial summary judgment does it argue that the Commerce document was properly withheld under exemption five, and the June 1999 Vaughn index does not clearly describe this document and the basis for its withholding.[2]
There is a section of the motion which argues that "Commerce properly withheld documents under FOIA Exemption 5's ... Attorney-Client Privilege" (Mot. for Part. Summ.J. at 23), but that section does not address the reason for the withholding of this particular Commerce document.[3] Therefore, DOJ's argument that the Commerce document was properly withheld *12 under exemption five is newly raised in DOJ's reply.
It is not proper to raise new issues in a reply, because the party opponent is thereby denied an opportunity to respond. See McBride v. Merrell Dow and Pharmaceuticals, Inc., 800 F.2d 1208, 1211 (D.C.Cir. 1986) ("[c]onsidering an argument advanced for the first time in a reply brief ... is not only unfair ... but also entails the risk of an improvident or ill-advised opinion on the legal issues tendered"). The court therefore declines to consider DOJ's argument that the Commerce document was properly withheld pursuant to Exemption 5. Id.
In summary, DOJ has withdrawn its Exemption 3 argument as to the Commerce document and the court declines to consider its newly raised Exemption 5 argument at this time. Accordingly, the court will deny DOJ's motion for summary judgment without prejudice[4] as to the Commerce document.
C. Attorney General Notes Withheld Pursuant to Exemption 5, Deliberative-Process Privilege
1. The Deliberative Process Privilege Under Exemption 5
JWF challenges DOJ's decision to withhold ten pages of notes handwritten by the Attorney General during meetings regarding DOJ's Campaign Finance Task Force ("the AG notes"). DOJ contends the AG notes were properly withheld pursuant to the deliberative process privilege under FOIA Exemption Five. Exemption Five exempts from disclosure "inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency." 5 U.S.C. § 552(b)(5). For the reasons which follow, the court will grant summary judgment to DOJ as to these notes.
"Exemption 5 incorporates the privileges which the Government enjoys under the relevant statutory and case law in the pretrial discovery context...." Renegotiation Bd. v. Grumman Aircraft Engineering Corp., 421 U.S. 168, 184, 95 S. Ct. 1491, 44 L. Ed. 2d 57 (1975). In other words, exemption five exempts from disclosure "documents which a private litigant could not obtain against the agency through normal discovery rules." Poll v. United States of Special Counsel, 198 F.3d 258, 1999 WL 820241, *2 (10th Cir.) (citing Grand Central Partnership v. Cuomo, 166 F.3d 473, 481 (2d Cir.1999)), amended and superseded o.g., 2000 WL 14422, 208 F.3d 226 (10th Cir.1999). This exemption encompasses the traditional attorney-client and work-product privileges, as well as an executive "deliberative process" privilege designed to protect internal memoranda from public disclosure. See N.L.R.B. v. Sears, Roebuck & Co., 421 U.S. 132, 150, 95 S. Ct. 1504, 44 L. Ed. 2d 29 (1975); Maricopa Audubon Soc. v. U.S. Forest Service, 108 F.3d 1082, 1084 (9th Cir.1997). DOJ contends that this deliberative privilege exempts the AG notes from disclosure, and the court agrees.
The deliberative process privilege protects agency documents which are both [1] predecisional, i.e., antecedent to the adoption of an agency policy, see Jordan v. U.S. Dept. of Justice, 591 F.2d 753, 774 (D.C.Cir.1978); accord Natural Resources Defense Council, Inc. v. Fox, 1998 WL 158671, *3 (S.D.N.Y.1998); and [2] deliberative, in that they make recommendations or express opinions on legal or policy matters. See Vaughn v. Rosen, 523 F.2d 1136, 1144 (D.C.Cir.1975). Accord Missouri v. United States Army Corps of Engineers, 147 F.3d 708, 710 (8th Cir. 1998). A document's predecisional character is not altered by the fact that the agency has since made a final decision. See Federal Open Market Committee v. *13 Merrill, 443 U.S. 340, 360, 99 S. Ct. 2800, 61 L. Ed. 2d 587 (1979). A predecisional document is part of the deliberative process if its disclosure would expose an agency's decisionmaking process in such a way as to discourage candid discussion within the agency and thereby undermine the agency's ability to perform its functions. See Formaldehyde Institute v. Department of Health and Human Services, 889 F.2d 1118, 1122 (D.C.Cir.1989); cf. Mobil Oil Corp. v. U.S. Environmental Protection Agency, 879 F.2d 698, 703 (9th Cir. 1989) (draft document covered by deliberative-process privilege, because effect of disclosure "would be to expose what occurred in the deliberative process between the draft's creation and the final document's issuance"). In other words, the deliberative privilege ensures that government agencies are not "forced to operate in a fishbowl." See Environmental Protection Agency v. Mink, 410 U.S. 73, 87, 93 S. Ct. 827, 35 L. Ed. 2d 119 (1973); Wolfe v. Department of Health and Human Services, 839 F.2d 768, 773 (D.C.Cir.1988) (en banc). The privilege also "protects the integrity of an agency's decision; the public should not judge officials based on information they considered prior to issuing their final decisions." Judicial Watch v. Clinton, 880 F. Supp. 1, 12 (D.D.C.1995), aff'd, 76 F.3d 1232 (D.C.Cir.1996).
In determining whether DOJ properly invoked exemption five,[5] the court may forgo discovery and assess the issue on the basis of affidavits submitted by the government. See Goland v. CIA, 607 F.2d 339, 352 (D.C.Cir.1978), cert. den., 445 U.S. 927, 100 S. Ct. 1312, 63 L. Ed. 2d 759 (1980). DOJ's declarations state that the A.G. notes are nonsegregable, predecisional and deliberative. (Pustay Dec. ¶ 26). Likewise, the Vaughn index filed by DOJ on June 15, 1999 states that the Attorney General's notes "contain no segregable information." See 6/99 Vaughn Index at 4, ¶ 17. JWF contests none of these assertions of fact, nor any others which are material to the applicability of the deliberative-process privilege under exemption five. Cf. Poll v. United States Office of Special Counsel, 1999 WL 820241, *3 (10th Cir.1999), as amended, 2000 WL 14422 (10th Cir.1999) (relying on government agency's affidavit in affirming district court's ruling that deliberative-process privilege applied to internal memoranda). As discussed below, JWF provides no basis for the court to refuse to credit DOJ's affidavit or otherwise apply the deliberative-process privilege to the AG's notes. Cf. U.S. E.E.O.C. v. Windsor Court Hotel, Inc., 1999 WL 407610, *1 (E.D.La.1999) ("The court has no reason to believe, nor has [the party opposing the privilege] shown any reason why the EEOC's privilege log is inaccurate or deceptive. Therefore, the court deems these documents privileged.").
2. Whether the Deliberative-Process Privilege Can Apply to Uncirculated Notes Reflecting Decisionmaker's Thoughts
JWF contends that the AG's notes are not privileged because they were not communications, because "the notes were not circulated to anyone else" and "did not record any `give-and-take' or other deliberative communications." (Opp. to Mot. for Part.Summ.J. at 14). JWF fails to provide any authority for the proposition that a document must be shared with another or record communications in order to fall under the deliberative process privilege. This proposition is dubious under the circumstances here presented.
*14 It may be that documents withheld under the deliberative-process privilege are typically communications between agency employees. Under appropriate circumstances, however, the purpose of the privilege may also be served by exempting documents which the agency decisionmaker herself prepared as part of her deliberation and decisionmaking process. After all, the purpose of the deliberative privilege is to afford government officials not only the freedom to "debate alternative approaches in private," but also the "freedom to" deliberate.[6]See Sealed Case, 121 F.3d at 738; Hopkins v. U.S. Dept. of Housing & Urban Development, 929 F.2d 81, 84-85 (2d Cir.1991) (privilege applies to documents "reflecting advisory opinions, recommendations and deliberations comprising part of a process by which government decisions and policies are formulated"). An agency decisionmaker can deliberate, and record her deliberations, without the help of an agency employee, as the Attorney General did here. Indeed, language in persuasive authority suggests that the involvement of a second person is not a sine qua non for a document to have "deliberative" status under exemption five. Rather, "A document is ... deliberative when it is `actually related to the process by which policies are formulated' and decisions are made." Poll v. United States Office of Special Counsel, 1999 WL 820241, *3 (10th Cir.1999) (quoting Grand Central Partnership v. Cuomo, 166 F.3d 473, 482 (2d Cir.1999)); see also CNA Financial Corp. v. Donovan, 830 F.2d 1132, 1161 (D.C.Cir.1987) ("the pertinent element is the role, if any, that the document plays in the process of agency deliberations"); Assembly of California v. United States Dep't. of Commerce, 968 F.2d 916, 920-21 (9th Cir.1992) ("focus is on whether document is part of agency's deliberative process").
Notes taken by the Attorney General at a meeting regarding the campaign-finance task force itself certainly are "actually related to the process by which" she reached her decision not to appoint an independent counsel on campaign finances. Specifically, DOJ attests that the "notes reflect the Attorney General's distillations of issues that she believed were important at the time of their discussion and which she wished to memorialize for later reference." See Putsay Dec. ¶ 26. Thus, the notes could reveal how the AG prioritized different facts and considerations in deliberating whether or not to appoint an independent counsel. As the D.C. Circuit has cautioned, "[I]n some cases selection of facts or summaries may reflect a deliberative process which exemption 5 was intended to shelter." Montrose Chemical Corp. v. Train, 491 F.2d 63, 71 (D.C.Cir.1974); see, e.g., Williams v. U.S. Dept. of Justice, 556 F. Supp. 63, 65 (D.D.C.1982) (factual summaries written in the course of preparing a prosecution "by their nature ... unavoidably disclose the nature of the deliberations in progress"). Disclosure of the AG's notes could also reveal her interpretation of public policies which she deemed relevant to her exercise of her judgment on the appointment of an independent counsel. See Hennessey v. USAID, 121 F.3d 698, 1997 WL 537998, *2 (4th Cir.1997) ("The ultimate issue in evaluating any deliberative process privilege claim is `whether the materials bear on the formulation or exercise of agency policy-oriented judgment....'") (quoting City of Virginia Beach, Va. v. U.S. Dept. of Commerce, 995 F.2d 1247, 1254 (4th Cir.1993)).
*15 The fact that the Attorney General did not send her notes to one of her subordinates does not alter the fact that her notes are directly related to her decisionmaking process.[7] Nor does it undermine the importance of affording the Attorney General the freedom to record her predecisional deliberations without the fear that those deliberations will be publicly disclosed. As the Supreme Court has observed, "Human experience teaches that those who expect public dissemination of their remarks may well temper candor with a concern for appearances and for their own interests to the detriment of the decisionmaking process." United States v. Nixon, 418 U.S. 683, 705, 94 S. Ct. 3090, 41 L. Ed. 2d 1039 (1974). Under these circumstances, it is reasonable to expect that compelled public disclosure of the Attorney General's personal notes would have just such a chilling effect on free deliberation.
3. Applicability of the Government-Misconduct Exception to the Deliberative-Process Privilege
Judicial Watch argues that it is the agency's burden to demonstrate that a document withheld under the deliberative process privilege does not reveal any government misconduct, and that DOJ has failed to carry that burden here. JWF fails to provide legal support for this argument. It is true that "where there is reason to believe the documents sought may shed light on government misconduct, the [deliberative process] privilege is routinely denied, on the grounds that shielding internal government deliberations in this context does not serve the public's interest in honest, effective government." In re Sealed Case, 121 F.3d 729, 738 (D.C.Cir.1997); see also In re Subpoena Served upon Comptroller of the Currency, 967 F.2d 630, 634 (D.C.Cir.1992). There is no authority before the court, however, to support the proposition that the burden is upon the government to prove a negative, i.e., to prove in the first instance that a document does not reveal any government misconduct. The court declines to create such a burden.
JWF may sincerely believe that the Attorney General's decision not to appoint an independent counsel to investigate the Clinton/Gore campaign-finance controversies was improperly motivated or influenced. The court expresses no opinion on that matter. JWF, however, has failed to provide an adequate basis for believing that the A.G.'s notes would shed light upon government misconduct. The section of JWF's opposition brief which addresses the withholding of the AG notes mentions the government-misconduct exception but then makes no attempt to provide evidence suggesting the notes would reveal such misconduct. See Opp. to Mot. for Part. Summ.J. at 12-14. The absence of such evidence is significant, because "inquiry into the mental processes surrounding agency decision making has been held proper only where there has been no explanation ... for the agency action in issue or where there has been the requisite showing of improper behavior." Natural Resources Defense Council v. Fox, 1998 WL 158671, *6 (S.D.N.Y.1998) (citing, inter alia, Checkosky v. SEC, 23 F.3d 452, 489 (D.C.Cir.1994)); see also Saratoga Dev. Corp. v. United States, 21 F.3d 445, 458 (D.C.Cir.1994) (discovery of mental processes of agency decisionmakers permissible when "there has been a strong *16 showing of bad faith or improper behavior").
As the D.C. Circuit has emphasized, "a motion for summary judgment adequately underpinned is not defeated simply by bare opinion or an unaided claim that a factual controversy persists." Alyeska Pipeline Service Co. v. U.S. E.P.A., 856 F.2d 309, 313-14 (D.C.Cir.1988). JWF has failed to provide a the requisite "discrete factual basis" for believing that the notes could shed light on government misconduct. Contrast Alexander v. FBI, 186 F.R.D. 154, 164-66 (D.D.C.1999) (presence of misinformation in earlier drafts of executive-branch officials' statements to Congressman on same topic, the Clinton Administration's allegedly improper use of Reagan/Bush appointees' FBI files, provided basis to believe documents would shed light on government misconduct). Accordingly, the court finds that there is no basis for invoking the government-misconduct exception to the deliberative-process privilege. Cf. Hinckley v. United States, 140 F.3d 277, 285-86 (D.C.Cir.1998) (holding government-misconduct exception inapplicable); Walker v. City of New York, 1998 WL 391935 (S.D.N.Y.1998) (same).
JWF also asserts, without authority, that the privilege should end after deliberations have ended and a decision has been rendered. (Opp. at 14). JWF's argument that "[n]o purpose is served by withholding `deliberative process' documents years after the deliberations have finished and a decision has been rendered" (Opp. at 14) is unpersuasive. The deliberative process privilege's "ultimate purpose ... is to prevent injury to the quality of agency decisions by allowing government officials freedom to debate alternative approaches in private." In re Sealed Case, 121 F.3d at 738. JWF has not convinced the court that this ultimate purpose would be served equally well by making the privilege temporary, let alone that the privilege should be held to have expired here less than three years after deliberations by the still-sitting Attorney General.
Given these circumstances, the court finds that the Attorney General's notes were properly withheld under the deliberative process privilege as incorporated into FOIA exemption five. See Judicial Watch v. Clinton, 880 F. Supp. 1, 13 (D.D.C.1995) ("handwritten notes reflecting preliminary thoughts of agency personnel" were properly withheld under the deliberative-process privilege), aff'd, 76 F.3d 1232 (D.C.Cir.1996).[8] Accordingly, the defendant DOJ's motion for summary judgment will be granted with respect to the AG notes.
D. Documents Withheld or Redacted Pursuant to Exemption 6, Personal Privacy
i. Exemption 6
Exemption Six exempts from disclosure "personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy." 5 U.S.C. § 552(b)(6). "[S]imilar files" are broadly defined to include any "Government records on an individual which can be identified as applying to that individual." See U.S. Dept. of State v. Washington Post Co., 456 U.S. 595, 601-602, 102 S. Ct. 1957, 72 L. Ed. 2d 358 (1982).
To determine whether a disclosure would constitute a clearly unwarranted invasion of personal privacy, the court must weigh the privacy interests in nondisclosure against the public interests in disclosure. See National Ass'n of Retired Federal Employees v. Horner, 879 F.2d 873, 874 (D.C.Cir.1989). Individuals have a privacy interest in personal information even if it is not of an embarrassing or intimate nature. See Washington Post, 456 U.S. at 600, 102 S. Ct. 1957 ("Information such as place of birth, date of birth, date of marriage, *17 employment history, and comparable data is not normally regarded as highly personal, and yet ... such information ... would be exempt from any disclosure that would constitute a clearly unwarranted invasion of personal privacy.").
The weight of the public's interest in disclosure depends on the degree to which disclosure would shed light on an agency's performance of its statutory duties and its compliance with the law. See Reed v. NLRB, 927 F.2d 1249, 1252 (D.C.Cir.1991), cert. den., 502 U.S. 1047, 112 S. Ct. 912, 116 L. Ed. 2d 812 (1992). In assessing the public interest, the court must examine "the nature of the requested document and its relationship to the basic purpose of [FOIA] to open agency action to the light of public scrutiny.... Official information that sheds light on an agency's performance of its statutory duties" merits disclosure. U.S. Dept. of Justice v. Reporters Committee for Freedom of the Press, 489 U.S. 749, 773, 109 S. Ct. 1468, 103 L. Ed. 2d 774 (1989) (citation omitted). The purposes of FOIA are "not fostered," however, "by disclosure of information about private citizens that is accumulated in various governmental files but that reveals little or nothing about an agency's own conduct." Id.
ii. Documents Regarding Third Parties Involved in DNC Events
JWF objects to DOJ's redaction, from five pages of unspecified documents, of:
[1] names of third parties employed at the Democratic National Committee as scheduling coordinators ... [and] responsible for reservations for various DNC events, [and]
[2] names of Capitol Hilton employees [who] were listed as contacts for questions concerning a particular event at or connected with the hotel.
(Pustay Dec. ¶ 29). On the record before the court, the court cannot say that DOJ is entitled to judgment as a matter of law with respect to these redactions, because DOJ has not adequately described the nature of the redacted documents. Without this information, the court cannot make an informed assessment of either the named individuals' privacy interests in nondisclosure or the public's interest in disclosure of the names. DOJ's supporting declaration describes the redacted documents only as "five pages" and states:
We decided that these individuals have a privacy interest in not being associated in any way with [DOJ] documents that were considered responsive to a request for information on alleged campaign finance abuses. We also decided that there was no public interest in the identities of these individuals because neither their names nor their telephone numbers say anything about what the [DOJ] was doing with regard to alleged campaign finance abuses.
(Pustay Dec. ¶ 29). DOJ's conclusions may have been correct, but this court, charged with de novo review, cannot simply adopt DOJ's interpretation of the factors controlling disclosure in this instance. The affidavits supporting a motion for summary judgment in a FOIA case "will not suffice if the agency's claims are conclusory, merely reciting statutory standards, or if they are too vague or sweeping." Hayden v. National Sec. Agency/Central Sec. Service, 608 F.2d 1381, 1387 (D.C.Cir.1979), cert. den., 446 U.S. 937, 100 S. Ct. 2156, 64 L. Ed. 2d 790 (1980). Summary judgment with respect to these redactions is, accordingly, denied.
iii. Correspondence Files of Executive Secretariat
JWF objects to the redaction, from "fourteen pages of records from the correspondence files of the Executive Secretariat," of the names, addresses, home telephone numbers and "other identifying information ... of individuals who communicated with the Department regarding Independent Counsel Act matters." (Pustay Dec. ¶ 28). "The text of these letters was *18 not withheld; [DOJ] asserted Exemption 6 protection only for the identities of the writers." Id. DOJ claims that "while a public interest exists in knowing the substance of the correspondence that the Attorney General received on campaign finance issues, that public interest was not served by disclosing the identities of individual letter writers." (Mot. for Part. Summ.J. at 29). The court agrees that here there is no public interest which outweighs individuals' privacy interests in their home addresses and telephone numbers, and summary judgment accordingly is granted to DOJ as to these redactions.
The names and "other identifying information" present a closer question. A person who has written a letter to a federal official may have a great privacy interest in the nondisclosure of his name. On the other hand, the court can imagine scenarios in which disclosing the identity of those who wrote letters to the AG regarding campaign finance issues or Independent Counsel Act matters might not "constitute a clearly unwarranted invasion of personal privacy" within the meaning of FOIA Exemption Six. Suppose, for instance, that such a letter was from an elected official and asked the Attorney General not to appoint an independent counsel to investigate alleged campaign-finance law violations. Suppose that DOJ did as the letter asked, despite evidence that arguably would have supported such appointment. Depriving the public of knowledge of the writer's identity would deprive the public of a fact which could suggest that their Justice Department had been steered by political pressure rather than by the relevant facts and law. Such information might well shed light on an agency's performance of its statutory duties, which is the very purpose of FOIA and is at the heart of the public's interest in disclosure. See Reporters Committee, 489 U.S. at 773, 109 S. Ct. 1468. This court is not here to decide hypothetical cases; suffice it to say that on the record before the court, the court is unable to conclude that DOJ is entitled to judgment as a matter of law. Summary judgment will, accordingly, be denied with respect to the redacted names and "other identifying information," not including addresses and phone numbers.
JWF objects to the redaction, from certain specified documents, of the names of "lower level employees" and the "names, home telephone numbers and identifying information about third parties." (Little Dec. ¶ 24). JWF asserts that "DOJ merely concludes, without citing any specific reasons ... that no public interest exists in this information because the identities of these individuals say nothing about the agency's conduct." (Opp. at 14-15). JWF does not address the document-by-document withholding analysis set forth in the Vaughn indices; rather, JWF argues broadly that the weight of the public interest in the disclosure of the withheld and redacted information may be sufficient to warrant the invasion of personal privacy. The record as it stands is not sufficient for the court to decide this issue. DOJ's Vaughn indices and affidavits do not provide sufficient facts for the court to conclude that DOJ is entitled to judgment as a matter of law with respect to the following withholdings and redactions, pursuant to Exemption Six: Executive Office for U.S. Attorneys Vaughn Index nos. I.A.4; I.B.1A, I.B.1C; I.E.1, I.E.3, I.E.13, I.E.15, I.E.17; II.B.1.; II.C.3, II.C.5, II.C.6, II. C.7, II.C.8; II.D.2. II.D.4, II.D.5, II.D.6, and II.D.8. Accordingly, the court will deny summary judgment with respect to the Exemption Six withholdings and redactions.
E. Documents Withheld or Redacted Pursuant to Exemption 7, Law-Enforcement Records
i. Exemption 7
JWF objects to the withholding and redaction of records under FOIA exemption seven. Exemption seven exempts from disclosure "records or information compiled for law enforcement purposes, *19 but only to the extent that production of such records or information" could reasonably be expected to cause at least one of the specific types of harm listed in exemption 7(A)-(F). 5 U.S.C. § 552(b)(7). A record is compiled for law enforcement purposes if the government proves that the record "was created or acquired in the course of an investigation related to the enforcement of federal laws and the nexus between the investigation and one of the agency's law enforcement duties [is] based on information sufficient to support at least a colorable claim of rationality." Quinon v. FBI, 86 F.3d 1222, 1228 (D.C.Cir.1996). If the government carries this burden, the burden shifts to the party requesting the documents to produce evidence that the asserted law-enforcement rationale was merely pretextual. See Doe v. FBI, 936 F.2d 1346, 1354 (D.C.Cir.1991). "If the [requestor] fails to rebut the showing of law enforcement purpose, the agency is entitled to summary judgement." Id.
DOJ withheld and redacted records under exemptions 7(A) and 7(C). Exemptions 7(A) and 7(C) exempt from disclosure "records or information compiled for law enforcement purposes, ... to the extent that production ... could reasonably be expected to interfere with enforcement proceedings" or could reasonably be expected to cause an unwarranted invasion of personal privacy. See 5 U.S.C. § 552(b)(7)(A), (C).
With respect to all documents withheld or redacted under exemption seven, JWF argues that the government is required to indicate a specific pending or contemplated law-enforcement proceeding and that the government has failed to do so here. (Opp. at 16). JWF is correct that, for exemption 7(A) to apply, the government must show the existence of a pending or contemplated enforcement proceeding with which disclosure would interfere. See Mapother v. DOJ, 3 F.3d 1533, 1540-41 (D.C.Cir.1993).
The same is not true of exemption 7(C). In Coastal States Gas Corp. v. DOE, 617 F.2d 854, 870 (D.C.Cir.), the D.C. Circuit said, with respect to exemption 7(A), "[t]here is no reason to protect yellowing documents contained in long-closed files." That is true where the exemption protects information, the release of which "could reasonably be expected to interfere with enforcement proceedings...." 5 U.S.C. § 552(b)(7)(A), since completed proceedings cannot easily be interfered with. The same is not true with exemption 7(C), which shields information which "could reasonably be expected to constitute an unwarranted invasion of personal privacy...." The threat to personal privacy posed by information in law enforcement files does not necessarily end when the enforcement proceeding ends. To the extent that JWF's argument is aimed at records withheld and redacted under exemption 7(C), it fails. JWF challenges no material facts with respect to these withholdings and offers no other legal arguments. Accordingly, the court will grant summary judgment as to records withheld or redacted pursuant to Exemption 7(C).
As to records withheld and redacted under exemption 7(A), JWF argues that the DOJ fails to indicate with what pending or contemplated enforcement proceedings disclosure would interfere. JWF is mistaken. DOJ's declarations state that there is an ongoing Criminal Division investigation of campaign-finance law violations with which disclosure would interfere. (Supplemental Declaration of Linda J. Joachim Dec. dated 8/26/99 ("Supp. Joachim Dec."), ¶¶ 12-13; Dolan Dec., 8/27/99, ¶ 9).
JWF also argues that DOJ categorically fails to articulate what harm could reasonably be expected to result from disclosure. JWF again is mistaken. The Justice Department's supporting declarations detail a list of harms that could reasonably be expected to result from each genus of information which it has withheld or redacted. (Supp. Joachim Dec., ¶ 16; Dolan Dec. ¶ 9.) For example, "prematurely disclosing documents related to witnesses in ongoing inquiries and investigations could result in *20 witness tampering or intimidation ... and could discourage the continued cooperation of these witnesses...." (Supp. Joachim Dec. ¶ 16) Among other harms which could result from disclosure, DOJ explains that disclosure could provide targets of the investigation with insight into the government's case against them. Armed with such knowledge, the targets could "alter, tailor or destroy evidence, as well as ... fabricate alibis...." Id.
Because there is no genuine issue of material fact, summary judgment will be granted with respect to all withholding and redactions thus far made under Exemption 7(A).
F. Unopposed Withholdings and Redactions
With respect to many of the withholdings and redactions described in DOJ's memoranda, Vaughn indices and declarations, JWF neither contests material facts declared by DOJ, nor counters DOJ's arguments as to why it is entitled to judgment as a matter of law. With respect to these documents, then, Judicial Watch effectively has failed to oppose the motion for summary judgment. In this court, an unopposed motion may be treated as conceded by the nonmoving party. See Local R. LCVR 7.1(b) (formerly Local R. 108(b)); Johnson v. Greater Southeast Community Hosp. Corp., 903 F. Supp. 140, 150 (D.D.C. 1995), order vac'd in pt. o.g., 1996 WL 377147 (D.D.C.1996). In deciding a motion for summary judgment, the court may assume that each fact identified in the movant's statement of material facts is admitted unless controverted by the opposition. See Local R. L.CV.R. 7.1(h). To the extent that DOJ has made a cogent and unanswered argument supported by valid authority that the Department is entitled to judgment as a matter of law upon facts so conceded, the court will not construct legal arguments on the non-movant's behalf. Consequently, the court will grant summary judgement to DOJ with respect to the following unopposed withholdings and redactions:
[1] the redaction, from certain documents released by the CIA, of the name of a CIA attorney who represented the CIA in litigation between Judicial Watch and the Department of Commerce;
[2] drafts of questions and answers drafted by the Office of Public Affairs to assist the AG and Deputy AG in answering questions from the media at the "Attorney General's Press Availability;"
[3] an electronic mail message dated May 14, 1997 from the AG's Chief of Staff to the head of the Office of Public Affairs and to a Deputy Assistant A.G. of the Criminal Division discussing possible methods for handling a Congressional inquiry concerning the campaign finance task force;
[4] draft letters to members of Congress from the AG or Assistant AG Fois regarding campaign finance and independent counsel matters;
[5] the documents under seal referred to in the 8/20/99 Little Declaration at ¶ 26 and the Lutz Declaration of August 25, 1999 at ¶ 9.
V. CONCLUSION
For the foregoing reasons, this court will grant in part and deny in part DOJ's motion for partial summary judgment as described herein. An Order consistent with this Memorandum Opinion was previously executed and issued. This Memorandum Opinion is executed and issued this 22nd day of February, 2000.
NOTES
[1] By order dated August 25, 1998, this court granted the FBI an Open America stay, affording the FBI until June 8, 2000 to respond to JWF's request.
[2] The closest indexed document is an "[i]nteragency memorandum, dated 8/6/96 from AUSA ... to DOC/OGC ... [which] discusses the evidence in the case...." The court reads this, however, as describing a document sent to Commerce's Office of General Counsel ("OGC"), not a document sent to an attorney in Commerce's Office of the Inspector General.
[3] That section of DOJ's motion memorandum addresses only the documents described in paragraph six of the Supplemental Dolan Declaration. The withholding of the Commerce document is described in paragraph nine of that declaration, not paragraph six.
[4] DOJ will be free to raise exemption 5 as its ground for withholding the Commerce document in a future motion for summary judgment, when JWF will have a proper opportunity to respond.
[5] Outside the FOIA context, the courts engage in an ad hoc balancing of the evidentiary need for allegedly privileged documents against the harm that may result from disclosure. See In re Sealed Case, 116 F.3d 550, 558 (D.C.Cir.) (citations omitted), superseded o.g., 121 F.3d 729 (D.C.Cir.1997). "This characteristic of the deliberative process privilege is not an issue in FOIA cases." however, "because the courts have held that the particular purpose for which a FOIA plaintiff seeks information is not relevant in determining whether FOIA requires disclosure." In re Sealed Case, 116 F.3d at 558 n. 5 (citations omitted).
[6] A second purpose of the privilege is to "protect against confusing the issues and misleading the public by dissemination of documents suggesting reasons and rationales for a course of action which were not in fact the ultimate reasons for the agency's action...." Tax Analysts v. IRS, 117 F.3d 607, 618 (D.C.Cir.1997) (citation omitted). This purpose, too, would be thwarted if the court compelled disclosure of the AG's notes. DOJ attests that the notes "convey information only about [the Attorney General's] preliminary thinking processes.... [her] initial and incomplete thoughts concerning campaign finance matters...." See Pustay Dec. ¶ 26.
[7] Cf. Students Against Genocide (SAGE) v. Department of State, 1998 WL 699074, *12 (D.D.C.1998) (in FOIA action seeking documents related to U.S. policy in Bosnia, deliberative-process privilege exempted "47 pages of handwritten notes, ripped from a spiral notebook, containing notes of conversations with refugees and other local officials, together with analysis by the author regarding the information gathered"); U.S. E.E.O.C. v. Windsor Court Hotel, Inc., 1999 WL 407610, *1 (E.D.La.1999) ("A[n] EEOC investigator's personal notes and evaluations, as well as interagency communications and critiques, fall within the deliberative process privilege") (citing Scott v. PPG Industries, Inc., 142 F.R.D. 291, 292 (N.D.W.Va.1992)) (emphasis added).
[8] "Some aspects of the privilege, for example the protection accorded the mental processes of agency officials ... have roots in the constitutional separation of powers." In re Sealed Case, 121 F.3d 729, 737 n. 4 (D.C.Cir. 1997) (internal citation omitted). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2224307/ | 751 N.E.2d 32 (2001)
322 Ill. App. 3d 620
255 Ill. Dec. 938
The PEOPLE of the State of Illinois, Plaintiff-Appellee,
v.
Dominick STEPPAN, Defendant-Appellant.
No. 1-00-0751.
Appellate Court of Illinois, First District, Third Division.
May 16, 2001.
*34 Marc W. Martin, Barry D. Sheppard, Chicago, for Appellant.
Richard A. Devine, State's Attorney, Renee Goldfarb, Jon J. Walters, Assistant State's Attorneys, Chicago, for Appellee.
Presiding Justice HALL delivered the opinion of the court:
Following a bench trial, the defendant, Dominick Steppan, was found guilty of aggravated battery with a firearm (720 ILCS 5/12-4.2(a)(1) (West 1996)), armed violence (720 ILCS 5/33A-2 (West 1996)), and aggravated battery (720 ILCS 5/12-4(a) (West 1996)). The defendant was sentenced to 26 years' imprisonment in the Department of Corrections on the aggravated battery with a firearm conviction.
The defendant appeals, raising the following issues: (1) whether he was denied the effective assistance of counsel by his trial attorney's failure to request a fitness hearing prior to trial; (2) whether the trial court erred in retroactively finding him fit to stand trial; (3) whether the trial court erred in imposing sentence on his aggravated battery with a firearm conviction; and (4) whether the case must be remanded for sentencing. We affirm in part, vacate in part and remand for further proceedings.
The defendant was indicted and charged with the offenses of attempted first degree murder, aggravated battery with a firearm, two counts of armed violence, and three counts of aggravated battery, all in connection with the shooting of Charles Cox. Prior to trial, the State dismissed one of the armed violence counts and two of the aggravated battery counts.
At the defendant's bench trial, Cox testified that on December 23, 1996, he had been drinking at a bar with the defendant and Dave Siecky. Cox accepted a ride from the defendant and Siecky. Outside the bar, they were joined by a third man. The four men drove to an alley which, Cox subsequently learned, was behind the defendant's *35 house. The defendant and Siecky went into the house. Approximately 15 minutes later, the defendant came out of the house and ordered Cox out of the car. When Cox exited the car, the defendant shot him in his right thigh, saying, "Merry Christmas, m____ f____." Cox was eventually discovered and transported to a hospital. The defendant did not testify.
The trial court acquitted the defendant of attempted first degree murder and found him guilty of aggravated battery with a firearm, armed violence, and aggravated battery. The trial court also found that the aggravated battery conviction merged with the armed violence conviction.
Defense counsel filed a motion for a judgment of acquittal or, in the alternative, a new trial. He also filed a motion seeking to withdraw as counsel for the defendant on the basis that the defendant would not communicate or cooperate with him. The defendant filed a motion alleging that he had received ineffective assistance of counsel. Inter alia, the defendant alleged that defense counsel did not request a fitness hearing for the defendant even though he was aware that the defendant was taking psychotropic medication and was receiving out-patient treatment for a psychological disorder.
The trial court granted defense counsel's motion to withdraw and appointed the public defender to represent the defendant. The trial court also ordered that the defendant be examined to determine his fitness for trial and for sentencing. Subsequently, private counsel filed an appearance on behalf of the defendant.
Pursuant to the trial court's order, the defendant was examined by Dr. Stafford Christopher Henry, a forensic psychiatrist. Based upon his examination of the defendant, Dr. Henry concluded that the defendant was not currently fit for sentencing. In the course of his examination, Dr. Henry observed that the defendant initially had difficulty enumerating the charges of which he had been found guilty. The defendant described the trial judge as "sounding like a VCR going very fast" and that he could not understand what the trial judge was saying. The defendant described his mental state on the day of the trial as "confused and garbled." At one point he believed that a witness who was testifying was actually using the voice of another. When he attempted to bring his psychotic mental state to the attention of his attorney, the attorney told him to "shut-up."
The defendant told Dr. Henry that since the age of 13 he had heard voices commanding him to hurt himself. He experienced an auditory hallucination approximately four days before the trial. During the trial, he heard voices saying "there is no justice and to get out." The defendant admitted to a long history of depressive symptomatology and stated that he was currently and actively suicidal. At the time of the examination, the defendant was taking Depakote, Chlorpromazine and cithium carbonate.
Dr. Henry diagnosed the defendant as suffering from a bipolar affective disorder, a personality disorder not otherwise specified with antisocial features, alcohol dependence, and attention deficit disorder. In Dr. Henry's opinion, the defendant was unfit for sentencing and was subject to involuntary admission. However, Dr. Henry was unable to render an opinion at that time as to whether the defendant had been fit to stand trial, due to the defendant's current inability to discuss his thoughts and behavior at the trial as well as the fact that the doctor had not yet received the defendant's medical records which would provide information regarding his mental state at the time of his trial.
*36 The defendant was placed in the custody of the mental health department and sent to the Elgin Mental Health Center. After treatment, the staff at Elgin concluded that the defendant was fit for sentencing with medication. After examining the defendant, Dr. Henry agreed that the defendant was fit for sentencing with medication. The defendant was currently taking lithium and Depakote for mood vacillations and impulsivity, and Thorazine for nervousness, agitation, irritability and impulsivity.
On September 2, 1999, following a hearing, the trial court found the defendant fit for sentencing with medication. However, the trial court ordered that the defendant be examined to determine whether he had been fit to stand trial.
At the defendant's October 26, 1999, fitness for trial hearing, Dr. Henry testified as follows.
Dr. Henry examined the defendant on September 28, 1999. During the examination, the defendant attempted to focus on his belief that he had received inadequate representation at his trial. One of the traits of the antisocial personality disorder that the defendant suffered from was deceitfulness. Dr. Henry noted several instances in which the defendant had been deceitful. The defendant stated that he had been an alcoholic since age 13 and had a long history of alcohol dependence. However, in his Cermak Health Service records, the defendant described himself as a "social drinker." When the doctor confronted him about the discrepancy, the defendant responded that he lied because he did not like going to meetings. The defendant also told Dr. Henry that he drank alcohol repeatedly in the weeks preceding the trial as well as during the trial itself. He even secreted alcohol on his person so that he could drink during the trial. However, he told the probation department in connection with its social investigation that he had last consumed alcohol one year ago and had been sober ever since. A pivotal factor in Dr. Henry's conclusion that the defendant was unfit for sentencing was the defendant's suicidal feelings. However, upon his admission to Elgin, the defendant reported that his thoughts of suicide were fleeting and were nothing serious. In addition, the defendant had only been at Elgin for 21 days when he was deemed fit to be sentenced; in Dr. Henry's experience, people were generally at Elgin for a significant amount of time and that a shorter stay was not common.
Dr. Henry further testified that the defendant's initial recollection of his trial was confused and garbled but, upon further questioning, he was able to provide details about what he remembered occurring at the time of his trial. He was aware that he had been offered a plea bargain of two years in exchange for a plea of guilty to a lesser charge and that he had refused the offer because he had not committed the crime. The defendant also recalled specific exchanges with his attorney; how he tried to bring certain matters to his attorney's attention, such as the existence of two witnesses he wanted his attorney to call and the fact that he was on psychotropic medication. He also recalled the testimony of a witness and his response to it.
One of the documents Dr. Henry utilized in reaching his conclusion was the transcript of the proceeding wherein the defendant elected to waive a jury trial in favor of a bench trial. Dr. Henry read into the record the following colloquy which had occurred at that proceeding:
"`THE COURT: Let the record reflect we are in the Judge's chambers because we have a jury in the courtroom in the presence of the Defendant, his *37 attorney, and the Prosecutors in this case.
Your lawyer indicated to me, Mr. Steppan, that you are asking, waiving the right to trial by jury and are proceeding to trial by the Court. Realize that, before you do that, the right to trial by jury is one that is guaranteed by the Constitution of the United States, and it consists of 12 persons deciding whether or not you are guilty, and so if you decide to have the case tried by the Judge, you give up a constitutional right. Do you understand that?
THE DEFENDANT: Yes, sir.
THE COURT: And there are no promises or considerations made?
THE DEFENDANT: From nobody, from nobody, no, sir; it is my choice. This is my choice, your Honor.
THE COURT: Because
THE DEFENDANT: It is my understanding you decide the facts, you decide the law. The Jury decides the facts. I would rather take a bench trial, and if you want me to sign'
* * *
`THE DEFENDANT: * * * a Jury Waiver
THE COURT: That is the next thing I have to do. It is a matter of law. Sign your name to the Waiver of the right to trial by jury, and indicate that Mr. Petro (defense counsel) is preparing the form.
THE DEFENDANT: Could I ask you one question? I have two (2) witnesses that the Statethat the State has been subpoenaing since the case has been going on. For some reason or another
MR. PETRO: Do you want to talk to me about this first?
THE COURT: Here is the thing
THE DEFENDANT: I am just wondering why they weren't subpoenaed because they are in my favor now. You understand what I am saying?
THE COURT: Those kind of things, Mr. Steppan, you know
THE DEFENDANT: I understand, I understand.
THE COURT: You should discuss with your lawyer because you have a lawyer.
THE DEFENDANT: And I will.
THE COURT: You are to use that 6th Amendment right to an attorney. Keep him as a barrier between himself and everyone else. You can't represent both yourself and use an attorney, so mention those matters to your lawyer, and we will see what we can do.
MR. PETRO: I think we should correct one thing. He indicated that he thought that the jury was going to decide the facts and that you were going to decide the law. At a bench trial, you would decide them both.
THE DEFENDANT: Right.
THE COURT: Right. He was correct on that. Mr. Steppan tried one case previously where it was [a] bench trial, and the JudgeI was the Judge. I decided the law and the facts in the case, and I have no bias against the Defendant.
THE DEFENDANT: Thank you, sir. If I thought you did, I wouldn't take a bench trial. I would go with a jury.
THE COURT: Let the record reflect that Mr. Steppan is executing a written Jury Waiver. At this time, I am going to discharge the jury.
THE DEFENDANT: We will be here tomorrow?
THE COURT: We are going to start in a minute. Let's go into the court.'"
*38 Dr. Henry found the above exchange to be significant for several reasons. It indicated that, at the time of the trial, the defendant had a clear understanding of his choice to have either a jury or a bench trial. It also indicated that the defendant was aware of the proper decorum to assume in addressing the judge. On another occasion, the defendant had apologized to the judge for being late. It further indicated his ability to assimilate information.
Based upon these factors, Dr. Henry concluded within a reasonable degree of medical certainty that at the time of his trial, the defendant was fit to stand trial with medication. The defendant told him that, at the time of his trial, he was taking lithium, Thorazine, Depakote, and Ritalin, all of which would have aided his fitness at the time of his trial.
On cross-examination, Dr. Henry testified that in reaching his opinion that the defendant was not fit for sentencing, he had relied largely on the defendant's "self-report" in which he reported his symptoms to be pronounced and that he was acutely suicidal.
According to Dr. Henry, the use of alcohol with psychotropic medications could cause a clouding of one's mental ability, cause a lot of frustration and a tendency to be impulsive. While Dr. Henry could not state with certainty what effects the consumption of alcohol, in combination with the psychotropic drugs, had on the defendant at the time of his trial, he relied on the information gathered from his evaluations of the defendant, the psycho-social history provided by the defendant's wife, as well as the trial transcripts in evaluating the defendant's mental state at the time of his trial.
Dr. Henry acknowledged that it was easier to determine someone's fitness closer to the time frame for which the opinion was being sought but denied that it would be a better based opinion. The fact that the defendant suffered some perceptual difficulties, such as the witness speaking with another person's voice, would not have caused his decision to reject the plea agreement. The defendant was able to explain why he rejected the plea agreement, and it was difficult to imagine a continuous disturbance that interfered with his reasoning ability relative to the plea offer that he considered over time.
At the conclusion of the hearing, the trial court found that the defendant had been fit for trial. Following sentencing, the defendant filed a timely notice of appeal.
To prevail on a claim of ineffective assistance of counsel, the defendant must show that (1) counsel's performance was so seriously deficient as to fall below an objective standard of reasonableness under prevailing professional norms, and (2) the deficient performance so prejudiced the defendant as to deny him a fair trial. People v. Mitchell, 189 Ill. 2d 312, 332, 245 Ill. Dec. 1, 727 N.E.2d 254, 267 (2000); Strickland v. Washington, 466 U.S. 668, 687, 104 S. Ct. 2052, 2064, 80 L. Ed. 2d 674, 693 (1984).
In Illinois, a defendant is presumed fit to stand trial, to plead and to be sentenced. A defendant is unfit if, because of his mental or physical condition, he is unable to understand the nature and purpose of the proceedings against him or to assist in his defense. 725 ILCS 5/104-10 (West 1996). A trial court has a duty to order a fitness hearing whenever there exists a bona fide doubt as to the defendant's ability to understand the charges against him and to participate in his defense. People v. Kinkead, 168 Ill. 2d 394, 407, 214 Ill. Dec. 145, 660 N.E.2d 852, 857 (1995).
In Mitchell, our supreme court overruled prior case law which had interpreted *39 section 104-21 of the Code of Criminal Procedure of 1963 (the Code) (725 ILCS 5/104-21 (West 1994)) as providing that a bona fide doubt as to a defendant's fitness was raised and a fitness hearing must be held if the defendant was taking psychotropic medication. See Mitchell, 189 Ill.2d at 330-31, 334, 245 Ill. Dec. 1, 727 N.E.2d at 266-67, 268 (overruling in part People v. Gevas, 166 Ill. 2d 461, 211 Ill. Dec. 511, 655 N.E.2d 894 (1995), and overruling People v. Brandon, 162 Ill. 2d 450, 205 Ill. Dec. 421, 643 N.E.2d 712 (1994)). Moreover, the Illinois legislature amended section 104-21(a) effective December 31, 1996, to provide that a defendant who was receiving psychotropic drugs would not be presumed unfit to stand trial solely by virtue of receiving those drugs or medications. People v. Wiggins, 312 Ill.App.3d 1113, 1115, 245 Ill. Dec. 690, 728 N.E.2d 772, 774 (2000); see 725 ILCS 5/104-21(a) (West 1998).
Whether a bona fide doubt as to a defendant's fitness has arisen is generally a matter within the trial court's discretion. People v. Damico, 309 Ill.App.3d 203, 209, 242 Ill. Dec. 705, 722 N.E.2d 194, 200 (1999). Relevant factors that a trial court may consider in assessing whether a bona fide doubt of fitness exists include a defendant's "`"irrational behavior, his demeanor at trial, and any prior medical opinion on competence to stand trial."` [Citations.]" Damico, 309 Ill.App.3d at 209, 242 Ill. Dec. 705, 722 N.E.2d at 200. It is undisputed, however, that there are "`"no fixed or immutable signs which invariably indicate the need for further inquiry to determine fitness to proceed; the question is often a difficult one in which a wide range of manifestations and subtle nuances are implicated."` [Citations.]" Damico, 309 Ill.App.3d at 209, 242 Ill. Dec. 705, 722 N.E.2d at 200. Some doubt of a defendant's fitness is not enough. Damico, 309 Ill.App.3d at 209, 242 Ill. Dec. 705, 722 N.E.2d at 200.
The defendant contends that a bona fide doubt as to his fitness to stand trial existed is borne out by the following factors: that he was taking psychotropic medication around the time of his trial, that he had a prior history of mental illness, that the trial court ordered him to undergo psychiatric examinations and conducted fitness hearings, and that, initially, he was found unfit for sentencing even though he was on medication. The defendant also points out that his trial attorney withdrew from representing him because he could not communicate with the defendant.
A defendant may be competent to participate at trial even though his mind is otherwise unsound. Damico, 309 Ill. App.3d at 210, 242 Ill. Dec. 705, 722 N.E.2d at 201. Fitness speaks only to a person's ability to function within the context of a trial; it does not refer to competence in other areas. Damico, 309 Ill.App.3d at 210, 242 Ill. Dec. 705, 722 N.E.2d at 201. No single factor in and of itself raises a bona fide doubt of a defendant's fitness to stand trial; the fact that the defendant suffers a mental disturbance or requires psychiatric treatment does not necessarily raise a bona fide doubt. Damico, 309 Ill.App.3d at 210, 242 Ill. Dec. 705, 722 N.E.2d at 201. Even evidence of extreme disruptive behavior does not compel the conclusion that a bona fide doubt exists as to a defendant's fitness to stand trial. Damico, 309 Ill.App.3d at 210, 242 Ill. Dec. 705, 722 N.E.2d at 201.
The factors cited by the defendant do not raise a bona fide doubt as to his fitness to stand trial. The record in this case supports the finding that the defendant was able to understand the charges against him and to participate in his defense. Dr. Henry observed that, while the defendant's initial recollection of the trial *40 was garbled and confused, upon further questioning, he was able to recall details about the trial. He also was able to articulate a reason for refusing the plea offer made by the State, namely, that he had not committed the act charged. The defendant's exchange with the trial court in connection with his waiver of a jury trial indicated that he understood the rights he was giving up, that he understood the function of the trial court in a bench trial, and that he was participating in his defense by asking about the subpoenaing of witnesses favorable to him.
The fact that the defendant was initially found unfit for sentencing does not raise a bona fide doubt as to the defendant's fitness to stand trial in this case. As Dr. Henry explained, his opinion that the defendant was unfit for sentencing was based upon what the defendant told him, a pivotal factor being the defendant's thoughts of suicide. Also, Dr. Henry was not as yet in possession of the defendant's records from Cermak Health Service. Subsequent to formulating his opinion that the defendant was unfit for sentencing, Dr. Henry learned that the defendant had acknowledged at Elgin that his thoughts of suicide were not serious and that the defendant had told inconsistent stories about his alcohol consumption. Therefore, the fact that the defendant was found unfit for sentencing does not raise a bona fide doubt as to his fitness to stand trial.
The defendant's reliance on People v. Jackson, 57 Ill.App.3d 809, 15 Ill. Dec. 237, 373 N.E.2d 583 (1978), is misplaced. In that case, the trial court had ordered a fitness examination of the defendant prior to sentencing but had proceeded to sentence the defendant without him having been examined and despite having been informed that the defendant had not received the medication necessary to maintain his fitness. Jackson, 57 Ill.App.3d at 814, 15 Ill. Dec. 237, 373 N.E.2d at 587. The reviewing court reversed and remanded for a new sentencing hearing finding that a bona fide doubt existed as to the defendant's fitness to be sentenced, since the trial court had previously found the defendant fit on the basis that he was taking medication which allowed him to cooperate with his attorney, and that by ordering the presentence fitness examination, the trial court indicated a concern as to the defendant's fitness. Jackson, 57 Ill.App.3d at 814, 15 Ill. Dec. 237, 373 N.E.2d at 587. In the instant case, the trial court ordered the presentence fitness examination because the defendant requested it, not because an issue as to fitness had been raised prior to trial or because the trial court sua sponte raised the issue of fitness based upon a concern as to the defendant's fitness. In addition, the finding of unfitness to be sentenced was based upon certain factors that were later discovered to be unreliable.
Finally, the fact that the defendant's trial attorney withdrew because he could not communicate with the defendant does not raise a bona fide doubt of the defendant's fitness to stand trial in the absence of a reflection in the record of the nature and the extent of the communication problem between the defendant and his trial counsel. See Jackson, 57 Ill. App.3d at 814, 15 Ill. Dec. 237, 373 N.E.2d at 586.
We conclude that the defendant has failed to demonstrate that a bona fide doubt existed as to his fitness to stand trial, and therefore, the defendant has failed to demonstrate that his trial counsel's performance fell below an objective standard of reasonableness. Having determined that the defendant failed to satisfy the first prong of the Strickland test, we hold that the defendant was not deprived of the effective assistance of counsel. *41 See People v. Burgess, 176 Ill. 2d 289, 313, 223 Ill. Dec. 624, 680 N.E.2d 357, 367 (1997) (defendant must establish both prongs of the Strickland test in order for the court to find the ineffective assistance of counsel).
Next, the defendant contends that the trial court erred in retroactively finding him fit to stand trial.
Initially, we note that our supreme court's prior disapproval of retroactive fitness hearings has been overcome. See Mitchell, 189 Ill.2d at 338, 245 Ill. Dec. 1, 727 N.E.2d 254, 270; People v. Neal, 179 Ill. 2d 541, 554, 228 Ill. Dec. 619, 689 N.E.2d 1040, 1046 (1997); Burgess, 176 Ill.2d at 303, 223 Ill. Dec. 624, 680 N.E.2d at 363.
A trial court's determination regarding fitness will not be disturbed on review unless it is against the manifest weight of the evidence. People v. Cortes, 181 Ill. 2d 249, 276-77, 229 Ill. Dec. 918, 692 N.E.2d 1129, 1141 (1998).
The defendant maintains that the State failed to carry its burden of proving that the defendant was fit to stand trial. He argues that the finding that he was unfit for sentencing raises a bona fide doubt that he had been fit to stand trial. He further argues that Dr. Henry was unable to render an opinion as to the effect on his mental state of the combination of alcohol and the psychotropic drugs he was ingesting at the time of his trial.
The defendant's reliance on People v. Johnson, 121 Ill.App.3d 859, 77 Ill. Dec. 280, 460 N.E.2d 336 (1984), is misplaced. In that case, the reviewing court determined that the fact that the defendant was found unfit for sentencing presented a risk that the defendant may have been unfit for trial. However, in finding that a bona fide doubt existed as to the defendant's fitness for trial, the court also relied on the additional factors that defendant's demeanor both before and at trial indicated that he had serious mental problems and defense counsel's representations to the trial court that a doctor had informed him that the defendant was unfit for trial. Johnson, 121 Ill.App.3d at 861, 77 Ill. Dec. 280, 460 N.E.2d at 338. None of those additional factors are present in this case. Moreover as we previously noted, the initial finding that the defendant was unfit for sentencing was based upon factors later determined to be unreliable.
While Dr. Henry could not render an opinion as to the effect that alcohol had on the defendant, given the psychotropic drugs he was taking at the same time, the doctor testified that his conversations with the defendant and the verified documentation established the clarity of the defendant's mental state and his ability to process information. The doctor also rejected the concept that psychotropic drugs caused the defendant to act impulsively in rejecting the State's plea offer in light of the defendant's consideration of the offer over some period of time prior to rejecting it. Further, it must be noted that the defendant's testimony as to his alcohol intake must be subject to suspicion given the inconsistent information he gave regarding his alcohol usage.
We conclude that the trial court's decision that the defendant was fit for trial was not against the manifest weight of the evidence.
The defendant contends that the trial court erred when it sentenced him on his conviction for aggravated battery with a firearm.
The defendant was found guilty of armed violence, aggravated battery with a firearm and aggravated battery. The trial court found that the aggravated battery conviction merged into the armed violence conviction. At the defendant's sentencing *42 hearing, the trial court imposed a sentence only on the aggravated battery with a firearm conviction.
The defendant correctly argues that when multiple convictions of greater or lesser offenses arise from a single act, a sentence should be imposed on the most serious offense, and the convictions on the less serious offenses should be vacated. People v. Edwards, 304 Ill.App.3d 250, 255, 237 Ill. Dec. 877, 710 N.E.2d 507, 510 (1999). The question then becomes, which offense is the greater of the two?
The State argues that in this case, neither offense could be deemed the greater of the other in light of People v. Cervantes, 189 Ill. 2d 80, 243 Ill. Dec. 233, 723 N.E.2d 265 (1999). In Cervantes, our supreme court held that Public Act 88-680 (Pub. Act 88-680, eff. January 1, 1995), under which the legislature increased the minimum penalty for armed violence with a category I weapon to 15 years' imprisonment (see 720 ILCS 5/33A-3(a) (West 1996)), was unconstitutional as violative of the single subject rule. Cervantes, 189 Ill.2d at 98, 243 Ill. Dec. 233, 723 N.E.2d at 274. The State maintains that since prior to the 1995 amendment armed violence carried the same sentence as aggravated battery with a firearm, neither offense could be deemed the greater of the other, and therefore, the trial court had the right to sentence the defendant on either offense.
Both aggravated battery with a firearm and armed violence (with a category I weapon) are Class X felonies. See 720 ILCS 5/12-4.2(b), and 720 ILCS 5/33A-3(a) (West 1994). A longer prison sentence would appear to represent a legislative determination that one offense is more serious than another. People v. Cosby, 305 Ill.App.3d 211, 228, 238 Ill. Dec. 513, 711 N.E.2d 1174, 1187 (1999). However, in People v. Mack, 105 Ill. 2d 103, 85 Ill. Dec. 281, 473 N.E.2d 880 (1984), our supreme court noted that such an approach is of no assistance where the offenses carry the same penalty. Thus, where the defendant was convicted of three counts of murder but where there was only one victim, the court determined that the most serious of the three counts was the one with the more culpable mental state of the intentional and knowing killing of the victim rather than the shooting of the victim with a gun knowing the shooting created a strong probability of death or great bodily harm. Mack, 105 Ill.2d at 137, 85 Ill. Dec. 281, 473 N.E.2d at 898.
As charged in this case, it would appear that aggravated battery with a firearm would be the more serious offense since it carried the more culpable mental state than did the armed violence charge: the defendant was charged with intentionally or knowingly discharging a firearm and knowingly causing injury to the victim, whereas the armed violence charge stated only that the defendant committed aggravated battery while armed with a handgun. See People v. Bowens, 307 Ill.App.3d 484, 495, 241 Ill. Dec. 31, 718 N.E.2d 602, 611 (1999) (although attempted murder and armed violence are both Class X felonies, attempted murder is considered the more serious offense since it is a specific intent crime).
We observe, however, that at the time the defendant committed the offenses and was sentenced in this case, armed violence carried a minimum sentence of 15 years, while aggravated battery with a firearm carried a minimum sentence of 6 years, indicating that the legislature had determined that armed violence was a more serious offense than aggravated battery with a firearm. This conclusion finds further support in the recent amendment to section 33A-1, where the legislature expressed its concern with the use of dangerous *43 weapons in the commission of a felony offense recognizing that the use of a firearm in the commission of a criminal felony offense "significantly * * * increases the potential for harm to more persons." Pub. Act 91-404, § 5, eff. January 1, 2000. The amendment to section 33A-1 further provides as follows:
"(3) Current law does contain offenses involving the use or discharge of a gun toward or against a person, such as aggravated battery with a firearm, aggravated discharge of a firearm, and reckless discharge of a firearm; however, the General Assembly has legislated greater penalties for the commission of a felony while in possession of a firearm because it deems such acts as more serious." Pub. Act 91-404, § 5.
Section 33A-1(a) is a clear indication that the legislature has determined that armed violence is a more serious offense than aggravated battery with a firearm. The fact that the statute increasing the minimum penalty for armed violence was held unconstitutional for violating the single subject rule does not cast doubt on the legislature's determination in this regard. See Pub. Act 89-462, eff. May 29, 1996 (legislature reenacted the 15-year minimum penalty for armed violence with a category I weapon).
Moreover, this court has rejected the argument that the increased penalty for armed violence is disproportionate to the penalty for aggravated discharge of a firearm. See People v. Shields, 298 Ill.App.3d 943, 948-50, 233 Ill. Dec. 67, 700 N.E.2d 168,173-74 (1998); see also People v. Powell, 299 Ill.App.3d 92, 103, 233 Ill. Dec. 425, 701 N.E.2d 68, 75 (1998) (when determining the seriousness of a crime and the punishment for it, the legislature may take into consideration factors such as the frequency of the crime, the high risk of bodily harm associated with it, and the need to enact a more stringent penalty in order to halt an increase in the commission of a particular crime). In Powell, the court rejected the defendant's contention that aggravated battery with a firearm was a "more serious" offense than aggravated battery based upon great bodily harm. Powell, 299 Ill.App.3d at 103, 233 Ill. Dec. 425, 701 N.E.2d at 75.
Even if we were to ignore the fact that the legislature increased the minimum penalty for armed violence, we note that in Edwards, the court vacated the aggravated battery with a firearm conviction and sentence even though it followed the line of cases, prior to Cervantes, which had found Public Act 88-680 unconstitutional, and remanded the case for the defendant to be sentenced for armed violence under the preamended statute. The court's action indicated that the fact that the penalties for armed violence and aggravated battery with a firearm were the same did not prevent the determination that armed violence was the more serious of the two offenses. Edwards, 304 Ill.App.3d at 255, 237 Ill. Dec. 877, 710 N.E.2d at 510.
Based upon all of the foregoing, we conclude that armed violence is the more serious offense and, therefore, the defendant's conviction and sentence for aggravated battery with a firearm must be vacated.
Finally, we agree with the defendant that this case must be remanded to the trial court for sentencing on his armed violence conviction for the reason that the trial court did not impose a sentence on that conviction when the defendant was originally sentenced. Since the sentencing error that the defendant alleges is unlikely to occur in the context of a new sentencing hearing, we need not reach the merits of the defendant's argument on this issue.
The defendant's conviction and sentence for aggravated battery with a firearm are vacated; the defendant's conviction for *44 armed violence is affirmed; and the case is remanded for the trial court to impose sentence on the armed violence conviction.
Vacated in part and affirmed in part; cause remanded with directions.
WOLFSON and BURKE, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1408317/ | 261 Kan. 266 (1996)
929 P.2d 162
AMCO INSURANCE COMPANY, Appellant,
v.
GERALD BECK and CHRISTA BECK, husband and wife; and TERI BECK, a minor; Defendants, and
JOHN MORAN and SUSAN MORAN, husband and wife; and COURTNEY MORAN, a minor, Appellees.
No. 76,290.
Supreme Court of Kansas.
Opinion filed December 20, 1996.
Paula J. Wright, of Clark, Mize & Linville, Chartered, of Salina, argued the cause and was on the briefs for appellant.
Richard A. Boeckman, of Keenan & Boeckman Law Firm, P.A., argued the cause, and Martin J. Keenan, of the same firm, was with him on the brief for appellees.
The opinion of the court was delivered by
ABBOTT, J.:
The trial court held that the business exclusion in the insureds' homeowner's policy did not preclude liability coverage concerning a claim made against the insureds arising out of the insureds' teenage daughter's babysitting activities. We agree.
AMCO Insurance Company sold Gerald and Christa Beck a homeowner's insurance policy which included liability coverage for the Beck family, including the Becks' 15-year-old daughter, Teri Beck. While Teri was babysitting John and Susan Moran's two children, one of the children, Courtney Moran, suffered burns over her head, body, and extremities.
The Morans brought suit against Teri Beck on behalf of their daughter, Courtney. AMCO filed a declaratory judgment action *267 against Gerald, Christa, and Teri Beck, as well as John, Susan, and Courtney Moran, asking the trial court to determine whether the homeowner's policy provided coverage for the suit filed against Teri Beck. The trial court found that the policy's business exclusion did not preclude coverage, and AMCO appealed.
This case was originally before this court in AMCO Ins. Co. v. Beck, 258 Kan. 726, 907 P.2d 137 (1995). However, while the business exclusion question had been decided, there were still some issues regarding coverage which had not yet been decided. Thus, we held the order appealed from was not a final order and dismissed the appeal for lack of jurisdiction. AMCO subsequently abandoned the remaining issues and consented to entry of a final judgment on the business exclusion issue. AMCO appealed again to the Kansas Court of Appeals, and the case was transferred to this court pursuant to K.S.A. 20-3018(c).
The sole issue before this court is whether the policy's business exclusion precluded coverage for a suit filed against Teri Beck by the Morans to recover damages for Courtney's injuries.
The parties filed a stipulation of facts, which provides:
"1. AMCO Insurance Company insures defendants Gerald J. Beck and his wife, Christa Beck, under homeowners policy of insurance, policy No. HA XXXXXXX-X, with a policy period from 10/08/92 to 10/08/93 (insurance policy)....
"2. Defendants Gerald J. Beck and his wife, Christa, have a fifteen year old daughter, defendant Teri Beck, who resides with them at their household in Claflin, Kansas, and is therefore an insured under the AMCO policy of insurance.
"3. During the months of June, July and August, defendant Teri Beck was employed by defendants John and Susan Moran, of Rural Route, Bushton, Kansas, to babysit the two Moran children at the Moran residence.
"4. The defendant Moran family and the defendant Beck family are not related.
"5. Defendants John and Susan Moran employed defendant Teri Beck to babysit Tyler Moran, age 5, and defendant Courtney Moran, 30 months, on Monday, Wednesday and every other Friday, or as needed. Defendant John Moran works in the oil field and because of the weather, there would be days when defendant Teri Beck was not needed because defendant John Moran was not able to work.
"6. Defendant Susan Moran would pick defendant Teri Beck up in the morning at approximately 7:10 a.m. and take defendant Teri Beck to the Moran residence near Bushton, Kansas. Defendant Teri Beck's working hours were 7:20 a.m. to 5:30 p.m. Monday, Wednesday and every other Friday.
"7. Defendant Teri Beck's duties were to watch the children, take care of their needs, prepare their meals, entertain them, and perform light housekeeping duties *268 such as doing dishes and straightening up the house. When she was first hired, the issue of bath was not specifically addressed. Defendant Teri took it upon herself to bathe the children occasionally.
"8. On July 9, 1993 before defendant Susan Moran went to work, she asked defendant Teri Beck not to bathe the children, because she, Susan, bathed the children every night and there seemed no need to bathe the children twice a day. However, at defendant Teri Beck's discretion, she could bathe the children, if necessary.
"9. Defendant Teri Beck was paid $2.00 per hour and defendants John and Susan Moran would pay her an additional $2.00 to $5.00 more a week for any extra housekeeping that defendant Teri had performed.
"10. On July 9, 1993, at approximately 10:00 a.m., defendant Teri Beck had fed the children, done the dishes and was preparing to give them baths.
"11. Defendant Teri Beck took defendant Courtney Moran, the 30 month old child, to the bathroom, undressed her, set her in the bathtub and turned on the water.
"12. Defendant Teri Beck then left defendant Courtney Moran in the bathtub with the water running.
"13. When Defendant Teri Beck returned to the bathroom, she took a cup of water from the tub and poured it over the head of defendant Courtney Moran. Defendant Teri Beck claims she did this two times.
"14. At some point in time during the bathing process, defendant Teri Beck reached down into the tub, felt the water to be very hot and immediately removed defendant Courtney from the bathtub.
"15. At approximately 2:30 p.m., defendant Teri Beck noticed that defendant Courtney was developing blisters on her body. When defendant Susan Moran came home at 4:00 p.m., she immediately rushed defendant Courtney to a local doctor in Ellinwood, Kansas, who in turn had the child taken by ambulance to St. Francis Hospital Burn Unit in Wichita where defendant Courtney Moran remained hospitalized until July 27, 1993.
"16. Defendant Courtney Moran suffered second and third degree burns over her feet, legs, buttocks, back and forehead. No skin grafting has been performed yet, but there is a possibility that skin grafting will have to be performed in the future. There is also a possibility that defendant Courtney may need scalp stretching to cover hair loss, but the doctors have told the defendant John and Susan Moran that issue will not be decided until the child is a teenager."
Based on these stipulated facts, the trial court found that Teri Beck's babysitting services did not constitute a business and that the insurance policy's business exclusion did not apply and could not preclude coverage of the Becks' claim against AMCO. AMCO challenges this ruling.
*269 This case calls for the interpretation of an insurance policy. Insurance policies are considered contracts. Levier v. Koppenheffer, 19 Kan. App. 2d 971, 976, 879 P.2d 40, rev. denied 255 Kan. 1002 (1994). The interpretation and construction of a contract is a question of law. A trial court's interpretation of a contract may be reviewed by this court with an unlimited de novo standard of review. Harris v. Richards, 254 Kan. 549, 552, 867 P.2d 325 (1994); Spivey v. Safeco Ins. Co., 254 Kan. 237, 240, 865 P.2d 182 (1993). However, "[t]he language of a policy of insurance, like any other contract, must, if possible, be construed in such manner as to give effect to the intention of the parties." Catholic Diocese of Dodge City v. Raymer, 251 Kan. 689, 693, 840 P.2d 456 (1992).
The homeowner's insurance policy at issue insured defendants Gerald and Christa Beck and any person under the age of 21 in the care of the Becks. Thus, Teri Beck was insured by the policy. Under the exclusions section, the policy stated that coverage did not apply to bodily injury "arising out of business pursuits of an insured," unless the activity causing the injury was usual to nonbusiness pursuits. This exclusion was amended in a 1987 endorsement to state that liability insurance coverage did not apply to bodily injury "arising out of or in connection with a business engaged in by an insured. This exclusion applie[d] but [was] not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed or implied to be provided because of the nature of the business." The insurance policy defined "business" as including a "trade, profession or occupation." The policy also contained an exclusion which specifically applied to babysitting services performed in one's own home. Since Teri Beck's babysitting services occurred in the Moran home, not her own home, this exclusion does not apply. Thus, the question is whether Teri Beck's babysitting activities fell within the business exclusion as a trade, profession, or occupation so that coverage of the Becks' claim is precluded.
The Kansas Court of Appeals has previously decided two cases dealing with this issue. Krings v. Safeco Ins. Co. of America, 6 Kan. App. 2d 391, 628 P.2d 1071 (1981), discusses a "business pursuits" exclusion in general, while Susnik v. Western Indemnity Co., 14 *270 Kan. App.2d 421, 795 P.2d 71, rev. denied 245 Kan. 788 (1989), deals specifically with whether a "business pursuits" exclusion applies to babysitting services.
In Krings, 6 Kan. App. 2d 391, the plaintiff was an insured of a homeowner's insurance policy and an excess insurance policy issued by the defendant. While the policies were in effect, the plaintiff became Board of Directors Chairman of the Kansas Savings & Loan Association. The plaintiff was sued in five different lawsuits for activities arising out of his position on the savings and loan board of directors. The plaintiff asked the defendant to provide a defense for the lawsuits, as promised in his homeowner's and excess insurance policies. The defendant denied coverage and refused to provide a defense. The plaintiff filed suit against the defendant for failure to provide a defense. The defendant filed a motion for summary judgment, alleging that the "business pursuits" exclusions in the policies precluded coverage of claims arising out of the plaintiff's position on the savings and loan board of directors. Both the homeowner's policy and the excess policy defined "business," like the policy at issue here, as including a trade, profession, or occupation. The trial court granted the defendant's motion for summary judgment, and the plaintiff appealed.
In analyzing the applicability of the business pursuits exclusion, the Krings court first discussed the purpose behind such exclusion.
"`The "business pursuits" exclusion is a common exception to broad coverage provided in homeowners and general liability insurance policies. The reason for this particular exclusion from the general coverage provided in the policy has been analyzed and summarized by various commentators. They are in agreement that the exclusion of business liability removes coverage which is not essential to the purchasers of the policy and which would normally require specialized underwriting and rating, and thus keeps premium rates at a reasonable level. See Frazier, The "Business Pursuits" Exclusion in Personal Liability Insurance Policies, 572 Insurance L.J. 519, 520 (1970); Frazier, The Business-Pursuits Exclusion Revisited, 649 Insurance L.J. 88, 89 (1977).'" 6 Kan. App.2d at 393.
Next, the Krings court promulgated a rule to distinguish between what type of activity constitutes a business pursuit and falls within a business exclusion and what type of activity is not a business pursuit and falls outside a business exclusion.
*271 "`"To constitute a business pursuit, there must be two elements: first, continuity, and secondly, the profit motive; as to the first, there must be a customary engagement or a stated occupation; and, as to the latter, there must be shown to be such activity as a means of livelihood, gainful employment, means of earning a living, procuring subsistence or profit, commercial transactions or engagements." `" 6 Kan. App.2d at 393 (quoting Fadden v. Cambridge Mutual Fire Insurance Co., 51 Misc. 2d 858, 862, 274 N.Y.S.2d 235 [1966], aff'd 27 A.D. 2d 487, 280 N.Y.S.2d 209 [1967]).
In adopting this rule, the Court of Appeals followed the majority of jurisdictions which have addressed the issue. The court rejected the minority rule that a "business pursuit includes every activity where profit is a motive." 6 Kan. App.2d at 394. See Salerno v. Western Casualty & Surety Company, 336 F.2d 14 (8th Cir. 1964). The court also rejected the rule that "`part-time or supplemental income activities are not "business pursuits." [Citations omitted.]' 6 Kan. App.2d 394-95.
In Susnik v. Western Indemnity Co., 14 Kan. App. 2d 421, Cody Susnik was injured while he was under the care of a babysitter, Lovetta Donnelly. When Cody was injured, Donnelly and her husband were covered by a homeowner's insurance policy issued by Western Indemnity. Cody's parents brought a declaratory action against Western Indemnity and the Donnellys, requesting a determination of whether the Donnellys' homeowner's insurance policy provided coverage for Cody's injuries. Western Indemnity filed a motion for summary judgment. The trial court granted the motion, finding that the policy's business exclusion precluded coverage of Cody's injuries which arose out of Donnelly's babysitting services. The plaintiff appealed.
The business pursuits exclusion at issue in Susnik provided:
"`1.... Medical Payments to Others do not apply to bodily injury ...
....
b. arising out of business pursuits of any insured....'" 14 Kan. App.2d at 422.
The policy defined "business" as including a "trade, profession or occupation." 14 Kan. App.2d at 422.
In analyzing this issue, the Susnik court reiterated the business pursuit rule as originally promulgated in Krings:
*272 "A business pursuit is constituted of two elements: continuity and profit motive. As to the first, there must be a customary engagement or a stated occupation; as to the latter, there must be shown to be such activity as a means of livelihood, gainful employment, procuring subsistence or profit, commercial transactions or engagements." 14 Kan. App.2d at 422-23 (quoting Krings, 6 Kan. App. 2d 391, Syl. ¶ 5).
The court then applied this rule to the facts of the case. Lovetta Donnelly had been providing babysitting services since 1981. She began babysitting for Cody Susnik and his brother on a regular basis in September 1985. During 1984 and 1985, Donnelly babysat four or five children all day. She also cared for some children on a part-time basis, including Cody and his brother. She charged between $6 and $8 per day per child. She received $12 per day for caring for Cody and his brother. Donnelly's 1985 tax return listed her principal business as "child day care" and reflected gross receipts of $4,024.50 from babysitting. The Donnellys listed Lovetta's babysitting as a source of household income. However, Lovetta Donnelly was not licensed as a child care provider.
Based on these facts, the court held that Donnelly's babysitting services satisfied the requirements of continuity and profit motive. The court held that the "business pursuits" exclusion applied to Donnelly's babysitting services and precluded coverage of Cody's claim against Donnelly. The Court of Appeals affirmed the trial court's grant of summary judgment to the insurance company. 14 Kan. App.2d at 423, 427.
The only other case using Kansas law to address how a business exclusion in a homeowner's insurance policy applies to babysitting services is U.S. Fidelity & Guar. Co. v. Heltsley, 733 F. Supp. 1418, 1423 (D. Kan. 1990). In Heltsley, Jennie Heltsley, an adult, provided child care services at her home for Pamela Benson's son, Joseph Benson. Heltsley cared for Joseph during the day, Monday through Friday. Heltsley was paid $40 every week for her services. Heltsley also provided child care services for another child, Sabrina, on a part-time basis. Heltsley would care for Sabrina during the morning and take her to school in the afternoon. Heltsley received $40 every other Friday for these services. In addition to these two children, Heltsley also cared for her own child.
*273 This case arose out of a head injury Joseph received while Heltsley was putting all three children in the car so she could take Sabrina to school. Joseph, by and through his parents, sued Heltsley in state court for negligence. At the time of Joseph's injury, Heltsley was covered by a homeowner's insurance policy issued by United States Fidelity & Guaranty Company (U.S.F.& G.) U.S.F.& G. defended Heltsley in the state litigation while reserving its right to disclaim liability coverage.
In federal court, Heltsley filed a declaratory action, asking the trial court to determine that her homeowner's insurance policy covered Joseph's claim made against her. U.S.F.&G. filed a motion for summary judgment, contending that certain policy exclusions precluded coverage of this claim. The policy contained a standard business pursuits exclusion, defining business as a "trade, profession or occupation." The policy also defined home day care as a business pursuit falling within the business pursuit exclusion. It provided:
"`If an insured regularly provides home day care services to a person or persons other than insureds and receives monetary or other compensation for such services, that enterprise is a business pursuit. Mutual exchange of home day care services, however, is not considered compensation. The rendering of home day care services by an insured to a relative of an insured is not considered a business pursuit.'" 733 F. Supp. at 1421.
Further, the policy included a clause which specifically covered the business activities of minors. It provided: "`Your Personal Liability (Coverage E) and Medical Payments to Others (Coverage F) coverages are extended to cover the normal business activities of minors. This includes such part-time activities as newspaper delivery, baby sitting, caddying and lawn care.'" 733 F. Supp. at 1421.
Based on these coverages and exclusions, U.S.F.&G. argued that Heltsley's child care services fell within the business pursuits exclusion and that Joseph's negligence claim against Heltsley was not covered by the policy. In response, the appellants argued that Heltsley's child care services were merely "babysitting services," not "day care services"; thus, the appellants argued that the services did not fall into the business exclusion.
*274 In analyzing the motion for summary judgment, the federal district court first pointed to the Krings definition of a business activity. The court then applied the test to the facts of the case. The court found that Heltsley's child care services were not irregular or of a limited time or duration because Heltsley took care of Joseph on a daily basis over the course of several months. Further, Heltsley was paid on a regular basis for her services. Her services were motivated by compensation, not by filial or kinship ties. Thus, the federal district court ruled that Heltsley's child care services were continuous and had a profit motive, thereby qualifying as a business activity.
In support of its conclusion, the court pointed to the policy clause which specifically exempted minors' business activities from the business exclusion, stating:
"[The] endorsement accompanying the policy expressly states that the business activities exclusion does not apply to minor babysitting. The endorsement does not provide coverage here, of course, since Heltsley was not a minor at the time of the accident. But the clause is important here, since there would be no reason to include such an endorsement in the policy unless the business activities exclusion otherwise would include all forms of continuous child care for profit." 733 F. Supp. at 1421. (Emphasis added.)
Finally, the federal district court made a distinction between "`day-in, day-out child care for an indefinite period,' and casual babysitting, [consisting of] `a temporary arrangement for an hour, a day or an evening, for the convenience of parents.'" 733 F. Supp. at 1423 (quoting Stanley v. American Fire & Cas. Co., 361 So. 2d 1030, 1032-33 [Ala. 1978]). According to the court, day-in and day-out child care services would fall into the business exclusion while casual, temporary babysitting would not. The court held that the type of child care services provided by Heltsley was of the former type. Thus, Heltsley's child care services fell into the business exclusion, and Joseph's claim against Heltsley was not covered by the homeowner's insurance policy. As such, the federal district court granted U.S.F.&G.'s motion for summary judgment. 733 F. Supp. at 1423.
Based on the above cases, both parties seem to agree that the casual, temporary babysitting arrangement for an evening or a day *275 for the convenience of the parents does not fall into the business exclusion, even if the babysitter is paid for his or her services. See Heltsley, 733 F. Supp. at 1423. Both parties also seem to agree that the day care center or home that cares for several children on a daily basis as a primary source of income does fall within the business exclusion. See Susnik, 14 Kan. App. 2d 421. Thus, the question that both parties ask is: Where on the spectrum of occasional babysitting to professional babysitting do Teri Beck's babysitting services fall?
Both parties cite cases from other jurisdictions which place activities similar to Teri's on one end of the spectrum or the other. See Farmers Ins. Co. of Arizona v. Wiechnick, 166 Ariz. 266, 268, 801 P.2d 501 (1990) (finding that an insured who continuously and regularly provided day care services in her home, although only on a temporary basis, fell within her insurance policy's business exclusion because she cared for five children who were not her own for about 7 months, she advertised in the paper, she kept regular hours of 7 a.m. to 6 p.m., Monday through Friday, and she was paid for her services in order to replace income she lost by leaving her previous job outside the home); MFA Mut. Ins. Co. v. Nye, 612 S.W.2d 2 (Mo. App. 1980) (finding that a 15-year-old boy who injured a child while mowing his neighbor's lawn was not engaged in a business pursuit because the boy was a full-time student on summer vacation who mowed four lawns over the summer, using the landowner's lawn mower, for $1.25 per hour and this money was not used for self-support); Hanover Ins. Co. v. Ransom, 122 N.H. 609, 448 A.2d 399 (1982) (a teenager who mowed lawns 20 hours a week, advertised in the paper, owned his own equipment, had an employee, and took out loans was found to be engaging in a business pursuit); Allstate Insurance Co. v. Kelsey, 67 Or. App. 349, 353, 678 P.2d 748, rev. denied 297 Or. 227 (1984) (an in-home babysitting arrangement with one family for an average of 14 hours a week, which was only marginally profitable and was motivated by friendship, still fell within a business exclusion because the day care provider also cared for other children [one on a regular basis], she received compensation for babysitting these children, and she advertised in the paper); Camden Fire Ins. Ass'n *276 v. Johnson, 170 W. Va. 313, 294 S.E.2d 116 (1982) (finding that an individual who cared for children in her home as a neighborly or kindred accommodation to a friend or relative was not engaging in a "business pursuit" within the meaning of an exclusionary clause in her insurance policy because the individual was not licensed, did not advertise, and was not always compensated for her services). In comparison to the above cases, Teri was a full-time student on summer vacation. She babysat for two siblings away from her home for 2 to 3 days a week. She earned $2 an hour, which is far below the minimum wage, for a maximum total of $65 a week.
While these cases are helpful in reviewing how other states have evaluated the babysitting and business exclusion issue, this case really boils down to whether Teri Beck's babysitting services were more like occasional babysitting or more like professional day care. AMCO contends that her services were more like professional day care because her services satisfied the insurance policy's definition of "business" as being a trade, profession, or occupation. AMCO points to the definition of occupation as "that which principally takes up one's time, thought and energies, especially, one's regular business or employment." (Emphasis added.) Black's Law Dictionary 1079 (6th ed. 1990). AMCO argues that Teri was regularly employed as a day care provider for the summer months, as other seasonal employees are; thus, day care was her occupation and qualified as a business. See Union Mut. Ins. Co. v. Brown, 809 S.W.2d 144 (Mo. App. 1991), rehearing and/or transfer denied May 15, 1991 (finding that day care services provided on Tuesday and Thursday, but not on holidays or during illness, and allowed for days to be occasionally shifted, qualified as regular employment).
Further, AMCO contends that the money the Morans paid to Teri for her day care services would constitute "work related child care" costs under the Kansas Child Support Guidelines and could qualify as a child care tax credit on the Morans' income tax returns. AMCO also points out that if Teri had cared for Courtney in Teri's home, then Teri's services would clearly have been excluded under the insurance policy's Home Day Care Business Exclusion. AMCO then argues that the location of the child care services should not *277 make a difference as to determining whether the services qualify as a business. Thus, according to AMCO, Teri's services should qualify as a business under the business exclusion, regardless of where the child care took place. The Becks argue that Teri's babysitting services were more like occasional babysitting and not a professional babysitting business because her services were exempt from wage and hour laws and child labor laws.
Finally, the parties argue over whether Teri could have bought a separate insurance policy for her babysitting services. Thus, the Becks assert that Teri's services should be covered by her parents homeowner's insurance policy. On the other hand, AMCO points to several homeowner's insurance policies which specifically provide coverage for the occasional and part-time business activities of insureds who are students under age 21 or policies which specifically except such activities from a business exclusion and the definition of business. Since the Becks did not purchase a policy with this type of language, AMCO contends that such activities were not covered and Teri's day care services fell within the business exclusion.
The most relevant argument made by either side is that the determining factor for coverage is whether Teri's babysitting services meet the Krings rule and constitute a business or business pursuit.
"`"To constitute a business pursuit, there must be two elements: first, continuity, and secondly, the profit motive; as to the first, there must be a customary engagement or a stated occupation; and, as to the latter, there must be shown to be such activity as a means of livelihood, gainful employment, means of earning a living, procuring subsistence or profit, commercial transactions or engagements." `" 6 Kan. App.2d at 393.
Teri customarily babysat the Moran children on Monday, Wednesday, and every other Friday from 7:20 a.m. to 5:30 p.m. As we compute the dates, Teri would have babysat for the Morans 14 times (at most) prior to the accident. These days occasionally changed, due to the weather or the needs of the Morans, but this was not the custom. Thus, Teri's babysitting activities meet the element of continuity.
However, we agree with the trial court that the record before us does not satisfy the second element under the Krings testprofit *278 motive. It is true that the Morans paid Teri $2 per hour for her babysitting. It also appears that Teri babysat the Moran children for money and not out of friendship or charity. Yet, in adopting the Krings test, the Court of Appeals specifically rejected a rule that included as a business pursuit every activity where profit was a motive. Instead, the activity which is motivated by money only qualifies as a business or business pursuit if the activity is a "means of livelihood, gainful employment, means of earning a living, procuring subsistence or profit, commercial transactions or engagements." 6 Kan. App.2d at 393. Read together, this element indicates that the activity must be a significant source of income. It does not appear that Teri's babysitting services met this test.
Supplemental income derived from part-time activities may satisfy the profit motive element. However, in order for the supplemental income from part-time activities to satisfy the profit motive element, the income must be capable of significantiy supplementing one's livelihood or subsistence and contributing to one's living requirements. This does not appear to be the case with the money Teri earned from babysitting. Here, Teri's hourly wage was well below the minimum wage. She was not licensed as a day care provider. She did not advertise. The babysitting did not take place in her house and she was a full-time student on summer break. As such, Teri's babysitting services did not qualify as a business activity and did not fall within the insurance policy's business exclusion.
This conclusion is consistent with the fact a reasonable person would not believe that babysitting was the trade, profession, or occupation of this 15-year-old child. We emphasize the test is not what the money is used for, but whether the money is capable, from a reasonable person's point of view, of significantly supplementing one's livelihood. There should be no distinction drawn between a minor with limited income who necessarily must spend the earned money on necessities and a minor who, for whatever reason, is able to use the money for any purpose.
We hold the insurance company did not clearly reveal a purpose to restrict coverage of Teri Beck's babysitting activities. The insurance company could have specifically stated that minors' summer *279 jobs and away-from-home babysitting are included in the business exclusion if it had wanted to do so.
This conclusion does not mean that all babysitting conducted away from the insureds' home will always fall outside of this type of business exclusion. Instead, each babysitting situation will need to be evaluated individually under the Krings test. If the insurance company wants to clarify this issue, it can specifically indicate in the insurance policy that away-from-home babysitting, such as that conducted by Teri Beck, will not be covered by the policy, no matter how long it lasts or how little one is paid.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1464628/ | 608 F. Supp. 2d 526 (2009)
Andre NICHOLS and Daniel Moraes, Plaintiff
v.
Michael T. MAHONEY, EMC Contracting Inc., EMC New York Contracting, and EMC of New York, Inc., Defendants.
No. 08 Civ. 3306(CM)(DCF).
United States District Court, S.D. New York.
April 2, 2009.
*529 Gary Silverman, Joy Kim Mele, O'Dwyer And Bernstein, L.L.P., New York, NY, for plaintiffs.
George L. Santangelo, New York, NY, for defendants.
DECISION GRANTING IN PART AND DENYING IN PART DEFEDANTS' MOTION TO DISMISS THE COMPLAINT AND GRANING PLAINTIFFS' CROSS MTION FOR LEAVE TO AMEND
McMAHON, District Judge.
Defendants move to dismiss plaintiffs' complaint. Plaintiffs oppose the motion, and cross-move for leave to amend, attaching a proposed amended complaint.
An order disposing of these motions issued on March 31. Plaintiffs' motion for leave to amend was granted. However, because both their original and amended pleadings failed to state claims under the civil RICO statute or antitrust laws, defendants' motion to dismiss Counts I, II and III (RICO Claims), IV (violation of the Sherman Act, 15 U.S.C. § 1) and V (violation of the Donnelly Act, N.Y. Gen. Law. § 340 et seq.) of the plaintiffs' complaint was granted and the claims were dismissed with prejudice. Defendants' motion to dismiss Counts VI (violation of the Fair Labor Standards Act) and Count VII (violation of New York Labor Law) was denied.
This opinion explains the reasons for the court's ruling.
The Gravamen of this Action
This is the latest in a series of civil RICO actions that have been filed in various federal courts across the nation, capitalizing on the popular outcry against undocumented aliens who are working openly in the United States. Plaintiffs, Andrew Nichols and Daniel Moraes, are construction workers who were formerly employed by the defendant corporations and their owner, Michael T. Mahoney. They allege that their wages were depressed because the defendants knowingly hired undocumented aliens, in violation of Section 274 of the Immigration and Nationality Act, 8 U.S.C. § 1324(a). Plaintiffs also contend that defendants' actions constituted an illegal "scheme" to restrain free competition within the construction industry, by giving defendants an unfair advantage over employers who do not employ illegal workers.
Plaintiffs also allege that they were not properly compensated for overtime hours worked or paid minimum wage, in violation of the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. and New York Labor Law §§ 190 et seq., 650 et seq.
Discussion
I. Standard of Review
A. Motion to Dismiss
Rule 12(b) (6) of the Federal Rules of Civil Procedure provides for dismissal of a complaint that fails to state a claim upon which relief can be granted. The standard of review on a motion to dismiss is heavily weighted in favor of the plaintiff. "In ruling on a motion to dismiss for failure to state a claim upon which relief may be granted, the court is required to accept the material facts alleged in the complaint as true." Frasier v. Gen. Elec. Co., 930 F.2d 1004, 1007 (2d Cir.1991). The court is also required to read a complaint generously, drawing all reasonable inferences from its allegations in favor of the plaintiff. California Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 515, 92 S. Ct. 609, 30 L. Ed. 2d 642 (1972).
*530 "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, ___, 127 S. Ct. 1955, 1964, 167 L. Ed. 2d 929 (2007) (quotations, citations and alterations omitted). Indeed, a plaintiff must assert "enough facts to state a claim to relief that is plausible on its face." Id. at 1974. This "plausibility standard" is a flexible one, "oblig[ing] a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible." Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir.2007). cert. granted, ___ U.S. ___, 128 S. Ct. 2931, 171 L. Ed. 2d 863 (2008).
B. Leave to Amend
In assessing whether a proposed amendment to a complaint is futile, a court uses the standard for a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Esposito v. Deutsche Bank AG, 07 civ. 6722, 2008 WL 5233590 at *3 (S.D.N.Y. Dec.16, 2008) (citing Dougherty v. Town of N. Hempstead Bd. of Zoning Appeals, 282 F.3d 83, 88 (2d. Cir.2002)). The court has granted plaintiffs' leave to amend and will evaluate both the original and the proposed amended complaints in this decision.
II. Plaintiff Fails to State Any Viable Civil RICO Claim
Pursuant to 18 U.S.C. § 1964(c), the plaintiffs allege violations under sections 1962(c) and (d) (RICO conspiracy) of the RICO statute.
To establish a RICO violation under section 1962(c), a plaintiff must allege and prove four elements: "`(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.' These requirements apply whether the RICO claim is civil or criminal in nature." City of New York v. Smokes-Spirits.Com, Inc., 541 F.3d 425, 439 (2d Cir.2008) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985)).
In addition, a civil RICO claimant must show: "(1) a violation of the RICO statute, 18 U.S.C. § 1962; (2) an injury to business or property; and (3) that the injury was caused by the violation of Section 1962." Spool v. World Child Int'l Adoption Agency, 520 F.3d 178, 183 (2d Cir.2008) (quotation and citation omitted).
Defendants contend that the plaintiffs fail to plead sufficiently (1) the existence of an enterprise; (2) a substantive violation of section 1962; and (3) proximate cause. Plaintiffs' original complaint does not adequately plead a substantive violation (predicate act). They try to cure that defect in two different ways in their amended complaint; one way works, and one does not. However, the amended pleading fails to plead proximate cause between the predicate acts and plaintiffs' injury. Therefore, the RICO claims must be dismissed.
A. Both the Original Complaint and The Proposed Amended Complaint Adequately Plead Conduct of An "Enterprise"
Section 1962(c) of the RICO statute makes it "unlawful for any person employed by or associated with any enterprise... to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity...." 18 U.S.C. § 1962(c). To plead a RICO violation, a plaintiff "must allege....the existence of two distinct entities: (1) a `person'; and (2) an `enterprise' that is not, simply the same `person' referred to by a different name." Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161-62, 121 S. Ct. 2087, 150 L. Ed. 2d 198 (2001): Smokes-Spirits, 541 *531 F.3d at 446. Section 1961(3) defines a person as "any individual or entity capable of holding a legal or beneficial interest in property." 18 U.S.C. § 1961(3). An "enterprise" is defined as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4); Smokes-Spirits, 541 F.3d at 447; Kottler v. Deutsche Bank AG, 607 F. Supp. 2d 447, 458, 2009 WL 55885, at *5 (S.D.N.Y.2009).
The enterprise requirement is most easily satisfied "when the enterprise is a formal legal entity." First Capital Asset Mgmt, Inc. v. Satinwood, Inc., 385 F.3d 159, 173 (2d Cir.2004). However, an association-in-fact may also be a RICO enterprise. Id.
In this case, the plaintiffs allege the existence of both a formal legal entity enterprise (Count I) and an association-infact enterprise (Count II). The defendants contend that neither enterprise pleading satisfies the requirements of RICO. They are wrong on both accounts.
In Count I, the plaintiffs allege that Mahoney, the principal of the EMC entities, is the "person," and that the EMC entities are the enterprise. These allegations are sufficient to plead the existence of two distinct entities. Cedric Kushner, 533 U.S. at 166, 121 S. Ct. 2087. In Cedric Kushner, the Supreme Court reversed and remanded the Second Circuit's decision affirming the dismissal of the plaintiff's complaint. The plaintiff sued Don King, the president and sole shareholder of Don King Productions, alleging violations of the RICO statute. The district court dismissed the complaint because it found that King was not a "person" who was distinct from "the enterprise," but rather was part of the enterprise. For many years, it was the law in this Circuit that a corporation and its employees could not constitute an "enterprise." However, in an unanimous decision, the Supreme Court undid that precedent, holding, "The corporate owner/employee, a natural person, is distinct from the corporation itself, a legally different entity with different rights and responsibilities due to its different legal status. And we can find nothing in the statute that requires more `separateness' than that." Id. at 163, 121 S. Ct. 2087.
The allegations of Count I meet the distinctness requirement, because Mahoneya natural personis distinct from EMCthe enterpriseeven though he is also the principal of the EMC entities. The defendants' argument otherwise is based on a misreading of the plaintiffs' complaint. Defendants mistakenly assert that the plaintiffs' complaint alleged, "EMC is the enterprise and the corporate entity conducting the affairs of the enterprise" (i.e., the person). (Def. Mem. at 14.) However, the complaint actually says, "At all times relevant to this action, defendant Mahoney was a `person' as defined in 18 U.S.C. § 1961(3). Defendants EMC constitute the enterprise as defined in 18 U.S.C. § 1961(4)." (Compl. ¶¶ 90-91; Am. Compl. ¶¶ 114-15.)
In Count II, the plaintiffs allege that the defendants are part of an enterprise composed of entities associated-in-fact, which consists of the EMC entities, Mahoney, and American Latin. They allege that, under the direction of EMC and Mahoney, the association-in-fact worked together to obtain "illegal workers for employment by EMC." (Compl. ¶ 69; Am. Compl. ¶ 92.) By doing so, all three hoped to make large sums of moneyEMC and Mahoney by depressing wages, and American Latin by receiving a fee for each worker it provided EMC. (See Compl. ¶¶ 70-71; Am. Compl. ¶¶ 93-94.)
An association-in-fact theory is "a group of persons associated together for a common purpose of engaging in a course *532 of conduct.... [which is] proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit." United States v. Turkette, 452 U.S. 576, 583, 101 S. Ct. 2524, 69 L. Ed. 2d 246 (1981). "Common sense suggests that the existence of an association-in-fact is oftentimes more readily proven by what it does, rather than by abstract analysis of its structure. Thus, ... proof of various racketeering acts may be relied on to establish the existence of the charged enterprise." United States v. Coonan, 938 F.2d 1553, 1559-60 (2d Cir.1991). "While the question of whether a group of individuals, or corporations exhibit such organization and common purpose is ordinarily one of fact, the complaint must allege facts that permit an inference that such an association exists." Zito v. Leasecomm Corp., 02 Civ. 8074, 2004 WL 2211650, at *7 (S.D.N.Y. Sept.30, 2004).
In addition, the distinctness requirement of RICO helps a court determine whether an association-in-fact exists:
In practice, the dual requirements of (1) distinctness and (2) the proof needed to demonstrate an association-in-fact, work in tandem to weed out claims dressed up as RICO violations but which are not in fact. Specifically, the distinctness doctrine requires a plaintiff to demonstrate that the RICO person is legally separate from the RICO enterprise, while the association-in-fact requirement helps ensure that distinctness is not achieved by simply tacking on entities to the enterprise which do not in fact operate as a "continuing unit" or share a "common purpose."
Smokes-Spirits, 541 F.3d at 447.
Defendants contend that plaintiffs' associate-in-fact theory in Count II is deficient. They cite Baker v. IBP. Inc., 357 F.3d 685, 691 (7th Cir.2004), in support of their argument.
In Baker, the plaintiffs argued that defendant violated section 274(a)(3), and derivatively RICO, by bringing in and employing illegal aliens "for financial gain (a reduction in the wages it must pay). . . ." Id. at 687. The plaintiffs alleged that the enterprisebased on an association-in-fact theoryconsisted of the defendant plus "the persons and organization who help it find aliens to hire." Id. at 691. The plaintiffs' RICO complaint was dismissed because the plaintiffs failed to allege a distinction between the defendant and the enterprise. Id. at 692. The Seventh Circuit found the plaintiffs' pleading lacking in two respects. First, the plaintiffs' complaint failed to allege how the alleged association-in-fact shared a common purpose, which is an "essential ingredient" of a RICO claim. Id. The court reasoned that the alleged association could not have a common purpose because each member of the associated group had different goals: defendant wanted to pay lower wages, the recruiter organization wanted to be paid for more services rendered, and the Chinese Mutual Aid Association wanted to help members of its ethnic group get jobs. Id. Second, even if the plaintiffs' adequately pled the existence of an enterprise, their pleading failed to allege that any defendant operated the association-in-fact. Id.
Baker, while interesting, is not the law of this Circuit, and would likely not be good law in this Circuit. In Commercial Cleaning Servs., L.L.C. v. Colin Serv. Sys., Inc., 271 F.3d 374 (2d Cir.2001), the Second Circuit concluded that pleading the existence of an association-in-fact consisting of employment placement services, labor contractors, newspapers, and "various immigrant networks" that help illegal aliens obtain employment was sufficient to withstand a motion to dismiss. Id. at 379.
Moreover, even if Baker were the law here, the plaintiffs' allegations sufficiently plead an association-in-fact. Both the *533 original and the amended complaints allege that the association-in-fact operated under the direction of defendants, so that the enterprise could procure illegal aliens for employment by EMC. All three entitiesEMC, Mahoney and American Latinentered into this association to make money. EMC and Mahoney would make money by depressing wages, and American Latin would profit by receiving a fee for each worker it provided the defendants. All "therefore had a stake in the success of the other," Zito, 2004 WL 2211650, at *8, because their ability to make money depended on the efforts of each party. These allegations are enough to satisfy the "common purpose" requirement. See id.
The plaintiffs' complaint also sufficiently alleges an entity that is distinct from its members. In Baker, the court found the plaintiffs' failed to allege a distinct entity because the plaintiffs alleged that the named defendant "operates itself unlawfully. . . [by] hir[ing], harbor[ing] and pay[ing] the unlawful workers." Baker, 357 F.3d at 691. Here, the plaintiffs' allegations, taken as true, are different. They allege that EMC and Mahoney direct American Latin to find illegal aliens for EMC job sites, and once found, American Latin's pool of illegal workers "take direction from EMC's foremen and supervisors, but are paid [the reduced wage] by American Latin." (Compl. ¶ 26; Am. Compl. ¶ 27.) Thus, the complaints allege RICO persons (Mahoney and EMC) who are legally separate from the RICO enterprise (EMC-Mahoney-American Latin association-in-fact), which operates for a common purpose. See Smokes-Spirits, 541 F.3d at 447 (noting the distinctness requirement and proof of an association-infact are met by showing that the third party added to the enterprise shares a common purpose with the enterprise).
B. The Original Complaint Fails To Plead That The Members of The Enterprise Committed A Predicate Act Through A Pattern of Racketeering Activity
For a plaintiff to plead a substantive violation of the RICO statute, he "must [allege] a pattern of racketeering activity, and to establish a RICO conspiracy, a plaintiff must show a conspiracy to commit a substantive RICO violation". Spool, 520 F.3d at 183. Thus, claims under both section 1962(c) and (d) require that a plaintiff allege a pattern of racketeering activity. "To survive a motion to dismiss, this pattern must be adequately alleged in the complaint." Id. (quotation and citation omitted).
The plaintiffs' original complaint alleges that defendants engaged in a "pattern of racketeering activity" by knowingly hiring numerous illegal aliens in violation of Section 274(a)(3) of the Immigration and Nationality Act, 8 U.S.C. § 1324(a), a RICO predicate offense. 18 U.S.C. § 1961(1)(F) ("any act which is indictable under the Immigration and Nationality Act, section 274 (relating to bringing in and harboring certain aliens)").
Section 274(a) (3) provides:
(A) Any person who, during any 12-month period, knowingly hires for employment at least 10 individuals with actual knowledge that the individuals are aliens described in subparagraph (B) shall be fined under title 18 or imprisoned for not more than 5 years, or both.
(B) An alien described in this subparagraph is an alien who
(i) is an unauthorized alien (as defined in section 1324a (h) (3) of this title),[1] and
*534 (ii) has been brought into the United States in violation of this subsection.
8 U.S.C. § 1324(a)(3) (emphasis added). In this Circuit, it has long been that law that a plaintiff relying on section 273(a)(3) as a predicate act must allege both that the defendant knowingly hired illegal aliens and that the defendant "had actual knowledge that the illegal aliens it hired were brought into the country in violation of the statute" Commercial Cleaning, 271 F.3d at 387 (citing Sys. Mgmt., Inc. v. Loiselle, 91 F. Supp. 2d 401, 408 (D.Mass. 2000)) (emphasis added), in order to plead a violation of section 274(a)(3).
The plaintiffs' original complaint fails to allege a violation of section 274(a)(3). The original complaint does not contain the necessary allegation that defendants knew that at least 10 of the aliens they hired were brought into the country by someone else (as opposed to getting here on their own).
Congress wrote two different statutes addressing the hiring of illegal aliens. One entitled "Unlawful employment of aliens" makes it illegal to hire illegal aliens knowing that the aliens are not authorized to work. 8 U.S.C. § 1324a.[2] A violation of this statute is not a RICO predicate act. The other makes it illegal knowingly to hire illegal aliens who are known to have been smuggled ("brought") into the United States. 8 U.S.C. § 1324. A violation of that statute is a RICO predicate act.
The key difference between the two statutes is the employer's knowledge of how the illegal alien arrived in the United States. If the employer does not know that at least 10 of its illegal hires were "brought into" the country by some third party (as opposed to walking across the border themselves, or arriving on a visitor's or student visa and overstaying their welcome), then it has not committed a RICO predicate act by hiring themeven though it has committed a federal crime by knowingly hiring the aliens without regard to how they entered the country.
In Commercial Cleaning, the Second Circuit discussed this critical distinction. Although sustaining most of the allegations of a complaint remarkably similar to this one, it held that a district court had properly dismissed the complaint because the plaintiffs failed to allege that the defendants knew when they hired the aliens that at least 10 of them had been "brought into" the United States. Commercial Cleaning, 271 F.3d at 387. After Commercial Cleaning, it is not enough for a plaintiff to allege that the defendants hired *535 illegal aliens-or even that they did so knowingly. Rather, a plaintiff must allege that the defendant knew both that at least 10 of its employees were undocumented aliens and that those 10 employees arrived in the United States in a manner that qualifies as being "brought" here. Moreover, the plaintiffs must plead facts tending to show that the statute specified by Congress as a predicate act was violated. See id.
The original complaint in this case says not a word about the defendants' knowledge of how any of their illegal alien employees entered the United States. Commercial Cleaning, which is binding on this Court, thus compels dismissal of the original complaint.
Because the original complaint must be dismissed, the Court will not here discuss whether it pleads proximate causethe third and final pleading requirement under RICO. The Court reserves that discussion for the amended complaint.
After dismissing the Commercial Cleaning complaint on the technical ground discussed above, the Second Circuit determined that the case should be remanded to give the plaintiff the chance to add the missing allegations to their complaint. Id. at 387 n. 5. Knowing this, the plaintiffs have cross-moved for leave to amend the complaint and have proffered a proposed amended pleading that purports to cure the deficiencies of the original.
The proposed amended complaint does two things. First, it includes several conclusory allegations that are obviously intended to allege that defendants knew some of their illegal alien employees had been smuggled into the country by third parties. Those allegations are factually insufficient to allege the requisite knowledge.
Second, the proposed amended complaint adds a wholly new predicate act allegation. It charges that the defendants violated a different law, 8 U.S.C. § 1324(a)(1)(A)(iii) (also known as section 274(a)(1)(A)(iii) of the Immigration and Nationality Act), by harboring the illegal aliens who they employ on multiple occasions. 18 U.S.C. § 1961(1)(F). This proposed amendment fails to state a RICO claim, because it fails to allege proximate cause.
C. The Proposed Amended Complaint Still Fails to Plead a Violation of Section 274(a)(3)
As far as the alleged section 274(a)(3) predicate act allegations are concerned, the plaintiffs' proposed amended pleading fails to cure the deficiencies of the original complaint.
The recent Supreme Court decision of Bell Atlantic v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007), makes it clear that purely conclusory allegations about defendants' knowledge of the means by which their employees entered the United States insufficient. In Twombly, the Supreme Court reversed and remanded a decision denying a motion to dismiss a complaint for failure to state a claim. The plaintiffs brought a putative class action against major telecommunications providers, alleging an antitrust conspiracy in violation of the Sherman Act, 15 U.S.C. § 1. The question presented was whether the complaint should be dismissed because the plaintiffs failed to allege any facts tending to show that two or more parties had entered into an agreement to violate the antitrust laws. The pleading alleged no more than parallel conduct, together with a conclusory claim that the defendants conspired to violate the antitrust laws.
The Supreme Court, reversing the Second Circuit, held the pleading failed to state a claim. Twombly, 550 U.S. 544, 556, 127 S.Ct. at 1966. In its ruling, the Supreme *536 Court announced that the standard applied to pleadings on Rule 12(b)(6) motions to dismiss for half a centurythat a complaint should be dismissed only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim," Conley. v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957) (emphasis added)had "earned its retirement." Twombly, 550 U.S. at 562, 127 S.Ct. at 1969.
The Supreme Court justified the imposition of a somewhat more stringent test at the pleading stage by noting the toll that civil litigation takes on defendants. Id. at 1967. In some cases, allowing a plaintiff's threadbare claim to proceed gives rise to an "in terrorem" effect where, "the threat of discovery expense will push cost-conscious defendants to settle even anemic cases ...." Id. The Court's solution to this problem was simple: "It is only be taking care to require allegations that reach the level suggesting conspiracy that we can hope to avoid the potentially enormous expense of discovery in cases with no reasonably founded hope that the discovery process will reveal relevant evidence." Id. (quotation and citation omitted).
While the scope of Twombly was initially murky, see, e.g., McMahon, The Law of Unintended Consequences: Shockwaves in the Lower Courts, 41 Suffolk U.L.Rev. 851, 852-53 (2008), it is by now clear that the case applies in more than antitrust cases. ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 n. 2 (2d Cir.2007); Iqbal, 490 F.3d at 157. Indeed, the Second Circuit has indicated that there are certain types of cases where Twombly "obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible." Iqbal, 490 F.3d at 157-58 (emphasis in original). A civil RICO case is just such a case.
A civil RICO lawsuit has vast implications for the defendants because of the specter of treble damages and the possibility of permanent reputational injury to defendants from the allegation that they are "racketeers." Courts have frequently commented on the "in terrorem" settlement value that a threat of a civil RICO claim creates. See, e.g., Tamayo v. Blagojevich, 526 F.3d 1074, 1083 (7th Cir.2008); Nakahara v. Bal, 97 Civ.2027, 1998 WL 35123, at *9 (S.D.N.Y. Jan.30, 1998). The concerns about the impact of civil antitrust litigation that were articulated by the Supreme Court in Twombly (see above) are equally, if not moreso, applicable to civil RICO claims. That should not be surprising, since the civil RICO statute was modeled on the Sherman Act. See Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 457, 126 S. Ct. 1991, 164 L. Ed. 2d 720 (2006) (discussing same).
If Twombly means anything, it means that, "Bald assertions and conclusions of law will not suffice. The pleadings must create the possibility of a right to relief that is more than speculative." Spool, 520 F.3d at 183. (quotations and citations omitted). Therefore, after Twombly, a plaintiff in a civil RICO lawsuit must plead some facts tending to show that his ultimate conclusion is "plausible." In connection with the allegation that defendants violated the section 274(a)(3)the alleged predicate act that gives rise to a purported "pattern of racketeering activity"Twombly means that the plaintiffs must plead some facts tending to show that these particular defendants actually knew that at least 10 of the illegal aliens they knowingly hired were brought into this country by some third party (or, as some courts have phrased it, were smuggled in) so that they could work illegally in the United States.
The Court has carefully reviewed the proposed amended pleading. It does not *537 contain any factual allegation tending to make plausible their ultimate (and wholly conclusory) contention that the defendant knew that they were hiring 10 illegal aliens who had been "brought" into this country.
The amended complaint alleges:
66. Upon information and belief, defendants EMC and Mahoney have knowingly hired 10 or more individuals each calendar year since 2004 with actual knowledge that the workers were not authorized to work in the U.S. and had been brought into the U.S. in violation of § 1324.
(Am.Compl. ¶ 66.) That is a purely conclusory allegation, pleaded on information and belief. However, it is not supported with any factual allegations tending to show that defendants in fact had such knowledge. Neither is there any disclosure of the basis for plaintiffs' "belief" that defendants knew that at least 10 of the aliens they hired each year "ha[d] been brought into the United States." 8 U.S.C. § 1324(a)(3)(B)(ii). Undocumented workers arrive in this country in many ways. Nothing in the proposed amended complaint suggests why these defendants knew, or should have known, that any of the people they hired arrived in the United States in any particular way.
The amended pleading contains a number of new allegations (again, nearly all of which are pleaded on information and belief) that did not appear in the original complaint and that I presume are intended to bolster the conclusory allegation that defendants knew how their illegal employees got into the country:
1. As many as 7.2 million unauthorized migrants are employed in the United States, and as many as 14% of all workers in the construction industry are illegal aliens.
2. Neither defendants nor American Latin Services Enterprises Corp., the business that supplied many of their workers, (a) complied with their legal obligations to obtain proof of identity from the workers they hired/supplied; (b) asked employees to sign Form W-4 so that taxes and other deductions could be withheld from their wages; (c) carried out the necessary withholdings.
3. The reason they did not do these things was that they well knew the persons who were being hired/supplied were illegal aliensindeed, it was "common knowledge" within the company.
4. Defendants hired illegal workers in order to drive wages down.
(Am.Compl. ¶¶ 1-4.) Unfortunately for the plaintiffs, none of these factual allegations tends to show that the defendants named in the caption knew how their undocumented alien employees arrived in this country. They tend only to show the defendants knew they were hiring illegal alienswhich, while a violation of federal law (8 U.S.C. § 1324a), is not a RICO predicate act.
Finally, plaintiffs assert, in paragraph 74:
At a minimum, given the highly publicized and comprehensive measures undertaken by the federal government, especially since 2001, to safeguard our borders and prevent unauthorized entry into the U.S. and to criminal [sic] employers who hire illegal workers, defendants knew or should have known that the illegal workers they hired were brought into the U.S. in violation of § 1324.
(Am.Compl. ¶ 74.) Again, not a single fact is pleaded that gives rise to the conclusion articulated in this paragraph. While the Court has no way of knowing for sure what proportion of illegal workers were not smuggled in by a third party, it is clear from the Court's criminal docket that many undocumented aliens who are working in this country arrived on their own *538 and were not "brought into" the country. Plaintiffs allege no fact tending to show that the Government's "highly publicized and comprehensive measures" are limited to those aliens who were smuggled into the country. Rather, they have been addressed to any and all undocumented workers. Without pleading any facts tending to show that these defendants knew that they were hiring aliens who had been smuggled infor example, an allegation that defendants hired workers directly from persons who brought aliens into the United States, or from persons who were known to work with smugglersplaintiffs fall short of what the law requires. See Twombly, 550 U.S. 544, 557, 127 S.Ct. at 1966. No such allegations are made here.
The Court recognizes that there are other, earlier cases, in which conclusory allegations of the sort plaintiffs here plead have survived a Rule 12(b)(6) motion to dismiss on the ground that section 274(a)(3) violations were not sufficiently pled. Williams v. Mohawk Indus., Inc., 465 F.3d 1277 (11th Cir.2006); Mendoza v. Zirkle Fruit Co., 301 F.3d 1163 (9th Cir. 2002).[3] Their precedential value is limited, however, because they precede Twombly, and so were being judged under the nowretired "no set of facts" standard.
D. The Proposed Amended Complaint Sufficiently Alleges A Violation of Section 274(a)(1)(A)(iii)
The plaintiffs also try to cure the defect in their original complaint by adding an entirely new RICO predicate act allegation. They allege that defendants "harbored" illegal aliens in violation of section 274(a)(1)(A)(iii), which provides:
Any person who knowing or in reckless disregard of the fact that an alien has come to, entered, or remains in the United States in violation of law, conceals, harbors, or shields from detection, or attempts to conceal, harbor, or shield from detection, such alien in any place, including any building or any means of transportation
8 U.S.C. § 1324(a)(1)(A)(iii). To plead a violation of this statute, a plaintiff must allege both that (1) the "person" knew or recklessly disregarded the alien's unlawful status, and (2) the "person" took steps that were intended to help the illegal alien remain undetected. See United States v. Kim, 193 F.3d 567, 574-75 (2d Cir.1999). Violation of section 274(a)(1)(A)(iii) is a RICO predicate act.
Within the meaning of this statute, harboring "encompasses conduct tending substantially to facilitate an alien's remaining in the United States illegally and to prevent government authorities from detecting his unlawful presence." Id. at 574 (citation omitted). Harboring comprises a wide range of conduct, including providing illegal aliens housing, transportation, arranging sham marriages, assisting them in getting employment, teaching them to hide their illegal identity, and "shelter[ing] [illegal aliens] from the immigration authorities and shield[ing] [them] from observation to prevent their discovery." Id. (citations omitted) (emphasis added).
Plaintiffs' proposed amended pleading sufficiently alleges that, on at least two occasions in the last ten years, the defendants harbored the illegal aliens they had *539 hired. The amended complaint alleges that defendants knew (or recklessly disregarded) their employees' undocumented status.
67. Upon information and belief, it was common knowledge within EMC that their workers were not authorized to work in the U.S. In fact, EMC's own supervisors and/or foremen were illegal aliens. Many of EMC's workers sought out employment with EMC, because they knew that EMC hired illegal workers, and therefore they would not be required to show proof of employment eligibility.
(Am.Compl. ¶ 67.)
It also alleges that defendants attempted to hide their undocumented workers from the government:
68. In an effort to shield their illegal workers from detection, EMC, and American Latin intentionally did not complete 1-9 forms or asked their employees to complete W-4 forms.
* * *
70. In an further effort to conceal, shield, and/or harbor their illegal workers, EMC would shut down the jobsite if they thought government authorities would be conducting a raid.
* * *
(Am.Compl. ¶¶ 68, 70.) These allegations of actions and omissions by defendants failing to complete forms, shutting down job sites when inspections were anticipated are sufficient to state a claim for violation of section 274(a)(1)(A)(iii). See Kim, 193 F.3d at 574-75.
Moreover, plaintiffs allege that defendants hired numerous undocumented aliens during a four year period, so the complaint satisfies the requirement that there be more than one predicate act of harboring during a 10 year period. 18 U.S.C. § 1961(5); Spool, 520 F.3d at 183.
The defendants contend that these allegations do not show that the defendants "substantially" facilitated the illegal aliens' unlawful stay in the United States. However, the Second Circuit has already decided that hiding aliens from immigration authorities violates the statute. Kim, 193 F.3d. at 574 (citing United States v. Herrera, 584 F.2d 1137, 1145 (2d Cir.1978)). In Herrera, this Circuit held that installing a security system designed to alert illegal aliens of an impending governmental raid or inspection to help the illegal aliens escape detection constitutes harboring. 584 F.2d at 1145. The allegations here are that the defendants (1) failed to complete legally required paperwork in order to conceal the presence of aliens on their payroll, and (2) shut down job sites when they thought the government would conduct a raid.[4] Shutting down a jobsite to prevent a detection is no different than putting an alarm bell on a site to tell the illegal aliens to run away; and both of the activities alleged are designed to prevent the government from finding people who would be subject to deportation.
Therefore, the amended pleading cures the original complaint's failure to plead a "pattern of racketeering activity" by pleading a "pattern" of harboring illegal alien workers.
E. The Proposed Amended Complaint Does Not Plead Racketeering Injury/Proximate Cause
A plaintiff only has standing to sue under section 1964(c) if the alleged RICO violation was the proximate cause of the plaintiff's injury. Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 453, 126 S.Ct. *540 1991, 164 L. Ed. 2d 720 (2006) (citing Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268, 112 S. Ct. 1311, 117 L. Ed. 2d 532 (1992); see also Commercial Cleaning, 271 F.3d at 380. To allege proximate cause, a plaintiff must show, "`some direct relation between the injury asserted and injurious conduct alleged." Smokes-Spirits, 541 F.3d at 440 (quoting Holmes, 503 U.S. at 268, 112 S. Ct. 1311). In other words, "When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiffs injuries." Anza, 547 U.S. at 461, 126 S. Ct. 1991.
In evaluating whether the plaintiffs alleged violation meets this "directness" requirement, courts should consider the policy reasons behind it. See id. at 458-60. The Supreme Court has identified three reasons for requiring a direct connection between the alleged RICO violation and the plaintiffs injury:
(1) the factual difficulty of measuring indirect damages and distinguishing among distinct independent causal factors; (2) the complexity of apportioning damages among plaintiffs to obviate the risk of multiple recoveries; and (3) the fact that the need to grapple with these problems is simply unjustified by the general interest in deterring injurious conduct, since directly injured victims can generally be counted on to vindicate the law.
Smokes-Spirit, 541 F.3d at 440 (citing Holmes, 503 U.S. at 269, 112 S. Ct. 1311) (quotations omitted).
In Holmes, supra, Securities Investor Protection Corporation ("SIPC") claimed that one Robert Holmes conspired with others to manipulate stock prices. SIPC asserted that Holmes and others had conducted an enterprise through a pattern of racketeering activity consisting of multiple stock manipulations in violation of the federal securities lawswhich are predicate acts. Nonetheless, the Supreme Court held that SIPC lacked standing to maintain a RICO claim against Holmes, because SIPC's injurywhich derived from its subrogation to the claims of Holmes' defrauded customerswas not proximately caused by Holmes' conduct. Id. at 276, 112 S. Ct. 1311. The Courtapplying settled principles of causation under the antitrust laws to civil RICO claimsannounced that there had to be some direct relationship between the injury asserted and the injurious conduct alleged. Id. at 265-68, 112 S. Ct. 1311. In a much-quoted passage, the Court announced that the plaintiff must show that the defendant's violation "not only was `but for' cause of his injury, but was the proximate cause as well." Id. at 268, 112 S. Ct. 1311 (emphasis added). In subsequent cases, the Second Circuit has equated "but for" and "proximate" cause with "transaction" and "loss" causation. See, e.g., McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 222 (2d Cir. 2008).
In Anza, supra, the Supreme Court applied the rationale of Holmes to a civil RICO case where the plaintiff (Ideal) was the principal competitor of the defendants' alleged enterprise (National). Ideal alleged that National and its principals injured it by failing to charge New York sales tax to cash-paying customers, which allowed defendants to reduced National's prices without affecting its profit margins. Id. at 453-54, 126 S. Ct. 1991. National concealed its conduct by submitting fraudulent tax returns to the New York State Department of Taxation, sending them by mail (mail fraud) and electronically (wire fraud). Id. at 454, 126 S. Ct. 1991.
Overturning the Second Circuit's decision sustaining the pleading under Rule 12(b)(6), the Supreme Court described Ideal's theory in the following terms: "Ideal's *541 theory is that Joseph and Vincent Anza harmed it by defrauding the New York tax authority and using the proceeds from the fraud to offer lower prices designed to attract more customers." Id. at 457-58, 126 S. Ct. 1991. But it then went on to say, "The cause of Ideal's asserted harms, however, is a set of actions (offering lower prices) entirely distinct from the alleged RICO violation (defrauding the State)." Id. at 458, 126 S. Ct. 1991. The Court concluded that this ran afoul of the proximate cause requirement of Section 1962(c). Id.
The Supreme Court observed that the directness requirement announced in Holmes was designed in part to mitigate "the difficulty that can arise when a court attempts to ascertain the damages caused by some remote action ... the less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiffs damages attributable to the violation, as distinct from other, independent factors." Id. at 458, 126 S. Ct. 1991 (quoting Holmes, at 269, 112 S. Ct. 1311). It noted both that National could have lowered its prices for any number of reasonsor not lowered its prices even though it was committing tax fraudand that Ideal might well have lost sales for reasons other than National's alleged acts of fraud. All of this rendered damages to Ideal "speculative" while failing to avoid the "types of intricate, uncertain inquiries" that a proximate cause requirement "is meant to prevent." Id. at 460, 126 S. Ct. 1991. The Court also concluded that a direct causal connection was imperative in a case where some more immediate victim of an alleged RICO violationin Anza, the State of New York could be expected to vindicate the law by pursuing its own claim, a claim that would (unlike Ideal's injury) be easy to prove.
In evaluating whether the plaintiffs have adequately alleged proximate cause in this case, the Court focuses on the proposed amended complaint, because it adequately alleges the commission of a pattern of racketeering activity, to wit: two or more violations of the harboring statute. The question to be answered is whether the plaintiffs' injurythe depression of their wageswas proximately cause by defendants' hiding their illegal alien employees from the Government. The answer to that question is no.
There is no direct relationship between the harboring of illegal aliens and the plaintiffs' depressed wages. Indeed, plaintiffs do not so allege. Rather, they contend that they were paid below-market wages because the defendants knowingly hired undocumented workers, who would and did work for wages that were lower than the prevailing rate. That actthe knowing hiring of illegal aliensis specifically alleged to be the proximate cause of plaintiffs' lower wages. (Am.Compl. ¶¶ 45, 94, 109, 119, 128, 132.) As explained above, that act is not a RICO predicate act.
If plaintiffs had managed to plead that defendants knowingly hired 10 or more illegal aliens who defendants knew had been "brought into" the countrythat is, if plaintiffs had successfully pled a violation of section 274(a)(3), which is a RICO predicate acttheir proposed amended complaint might well plead proximate cause, as the Second Circuit found in analogous circumstances in Commercial Cleaning, 271 F.3d at 381-385. Of course, Commercial Cleaning is a pre-Anza case, so if plaintiffs had managed to plead that defendants knew some of their illegal employees had been "brought into" the country by others, this Court would have to consider whether Commercial Cleaning remains good law on this point. But plaintiffs' failure to allege the requisite specific facts moots any such inquiry.
*542 Because hiring illegal aliens without knowing they were "brought in" is not racketeering activity, plaintiffs' allegation that hiring illegal aliens depressed wagesa correlation long recognized by courts, including the Supreme Court, see, e.g., DeCanas v. Bica, 424 U.S. 351, 356-357, 96 S. Ct. 933, 47 L. Ed. 2d 43 (1976)does not satisfy the requirement that plaintiffs plead injury caused by a pattern of racketeering activity. To clear that hurdle, plaintiffs need to plead facts tending to show that defendants' harboring of illegal aliens proximately caused the drop in their wages. This they have not done.
Reading the plaintiffs' proposed amended complaint in the most favorable light, they do allege that the defendants were able to keep their "scheme" to employ illegal aliens going by hiding the aliens from the Governmentby "harboring" them. (See Am. Compl. ¶¶ 25-45, 64, 67-73, 76.) But the fact that harboring may have allowed the alleged injury to persist for a longer period does not mean that harboring caused the injury.
Furthermore, that the only allegation in the amended complaint connecting harboring and wages concerns the duration of the harm rather than its cause underscores another critical point. "The key reasons for requiring direct causation include avoiding unworkable difficulties in ascertaining what amount of the plaintiffs injury was caused by the defendant's wrongful action as opposed to other external factors." First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 770 (2d Cir. 1994). Any effort to quantify how much of plaintiffs' depressed wages was caused by the harboring of illegal aliens, as opposed to hiring them or some other factor at work in the marketplace, would be even more inherently speculative than the proceeding anticipated (and condemned) by the Supreme Court in Anza.
Finally, because harboring is a direct affront to the Government, there is no need for private attorneys general like plaintiffs to bring damages actions in order to redress it. Just as the State of New York could be expected to pursue a corporation that was failing to pay state income tax, the Government can be expected to vindicate the laws against hiding aliens from the Government. This is not to say that proximate cause will be lacking every time a governmental entity has an interest in vindicating its laws. Indeed, any such result would effectively wipe the civil RICO statute off the books, since every RICO violation is predicated on a violation of some federal criminal statutea violation that the United States, a "victim" whenever its laws are violated, has an incentive to remedy. However, in this case, where there is no direct or obvious connection between the racketeering activity alleged (harboring) and the harm to the plaintiffs (depressed wages), the fact that the direct victim of the harboring has the incentive to redress the harm (by capturing and deporting the aliens and by prosecuting the harboring employer) fatally undermines any contention that these plaintiffs have suffered injury by virtue of the alleged racketeering activity.
The amended complaint thus fails to state a claim under 18 U.S.C. § 1962(c). Because plaintiffs fails to plead any RICO violation, they also fail to plead any violation of 18 U.S.C. § 1962(d), the RICO conspiracy statute. All three RICO countsCounts I, II and IIIare dismissed.
F. Further Leave to Replead the Civil RICO Claims is Denied
In Commercial Cleaning, 271 F.3d at 387, after concluding that the predicate act allegations were deficient, the Second Circuit remanded so that plaintiffs who failed *543 to allege that defendants knew that at least 10 illegal aliens they had hired were "brought into" the country could insert that allegation into their pleading. Here, there is no need to grant leave to amend for that purpose, because plaintiffs have already proffered a proposed amended pleading to the Court and it has been accepted and examined. Despite knowing how defendants were attacking their original pleading, plaintiffs failed to plead all the necessary elements of a violation of section 274(a)(3). Furthermore, plaintiffs cannot possibly allege that defendants' harboring of illegal aliens in violation of section 274(a)(1)(A)(iii) proximately caused their injury. Therefore, Counts I, II and III of the amended complaint are dismissed with prejudice.
IV. Plaintiffs' Antitrust Claims are Dismissed
A. Plaintiffs' Sherman Act Claims
Section 1 of the Sherman Act prohibits, "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States ...." 15 U.S.C. § 1. "To establish a § 1 violation, a plaintiff must produce evidence sufficient to show: (1) a combination or some form of concerted action between at least two legally distinct economic entities; and (2) such combination or conduct constituted an unreasonable restraint of trade either per se or under the rule of reason." Tops Markets, Inc. v. Quality Markets, Inc., 142 F.3d 90, 95-96 (2d Cir.1998) (emphasis added). Thus, a § 1 plaintiff must allege that the defendants entered into some type of an agreement (tacit or express) with a separate entity. Id.; see also Twombly, 550 U.S. at ___, 127 S.Ct. at 1964 ("the crucial question is whether the challenged anticompetitive conduct stems from independent decision or from an agreement, tacit or express") (quotation and citation omitted). This is because "it is perfectly plain that an internal `agreement' to implement a single, unitary firm's policies does not raise the antitrust dangers that § 1 was designed to police." Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 769, 104 S. Ct. 2731, 81 L. Ed. 2d 628 (1984).
In this case, the original pleading failed to allege an agreement. All the allegedly anticompetitive activity was committed by defendants in the course of running their own business. (See Compl. ¶ 77) ("defendants Mahoney, EMC Contracting, Inc., EMC New York Contracting, and EMC of New York, Inc., have willingly conspired to depress the wages of all its hourly workers in order to underbid competitors for projects, and thereby make substantial profits.") Thus, the plaintiffs fail to plead that two separate entities entered into an agreement.
The amended complaint alleges that the defendants had an agreement with American Latin to depress wages. However, the Court need not decide whether this contention solves the problem, because there is a more fundamental problem: plaintiffs have not suffered any antitrust injury and lack standing to sue under the antitrust laws.
A private plaintiff may not recover damages under the antitrust laws unless it demonstrates that it has suffered an "antitrust injury." Atlantic Richfield Co., v. USA Petroleum Co., 495 U.S. 328, 334, 110 S. Ct. 1884, 109 L. Ed. 2d 333 (1990). Courts colloquially refer to this requirement as "antitrust standing." It is entirely distinct from standing under Article III of the Constitution. An "antitrust injury" is an "injury of the type the antitrust laws were intended to' prevent and that flows from that which makes defendants' acts unlawful." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S. Ct. 690, 50 L. Ed. 2d 701 (1977). "To *544 demonstrate antitrust injury, a plaintiff must show (1) an injury-in-fact; (2) that has been caused by the violation; and (3) that is the type of injury contemplated by the statute." Arista Records LLC v. Lime Group LLC, 532 F. Supp. 2d 556, 568 (quotation and citation omitted). "Thus, the antitrust injury requirement ensures that a plaintiff can recover only if the loss stems from a competition-reducing aspect or effect of the defendant's behavior." Paycom Billing Servs., Inc. v. Mastercard Int'l, Inc. 467 F.3d 283, 290 (2d Cir.2006) (quotation and citation omitted). Antitrust standing serves the same function as RICO proximate cause (which, as noted above, derives from antitrust standing).
In addition, even if a plaintiff adequately alleges an antitrust injury, he may lack standing for other reasons. These include:
(1) the directness or indirectness of the asserted injury; (2) the existence of an identifiable class of persons whose selfinterest would normally motivate them to vindicate the public interest in antitrust enforcement; (3) the speculativeness of the alleged injury; and (4) the difficulty of identifying damages and apportioning them among direct and indirect victims so as to avoid duplicative recoveries.
Id. at 291.
Plaintiffs here allege that defendants committed an antitrust violation by hiring illegal workers to depress wages. Their alleged "antitrust injuries" are that 1) defendants' actions harmed competition by allowing them to underbid competitors for jobs by using cheap labor, and 2) defendants illegally inflated the labor pool of available workers by hiring workers based on the wages they would accept, instead of the workers' skill.
These conclusory allegations do not plead an antitrust injury.
Plaintiffs fail to allege how the use of illegal labor caused harm to competition in the market, rather than the competitors themselves or the workers. See Mathias v. Daily News, L.P., 152 F. Supp. 2d 465, 479 (S.D.N.Y.2001) (citing Brunswick, 429 U.S. at 488, 97 S. Ct. 690); see also Capital Imaging Assocs., P.C. v. Mohawk Valley Medical Assocs., Inc., 996 F.2d 537, 543 (2d Cir.1993) ("Plaintiff bears the initial burden of showing that the challenged action has had an actual adverse effect on competition as a whole in the relevant market") (emphasis added). If defendants are able to underbid their competitors for jobs, plaintiffs are not the parties who are directly injureddefendants' competitors are.
Moreover, the second alleged antitrust injurythat defendants inflated the size of the labor poolis the antithesis of an injury to competition, which is the type of injury the antitrust laws are intended to prevent. Defendants' complaint is not about too little competition in the market for construction labor, but too much. It is plaintiffs who are trying to "suppress competition" here, by decreasing the number of available construction workers and so driving up the price for their services. The idea that it harms competition to have more people competing for jobs, or if there are workers in the market who will compete for jobs by cutting the price (i.e., by accepting a lower wage), is ludicrous. Defendants are trying to use the antitrust laws to redress a violation of the immigration laws. It simply does not work.
Accordingly, the defendants' motion to dismiss plaintiffs' federal antitrust claim is dismissed with prejudice.
B. Plaintiffs' Donnelly Act Claim
In addition to bringing a federal antitrust claim, the plaintiffs assert New York's counterpart to the Sherman Act, the Donnelly Act, N.Y. Gen. Bus. Law. § 340 et seq. The Donnelly Act provides; *545 Every contract, agreement, arrangement or combination whereby
A monopoly in the conduct of any business, trade or commerce or in the furnishing of any service in this state, is or may be established or maintained, or whereby
Competition or the free exercise of any activity in the conduct of any business, trade or commerce or in the furnishing of any service in this state is or may be restrained or whereby
For the purpose of establishing or maintaining any such monopoly or unlawfully interfering with the free exercise of any activity in the conduct of any business, trade or commerce or in the furnishing of any service in this state any business, trade or commerce or the furnishing of any service is or may be restrained, is hereby declared to be against public policy, illegal and void.
N.Y. Gen. Bus. Law. § 340 (emphasis added). The Donnelly Act was modeled after the Sherman Act. State v. Mobil Oil Corp., 38 N.Y.2d 460, 463, 381 N.Y.S.2d 426, 344 N.E.2d 357 (1976). In fact, it is often called the "Little Sherman Act" Anheuser-Busch v. Abrams, 71 N.Y.2d 327, 335, 525 N.Y.S.2d 816, 520 N.E.2d 535 (1988), and courts are instructed that Donnelly should generally "be construed in light of Federal precedent and given a different interpretation only where State policy, differences in the statutory language or the legislative history justify such a result." Id. (emphasis added). Thus, if the plaintiffs do not have standing to assert a federal antitrust claim, they do not have standing to bring a Donnelly Act claim. See, e.g., G.K.A. Beverage Corp. v. Honickman, 55 F.3d 762, 766 (2d Cir.1995) (dismissing federal and state antitrust claims for failure to allege an antitrust injury); Bio-Technology Gen. Corp. v. Genentech, Inc., 886 F. Supp. 377, 383 (S.D.N.Y.1995) (applying federal standard to Donnelly Act claim); Ho v. Visa U.S.A., Inc., 16 A.D.3d 256, 257, 793 N.Y.S.2d 8 (1st Dep't 2005) (same); Friedman v. E.R. Squibb & Sons, Inc., 125 A.D.2d 539, 509 N.Y.S.2d 616 (2d Dep't 1986) (same); Lerner Stores Corp. v. Parklane Hosiery Co., Inc., 86 Misc. 2d 215, 381 N.Y.S.2d 968, 969-70 (N.Y.Sup.Ct.1976), aff'd, 54 A.D.2d 1072, 388 N.Y.S.2d 760 (4th Dep't 1976) (same).
The plaintiffs argue that the addition of the word "arrangements," which does not appear in the Sherman Act, broadens the scope of the State's antitrust law and gives them standing. They are wrong. In State v. Mobil Oil Corp., 38 N.Y.2d 460, 381 N.Y.S.2d 426, 344 N.E.2d 357 (1976), the New York Court of Appeals affirmed the dismissal of the plaintiffs complaint. Id. at 461-62, 381 N.Y.S.2d 426, 344 N.E.2d 357. The Attorney General of New York claimed the defendant violated the Donnelly Act by engaging in unilateral price discrimination. He argued that the addition of the word "arrangements" to the Donnelly Act made the state antitrust law broader than the federal law, in that the state law prohibited any "practice" effecting restraint of trade. Id. at 464, 381 N.Y.S.2d 426, 344 N.E.2d 357.
The New York Court of Appeals soundly rejected this argument:
Although undoubtedly the sweep of Donnelly may be broader than that of Sherman, we conclude that under the familiar canon of statutory construction, noscitur a sociis, the term, "arrangement", takes on a connotation similar to that of the other terms with which it is found in company, and thus must be interpreted as contemplating a reciprocal relationship of commitment between two or more legal or economic entities similar to but not embraced within the more exacting terms, "contract", "combination" or "conspiracy".... To interpret the word "arrangement" as embracing any "practice", as the Attorney-General *546 urges us to do, would be unwarranted as a matter of lexicology and, more significant, unjustified in the historical context of the statute. The addition of a conclusory allegation as to the effect of a described practice (here effecting restraint of trade) cannot operate, of course, to bring a one-sided practice which is outside the scope of the statute within its proscription.
Id. at 464, 381 N.Y.S.2d 426, 344 N.E.2d 357 (emphasis added).
Therefore, the plaintiffs' Donnelly Act claim (Count V) is also dismissed with prejudice.
V. The Plaintiffs' Labor Law Claims
Plaintiffs' proposed amended complaint also added new allegations about defendants' failure to comply with applicable labor laws.
A. Plaintiffs Adequately Allege Fair Labor Standards Act Claims
Plaintiffs' Sixth Cause of Action alleges that defendants violated the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201-219, by intentionally refusing to pay them overtime wages and the legally required minimum wage.
Plaintiffs' federal labor and wage claims arise under section 216(b) of the FLSA, which provides a right of action to any employee whose employer violates the provisions of sections 206 or 207, which govern wages and hours, respectively. See 29 U.S.C. §§ 206, 207. Section 206(a) requires "Every employer" to pay a minimum wage to "each of his employees . . . ." 29 U.S.C. § 206. Section 207(a)(1) requires an employer to pay its employees overtime wages. 29 U.S.C. § 207. Under that section, employers must pay employees at a rate of not less than one and one-half times the employee's regular rate for hours worked in excess of forty per week. 29 U.S.C. § 207(a). The type of "work" covered by this section is defined as "physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily for the benefit of the employer and his business." Holzapfel v. Newburgh, 145 F.3d 516, 522 (2d Cir.1998) (quoting Tennessee Coal. Iron & R.R. Co. v. Muscoda Local No. 123, 321 U.S. 590, 598, 64 S. Ct. 698, 88 L. Ed. 949 (1944)).
However, the minimum wage and maximum hour requirements of the FLSA apply only to employees who are "engaged in commerce or in the production of goods for commerce," or who are "employed in an enterprise engaged in commerce or in the production of goods for commerce." 29 U.S.C. §§ 206(a), 207(a); Boekemeier v. Fourth Universalist Soc'y, 86 F. Supp. 2d 280, 285 (S.D.N.Y.2000). Section 203(s)(i) defines an "Enterprise engaged in commerce," to include any enterprise that has employees "engaged in commerce ..., or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person," and that has gross annual revenues of $500,000 or more. See Velez v. Vassallo, 203 F. Supp. 2d 312, 327-28 (S.D.N.Y.2002).
Plaintiffs allege that, while working for the defendants, the defendants intentionally did not pay them overtime wages. (Am. Compl. ¶ 50.) During this time, plaintiffs Moraes and Nichols worked an average of fifty and sixty-five hours per week, respectively, yet were never paid overtime for the extra hours that they worked. (Id. ¶¶ 51-52.) Plaintiffs also allege that defendants sometimes paid them by checks, which routinely bounced. (Id. ¶ 55.) When their checks bounced, the plaintiffs allege that the defendants failed to pay them altogether, depriving them of the legally required minimum wage. (Id. ¶ 147.)
*547 Defendants argue that plaintiffs' complaint, even as amended, fails to adequately allege the elements of their FLSA claims under Federal Rule of Civil Procedure 8(a). (Def. Reply at 15.)
Plaintiffs have sufficiently alleged that they were former employees of defendants EMC. Zhong v. August August Corp., 498 F. Supp. 2d 625, 628-29 (S.D.N.Y.2007). In this case, plaintiffs have expressly alleged an employer-employee relationship with the defendants. (See, e.g., Am. Compl. ¶¶ 46-48.) This is more than enough for Rule 8 purposes.
Plaintiffs' allegations about defendants' purported violations of minimum wage and overtime provisions satisfy the requirements of Rule 8. "[W]here a plaintiff alleges violations of the FLSA's minimum and overtime wage provisions, the complaint should, at least approximately, allege the hours worked, for which wages were not received." Zhong, 498 F.Supp.2d at 628. First, defendants have notice of plaintiffs' legal theory since the complaint expressly references the FLSA. (See Am. Compl. Count VI;) see Gordon v. Kaleida Health, No. 08 Civ. 378S, 2008 WL 5114217, at *3 (W.D.N.Y. Nov.25, 2008). Second, the pleading provides the factual grounds supporting their claims. As to the overtime claims, plaintiffs have specified the approximate time period they were employed by defendants EMC and the approximate number of overtime hours they each worked per week without receiving overtime pay. (Am.Compl.¶¶ 50-52.) As to the minimum wage violations, plaintiffs allege that, beginning in 2006, defendants gave them bad checks, which deprived them of their earned wages. (Id. ¶¶ 53-55.) Although plaintiffs have not alleged how many bad check they each received, such information should be readily available to defendants from their own business records. Thus, plaintiffs' amended pleading "give[s] the defendant[s] fair notice of the [plaintiffs'] claim[s] and the grounds upon which [they] rest[ ]." Twombly, 550 U.S. at ___, 127 S.Ct. at 1964; see also Gordon, 2008 WL 5114217, at * 4.
The case that defendants cite in support of their argument to the contrary is distinguishable. In Zhong, 498 F.Supp.2d at 628, the court dismissed plaintiffs claim that he was denied overtime compensation in violation of section 207. Although the plaintiff alleged that he worked beyond forty hours a week, his pleading only indicated that he worked twenty hours per week. Because the plaintiffs pleading was internally inconsistent, the court held that it failed to state a violation of section 207. Id. at 630. Here, plaintiffs' complaint is not inconsistent. They allege that they were not paid overtime and that, on average, they worked over forty hours per week. (Am.Compl.¶¶ 50-52.)
The plaintiffs' amended pleading sufficiently alleges that the defendants "engaged in commerce" under 29 U.S.C. § 203(s)(1). Under this section, there are two ways in which an employer is considered to have "engaged in commerce:" by pleading individual or enterprise coverage. First, for an employee to qualify for individual coverage under the FLSA, he must have personally "perform[ed] work involving or related to the movement of persons or things ... between states." 29 C.F.R. § 779.103. The plaintiffs do not allege that they personally performed such work. Second, for enterprise coverage, the plaintiffs' employer must have engaged in interstate commerce. Plaintiffs satisfy this requirement by alleging that "the monies, supplies, equipment, and illegal workers employed by defendants EMC and provided by American Latin travel in interstate commerce." (Am.Compl. ¶ 95); see, e.g., Shim v. Millennium Group, No. 08 Civ. 4022, 2009 WL 211367, at *2-3 (E.D.N.Y. January 28, 2009). Courts have noted that *548 "virtually every enterprise in the nation doing the requisite dollar volume of business is covered by the FLSA." Archie v. Grand Cent. P'ship, Inc., 997 F. Supp. 504, 530 (S.D.N.Y.1998) (quoting Dunlop v. Indus. Am. Corp., 516 F.2d 498, 501-02 (5th Cir.1975)).
The plaintiffs' complaint also states a claim for FLSA violations against individual defendant Mahoney. "Individuals with significant decision-making authority over a company may be liable as employers under the FLSA." Gordon, 2008 WL 5114217, at * 4 (W.D.N.Y. Nov.25, 2008) (citing Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 140 (2d Cir.1999)). Plaintiffs allege that "defendant Mahoney is the President of EMC Contracting, Inc., EMC New York Contracting, and EMC of New York, Inc. and as such, is involved in ever aspect of the business of EMC, including, but not limited to, the hiring of its workers." (Am.Compl.¶ 19.) As such, plaintiffs' complaint states an FLSA claim against Mahoney.
In this case, the FLSA's three year statute of limitations applies. Generally, the FLSA has a two-year statute of limitations, except in the case of willful violations, for which the statute of limitations is three years. See 29 U.S.C. § 255(a). Plaintiffs allege that defendants' violations of the FLSA "were willful and intentional," because the defendants consistently failed to pay any overtime wages and gave their employees bad checks. (Am.Compl.¶ 148.) A violation is willful, if the employer "knew or showed reckless disregard for the matter of whether its conduct was prohibited by the statute." Frasier v. Gen. Elec. Co., 930 F.2d 1004, 1008(2d Cir.1991) (quoting McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133, 108 S. Ct. 1677, 100 L. Ed. 2d 115 (1988)). Thus, the three-year statute of limitations presumptively applies to plaintiffs' FLSA claims, which means that Nichols' claims for willful violations of the FLSA, filed on April 2, 2008, as pled, is timely.
B. Pendent State Law Claims
In addition, to their federal law claims, plaintiffs also allege that defendants violated New York State Labor Law §§ 190 et seq. ("Article 6") and §§ 650 et seq., the state law provisions governing overtime and minimum wage compensation. The relevant portions of the Labor Law do not diverge from the FLSA. Whalen v. J.P. Morgan Chase & Co., 569 F. Supp. 2d 327, 329-330 (W.D.N.Y.2008); Perez v. Jasper Trading, Inc., No. 05 Civ. 1725, 2007 WL 4441062, at *2 (E.D.N.Y. Dec. 17, 2007). See N.Y. Comp.Codes R. & Regs. Tit. 12, § 142-2.1 and 2.2. Therefore, plaintiffs have also stated a claim under New York Labor Law, it is appropriate for this court to resolve the federal and state claims in one proceeding.
Conclusion
For the reasons stated above, the plaintiffs' motion for leave to amend is granted (Docket No. 16). The defendants' motion to dismiss (Docket No. 11) is granted in part and denied in part. Counts I, II, III (the RICO claims), IV and V (the antitrust claims) of plaintiffs' amended complaint are dismissed with prejudice.
This constitutes the decision and order of the Court.
NOTES
[1] Section 1324a(h)(3) defines an unauthorized alien as, "with respect to the employment of an alien at a particular time, that the alien is not at that time either (A) an alien lawfully admitted for permanent residence, or (B) authorized to be so employed by this chapter or by the Attorney General." 8 U.S.C. 1324a(h)(3).
[2] The relevant section of the statute provides:
It is unlawful for a person or other entity
(A) to hire, or to recruit or refer for a fee, for employment in the United States an alien knowing the alien is an unauthorized alien (as defined in subsection (h)(3) of this section) with respect to such employment, or
(B)
(i) to hire for employment in the United States an individual without complying with the requirements of subsection (b) of this section or
(ii) if the person or entity is an agricultural association, agricultural employer, or farm labor contractor (as defined in section 1802 of title 29), to hire, or to recruit or refer for a fee, for employment in the United States an individual without complying with the requirements of subsection (b) of this section.
(2) It is unlawful for a person or other entity, after hiring an alien for employment in accordance with paragraph (1), to continue to employ the alien in the United States knowing the alien is (or has become) an unauthorized alien with respect to such employment.
8 U.S.C. § 1324a(a)(1)-(2).
[3] If Commercial Cleaning had reached such a result, this Court would be bound by the Circuit's decision. However, Commercial Cleaning reached the opposite resultthe Circuit ruled that the plaintiffs had not alleged a violation of section 273(a)(3). I suspect that, in 2002 or 2003, the Second Circuit, confronted by a pleading like plaintiffs' here, might well have concluded that it was sufficient at the motion to dismiss stage. But no such ruling was ever made, to my knowledge, and Twombly changes the landscape considerably.
[4] The amended complaint would be improved if defendants were able to allege that this occurred on more than one occasion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1195569/ | 524 F.3d 1021 (2008)
FOREST SERVICE EMPLOYEES FOR ENVIRONMENTAL ETHICS, Plaintiff-Appellant,
v.
UNITED STATES FOREST SERVICE, an agency of the U.S. Department of Agriculture, Defendant-Appellee.
No. 05-36221.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted December 6, 2007.
Filed May 1, 2008.
*1022 David A. Bahr, Western Environmental Law Center, Eugene, OR, argued the cause for the plaintiff-appellant and filed briefs.
Steve Frank, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, argued the cause for the defendant-appellee and filed a brief; Leonard Schaitman, Appellate Staff, Civil Division, United States Department of Justice, Washington DC, Karen J. Immergut, United States Attorney, Portland, OR, and Peter D. Keisler, Assistant Attorney General, United States Department of Justice, Washington, DC, were on the brief.
Before: DIARMUID F. O'SCANNLAIN, SUSAN P. GRABER, and CONSUELO M. CALLAHAN, Circuit Judges.
O'SCANNLAIN, Circuit Judge:
We are called upon to decide whether the United States Forest Service must publicly release the identities of agency personnel who responded to a wildfire that killed two Forest Service employees.
I
On July 20, 2003, the Forest Service engaged a wildfire in the Salmon-Challis National Forest in Idaho, which would later become known as the "Cramer Fire." Two days later, Forest Service firefighters Shane Heath and Jeff Allen perished as they fought the blaze.
Four federal agencies investigated the incident: The Occupational Safety and Health Administration ("OSHA"), the Office of the Inspector General of the Department of Agriculture ("OIG"), the United States Attorney for the District of Idaho, and the Forest Service itself. OSHA issued multiple citations against the Forest Service for creating unsafe working conditions and issued a 45-page report criticizing the agency's response to the fire. The OIG released a 12-page report which was similarly critical of the Forest Service's actions. In addition, the *1023 United States Attorney filed criminal charges against Incident Commander Alan Hackett, who led the team that fought the fire. Finally, the Forest Service conducted its own investigation and produced an accident report (the "Cramer Fire Report"). The report contained a detailed narrative of the agency's response to the fire as well as findings that the Forest Service's own management failings contributed to the tragedy.
On January 12, 2004, the Forest Service Employees for Environmental Ethics ("FSEEE"), a self-described public interest watchdog organization, filed a Freedom of Information Act ("FOIA") request with the Forest Service seeking the release of the Cramer Fire Report. See 5 U.S.C. § 552. The Forest Service complied with the request, but redacted the names of all twenty-three Forest Service employees identified in the Report. The agency cited FOIA Exemption 6, which enables the government to withhold "personnel and medical and similar files" that implicate personal privacy, as justification for the redactions. See id. § 552(b)(6). The FSEEE filed an administrative appeal, which the Forest Service denied.
Some time later, the Forest Service announced that it had decided to discipline six employees involved in the incident, but withheld their identities due to privacy concerns. In addition, the identities of several employees named in the Report become known in various ways. First, Incident Commander Hackett waived any right to confidentiality and the Forest Service released a revised Report with all references to Hackett unredacted.[1] In addition, an unredacted copy of the Cramer Fire Report was leaked to the family of one of the deceased firefighters. The Forest Service discovered the leak and disciplined the Forest Service employees responsible. Finally, the OSHA report identified several Forest Service employees who held positions of responsibility during the incident.
The FSEEE filed a complaint in the District Court for the District of Oregon seeking an unredacted copy of the Cramer Fire Report. On cross-motions for summary judgment, the district court concluded that Exemption 6 authorized the Forest Service to withhold the identities of the employees named in the Report in the interests of their personal privacy. The district court found that employees subject to disciplinary sanctions as well as those who merely served as cooperating witnesses had privacy interests in avoiding the "embarrassment, shame, stigma, and harassment" that would arise from their public association with the Cramer Fire and further found that the release of such employees' identities would not materially contribute to the public's understanding of the event. The FSEEE timely filed this appeal.
II
FOIA was enacted to facilitate public access to government records. John Doe Agency v. John Doe Corp., 493 U.S. 146, 151, 110 S. Ct. 471, 107 L. Ed. 2d 462 (1989). As the Supreme Court has explained, the statute's purpose is "to pierce the veil of administrative secrecy and to open agency action to the light of public scrutiny." Dep't of Air Force v. Rose, 425 U.S. 352, 361, 96 S. Ct. 1592, 48 L. Ed. 2d 11 (1976) (internal quotation marks and citation omitted). Thus, among other things, FOIA requires every federal entity presented *1024 with a request for records under the statute to make such records "promptly available to any person." 5 U.S.C. § 552(a)(3)(A). However, this requirement does not apply if the requested information falls within one of nine exemptions. Id. § 552(b).
One such exemption, Exemption 6, provides that government entities may withhold information from "personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy." Id. § 552(b)(6). The district court concluded that the Cramer Fire Report was a "similar file" subject to this exemption and that the disclosure of the identities of the employees named in the report would constitute a "clearly unwarranted" invasion of their privacy. We consider each conclusion in turn.
A
The phrase "similar files" has a "broad, rather than a narrow meaning." U.S. Dep't of State v. Wash. Post Co., 456 U.S. 595, 600, 102 S. Ct. 1957, 72 L. Ed. 2d 358 (1982). As such, we have previously held that "[g]overnment records containing information that applies to particular individuals satisfy the threshold test of Exemption 6." Van Bourg, Allen, Weinberg & Roger v. NLRB, 728 F.2d 1270, 1273 (9th Cir.1984). Specifically, we have classified a list of the names and home addresses of federal employees as a "similar file" under this exemption. Id.; see also U.S. Dep't of Def. v. FLRA, 510 U.S. 487, 494, 500-01, 114 S. Ct. 1006, 127 L. Ed. 2d 325 (1994) (concluding that the home addresses of federal employees could be withheld under Exemption 6). And, other courts of appeals have determined that the names of agency personnel may be withheld from responses to FOIA requests under Exemption 6. Judicial Watch, Inc. v. FDA, 449 F.3d 141, 152-53 (D.C.Cir.2006) (holding that Exemption 6 authorized the FDA to redact the names of agency personnel from documents released in response to a FOIA request for records related to the abortifacient drug, RU-486); Wood v. FBI, 432 F.3d 78, 86 (2d Cir.2005) (holding that Exemption 6 authorized the Justice Department to redact the names of investigating personnel from an administrative investigation report detailing the discipline of two FBI agents). Accordingly, we have little difficulty in concluding that the names and identifying information contained in the Cramer Fire Report meet the "similar file" requirement of Exemption 6.
B
Having determined that the Cramer Fire Report satisfies this threshold test, we next consider whether the disclosure of the employees' identities would constitute a "clearly unwarranted" invasion of their personal privacy. 5 U.S.C. § 552(b)(6). In conducting this inquiry, we "`balance the public interest in disclosure against the interest Congress intended the [e]xemption to protect.'" Dep't of Def., 510 U.S. at 495, 114 S. Ct. 1006 (quoting U.S. Dep't of Justice v. Reporters Comm. for Freedom of Press, 489 U.S. 749, 776, 109 S. Ct. 1468, 103 L. Ed. 2d 774 (1989)).[2] Two guideposts are critical *1025 to our analysis. First, "the only relevant `public interest'" is the extent to which disclosure would "`contribut[e] significantly to public understanding of the operations or activities of the government.'" Id. (emphasis omitted) (quoting Reporters Comm., 489 U.S. at 775, 109 S. Ct. 1468). In other words, "information about private citizens that is accumulated in various governmental files but that reveals little or nothing about an agency's own conduct" is not the type of information to which FOIA permits access. Id. at 495-96, 114 S. Ct. 1006 (citations and internal quotation marks omitted).
Second, the reasons why the FSEEE seeks the identities of the Forest Service employees are irrelevant to our inquiry. "`[W]hether an invasion of privacy is warranted cannot turn on the purposes for which the request for information is made.'" Id. at 496, 114 S. Ct. 1006 (emphasis in original) (quoting Reporters Comm., 489 U.S. at 771, 109 S. Ct. 1468). FOIA provides every member of the public with equal access to public documents and, as such, information released in response to one FOIA request must be released to the public at large. Id. (citing NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 149, 95 S. Ct. 1504, 44 L. Ed. 2d 29 (1975)). Accordingly, we consider the consequences of disclosure of the employees' identities to the entire public.[3]
1
We begin with the privacy interests of the Forest Service employees. At the outset, we note that while the privacy interests of public officials are "somewhat reduced" when compared to those of private citizens, "individuals do not waive all privacy interests ... simply by taking an oath of public office." Lissner v. U.S. Customs Serv., 241 F.3d 1220, 1223 (9th Cir.2001) (citation omitted).
In the past, we have recognized that a government employee's privacy interests may be diminished in cases where information sought under FOIA would likely disclose "official misconduct." See id. at 1223-24 (holding that reports describing the arrests of two city police officers for smuggling steroids could not be withheld under Exemption 6); Dobronski v. FCC, 17 F.3d 275, 278-79 (9th Cir.1994) (concluding that an FCC assistant bureau chief's privacy interests were "nominal" where a FOIA requester sought the official's work attendance and sick leave records to demonstrate that she had taken unaccrued sick time). In addition, we have placed emphasis on the employee's position in her employer's hierarchical structure as "lower level officials ... generally have a stronger interest in personal privacy than do senior officials." Id. at 280 n. 4 (citing Hunt v. FBI, 972 F.2d 286, 289 (9th Cir. 1992)); see also Stern v. FBI, 737 F.2d 84, 92 (D.C.Cir.1984) (reasoning that the "level *1026 of responsibility held by a federal employee... [is an] appropriate consideration[ ] for determining the extent of the public's interest in knowing the identity of that censured employee" (citation omitted)).
As the district court explained, the twenty-two employees identified in the Cramer Fire Report were "low and mid-level" employees. In addition, although the Forest Service has disciplined six of these employees, none has been accused of official misconduct and the remaining employees were merely cooperating witnesses. Accordingly, we agree with the district court that neither the employees' status as civil servants nor the Forest Service's disciplinary decisions strip them of their privacy interests under Exemption 6.
Second, we consider the district court's conclusion that the employees possessed privacy interests in avoiding the "embarrassment, shame, stigma, and harassment" that would arise from their public association with the incident. The avoidance of harassment is a cognizable privacy interest under Exemption 6. We have previously construed the exemption to protect against the harassment associated with unwanted commercial solicitations. See Painting Indus. of Haw. Mkt. Recovery Fund v. Dep't of Air Force, 26 F.3d 1479, 1483 (9th Cir. 1994); Minnis v. U.S. Dep't of Agric., 737 F.2d 784, 787 (9th Cir.1984). The Supreme Court recognized a similar interest in Department of Defense, where it held that Exemption 6 authorized the Defense Department to withhold the home addresses of its employees from its response to a FOIA request filed by the unions representing the employees. 510 U.S. at 502, 114 S. Ct. 1006. Noting that the unions sought this information precisely because nonunion employees had decided not to share it with them, the Supreme Court found it "clear" that such employees had "some nontrivial privacy interest in nondisclosure, and in avoiding the influx of union-related mail, and, perhaps, union-related telephone calls or visits, that would follow disclosure." Id. at 501, 114 S. Ct. 1006 (emphasis in original).
In this case, the potential for harassment that drew the district court's attention was that which would be presented by the media, curious neighbors, and the FSEEE itself. By its own admission, the FSEEE plans to contact the Forest Service employees named in the Report if their identities are disclosed. Moreover, in light of the significant public attention the Cramer Fire received, it is likely that the media and others would join the FSEEE in such pursuit. The fact that the record does not indicate that any of the employees have spoken out in the five years since the incident occurred leads us to conclude that such contacts would be unwanted.
In addition, we recognize that disclosure of the employees' identities may also subject them to embarrassment and stigma. The Forest Service's response to the Cramer Fire was met with heavy criticism, particularly because the fire claimed the life of two Forest Service employees. Therefore, the public association of the employees with this tragedy would subject them to the risk of embarrassment in their official capacities and in their personal lives.
We conclude that such privacy interests are cognizable under Exemption 6. See Wood, 432 F.3d at 88 (holding that government employees' "interest against possible harassment and embarrassment ... raises a measurable privacy concern that must be weighed against the public's interest in disclosure"); Stern, 737 F.2d at 91-92 (determining that government agents who were censured but not criminally charged had a privacy interest in avoiding "embarrassment or stigma" that would arise from *1027 the release of their identities). And, as the Supreme Court has held, "some nontrivial privacy interest" is sufficient to justify the withholding of information under Exemption 6 unless the public interest in disclosure is sufficient to outweigh it. Dep't of Def., 510 U.S. at 501, 114 S. Ct. 1006.
2
Satisfied that privacy interests are at stake here, we turn to the public interests asserted by the FSEEE. We emphasize that "the only relevant public interest" under Exemption 6 is the extent to which the information sought would "`she[d] light on an agency's performance of its statutory duties' or otherwise let citizens know `what their government is up to.'" Id. at 497, 114 S. Ct. 1006 (quoting Reporters Comm., 489 U.S. at 773, 109 S. Ct. 1468). Thus, to compel the disclosure of the Forest Service employees' identities, such information must "appreciably further" the public's right to monitor the agency's action. Id. at 497, 114 S. Ct. 1006; see also Hopkins v. U.S. Dep't of Hous. & Urban Dev., 929 F.2d 81, 88 (2d Cir.1991) (concluding that "disclosure of information affecting privacy interests is permissible only if the information reveals something directly about the character of a government agency or official" (emphasis in original) (citation omitted)).
The FSEEE contends that disclosure of the employees' identities will advance several public objectives. First, it argues that disclosure will allow the public to determine whether the Forest Service reassigned employees identified in the Cramer Fire Report to non-firefighter positions as a result of the incident. Second, the FSEEE suggests that disclosure will allow the public to ascertain whether such employees were adequately trained. Finally, the FSEEE contends that the revelation of the employees' identities will allow the public to "determine whether the Forest Service accurately recounted the incident in the Cramer Fire Report," to "reconcile inconsistencies," and to "shed additional light on what happened and how it can be prevented in the future" by, among other things, conducting "interviews with the participants."
To the extent that the FSEEE seeks to conduct its own investigation of the Cramer Fire, we note that four federal agencies have investigated the incident and produced three publicly-available reports. As such, the FSEEE "already ha[s] a substantial amount of the information they seek," and we will not require the disclosure of the employees' identities unless the "marginal additional usefulness" of such information is sufficient to overcome the privacy interests at stake. Painting Indus., 26 F.3d at 1486.
Both OSHA and OIG have investigated the training received by the Forest Service employee and reported findings to the public. Moreover, the Forest Service's subsequent personnel actions raise strong privacy interests that are not overcome by the public's marginal interest in conducting another investigation of the agency's response to the tragedy. In addition, by the FSEEE's own admission, the identities of the employees alone will shed no new light on the Forest Service's performance of its duties beyond that which is already publicly known. Instead, the FSEEE seeks to contact these employees itself to determine what occurred at the Cramer Fire and to confirm the veracity of the publicly-available reports. We have previously expressed skepticism at the notion that such derivative use of information can justify disclosure under Exemption 6. In Painting Industry, a labor organization sought the release of payroll records submitted to the Air Force by a government *1028 contractor working on an Air Force base for the purpose of determining whether the Air Force was diligently enforcing a federal wage statute. Id. at 1481. Direct contact with the employees was necessary to accomplish the organization's goal. Id. at 1484-85. We held that Exemption 6 authorized the Air Force to withhold the payroll records because the only "additional public benefit" the release of the employees' personal information would provide was "inextricably intertwined" with the invasion of the employees' privacy. Id. at 1485.
The public benefit the FSEEE asserts and the privacy interests of the Forest Service employees are equally inseparable. Under the FSEEE's theory, the only way the release of the identities of the Forest Service employees can benefit the public is if the public uses such information to contact the employees directly. As we held in Painting Industry, such use cannot justify the release of the information the FSEEE seeks.
In addition, we are not persuaded that direct contact with the employees would produce any information that has not already been revealed to the public through the four investigations that have already occurred and the three reports that have been publicly released. See U.S. Dep't of State v. Ray, 502 U.S. 164, 178-79, 112 S. Ct. 541, 116 L. Ed. 2d 526 (1991) (applying Exemption 6 to withhold the identities of Haitian refugees interviewed in State Department reports where there was no indication that an additional round of interviews by the FOIA requester "would produce any relevant information that is not set forth in the documents that have already been produced"). The Cramer Fire Report extensively describes the Forest Service's actions during each hour of the blaze, and the OSHA and OIG reports are similarly thorough. We generally accord government records a "presumption of legitimacy." Nat'l Archives & Records Admin. v. Favish, 541 U.S. 157, 174, 124 S. Ct. 1570, 158 L. Ed. 2d 319 (2004) (citing Ray, 502 U.S. at 178-79, 112 S. Ct. 541). Moreover, OSHA and the OIG had little to gain from withholding criticism of the Forest Service, as their pointed and disapproving conclusions indicate. As a result of the substantial information already in the public domain, we must conclude that the release of the identities of the employees who participated in the Forest Service's response to the Cramer Fire would not appreciably further the public's important interest in monitoring the agency's performance during that tragic event.
III
Balancing the privacy interests at stake against the public interest involved, we conclude that the Forest Service is not required to release the identities of the employees named in the Cramer Fire Report. Accordingly, the district court's grant of summary judgment in favor of the Forest Service is
AFFIRMED.
NOTES
[1] Hackett was placed on federal probation for eighteen months and was terminated by the Forest Service. As part of his criminal pre-trial diversion program, Hackett agreed to waive his right to confidentiality regarding the reasons for his termination.
[2] The balancing of public and private interests under Exemption 6 mirrors that which applies under Exemption 7(C). Id. (citing Reporters Comm., 489 U.S. at 775, 109 S. Ct. 1468). Exception 7(C) permits the withholding of "records or information compiled for law enforcement purposes" that "could reasonably be expected to constitute an unwarranted invasion of personal privacy." 5 U.S.C. § 552(b)(7)(C). The Supreme Court has interpreted Exemption 7(C) as "more protective of privacy" than Exemption 6, Dep't of Def., 510 U.S. at 497 n. 6, 114 S. Ct. 1006, but explained that the only distinction between the balancing tests applied to them is the "magnitude of the public interest" required to override the respective privacy interests they protect. Id. Accordingly, precedents that apply Exemption 7(C) are relevant to our analysis of Exemption 6 insofar as they identify cognizable public and private interests, even if their balancing of such interests is less instructive.
[3] As a preliminary matter, we reject the FSEEE's contention that the unauthorized leak of the unredacted Cramer Fire Report or OSHA's decision to identify certain employees in its own report diminishes the Forest Service's ability to apply Exemption 6 to redact the identities from the Report. See Dep't of Def., 510 U.S. at 500, 114 S. Ct. 1006 (rejecting the argument that information publicly available through sources cannot be withheld under Exemption 6 if the exemption's requirements are otherwise met); Reporters Comm., 489 U.S. at 767-68, 109 S. Ct. 1468 (reaching the same conclusion under Exemption 7(C)). | 01-03-2023 | 10-30-2013 |
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