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https://www.courtlistener.com/api/rest/v3/opinions/1151694/ | 622 So. 2d 698 (1993)
MARYLAND CASUALTY COMPANY and Carla P. Jenkins
v.
DIXIE INSURANCE COMPANY.
No. 92 CA 0816.
Court of Appeal of Louisiana, First Circuit.
May 28, 1993.
Opinion Granting Rehearing in Part and Denying Rehearing in Part August 4, 1993.
*699 Lindsey J. Leavoy, and Alan L. Schwartzberg, Baton Rouge, for plaintiffs-appellants, Maryland Cas. Co. and Carla P. Jenkins.
William S. Marshall, Jr., Covington, for defendant-appellee, Dixie Ins. Co.
Before EDWARDS, SHORTESS and WHIPPLE, JJ.
WHIPPLE, Judge.
This is an appeal by Maryland Casualty Company (Maryland) from a judgment in favor of Dixie Insurance Company (Dixie), dismissing Maryland's action against Dixie for the alleged bad faith of Dixie in its handling of a claim against its insured, Ronald Bailey. For the following reasons, we reverse.
FACTS AND PROCEDURAL HISTORY
The events which gave rise to the present suit began on October 14, 1985, when Bailey, who was proceeding southbound on Louisiana Highway 44 in Gonzales, Louisiana, attempted to make a left turn onto Rome Street and struck the vehicle of Carla P. Jenkins.
At the time of the accident, Dixie provided Bailey with automobile insurance, with bodily injury liability limits of $10,000.00 per person and $20,000.00 per accident. Dixie's policy specifically excluded coverage for punitive or exemplary damages.
Dixie received notice of this claim on October 29, 1985. On October 30, 1985, Dixie attempted to contact Bailey by telephone, but his phone had been temporarily disconnected. Dixie mailed a letter dated October 30, 1985, to Bailey requesting that he contact Dixie's claims representative at his earliest possible convenience. Bailey telephoned Dixie on November 4, 1985, and spoke with Alice Long. Long's file notation indicates that Bailey related to her that he had a green light when he turned left. He further stated that although he had been cited for D.W.I., he had only had two beers "right before" the accident. Bailey stated that there was no indication of any injuries at the scene.
On November 6, 1985, Dixie received a copy of the police report, which indicated that Bailey was ticketed with hit and run and third offense D.W.I. The police report also indicated that Jenkins had suffered moderate injuries. On the police report, Bailey's address was listed as 7836 Director Drive, Baton Rouge, Louisiana.
Because of Bailey's apparent intoxication at the time of the accident, Jenkins' attorney, Alan Schwartzberg, informed Dixie on November 14, 1985, of the possibility of a punitive damage claim. On the same date, Dixie sent Bailey a letter stating that his continued failure to cooperate with Dixie could result in denial of coverage and requesting that he contact Dixie to discuss the matter further. The letter was sent by certified mail to 929 Camelia Street, Baton Rouge, Louisiana, the address listed on Bailey's policy (the Camelia Street address). The letter was returned to Dixie undelivered with no forwarding address.
Dixie again attempted to contact Bailey by telephone on January 27, 1986, but Bailey's phone was no longer in service. Dixie sent Bailey a letter dated February 4, 1986, informing him that Rick Nevils had been retained to defend him in this matter. The letter further stated that Jenkins was seeking damages in excess of Bailey's coverage limits and acknowledged that Bailey might want to retain personal counsel at his own expense to represent him for his personal exposure. However, the letter did not mention that the policy excluded coverage for punitive damages. This letter was also sent to the Camelia Street address.
On May 16, 1986, Schwartzberg sent a letter to Nevils, stating the following: "If your principal will immediately tender their [sic] $10,000.00 policy limits we will accept same reserving our rights against the UM carrier and dismiss our punitive damage claim against your client. Please let me have your reply at your earliest convenience." Schwartzberg enclosed with the letter an itemized list of the medical expenses Jenkins had incurred, which amounted to $4,493.57 and a claim for lost earnings of $2,944.00.
*700 Having received no response, Schwartzberg sent Nevils another letter on June 2, 1986, reiterating Jenkins' offer to release Bailey from further liability and stating that "[t]his offer will remain open for ten (10) days from the receipt of this letter."
At the time these offers were made, Dixie had medical reports from Dr. John R. Clifford, a board certified neurosurgeon, who had diagnosed Jenkins as suffering from cervical pain and had treated her with physical therapy and traction. Nevils testified that after reviewing the findings and evaluations of Dr. Clifford, he perceived that there was primarily diagnostic treatment within ninety days of the accident and a diagnosis of a soft tissue injury.
On June 10, 1986, Nevils wrote to Schwartzberg, relating a counteroffer by Dixie of $7,500.00 plus court costs. Nevils stated that the counteroffer was based on "the very unremarkable and normal results obtained by Dr. John Clifford in his diagnostic tests of [Jenkins]."
On June 20, 1986, Danny Franks, claims representative for Dixie, sent a letter to Bailey with the address listed as "929 Canella St." The letter informed Bailey that Jenkins had demanded full policy limits, but that Dixie did not believe Jenkins' injuries were sufficient to warrant payment of full policy limits. The letter also advised Bailey to contact Franks if he had any questions.
By letter dated June 25, 1986, Schwartzberg rejected Dixie's counteroffer and stated that Jenkins' offer to accept $10,000.00 in settlement was being withdrawn.
Dixie's file reflects that by October 15, 1986, Dixie had obtained Bailey's parents' phone number. Bailey's mother informed Dixie that Bailey had been working out of the state.
On January 12, 1987, Robert Payne, then a claims representative for Dixie, telephoned Schwartzberg in an attempt to settle the claim. Payne made an offer of $9,000.00, but Schwartzberg related that he could not settle for less than $15,000.00. After some discussion, Payne offered Dixie's $10,000.00 policy limits for a full release. This offer was not accepted. Payne's file note indicates that he attempted to contact Nevils after speaking with Schwartzberg, but was unable to reach him. No attempt was made by Dixie to inform Bailey of Jenkins' offer to settle the claims against him for $15,000.00.
The case eventually went to trial on January 29, 1987, and the parties stipulated that Bailey was intoxicated at the time of the accident. On March 4, 1987, after trial but before the trial court had rendered judgment, Dixie again offered to settle the claim for $10,000.00. Jenkins' attorney refused the offer. On the same date, Dixie sent a letter to Bailey at the Camelia Street address, stating that a settlement was being negotiated, but that Dixie's $10,000.00 offer had been refused. The letter also informed Bailey that he would be responsible for any judgment amount over $10,000.00. This letter was returned to Dixie undelivered with a sticker listing Bailey's address as Director Drive, the address which had been listed on the police report. The letter was redirected to the Director Drive address by Dixie on March 13, 1987.
By judgment dated February 11, 1988, the trial court found in favor of Jenkins and against Bailey, Dixie, and American General Fire and Casualty Company, Jenkins' uninsured motorist carrier. Jenkins was awarded damages in the amount of $65,495.38, consisting of $30,495.38 in compensatory damages and $35,000.00 in exemplary damages.[1] On the date of judgment, Dixie sent a letter to Bailey, certified mail, advising him of the trial court's judgment. In this letter, Dixie, for the first time, explained to Bailey that punitive damages were not covered by his policy with Dixie and that this portion of the judgment was his own personal responsibility.
By instrument executed in February 1989, Bailey assigned to Jenkins and Maryland *701 all rights that he had against Dixie arising from its failure to settle.[2] On May 4, 1989, Jenkins and Maryland brought the present suit against Dixie for its alleged bad faith refusal to accept the compromise offers. Prior to trial of this matter, Dixie settled with Jenkins, and the case proceeded to trial on October 17, 1991, between Maryland and Dixie.
By judgment dated December 23, 1991, the trial court awarded judgment in favor of Dixie and against Maryland, dismissing Maryland's suit at its cost. Maryland appeals, alleging that the trial court erred in granting judgment in favor of Dixie.
DISCUSSION
Standard of Review
Maryland asserts that the facts are not in dispute in this case and that accordingly, the doctrine of manifest error has no application in our review of the trial court's decision, citing Shepherd v. City of Baton Rouge, 588 So. 2d 1210, 1212 n. 3 (La.App. 1st Cir.1991). We agree. The issue before this court is whether, under the undisputed facts established or stipulated at trial, Dixie's actions constitute bad faith handling of the claim. Stated another way, as a reviewing court, we must consider whether the trial court came to an improper legal determination under the undisputed facts of this case. See LSA-C.C.P. art. 2164; Randall v. Cuna Mutual Insurance Group, 424 So. 2d 489 (La.App. 5th Cir. 1982).
Bad Faith of Dixie
The insurer is the champion of its insured's interests. The interests of the insured are paramount to those of the insurer, and the insurer may not gamble with the funds and resources of its policyholders. Cousins v. State Farm Mutual Automobile Insurance Co., 294 So. 2d 272, 275 (La.App. 1st Cir.), writ refused, 296 So. 2d 837 (La.1974). The insurer, as a professional defender of lawsuits, is held to a higher standard than an unskilled practitioner, and what may be neglect on the part of the latter may well constitute bad faith on the part of the insurer. Keith v. Comco Insurance Company, 574 So. 2d 1270, 1277 (La.App. 2nd Cir.), writ denied, 577 So. 2d 16 (La.1991).
This court, in Cousins, set forth the following six factors to be considered in determining whether an insurer acted arbitrarily or in bad faith in failing to compromise: (1) the probability of the insured's liability, (2) the adequacy of the insurer's investigation of the claim, (3) the extent of damages recoverable in excess of policy coverage, (4) the rejection of offers in settlement after trial, (5) the extent of the insured's exposure as compared to that of the insurer, and (6) the nondisclosure of relevant factors by the insured or insurer. Cousins, 294 So.2d at 275.
In considering these factors, we conclude that Dixie clearly acted in bad faith in handling this claim. The accident was obviously due to Bailey's negligence, and this fact should have been evident to Dixie very early in its investigation of the claim. Although Nevils testified that Dixie had some reservations concerning Bailey being "[one] hundred percent liabl[e]" based on Bailey's November 4, 1985 statement to Dixie regarding the accident, Nevils admitted that the police report which was received by Dixie two days later should have raised a "red flag" as to Bailey's story.
Although Dixie did not question any of the three other occupants of Bailey's vehicle in investigating the circumstances surrounding the accident, in a document dated December 11, 1985 and titled "30 Day Report," which was a part of Dixie's file, Dixie claims representative Alice Long characterized Dixie's liability as "100%" and noted that Bailey had been charged with D.W.I. Certainly, by September 22, 1986, the date when Nevils wrote to Dixie that "this is a case where liability is clear against our insured," Dixie was aware that it would be liable for this claim.
*702 Moreover, because of the punitive damage claim resulting from Bailey's alleged intoxication, it was evident that despite the fact that Jenkins' injuries were not perceived to be extensive, damages would be recoverable in excess of policy limits. Because of the punitive damage exclusion in Bailey's policy, Bailey's exposure was much greater than that of Dixie.
Dixie's nondisclosure of relevant factors is, without question, the most significant factor in the instant case. While the policy provided by Dixie excluded coverage for punitive damages, this fact, as well as its legal significance to Bailey, was not explained to Bailey until after the trial court had rendered judgment against him.
Acceptance of Jenkins' May 16, 1986 or June 2, 1986 offer to settle for Dixie's policy limits would have released Bailey from any further liability, including any liability for punitive damages. However, Bailey was only advised of these offers after Dixie had effectively rejected them by making a counteroffer of $7,500.00. More importantly, Jenkins' January 12, 1987 offer to settle all claims against Bailey for $15,000.00 was never communicated to Bailey by Dixie. Dixie also failed to inform Bailey of the significance of these offers.
In Roberie v. Southern Farm Bureau Casualty Insurance Company, 250 La. 105, 194 So. 2d 713 (1967), the Louisiana Supreme Court found that the insurer was in bad faith in not fully informing its insured of compromise negotiations and offers. In Roberie, the insurer rejected an offer made on the date of trial to compromise at a sum in excess of policy limits. The insurer completely ignored the insured by not even mentioning the offer and proceeded to trial. In finding bad faith, the court stated:
[T]he insured, Roberie, was kept in the dark; he was never apprised of the offers of compromise nor warned of his potential liability; he was ignored. He needed information and advice on the point of his potential liability, which he was not given by his representative, his insurer. A conflict of interest arose between the insurer and the insured. The insurer failed to discharge its duty towards its insured, thereby precluding any decisive action on his part. We find the actions of [the insurer] towards Roberie were more than negligent; they were in bad faith and in utter disregard of Roberie's natural desire to protect himself from financial loss. (Emphasis added.)
Roberie, 194 So.2d at 716.
Likewise, in the instant case, Bailey was never advised by Dixie of the January 12, 1987 offer, of the legal significance of the punitive damage exclusion in his policy, or of the significance of Jenkins' offers which would have released him from liability for punitive damages. In failing to communicate to Bailey settlement negotiations and compromise offers as well as needed information and advice on the point of his liability, Dixie exposed Bailey to great potential for excess liability and precluded him from taking any decisive action in his own defense.
In its brief, Dixie contends that Bailey's failure to inform Dixie that he had moved to a different address rendered him inaccessible to Dixie for any and all purposes, including disclosure of relevant factors. However, Dixie should have been aware at the time it received the police report on November 6, 1985 that Bailey was using the Director Drive address. Moreover, this argument further lacks merit as Dixie did not seek to inform Bailey of the May 16, 1986 and June 2, 1986 offers until after it had rejected them and never sought to explain to him the legal significance of these offers considering his potential exposure to punitive damages.
In reaching its decision, the court below stated:
I just think that the good insurance defense lawyers and firms that do the work, they need a little more time to adequately investigate. It seems like this was a quick deal. Schwartzberg said he had them set up. Well, I don't know.... But it was just, I think, premature, the offer to settle and the rejection of it. It caught them by surprise *703 and they were unprepared to deal with it at that time. They did not have enough informationMr. Nevils didn't, in my opinion.
When counsel for Maryland asked the trial judge whether the court had considered the January 1987 settlement offer and its refusal, the trial judge responded that he had looked at the whole picture. We conclude, however, that the trial court, in finding in favor of Dixie, failed to give due consideration to Dixie's duty to keep its insured informed of settlement offers and needed information and advice on the point of its insured's potential liability, especially where there was a probability of recovery in excess of policy limits. Therefore, we find that the trial court improperly concluded that Dixie's nondisclosure and failure to communicate or properly advise its insured did not amount to bad faith under the facts presented herein.
Accordingly, pursuant to the act of assignment between Bailey and Maryland, Maryland is entitled to recover the same principal and interest Bailey would have recovered had he brought this claim against Dixie. The judgment in favor of Maryland and against Bailey is for $25,000.00 plus interest from date of judicial demand. Thus, Maryland is entitled to judgment herein for $25,000.00 plus interest from date of judicial demand in the original suit, namely January 22, 1986.
Where the insurer has been guilty of bad faith toward its insured, which bad faith culminates in an excess judgment being rendered against the insured, and where the insured has had to employ an attorney to protect his interests and to oppose the bad faith conduct of the insurer, an award of attorney's fees is proper. Domangue v. Henry, 394 So. 2d 638, 641 (La. App. 1st Cir.1980), writ denied, 399 So. 2d 602 (La.1981). Thus, we conclude that Maryland, standing in the stead of Bailey, is entitled to an award of attorney's fees. The parties have stipulated that the attorney fee arrangement between Maryland and its counsel obligates Maryland to pay attorney's fees in the amount of one-third of the gross amount recovered by settlement or judgment. Consequently, we conclude that an award of attorney's fees to Maryland in the amount of $8,000.00 is reasonable under the circumstances.
DECREE
For the reasons expressed herein, the judgment of the trial court in favor of Dixie Insurance Company is reversed, and judgment is hereby rendered as follows:
IT IS ORDERED, ADJUDGED AND DECREED that there be judgment in favor of plaintiff, Maryland Casualty Company, and against defendant, Dixie Insurance Company, in the amount of $25,000.00 together with interest from date of judicial demand on January 22, 1986, until paid; and in the amount of $8,000.00 for attorney's fees, together with interest on this amount from date of judicial demand herein on May 4, 1989; and
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Dixie Insurance Company be and the same is hereby cast for all costs.
REVERSED AND RENDERED.
SHORTESS, J., concurs with reasons.
SHORTESS, Judge, concurring.
I concur in this result. My examination of this record convinces me that Dixie should have settled this case for $10,000.00 in June 1986 when it received plaintiff's unconditional offer to settle her entire claim, including punitive damages, for that amount. Rather than do so, it elected to roll the dice with its $7,500.00-$8,000.00 counter offer on June 10, 1986, apparently feeling that plaintiff would counter with a figure somewhat under its $10,000.00 coverage. But plaintiff revoked her offer! Thereafter, Dixie's claim representative Robert E. Payne attempted to settle with plaintiff's attorney within two weeks of trial (January 12, 1987) for $9,000.00 and finally even offered its $10,000.00 limits, but plaintiff had raised her demand to $15,000.00 and did not budge. At trial, plaintiff prevailed for general damages in excess *704 of Dixie's coverage and was also awarded punitive damages of $35,000.00.
Another troubling aspect of this case is the fact that Dixie did not notify Bailey of plaintiff's subsequent offer to settle for $15,000.00 just before trial. It was under an express duty to do so.
I respectfully concur.
ON APPLICATION FOR REHEARING
Rehearing granted in part, denied in part.
The application for rehearing filed on behalf of Dixie Insurance Company is granted in part and denied in part. It is granted insofar as our judgment cast Dixie Insurance Company for legal interest on the award for attorney fees from date of judicial demand. We amend our decree to provide that interest on the attorney fees is awarded from date of judgment.
In all other respects, the application for rehearing is denied.
NOTES
[1] Both Dixie and Bailey devolutively appealed the February 11, 1988 judgment. In an unpublished opinion, this court affirmed the lower court's judgment. See Jenkins v. Bailey, 544 So. 2d 1351 (La.App. 1st Cir.1989).
[2] Although it is unclear from the record, Maryland is apparently a subsidiary of American General Fire and Casualty Company. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1383450/ | 512 S.E.2d 233 (1999)
270 Ga. 509
BLACKWELL
v.
The STATE.
No. S99A0168.
Supreme Court of Georgia.
February 8, 1999.
*234 Mark J. Nathan, Savannah, for Patrick Aaron Blackwell.
Spencer Lawton, Jr., Dist. Atty., Ronald M. Adams, Asst. Dist. Atty., Savannah, Thurbert E. Baker, Atty. Gen., Paula K. Smith, Senior Asst. Atty. Gen., Department of Law, Atlanta, for the State.
BENHAM, Chief Justice.
Appellant Patrick Aaron Blackwell was convicted of felony murder, with the underlying felony being armed robbery, in connection with the September 20, 1995 death of Douglas Maddox.[1] He was also found guilty of possessing a firearm during the commission of a crime, and pleaded guilty to the charge he was a convicted felon in possession of a firearm.
1. Appellant contends the evidence presented by the State was not sufficient to authorize the verdicts returned by the jury. The State presented a witness who saw appellant with the victim in the victim's blue van shortly before shots were fired and the victim's body was discovered with four .38 caliber gunshot wounds to the abdomen. Another witness saw the blue van leave the scene of the shooting as the witness was calling police to report having heard the shots being fired. The victim's van was found 1-1 ½ blocks from appellant's abode within two hours of the homicide. A police detective who interviewed appellant three times on September 20 played for the jury his tape-recorded conversations with appellant in which appellant initially stated he knew nothing of the crimes; then told the detective that he had seen another man kill the victim; and, in the last interview, admitted shooting the victim with a .38 caliber handgun, taking $30 from the victim's wallet, and driving away in the victim's van. The victim's wallet was recovered after appellant led officers to the place where he had disposed of it. The weapon was not recovered, although appellant took officers to the street where he said he had thrown the gun.
Contrary to appellant's assertions, the evidence was sufficient to authorize a rational trier of fact to find that appellant was guilty beyond a reasonable doubt of felony murder/armed robbery, possession of a firearm during the commission of a crime, and possession of a firearm by a convicted felon. Jackson v. Virginia, 443 U.S. 307, 99 S. Ct. 2781, 61 L. Ed. 2d 560 (1979). However, the 20-year sentence imposed for armed robbery must be vacated since armed robbery was charged only as the underlying felony of the felony murder charge. See Hawkins v. State, 267 Ga. 124(2), 475 S.E.2d 625 (1996).
2. Appellant asserts that his inculpatory statements to police were not sufficiently *235 corroborated by other evidence to authorize appellant's convictions. OCGA § 24-3-53 recognizes that "[a] confession alone, uncorroborated by any other evidence, shall not justify a conviction." Proof of the corpus delicti is sufficient corroboration and, in a murder case, the corpus delicti is established by proof that the victim is dead, that the death was caused by violence or the direct criminal agency of another human being, and that the accused caused the death in the manner charged. Grimes v. State, 204 Ga. 854(1), 51 S.E.2d 797 (1949). The State presented sufficient evidence independent of appellant's confessions that the victim died from gunshot wounds inflicted by another human being using a .38 caliber weapon or a.357 Magnum shortly after appellant was seen in the victim's company. Since the material portions of appellant's confessions were corroborated by other evidence presented at trial, the trial court did not err in admitting into evidence appellant's confessions. Barnes v. State, 260 Ga. 398(2), 396 S.E.2d 207 (1990).
3. Appellant next contends the trial court erred when it found appellant's statements to police to have been freely and voluntarily made without threats or hope of benefit or reward after appellant had been given the warnings set forth in Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694 (1966), by police officials. At the conclusion of the hearing held pursuant to Jackson v. Denno, 378 U.S. 368, 84 S. Ct. 1774, 12 L. Ed. 2d 908 (1964), the trial court ruled admissible appellant's statements to police.
A trial court's findings of fact and credibility following a Jackson-Denno hearing must be accepted by an appellate court unless clearly erroneous. Yorker v. State, 266 Ga. 615(4), 469 S.E.2d 158 (1996). During the pre-trial hearing, the State presented forms signed by appellant acknowledging receipt and understanding of his constitutional rights and agreeing to answer questions posed by police. The State also played the audiotaped portions of the interviews in which appellant expressed a willingness to talk with police after having been advised repeatedly of his Miranda rights. The police detectives involved in taking appellant's statements testified that appellant displayed a calm, relaxed demeanor and that they neither threatened appellant nor extended to him a hope of benefit or reward in exchange for his statements. Since the trial court's findings are supported by the evidence and are not clearly erroneous, the trial court did not err in ruling the statements admissible. Head v. State, 262 Ga. 795(3), 426 S.E.2d 547 (1993).
4. Finally, appellant contends he was denied effective assistance of trial counsel because trial counsel failed to have appellant testify at the Jackson-Denno hearing and counsel failed to "adequately" impeach two of the State's witnesses. After hearing testimony from appellant and trial counsel at the hearing on appellant's amended motion for new trial, the trial court described the decision not to have appellant testify at the Jackson-Denno hearing as a "very understandable" trial tactic, and concluded that appellant was not harmed by not testifying at the hearing or by the purported failure to impeach the two witnesses at issue.
"In order to establish ineffectiveness of trial counsel under Strickland v. Washington, 466 U.S. 668, 104 S. Ct. 2052, 80 L. Ed. 2d 674 (1984), appellant must show that counsel's performance was deficient and that the deficient performance prejudiced the defense." [Cit.] "There is a strong presumption that the performance of trial counsel `falls within the wide range of reasonable professional assistance.' [Cit.]" [Cit.] "The reasonableness of the conduct is viewed at the time of trial and under the circumstances of the case." [Cit.] ... "The test for reasonable attorney performance ... [is] whether some reasonable lawyer at the trial could have acted, in the circumstances, as defense counsel acted at trial...."
Stansell v. State, 270 Ga. 147(2), 510 S.E.2d 292 (1998). Applying the "reasonable attorney performance" test to trial counsel's tactical decision to have appellant recant his confessions before the jury rather than in a pre-trial hearing, we conclude that trial counsel's actions were reasonable and, even if unreasonable, appellant suffered no harm since his *236 assertions concerning his pre-confession demeanor and the officers' purported behavior were aired before the jury which did not find appellant's version of events to be credible. See Robinson v. State, 231 Ga.App. 368(6), 498 S.E.2d 579 (1998). Turning to the issue of witness impeachment, our review of the record shows that when trial counsel cross-examined one of the police detectives, the witness admitted that his testimony differed in a crucial aspect from the written report he had made of his interview with appellant. The other witness who appellant claims was not sufficiently impeached was the man who heard the fatal shots fired and called police. Appellant has presented no evidence to show that counsel was deficient in failing to impeach the witness and that appellant suffered prejudice from that purported deficiency. Accordingly, we agree with the trial court's determination that appellant did not overcome the strong presumption that effective assistance of counsel was rendered.
Judgment affirmed and sentence vacated in part.
All the Justices concur.
NOTES
[1] The crimes occurred between 10:00-11:00 a.m. on September 20, 1995, and appellant was arrested in the early morning hours of September 21. An indictment charging appellant with malice murder, felony murder/aggravated assault, felony murder/armed robbery, possession of a firearm during the commission of a crime, and possession of a firearm by a convicted felon, was returned on November 29, 1995. Appellant's two-day trial commenced July 1, 1996, and ended with the jury's return of two guilty verdicts on July 2, and appellant's entry of a plea of guilty to the convicted felon possession count. Appellant was sentenced to life imprisonment for the felony murder, and consecutive terms of 20 years and five years for armed robbery and for using a firearm. He received a concurrent five-year sentence for having possessed a gun while a convicted felon. Appellant's motion for new trial, filed July 9, 1996, and amended February 6 and March 6, 1998, was the subject of a hearing held May 8, 1998. The amended motion for new trial was denied July 20, 1998. After the notice of appeal was filed August 5, the appeal was docketed in this Court on October 26, and submitted for decision on the briefs. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1250718/ | 254 Ga. 70 (1985)
326 S.E.2d 206
ATKINSON
v.
ATKINSON et al. CHUBB GROUP OF INSURANCE COMPANIES
v.
ATKINSON et al. GENERAL ACCIDENT GROUP
v.
ATKINSON et al.
41320, 41321, 41322.
Supreme Court of Georgia.
Decided February 19, 1985.
Rehearing Denied March 14, 1985.
*78 Hurt, Richardson, Garner, Todd & Cadenhead, A. Paul Cadenhead, Brent J. Kaplan, for appellant (case no. 41320).
Long, Weinberg, Ansley & Wheeler, Palmer H. Ansley, Joseph W. Watkins, for appellant (case no. 41321).
Swift, Currie, McGhee & Hiers, James B. Hiers, Jr., Michael H. Schroder, for appellant (case no. 41322).
Swift, Currie, McGhee & Hiers, Michael H. Schroder, Neely & Player, Randall H. Davis, Lokey & Bowden, Glenn Frick, Meals & Parks, Robert N. Meals, Larry H. Chesin, for appellees.
HILL, Chief Justice.
In this multi-party suit for declaratory judgment, the trial court granted permanent equitable relief; e.g., rescinding a settlement agreement entered into in a wrongful death case. This court therefore has jurisdiction. Compare Felton v. Chandler, 201 Ga. 347 (4) (39 SE2d 654) (1946).
In July 1979, a divorce was granted to Thomas and Judith Atkinson, but the alimony and child custody issues were reserved. In September, their 15-year-old daughter, Tracy, was critically injured while riding as a passenger in an automobile driven by Peter Tranakos, a minor, when it and an automobile driven by James Spalding, also a minor, collided. While Tracy lay hospitalized in a coma, a consent order was entered placing her in her mother's temporary custody and requiring her father to pay her medical expenses.
On the night of the accident, Peter Tranakos was driving a car owned by his father and insured by Royal Globe Insurance Companies. James Spalding was driving a car owned by his grandfather and insured by General Accident Life & Assurance Corp., a member of the General Accident Group. Spalding's grandfather also had an excess liability policy which was issued by a member company of the Chubb Group. James Spalding was also an insured under his father's automobile policy issued by Commercial Union Insurance Company.
Following Tracy's death, her mother, Judith Atkinson, instituted *71 suit for wrongful death naming as defendants the two minor drivers and their fathers, as well as James Spalding's grandfather, alleging that the automobiles involved in the collision were family purpose vehicles furnished to the minors by the adult defendants.
Tracy's father, Thomas Atkinson, moved to be allowed to intervene in the wrongful death action, but his motion was denied. He then instituted a suit for the wrongful death of his daughter, but it was dismissed on motion for summary judgment. Thereafter, Judith Atkinson entered into a Release, Covenant and Indemnity Agreement with the defendants in her wrongful death action and their insurance companies. The agreement provides that in consideration of the receipt of $110,000, Judith Atkinson releases the named defendants in her wrongful death case and their insurers from any and all claims arising from the injuries to and death of Tracy Atkinson, except that she did not release any claim Thomas Atkinson might have for the expenses of Tracy's last illness, funeral and burial. Judith also agreed to indemnify and hold harmless the individual defendants and their insurers for any loss sustained by them on account of any claim for damages arising from the injuries to and death of Tracy, except for her father's claim for the expenses of her last illness, funeral and burial. A consent judgment was entered accordingly in the mother's wrongful death case, and Thomas Atkinson filed notice of appeal, appealing the denial of his motion to intervene therein.
At this point, Judith and Thomas Atkinson signed an agreement settling the unresolved alimony and property issues in their divorce action. Paragraph 11 of that agreement reads, in relevant part, as follows: "Husband did not participate in the settlement of Wife's claim, was not privy thereto, and is without knowledge of the contents thereof. Husband agrees, while not condoning said settlement, that he will not assert a claim against said proceeds. Husband reserves the right to pursue his personal appeal and to enforce his personal rights against all defendants in said Civil Action Numbered above [the wrongful death case instituted and settled by the wife]. Additionally, Husband, as father of said child, instituted his own action . . . and Husband reserves the right to proceed in said cause. Wife releases to Husband any claims or rights she has against any judgment or settlement proceeds paid after the date of this Agreement to Husband or to Husband and Wife jointly in either or both of said Civil Actions."[1]
Before the alimony settlement agreement was approved by the court, this court held in Atkinson v. Atkinson, 249 Ga. 247 (290 SE2d 423) (1982), that Thomas Atkinson's motion to intervene in his wife's *72 wrongful death action should have been granted because the temporary custody order did not divest him of his cause of action for the wrongful death of their child.
In the final judgment in the divorce action, the trial court rejected paragraph 11 of the alimony settlement agreement, above, stating that: "[T]he court finds that this agreement has as its basic foundation the condition that the wife be allowed to keep what proceeds she now has from the wrongful death action. This is the condition upon which she agreed to give up the house and allow it to be sold without contest. Therefore, the court does not approve Item 11 of the agreement as it does not clearly express the wife's right to keep the wrongful death proceeds. Item 11 is therefore ordered stricken from the agreement. In place of Item 11, the court hereby provides that the wife shall be allowed to keep all the proceeds from the wrongful death action which she now has." No appeal was taken from this order.
After Thomas Atkinson prevailed in this court and intervened in his former wife's wrongful death action, she filed this declaratory judgment action, naming him as a defendant along with the defendants in the wrongful death case and their insurance companies. In the declaratory judgment action, the trial court made the following rulings: (1) Judith Atkinson's settlement agreement in the wrongful death action "must be set aside for mutual mistake of law and fact that she had the right and power to enter into a total settlement of such cause of action when in fact such cause of action was vested in her and Thomas H. Atkinson jointly." The consent judgment incorporating the wrongful death settlement agreement was also set aside and Judith Atkinson was ordered to repay the $110,000. (2) The court declared that paragraph 11 of the alimony settlement agreement between Judith and Thomas is still binding on the parties and is construed as an indemnity and surety agreement whereby he agreed that she should recover $110,000. He was ordered to pay her $110,000 simultaneously with her repayment of the $110,000. The court's substitution for paragraph 11 was also construed as a guarantee by Thomas that Judith will recover $110,000. (3) Judith was directed to enter a voluntary dismissal with prejudice in the joint action for the wrongful death of Tracy so that Thomas alone may proceed to recover the full value of Tracy's life. (4) Although General Accident had paid out its policy limits, upon its receipt of $35,000 of the $110,000, it will not have done so and its duties under the policy therefore have not ended; furthermore, even if the policy limits were exhausted, it still has the primary duty to provide defenses to its insureds. (5) The excess coverage provided by a member of the Chubb Group comes into play when General Accident's coverage is exhausted, and the coverage provided by Commercial Union comes into play only when the Chubb Group coverage is exhausted.
*73 Thomas Atkinson, the Chubb Group and General Accident each appeal.
1. Mr. Atkinson enumerates as error the overruling of his motion for summary judgment, urging that declaratory judgment is not an available remedy as against him for the reason that the issues raised as to him can be resolved in the wrongful death action into which he has intervened. He urges further that it was error to stay proceedings in that wrongful death action because he is entitled to a prompt trial of his wrongful death claim.
We find that declaratory judgment does lie to determine General Accident's duty to defend, see Shield Ins. Co. v. Hutchins, 149 Ga. App. 742 (2) (256 SE2d 108) (1979), and thus suit for declaratory judgment naming all parties and the order staying the wrongful death action were appropriate. Moreover, in view of the requirement that Mrs. Atkinson refund the $110,000 settlement to its payors, it would be inappropriate to leave that requirement in effect without resolving Mr. Atkinson's obligation, if any, to reimburse her. Finally, this litigation has been prolonged and made complicated because Mr. Atkinson was not originally allowed to become a party to the wrongful death action.[2] Were he now to be dismissed as a party to this litigation, the wrongful death action would not be expedited and likely would be more prolonged and complicated.
The trial court did not err in denying Mr. Atkinson's motion for summary judgment or in staying the wrongful death action.
2. The next issue which must be resolved, raised by all the appellants, is whether the trial court erred in setting aside the wrongful death settlement agreement and consent judgment entered into by Judith Atkinson and all the defendants except Thomas Atkinson. We find that it did.
OCGA § 23-2-21 provides that: "(a) A mistake relievable in equity is some unintentional act, omission, or error arising from ignorance, surprise, imposition, or misplaced confidence. (b) Mistakes may be either of law or of fact. (c) The power to relieve mistakes shall be exercised with caution; to justify it, the evidence shall be clear, unequivocal, and decisive as to the mistake." We find no mistake of fact. That the cause of action for wrongful death was vested in Mr. and Mrs. Atkinson jointly is a proposition of law, not of fact.
OCGA § 23-2-22 provides that: "An honest mistake of the law as to the effect of an instrument on the part of both contracting parties, when the mistake operates as a gross injustice to one and gives an unconscionable advantage to the other, may be relieved in equity." It *74 has not been shown that Mrs. Atkinson has suffered a gross injustice or that the wrongful death defendants and their insurers have an unconscionable advantage.
OCGA § 23-2-27 provides that: "Mere ignorance of the law on the part of the party himself, where the facts are all known and there is no misplaced confidence and no artifice, deception, or fraudulent practice is used by the other party either to induce the mistake of law or to prevent its correction, shall not authorize the intervention of equity." Judith Atkinson's "mistake" if any, was in signing a release that included an indemnity agreement but she did so in return for valuable consideration and after she was on notice by his motion to intervene that her ex-husband had asserted in a legal and timely manner that he had a cause of action which could, if he recovered upon it, trigger the indemnity provisions of the settlement agreement and render her liable under it. "`The rule is well settled that a simple mistake by a party as to the legal effect of an agreement which he executes, or as to the legal result of an act which he performs, is no ground for either defensive or affirmative relief.' . . . This case furnishes another instance wherein the hindsight is better than the foresight, for which law or equity affords no remedy. The law does not restore mere blindness or cure bad sight. The authorities are numerous that mistake of a past or present fact may warrant equitable relief, but a mistake in opinion or mental conclusion as to an uncertain future event is not ground for relief." Callan Court Co. v. C & S Nat. Bank, 184 Ga. 87, 130 (190 S.E. 831) (1937).
Moreover, Judith Atkinson did not establish that rescission of the settlement agreement would not prejudice the other parties to it. OCGA § 23-2-32 (b). We therefore conclude that the trial court erred in ordering rescission of the wrongful death settlement agreement. It follows that the trial court erred in setting aside the consent judgment incorporating that settlement agreement, in ordering Judith Atkinson to refund the $110,000, and in ordering her former husband to reimburse her that amount simultaneously.
3. The next issue to be resolved is the effect, if any, of paragraph 11 of the alimony settlement agreement. We find that that paragraph was stricken by the divorce court and has no effect. Assuming without deciding that an alimony settlement agreement approved by a court may be enforced either as a judgment or a contract between the parties, we find that a provision of an alimony settlement agreement disapproved by the court cannot be enforced as a contract, because the doctrine of res judicata forbids enforcement of such provision.
Therefore, Thomas Atkinson's right to pursue his wrongful death claim comes not from the alimony settlement agreement but from the law, if at all, and he acquired none of his former wife's claims or rights against any judgment or settlement obtained by him on his *75 wrongful death claim. The court below therefore erred in giving any effect to the stricken paragraph 11 of the alimony settlement agreement.
4. We next consider the effect of the divorce court's order regarding paragraph 11. In that order, the court decreed that "the wife shall be allowed to keep all the proceeds [$110,000] from the wrongful death action. . . ." Reading this provision in its context, we find that this decree was more than a mere allocation of property; it is prospective, and it prohibits the former husband from obtaining a judgment or settlement on his wrongful death claim which results in the wife losing any part of the $110,000.
5. In sum, we find that Thomas Atkinson is entitled to pursue his claim for the wrongful death of his daughter against the defendants in that action, to seek a verdict for the full value of her life, and to recover one-half of that amount from the defendants liable therefor or their insurers. Southeastern Greyhound Lines v. Wells, 204 Ga. 814 (51 SE2d 569) (1949). Those defendants and their insurers would then be entitled to recover such sums from Judith Atkinson pursuant to her indemnification agreement. She in turn would be entitled to reimbursement of such sums from her former husband pursuant to the alimony decree, at least up to the sum of $110,000. If it appears that these parties have created a merry-go-round, it should be noted that each boarded it independently.
6. The final two questions demanding resolution are those relating to insurance coverage. The first of these is whether General Accident still has a duty to defend even though it has paid out its policy limits. General Accident's policy provides: "Our duty to settle or defend ends when our limit of liability for this coverage has been exhausted."
General Accident relies on Liberty Mutual Ins. Co. v. Mead Corp., 219 Ga. 6 (131 SE2d 534) (1963). In that case, one of Mead's vehicles, insured by Liberty Mutual up to $100,000, was involved in a collision which resulted in four deaths. Liberty settled two of the claims, paying $100,000, with Mead contributing $60,000. Thereafter Liberty refused to defend the remaining claims and Mead sued Liberty for its attorney fees and expenses in defending such claims. The court construed the insurance policy to provide, as here, that the duty to defend terminated upon the insurer's payment of the policy limits. The court went on, however, to consider whether Liberty had performed its duty to defend (in good faith), nothing the following: (1) The insured consented to and contributed to the settlement of the first two claims; (2) the insurer did not elect to pay the policy limit at the outset and thereby cast the burden of defense upon the insured from the beginning (i.e., the insurer actually defended and resolved two of the claims); and (3) the insurer did not elect to defend rather *76 than settle and then abandon the defense of the claim in mid-course to the prejudice of the insured.
Pretermitting whether the insured's consent is required or was given in this case, we find the third of these considerations applicable here; the insurer has failed to show that it has not abandoned the defense of the claim in mid-course to the prejudice of the insured. The wrongful death of Tracy Atkinson gave rise to a single claim, jointly in the child's parents, for the full value of the life of the child. Atkinson v. Atkinson, supra; Ga. L. 1979, pp. 466, 494. Here, after the father sought unsuccessfully to intervene in the wrongful death action instituted by the mother, the insurer settled with the mother, paying her the full value of the life as agreed to by the parties. Yet, that wrongful death action has not been resolved; the insured remains liable for one-half the full value of the life of the deceased. An insurer's duty to defend its insured is not satisfied when the insurer settles by paying its policy limits to the wrong party. The insurer has failed to show that the insured has not been prejudiced by the insurer's failure to resolve the one wrongful death claim in its entirety.[3] Moreover, having prepared the defense of the mother's suit, General Accident is in the best position to defend the remainder of the claim, the facts as to liability and damages being the same.
The trial court did not err in denying General Accident's motion for summary judgment and therefore did not err in holding that General Accident still has the duty to defend the suit for the wrongful death of Tracy Atkinson.
7. The final question is which insurer is next in line as to payment of damages. (General Accident has paid its policy limits and no one contends it is liable for payment of additional damages.) Chubb Group, excess insurer for James Spalding and his grandfather, contends that Commercial Union, insurer of James Spalding's father, is next in line. Commercial Union contends that the trial court was correct in finding Chubb Group to be next in line. We find this to be an oversimplification, although the more difficult problem is not resolved by simplifying it. Chubb Group is next in line as to James Spalding's grandfather, and Commercial Union is next in line as to his father, if either or both of them has any personal liability.
The question remains as to which insurer is next in line as to James Spalding's liability, if any. As might be expected, the policy of Chubb Group as well as the policy of Commercial Union declares that it is excess to any other policy of insurance. The Commercial Union policy taken out by James Spalding's father names James as an insured *77 but provides that "any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance."
The Chubb Group policy issued to James Spalding's grandfather is denominated a "Personal Excess Liability Policy." It states that "As the name suggests, the policy provides excess liability it comes into play after all your primary liability insurance has been used up." Its limit of liability is $1,000,000 for "Each Occurrence in excess of the Retained Limit as defined herein." The policy provides that "The company agrees to pay on behalf of the insured ultimate net loss, in excess of the retained limit, which the insured shall become legally obligated to pay as damages because of personal injury or property damage." The phrase "retained limit" is defined as "the limit of liability of the primary insurance as it is shown in the Schedule hereof, or the actual limits of liability of any applicable primary or other insurance, whichever is greater." The policy further provides that: "The insurance provided by this policy shall be in excess of, and shall not contribute with, any other insurance . . . available to the named insured or any other person or organization falling within the definition of insured in this policy, not only under any policy enumerated in the Schedule, but also under any other insurance available to the insured, and this insurance shall not apply until all such insurance is exhausted."
The prevailing rule as stated in Appleman, Insurance Law and Practice, § 4909.85 (1981), is that: "[U]mbrella coverages, almost without dispute, are regarded as true excess over and above any type of primary coverage, excess provisions arising in regular policies in any manner, or escape clauses." We are persuaded by the authorities cited in this treatise that this is the better rule and hereby adopt it in Georgia. The Commercial Union policy is a primary policy in that it was written to provide primary coverage. Only when it is called upon where a vehicle not owned by the insured is involved in an accident does it become excess. The Chubb Group policy, on the other hand, is an excess policy; i.e., it was not written to provide primary coverage as to automobile accidents. Applying the prevailing rule, the trial court erred in holding that the Chubb Group policy must be exhausted before the Commercial Union policy applies.
Judgment affirmed in part and reversed in part in Case No. 41320; judgment reversed in Case No. 41321; judgment affirmed in Case No. 41322. All the Justices concur, except Smith, J., who dissents as to Divisions 2 and 5 and to the judgment in Case No. 41320.
NOTES
[1] It has now been stipulated that counsel for Mr. Aktinson obtained a copy of Mrs. Atkinson's Release, Covenant and Indemnity Agreement shortly after the alimony settlement agreement was executed.
[2] The denial of his motion to intervene should have been made subject to and appealed under OCGA § 9-11-54 (b) prior to settlement of the wrongful death and divorce cases.
[3] The excess carrier is entitled to assert prejudice to the insured as a third-party beneficiary of the insurance policy issued by General Accident. Appleman, Insurance Law and Practice (Berdal ed.), § 4682, pp. 32, 33 (1979). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1105873/ | 718 So.2d 1091 (1998)
Frederick RENNIE
v.
Barbara E. RENNIE.
No. 97-CA-00100-SCT.
Supreme Court of Mississippi.
July 23, 1998.
W. Eugene Henry, Biloxi, for Appellant.
Patricia C. Champagne, Gulfport, for Appellee.
Before PITTMAN, P.J., and McRAE and MILLS, JJ.
MILLS, Justice, for the Court:
STATEMENT OF THE CASE
¶ 1. On December 20, 1996, Chancellor Jason Floyd granted Barbara Rennie's petition for divorce. He ordered Frederick Rennie to pay $446.00 per month for support of the Rennies' only child, Heather. He also awarded Barbara Rennie a 32% interest in the retirement income that Frederick Rennie received from the United States Government *1092 for his service in the United States Air Force. Aggrieved, Frederick Rennie appeals assigning the following issues as error:
I. WHETHER THE TRIAL COURT ERRED IN FINDING THAT HEATHER RENNIE WAS NOT EMANCIPATED BY LAW AT THE TIME OF THE HEARING.
II. WHETHER THE TRIAL COURT ERRED BY NOT ENFORCING THE PROPERTY SETTLEMENT AGREEMENT THE PARTIES HAD DRAWN UP IN CONTEMPLATION OF FILING FOR DIVORCE.
III. WHETHER THE TRIAL COURT ERRED IN AWARDING BARBARA RENNIE A PORTION OF FREDERICK RENNIE'S RETIREMENT INCOME FROM THE UNITED STATES AIR FORCE.
STATEMENT OF THE FACTS
¶ 2. Frederick and Barbara Rennie were married on March 3, 1972. In 1977, Barbara gave birth to the Rennies' only child, Heather. Frederick served in the United States Air Force from April 1965 until May 1987. From the time they were married until 1984 Barbara traveled with Frederick to different assignments and they lived as man and wife. In 1984 the couple resided in their own home in Long Beach, when Frederick was informed that he must do a tour of duty overseas and that he could either go to Europe or the Pacific area. Frederick chose Europe and was assigned to Germany. Barbara did not want to move to Germany and neither Frederick nor Barbara wanted to pull Heather out of the Long Beach school system. The couple decided that Barbara would stay in Long Beach with Heather. Frederick requested that he be reassigned to Keesler Air Force Base near Long Beach after his tour in Germany. While in Germany, Frederick would return four times a year for two to three days at a time to visit Barbara and Heather. Additionally, Barbara and Heather went to Europe twice to see Frederick. On one trip they visited Scotland, where Frederick had family, and on another occasion they visited Frederick in Germany. Barbara and Frederick did not engage in sexual relations on any of these visits.
¶ 3. Frederick's tour in Germany ended in 1986 and he was transferred to Whitman Air Force Base in Missouri. Frederick testified that he asked Barbara to join him in Missouri and she refused. At this point he informed her that if she did not move to Missouri with him, then the marriage was over. Barbara testified that Frederick was contemplating retiring in a year and that she did not want to move to Missouri for one year. Instead, Barbara stated that she preferred to stay in Long Beach and wanted Frederick to move back to Long Beach with them when he retired from the Air Force.
¶ 4. Once Frederick moved to Missouri the marriage began to rapidly deteriorate. Shortly after the move Frederick wrote to Barbara suggesting divorce. Though Frederick still periodically returned to Long Beach to visit Heather, he slept on the couch or in Heather's bed on these trips and she slept with her mother. Heather also regularly visited her father in Missouri. She returned from one of her visits to Missouri to inform Barbara that Frederick was living with another woman. Frederick testified that he did not begin cohabitating with the other woman until 1991, long after the Rennies had decided to divorce. Further, Frederick pointed out that a property settlement agreement which Barbara sent him provided that each party could carry on and conduct his or her private life as if he or she were unmarried. Frederick began paying $500 a month in child support in 1992. On January 2, 1996, Heather gave birth to an illegitimate child, Shane Cobern. Heather's boyfriend, Guy Cobern, affectionately known as Boogie, is Shane's father. In April 1996, Heather moved out of her mother's home and into an apartment with Boogie. Following Heather's move, Frederick reduced his child support payments to $250 per month. At this time, Boogie was working full time, and Heather was working part-time. Heather testified that during this absence from her mother's home, her mother provided some assistance by purchasing some items for Heather and Shane. After only three months on their own, Heather lost her job and she, Boogie, *1093 and Shane moved in with Barbara. In August 1996, Frederick stopped paying child support altogether. In September 1996, Heather and Boogie broke up and Boogie moved out. Heather and Shane still reside with Barbara. Heather testified that she has gotten her GED and is seeking a Pell Grant to attend college.
¶ 5. Frederick testified that after taxes, he brings home about $3500 per month. He stated that he draws $1650 each month from his military retirement pay and that he is currently employed as a systems analyst with CSDI, making $2,633 per month. Barbara testified that she is employed at the Grand Casino in Gulfport and that she has a gross income of $900 per month.
STANDARD OF REVIEW
¶ 6. When reviewing a chancellor's decision this Court will accept the chancellor's finding of fact as long as the evidence in the record reasonably supports those findings. Perkins v. Thompson, 609 So.2d 390, 393 (Miss.1992). In other words, we will not disturb the findings of a chancellor unless those findings are clearly erroneous or an erroneous legal standard was applied. Hill v. Southeastern Floor Covering Co., 596 So.2d 874, 877 (Miss.1992). Where the factual findings of the chancellor are supported by substantial credible evidence, they are insulated from disturbance on appellate review. Jones v. Jones, 532 So.2d 574, 581 (Miss. 1988) (citing Norris v. Norris, 498 So.2d 809, 814 (Miss.1986); Carr v. Carr, 480 So.2d 1120, 1122 (Miss.1985)).
DISCUSSION
I. WHETHER THE TRIAL COURT ERRED IN FINDING THAT HEATHER RENNIE WAS NOT EMANCIPATED BY LAW AT THE TIME OF THE HEARING.
¶ 7. The chancellor ordered Frederick to pay $446 per month in child support for Heather until she was self-sufficient or reached the age of 21. Frederick asserts that the chancellor erred in awarding child support because Heather is emancipated. Frederick advances that Heather is emancipated because she is no longer in school, she has a child with Boogie, she has lived with Boogie as man and wife, and she has held several part-time jobs averaging between twenty to thirty-five hours per week. Further, Frederick argues that Boogie's support of Heather and their child for a period of time, along with their discussion of marriage, and the fact that they signed a six month lease together all lend credence to his assertion that Heather is emancipated.
¶ 8. Barbara asserts that Heather has never been emancipated. The Mississippi legislature outlined when emancipation occurs in Mississippi Code Annotated § 93-5-23, stating:
The duty of support of a child terminates upon the emancipation of the child.
The court may determine that emancipation has occurred and no other support obligation exists when that child:
(a) Attains the age of twenty-one years, or
(b) Marries, or
(c) Discontinues full-time enrollment in school and obtains full-time employment prior to attaining the age of twenty-one (21) years, or
(d) Voluntarily moves from the home of the custodial parent or guardian, and establishes independent living arrangements and obtains full-time employment prior to attaining the age of twenty-one (21) years.
Miss.Code Ann. § 93-5-23 as amended in 1996 (emphasis added). The statutory language is not exclusive. The statute only defines when a court may find that a child is emancipated. Other situations, not contemplated by the statute, may also establish emancipation.
¶ 9. In Caldwell v. Caldwell, 579 So.2d 543, 549 (Miss.1991), we defined emancipation prior to the enactment of the correct statutory language as follows:
Emancipation, as employed in the law of parent and child, means the freeing of a child for all the period of its minority from the care, custody, control, and service of its parents; the relinquishment of parental control, conferring on the child the right to its own earnings and terminating the parent's legal obligation to support it.
*1094 Caldwell, 579 So.2d at 549 (quoting Pass v. Pass, 238 Miss. 449, 454, 118 So.2d 769. 238 Miss. 449, 118 So.2d 769, 771(1960)). This judicial definition has been enlarged not diminished by the amended statute. When Heather Rennie moved into an apartment with Boogie she removed herself from her mother's care and control. Once she and Boogie set up house and had a child, she was no longer under Barbara or Frederick's control. She and Boogie were living together, supporting themselves and their child. Indeed, she and Boogie were liberated from parental control. Though Heather has now returned to Barbara's home and may very well be under Barbara's control, she has taken her bite from the apple. In Crow v. Crow, 622 So.2d 1226 (Miss.1993), we held that once a child is emancipated, child support is terminated forever. We opined that child support cannot be renewed once the situation creating emancipation no longer exists. Crow, 622 So.2d at 1228. Since Heather voluntarily chose emancipation, she may not now revoke her irresponsible launch into adulthood. The chancellor erred when he ordered Frederick to renew his child support obligations for Heather.
II. WHETHER THE TRIAL COURT ERRED BY NOT ENFORCING THE PROPERTY SETTLEMENT THE PARTIES HAD DRAWN UP IN CONTEMPLATION OF FILING FOR DIVORCE.
¶ 10. In 1992, Barbara Rennie retained attorney Faye Spayde to represent her in a divorce. Ms. Spayde prepared a proposed property settlement agreement, which she sent to Frederick on June 2,1992. The agreement stated that Barbara was entitled to receive 50% of Frederick's retirement benefits. Frederick did not sign this agreement and informed Barbara that she was not entitled to any of his retirement benefits. On June 8, 1992, Barbara deleted the portion of the original property settlement asking for fifty percent of Frederick's retirement benefits, and sent Frederick a revised property settlement agreement. Ms. Spayde sent Frederick a letter with the revised agreement informing him that if he would sign the revised agreement and have it notarized, she would get Barbara to sign it and send him a copy. Frederick signed the agreement and mailed it back to Ms. Spayde. Frederick then called Ms. Spayde and told her that there were some portions of the agreement to which he objected. He had Ms. Spayde strike through these portions of the agreement. Barbara never returned to Ms. Spayde's office and never signed the revised agreement. Frederick now asserts that the chancellor erred in failing to enforce this unexecuted property settlement agreement.
¶ 11. Frederick's assertion is without merit. First, Barbara failed to sign the revised agreement. Frederick's cited authorities such as Traub v. Johnson, 536 So.2d 25 (Miss.1988), all concern property settlement agreements signed by both parties. Further, nothing in the record suggests that Barbara would have agreed to Frederick's proposed changes. Finally, no court approved this property settlement agreement. We have consistently held that property settlement agreements entered into in anticipation of divorce on the grounds of irreconcilable differences must be approved by the court to be enforceable. Grier v. Grier 616 So.2d 337, 340 (Miss.1993). (citing Sullivan v. Pouncey, 469 So.2d 1233 (Miss.1985)). In the case sub judice, the property settlement agreement was drawn up in contemplation of a divorce on the grounds of irreconcilable differences in 1992. The couple never pursued this divorce and thus, no court ever had the chance to approve the property settlement. Instead, on January 24, 1996, Barbara filed for divorce on the grounds of irreconcilable differences or in the alternative cruel and inhuman treatment, and adultery. On August 26, 1996, Frederick filed a cross complaint for divorce on the grounds of irreconcilable differences or in the alternative, desertion. The property settlement agreement urged by Frederick was made in contemplation of a divorce in 1992, not the divorce that was actually obtained in 1996. Finally, one clause in the agreement stated, "... In the event said divorce action is not pursued to consummation this agreement shall become null and void." Further, in 1996, Frederick signed a consent to adjudication stating that he would allow the chancellor to determine: Barbara's interest in his military retirement *1095 benefits; Frederick's duty to pay child support; and Barbara's right to receive periodic alimony. Frederick's assertions to the contrary, the 1992 "agreement" has no application to the present action and the chancellor did not err in refusing to enforce its terms.
III. WHETHER THE TRIAL COURT ERRED IN AWARDING BARBARA RENNIE A PORTION OF FREDERICK RENNIE'S RETIREMENT INCOME FROM THE UNITED STATES AIR FORCE.
¶ 12. Frederick next contends that the trial court erred in awarding Barbara thirty-two percent of his retirement income from the United States Air Force. He asserts that in order for Barbara to receive a portion of this asset, she must prove by a preponderance of the evidence that she helped acquire the asset. He argues that Barbara made no contribution to the acquisition of his retirement benefits from the Air Force.
¶ 13. Military retirement benefits are considered personal property and as such are subject to equitable division in a divorce proceeding. Hemsley v. Hemsley, 639 So.2d 909, 914 (Miss.1994). We have defined marital property as any property or assets acquired during the course of the marriage. Hemsley, 639 So.2d at 915. In Hemsley, we noted that Mr. Hemsley's military retirement was accumulated during the course of his marriage and thus, was subject to equitable distribution. Id. at 913-14. Likewise, in the case sub judice at least part of Frederick's retirement was accumulated during his marriage to Barbara and therefore is subject to equitable distribution.
¶ 14. In Ferguson v. Ferguson, 639 So.2d 921, 928 (Miss.1994), we provided guidelines for chancellors to follow when dividing marital property. We directed chancellors to support their holdings with finding of fact and conclusions of law. Ferguson, 639 So.2d at 928. The guidelines were enumerated as follows:
1. Substantial Contribution to the accumulation of the property. Factors to be considered in determining contribution are as follows:
a. Direct or indirect economic contribution to the acquisition of the property;
b. Contribution to the stability and harmony of the marital and family relationships as measured by quality, quantity of time spent on family duties and duration of the marriage; and
c. Contribution to the education, training or other accomplishments bearing on the earning power of the spouse accumulating assets.
2. The degree to which each spouse has expended, withdrawn or otherwise disposed of marital assets and any prior distribution of such assets by agreement, decree or otherwise.
3. The market value and the emotional value of the assets subject to distribution.
4. The value of assets not ordinarily, absent equitable factors to the contrary, subject to such distribution, such as property brought to the marriage by the parties and property acquired by inheritance or inter vivos gift by or to an individual spouse;
5. Tax and other economic consequences, and contractual or legal consequences to third parties, of the proposed distribution;
6. The extent to which property may, with equity to both parties, be utilized to eliminate periodic payments and other potential sources of future friction between the parties;
7. The needs of the parties for financial security with due regard to the combination of assets, income and earning capacity; and
8. Any other factor which in equity should be considered.
Id. at 928.
¶ 15. Frederick asserts that Barbara did not show that she contributed financially or domestically to their household and that she made no direct or indirect contribution toward the acquisition of his retirement income. He further argues that the chancellor erred in not making any findings of fact as to whether Barbara contributed to Frederick's military income.
¶ 16. The chancellor could have made a more extensive finding of fact in the record. However, the record indicates that the chancellor *1096 followed Ferguson. First, the record reflects that Barbara moved five times in twelve years in order to further Frederick's military career. These moves reflect that Barbara was willing to contribute to the harmony and stability of the marriage as well as to Frederick's accomplishments. One of their moves was to be closer to the University of Southern Mississippi so that Frederick could obtain his college degree. This move was certainly in furtherance of Frederick's accomplishments and career.
¶ 17. The record is silent as to who performed the household duties the first twelve years of the Rennies' marriage. The record does indicate that Barbara did not work during these twelve years, so it is safe to assume that since Barbara stayed home, she was Heather's primary care-giver during these years. In 1984, when Frederick was stationed in Germany Barbara was Heather's primary care giver and she maintained the marital home for Frederick's return. Additionally, Barbara and Heather made two trips to Europe to visit Frederick. Clearly, Barbara was contributing to the stability and harmony of the marriage at this time.
¶ 18. In addition to maintaining the home while Frederick was in Germany, Barbara was also employed outside of the home. During Frederick's two years in Germany, Barbara contributed to the family income by running a bait shop with her mother. The record does not reflect Barbara's income from the bait shop or the amount of her income spent on household expenses.
¶ 19. Frederick's argument that Barbara is not entitled to his retirement focuses solely on his argument that she did nothing to contribute to his retirement. Frederick fails to realize that this court has previously held that even if the husband is bringing in the income, marriage is a 50/50 partnership and property acquired during the marriage is considered marital property regardless of the role played by each partner. Hemsley, 639 So.2d at 914.
¶ 20. Frederick also neglects to address any of the other Ferguson factors. Though most of the factors are not applicable to the case sub judice, factor number seven directs the chancellor to consider the parties' need for financial security in light of the combination of assets, income and earning capacity. The Rennies agreed that she would get the house in Long Beach and he would get all of their other property. When considering the income and earning capacity that Frederick and Barbara receive, we find that the chancellor made an equitable decision in awarding Barbara 32% of his retirement. Frederick's income is over three times that of Barbara's. His earning capacity is also greater because he has a college degree and Barbara does not. The chancellor did not award Barbara alimony, so a portion of Frederick's military retirement would be her only income besides the $900 a month that she earns working at the Grand Casino.
¶ 21. We also give weight to the fact that Barbara and Frederick were married for twenty-four years and for at least twelve of those years lived as man and wife. The chancellor noted that Frederick served in the Air Force for twenty-two years and that he and Barbara were married for fourteen of those years. Equity dictates that Barbara share in Frederick's retirement. Thus, we affirm the chancellor as to this issue.
CONCLUSION
¶ 22. According to the definition of emancipation set forth by this Court in Caldwell v. Caldwell, 579 So.2d 543, 549 (Miss.1991), and consistent with the non-exclusive language of the statute, Heather became emancipated when she moved out of her mother's house to live with Boogie. Once a child is emancipated a father's obligation to continue child support ceases. Crow, 622 So.2d at 1228. Thus, we reverse the chancellor's order compelling Frederick Rennie to pay child support.
¶ 23. We find Frederick's contention that the chancellor erred in not enforcing a four year old property settlement that Barbara Rennie never signed to be without merit. Further, we find that Barbara Rennie is entitled to thirty-two percent of Frederick Rennie's military retirement. For the following reasons, we reverse in part and affirm in part.
¶ 24. AFFIRMED IN PART; REVERSED AND RENDERED IN PART.
*1097 PRATHER, C.J., SULLIVAN and PITTMAN, P.JJ., and 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/2062118/ | 531 Pa. 210 (1992)
612 A.2d 395
COMMONWEALTH of Pennsylvania, Appellee,
v.
Henry DANIELS, Appellant.
Supreme Court of Pennsylvania.
Argued January 21, 1992.
Decided May 29, 1992.
*215 George Henry Newman, for appellant.
Ronald Eisenberg, Deputy Dist. Atty., Catherine Marshall, Chief, Appeals Div., Kathy L. Echternach, Robert A. Graci, Chief Deputy Atty. Gen., for appellee.
*216 Before NIX, C.J., and LARSEN, FLAHERTY, McDERMOTT, ZAPPALA and CAPPY, JJ.
ORDER OF THE COURT
PER CURIAM.
The Court being unanimous as to the conviction and equally divided as to the sentence, the conviction and sentence are affirmed.
PAPADAKOS, J., did not participate in the consideration or decision of this case.
LARSEN, J., files an opinion in support of affirmance joined by FLAHERTY and McDERMOTT, JJ.
NIX, C.J., files an opinion in support of vacating sentence of death.
ZAPPALA, J., files an opinion in support of vacating sentence of death joined by CAPPY, J.
OPINION IN SUPPORT OF AFFIRMANCE
LARSEN, Justice.
On November 10, 1989, appellant, Henry Daniels was convicted by a jury of murder of the first degree, criminal conspiracy, kidnapping, robbery, and two counts of burglary. On November 14, 1989, a sentencing hearing was held pursuant to the Sentencing Code, 42 Pa.C.S.A. § 9711, and the jury unanimously sentenced appellant to death for the murder of the first degree conviction; whereupon the trial judge formally imposed the death sentence. On April 23, 1990, post-trial motions were heard and denied by the trial judge, who sentenced appellant to an aggregate, consecutive term of twenty-five to fifty years in prison for the other aforementioned crimes. This direct appeal followed.
Appellant does not challenge the sufficiency of the evidence to sustain his conviction for murder in the first degree; however, we are required to review the sufficiency of *217 the evidence in all capital cases. Commonwealth v. Zettlemoyer, 500 Pa. 16, 454 A.2d 937 (1982), cert. denied, 461 U.S. 970, 103 S.Ct. 2444, 77 L.Ed.2d 1327 (1983), reh'g denied, 463 U.S. 1236, 104 S.Ct. 31, 77 L.Ed.2d 1452 (1983). In reviewing the sufficiency of the evidence, we must view the evidence, and all reasonable inferences drawn therefrom, in the light most favorable to the Commonwealth as the verdict winner, and must determine whether there is sufficient evidence to enable the jury to find every element of the crime beyond a reasonable doubt. Commonwealth v. Bryant, 524 Pa. 564, 574 A.2d 590 (1990). Accordingly, we find the following evidence sufficient beyond a reasonable doubt to support the jury's verdict of murder in the first degree.
On September 1, 1988, appellant participated in a scheme to kidnap and hold for ransom sixteen year old Alexander Porter. Appellant and three other individuals set up a purported drug transaction with Porter, in order to lure him to a meeting, whereupon they bound and gagged him, confiscated his keys, and stuffed him in the trunk of his car. One of the conspirators, a "friend" of Porter's, allowed himself to be tied up in front of Porter, so that Porter would not realize his involvement. He was "released" after Porter was locked in the trunk, then taken home so that Porter would later believe that he had been murdered. The remaining conspirators drove Porter's car, with Porter in the trunk, to the garage of one of the individuals and parked it there. They proceeded in another car to Porter's mother's house, and using Porter's key, burglarized the dwelling. They then used Porter's key to burglarize his father's house, whom they believed to be very wealthy.
Upon their return, they discovered that Porter had loosened his restraints. Before restraining him again, one of the individuals demanded to know how much Porter was worth to his father, and insisted that he disclose his mother's and father's telephone numbers. They told Porter that they had killed his friend and if he did not cooperate, they would kill him too. Porter provided them with his mother's telephone number and his father's beeper number. The captors then *218 decided to abandon their ransom plan, in favor of eliminating Porter. To keep Porter from moving around while they drove, they wedged two milk crates into the trunk, further restricting his movement and forcing his body to bounce off of these objects, as they drove around in search of a place to kill him. Unable to find a place to effect the killing, they returned to the garage to await nightfall.
Under cover of darkness, appellant and one of his cohorts, set out to dispose of the victim.[1] They drove to a wooded area, removed the stiff body from the trunk, and placed Porter face-down on the side of the road. Uncertain as to whether Porter had expired from strangulation as a result of the gagging, appellant's cohort shot him four times in the back of the neck with a .25 caliber automatic handgun. The two of them then abandoned Porter's car and discarded his keys into a sewer. The gun was later discovered in appellant's car. Appellant was arrested and confessed his part in the scheme to set up Porter in order to obtain money from his father. Appellant denied that he ever intended to kill Porter; rather he placed the blame on one of his cohorts.
Based upon the foregoing, we find that the evidence was sufficient to sustain the jury's verdict of murder in the first degree.
At the penalty hearing, immediately following the verdict, the jury sentenced appellant to death, based upon its finding of four aggravating circumstances which outweighed the mitigating circumstances. The jury found the existence of the following aggravating circumstances: (1) "[t]he victim was a prosecution witness to a murder or other felony committed by the defendant and was killed for the purpose of preventing his testimony against the defendant in any grand jury or criminal proceeding involving such offenses," 42 Pa.C.S.A. § 9711(d)(5); (2) "[t]he victim was being held by the defendant for ransom or reward", 42 Pa.C.S.A. § 9711(d)(3); (3) "[t]he offense was committed by means of torture," 42 Pa.C.S.A. § 9711(d)(8); and (4) "[t]he defendant committed a killing while in the perpetration of a felony." 42 Pa.C.S.A. § 9711(d)(6). As a *219 mitigating circumstance, the jury unanimously found "other evidence of mitigation concerning the character and record of the defendant and the circumstances of his offense." 42 Pa.C.S.A. § 9711(e)(8). Six jurors found as a mitigating circumstance that "the defendant has no significant history of prior criminal convictions." 42 Pa.C.S.A. § 9711(e)(1).[2] The jury then unanimously found that the aggravating circumstances outweighed the mitigating circumstances and sentenced appellant to death.
Appellant argues that three of the four aggravating circumstances found by the jury were unsupported by the evidence. Specifically, he challenges the jury's findings: (1) that the victim was a prosecution witness to a felony and was killed for the purpose of preventing his testimony; (2) that the victim was held for ransom; and (3) that the offense was committed by means of torture. Upon review of the record, we find that the evidence was sufficient beyond a reasonable doubt to establish these three aggravating circumstances.
A finding of the existence of the aggravating circumstance set forth in § 9711(d)(5) requires proof that the victim was killed to prevent his testimony in a pending grand jury or criminal proceeding. Commonwealth v. Caldwell, 516 Pa. 441, 532 A.2d 813 (1987). The existence of this particular aggravating circumstance may be found, absent a pending criminal proceeding, only where the facts establish by direct, rather than circumstantial evidence, that the killing resulted from the intention to eliminate a potential witness. Commonwealth v. Appel, 517 Pa. 529, 537-38 n. 2, 539 A.2d 780, 784 n. 2 (1988); Accord Commonwealth v. Henry, 524 Pa. 135, 569 A.2d 929 (1990), cert. denied, ___ U.S. ___, 111 S.Ct. 1338, 113 L.Ed.2d 269 (1991). This burden will not be met by simply showing that an individual who witnessed a murder or other felony committed by a defendant was also killed by the defendant. Commonwealth v. Crawley, 514 Pa. 539, 526 A.2d 334 (1987). In order to establish that the motivation for the killing was to prevent the victim from being a witness against appellant, the *220 Commonwealth elicited testimony from appellant that he and one of his cohorts had discussed the need to get rid of Porter because he knew where they lived. Appellant also testified that he was concerned that Porter would "tell" if he were released. (N.T. 11/3/89, p. 40).
Appellant contends that the killing was motivated, not by fear of prosecution, but by fear of retaliation in kind by the victim's father. Although this may have been a partial motivation for the killing, it is not inconsistent with the jury's finding that appellant was also motivated by a desire to prevent the victim from testifying in a criminal proceeding. The direct evidence introduced by the Commonwealth clearly supports the jury's finding.
Appellant next challenges the sufficiency of the evidence to support the jury's finding that the victim was being held by the defendant for ransom or reward.
The evidence establishes that the conspirators discussed ransoming Porter, asked Porter how much he was worth to his father, and demanded the telephone numbers of his mother and father. (N.T. 10/30/89 pp. 91, 138; 11/3/89 pp. 70-72). A co-defendant stated that the idea of the whole thing was to "kidnap the boy for money." Upon the realization that ransom calls may have revealed their identities, the captors abandoned their plan, and instead decided to kill their victim.
Appellant argues that because there was no overt act by the captors to either elicit or attempt to elicit ransom from someone other than the victim, the evidence is insufficient to support the jury's finding that the victim was held for ransom. There is nothing in our statute that supports appellant's contention that the captors must convey their ransom demand to a third party. All that is required is that "[t]he victim was being held by the defendant for ransom. . . ." 42 Pa.C.S.A. § 9711(d)(3). An overt act toward execution of that purpose is sufficient to sustain the jury's conclusion that the victim was held for ransom. The acts of appellant and his cohorts, of kidnapping Porter, then questioning his value to his parents and demanding his parents' telephone numbers, were sufficient *221 for the jury to conclude that Porter was held for ransom. And even though the initial intention is abandoned, or the purpose is not fully consummated, the evidence may still be sufficient to find that a victim was, at some point in time, held for ransom. In this case, it was.
Appellant next contends that the evidence fails to support the jury's finding that the murder was committed by means of torture.
In order to establish the aggravating circumstance of torture, the Commonwealth must prove that the defendant had a specific intent to inflict "a considerable amount of pain and suffering on a victim which is unnecessarily heinous, atrocious, or cruel manifesting exceptional depravity." Commonwealth v. Thomas, 522 Pa. 256, 561 A.2d 699 (1989); Commonwealth v. Pursell, 508 Pa. 212, 495 A.2d 183 (1985).
The evidence at trial established that the victim was initially tied with his hands and feet behind his back and the rope around his neck. He was gagged with an athletic sock which was tied behind his neck. When he was able to free himself, his hands and feet were re-tied, the gag was tightened, and milk crates were stuffed into the trunk to prevent him from moving. For twenty-four hours, the victim remained bound, gagged, and immobilized in the trunk of his own car, terrorized by the fact that his friend had been killed and that he too would be killed. Finally, when nearly dead already from strangulation, his captors put an end to his pain and suffering by shooting him four times.
Dr. Paul Hoyer, the forensic pathologist who performed the autopsy, testified that the victim's death was caused by gun-shot wounds to the neck and back, with a contributory condition being a ligature strangulation. He concluded from his examination that the victim was alive when he was shot. He also testified that there were more than forty skin abrasions of various sizes found on the victim's face, forehead, shoulder, abdomen, and legs, which occurred while the victim was alive.
Appellant contends that the more than forty abrasions suffered by the victim were "self-inflicted." Dr. Hoyer testified *222 that the abrasions were consistent with the victim having been bounced around in the trunk of the car. However, the idea that they were self-inflicted is absurd; appellant and his cohorts were responsible for all of the injuries suffered by the victim as a direct and foreseeable result of their actions. The evidence supports the jury's conclusion, in light of Porter's slow demise by suffocation, followed by four gunshots, and a significant number of bruises, that it was the intent of appellant and his cohorts to effect the killing by means of torture.
Appellant next contends that the trial court erred in permitting the Commonwealth to cross-examine the defendant on information contained in his bail interview/ROR sheet, and that the trial court abused its discretion in refusing a hearing on a motion to suppress the statements included in the bail interview/ROR sheet.
At trial, appellant testified on direct examination that he, at first, resisted his associates' requests to become involved in their scheme because he was working and did not need the money. According to appellant, he returned to Philadelphia from California in June of 1987, and worked for Korman Development and Sears. He testified that he became unemployed in June of 1988, and that in September of 1988, he agreed to participate in the scheme because he was now in need of money. (N.T. 11/3/89, pp. 27, 32). On cross-examination, appellant affirmed this statement, whereupon the Commonwealth was permitted, over defense objection, to impeach appellant with contradictory information contained in his bail interview/ROR sheet.[3] Appellant was given the opportunity to explain the inconsistency, and testified that the interviewer had failed to include all of the information that he had provided. (N.T. 11/3/89, pp. 97-98).
Appellant contends that the information contained in the bail interview sheet is inadmissible at trial, because the interviews are conducted while the defendant is in custody and the *223 focus of an investigation, but without any prior warning that the information may be used against him at trial.
We agree with the Commonwealth that information obtained via routine questions designed to secure biographical data necessary to complete booking or pretrial services is exempt from Miranda's coverage. Pennsylvania v. Muniz, 496 U.S. 582, 110 S.Ct. 2638, 110 L.Ed.2d 528 (1990). See also Commonwealth v. Jasper, 526 Pa. 497, 503, 587 A.2d 705, 708-09 (1991) (general information such as name, height, weight, residence, occupation, etc. does not require Miranda warnings). The information solicited during a bail interview is purely biographical, and is used for the purpose of determining bail. The bail interview is not an interrogation of the defendant, therefore, Miranda warnings are not required prior to the routine questioning of the defendant during a bail interview. Moreover, a statement otherwise subject to suppression because taken in violation of a criminal defendant's rights under Miranda v. Arizona, is nevertheless admissible to impeach. See Pa. Const. art. I, § 9. See also Commonwealth v. Baxter, 367 Pa.Super. 342, 532 A.2d 1177 (1987), allocatur denied, 518 Pa. 615, 541 A.2d 743 (1988) (statement obtained in violation of Miranda properly admissible for impeachment).
Appellant also contends that the information contained in the bail interview sheet was admitted in contravention of the confidentiality requirement of Pa.R.Crim.P. 4008(b), which provides:
Any information obtained from or concerning the defendant by a bail agency shall not be disclosed to any person or agency other than counsel for the defendant, and to the court or issuing authority when necessary to carry out the functions of the bail agency.
The prohibition against disclosure in Rule 4008(b), governs only the disclosure of information by the bail agency to unauthorized persons. It does not prohibit disclosure by anyone, regardless of how they obtained the information. Additionally, contrary to appellant's contention, the rule does *224 not state that the information is to be used only to carry out the functions of bail. Therefore, although the bail agency may have violated the rule by disclosing the information to the District Attorney's office, there was no violation of the rule by the prosecutor.
Appellant contends that the information from the bail agency was obtained by the District Attorney's office pursuant to a 1973 agreement between the District Attorney's office, the Defender Association of Philadelphia, and members of the private bar. He alleges that the agreement provided for dissemination of bail interview sheets to the District Attorney's office in contravention of Pa.R.Crim.P. 4008(b), but guaranteed that the information would be used solely for bail purposes, and would not be used against a defendant at trial. This purported agreement is not part of the record. Although appellant appends a copy of a letter from the District Attorney's office confirming the agreement, and a copy of a memorandum circulated to all Assistant District Attorneys, we are not required to review evidence that is not part of the record. However, we wish to note that even if there existed such an agreement at one time, it was beyond the power of the District Attorney's office to make an agreement that would have such sweeping effect, as to apply to all cases. In order to effectuate such an arrangement, an agreement must be made with regard to each case individually. Additionally, a District Attorney cannot bind successive District Attorneys to such broad blanket agreements made during his tenure. Once a new District Attorney assumed the office, this agreement, if it had any effect at all, became null and void. Moreover, the agreement, even if it were binding, applied only to the Defender's Association, not court appointed or privately retained counsel. The attorneys representing appellant at his trial were not employed by the Defender's Association.
Although the information was disseminated in contravention of Pa.R.Crim.P. 4008(b), the rule is silent as to the remedy for unauthorized disclosure. Moreover, the rule does not speak to the admissibility of information obtained by unauthorized disclosure. Appellant argues that the appropriate remedy is *225 suppression of the evidence, and claims that the trial court abused its discretion in refusing to hear a motion to suppress the statements included in the bail interview sheet.
At trial, appellant's attorney objected to the introduction of the statement for impeachment purposes. A discussion was held at sidebar, whereupon the judge considered the offer of proof, overruled the objection, and denied a request for a suppression hearing.[4] As noted above, the rule is silent as to the remedy for unauthorized disclosure. Although appellant assumes that suppression is the appropriate remedy, this court has previously held that technical violations of the rules of criminal procedure do not automatically warrant suppression of the evidence. Commonwealth v. Mason, 507 Pa. 396, 490 A.2d 421 (1985). In Commonwealth v. Musi, 486 Pa. 102, 404 A.2d 378 (1979), we held that "a rule of exclusion is properly employed where the objection goes to the question of the reliability of the challenged evidence . . . or reflects intolerable government conduct which is widespread and cannot otherwise be controlled." Subsequent cases have held that only violations of the Rules which assume constitutional dimensions and/or substantially prejudice the accused may require the exclusion of evidence. See Commonwealth v. Hamlin, 503 Pa. 210, 469 A.2d 137 (1983); Commonwealth v. Chandler, 505 Pa. 113, 477 A.2d 851 (1984) That is not the case here.
Even if suppression were otherwise warranted, the information would only be excluded from the prosecution's case-in-chief. The Commonwealth would still be entitled to use the contradictory information contained in appellant's bail interview sheet for impeachment purposes. The purpose of such a rule is to preclude an accused from lying with impunity when he takes the stand at trial, merely because a voluntary statement he made before trial was suppressed. Additionally, this Court has not set up procedures which allow perjury, and we will not tolerate perjury under any circumstances.
*226 Article I, Section 9, of the Pennsylvania Constitution was amended in 1984 to provide:
The use of a suppressed voluntary admission or voluntary confession to impeach the credibility of a person may be permitted and shall not be construed as compelling a person to give evidence against himself.
The evidence in this case was admitted solely for impeachment purposes, hence the trial judge did not abuse his discretion in refusing to entertain a motion to suppress, but made a proper ruling on the admissibility of the evidence. We find, therefore, that appellant's prior inconsistent statement was properly admitted against him at trial, for impeachment purposes.
Appellant next asserts that during the penalty phase of the case, the trial court improperly restricted defense counsel's argument regarding the morality of the death penalty. Counsel argued to the jury:
DEFENSE COUNSEL: All right, but do we . . . have the right to say you should die? Did we create Henry Daniels? If we did not have the power to create this life how is it that we have developed such perfect laws that we can sit in judgment to say well this life needs to now be distinguished [sic]? Aren't we by nature ourselves creatures prone to error? Since when have we developed such perfect laws that we can say under this law you should die and this person should not die? . . . So therefore if we cannot create life, what legal authority do we have to extinguish it? . . . Another reason why you should extend mercy is that God has given us himself
PROSECUTOR: Objection, Your Honor.
THE COURT: Let's keep religion out of this . . .
DEFENSE COUNSEL: When the witnesses come to the stand they are asked to put their hands on this Bible and say I swear. What's the purpose for the Bible if we only consider the cover of the book and not what it says on the inside. Does not this say one nation under God, with liberty and justice for all? So don't we have to see what he has to say about it? We have one example, Cain and Abel. First example in biblical history.
*227 PROSECUTOR: Objection, Your Honor.
THE COURT: Objection sustained. You will disregard religion. . . .
DEFENSE COUNSEL: . . . And if we cannot achieve perfection in all these other areas, what gives us the right to think that we can achieve perfection to say that this person must die?
(N.T. 11/13/89, pp. 143-146)
At this point the court instructed defense counsel to concentrate on the aggravating and mitigating circumstances.
Appellant argues that his counsel should have been permitted to argue against the morality of death penalty under 42 Pa.C.S.A. § 9711(e)(8).
Under our death penalty statute, jurors must consider any mitigating evidence presented by the defense, and defense counsel is permitted wide latitude in arguing the mitigating circumstances to the jury. But by the express terms of § 9711(e)(8), consideration may be given only to evidence of mitigation concerning the character and record of the defendant and the circumstances of his offense. Although commenting on religion is not per se improper, it is improper when it goes beyond the bounds of consideration of the character and record of the accused. The arguments of counsel to which objections were sustained were not relevant to appellant's background, character, or to the circumstances of the crime. Instead, the arguments were intended to persuade the jurors that they would betray their religious beliefs if they sentenced appellant to death. The jury's duty was not to decide the propriety or morality of the death penalty in general, but to decide the appropriateness of the death penalty as applied to the circumstance of this particular case.
In Commonwealth v. Chambers, 528 Pa. 558, 599 A.2d 630 (1991), we held that a prosecutor's reliance on the Bible or any other religious writing in support of the imposition of the death penalty is per se reversible error. The rationale behind such a decision stems from the fact that the jury should only consider factors which flow from the evidence and/or inferences *228 drawn therefrom. For the same reasons, defense counsel must also refrain from references to the Bible in opposition to imposition of the death penalty. The boundaries of proper advocacy are exceeded if we allow counsel to make arguments calculated to inflame the passions or prejudices of the jury, or to divert the jury from its duty to decide the case on the evidence by introducing broad social issues that are not based on evidence in the record. See ABA STANDARDS FOR CRIMINAL JUSTICE § 4-7.8 (1980) and comment following.
In this Commonwealth, the Legislature has expressed its opinion that the death penalty is an appropriate punishment for certain intentional killings. In the death penalty statute, the Legislature carefully defined the limited circumstances under which a convicted murderer may be sentenced to death. Although defense counsel should not be unduly restrained in his closing argument, we will not permit an attack on the legislative enactment of the death penalty. To do so would suggest to the jury that they may go beyond their proper function, and invade the province of the Legislature. It is wholly improper to urge jurors to disregard the law as it presently exists, or suggest to them that they have the power to do so. Jurors have an obligation to apply the law; the law, under certain circumstances, mandates death. Jurors may not ignore their oath and obligation to apply the law by choosing to reject the death penalty due to moral opposition.
Based upon the foregoing, we find that the trial judge properly restricted defense counsel's references to the Bible in support of his argument that the death penalty is morally wrong.
Appellant's final contention is that in closing argument at the penalty phase, the prosecutor improperly urged an inference that was not supported by the evidence.
During closing argument, the prosecutor, in support of the aggravating circumstance that the victim was being held for ransom, stated:
*229 You've got Maude Porter's testimony that one of the things that was taken from her home were the tapes out of her answering machine. Why did they do that unless maybe they made a phone call and changed their minds already. Why did they take Nate Harris' answering machine, and you saw that machine here. Maybe they did make those phone calls, nobody was there, but they changed their minds afterwards because maybe something was said on the tape. Who knows.
Appellant contends that because the burglary occurred prior to any evidence of a ransom plan, it is impermissible to infer that a demand may have been made for ransom on the tapes, and then subsequently abandoned, resulting in the need to steal the tapes.
It is well settled that a prosecutor may properly comment upon the evidence and is permitted to argue in closing arguments any reasonable inferences arising from the evidence. Commonwealth v. Lawson, 519 Pa. 175, 546 A.2d 589 (1988). In this case, the prosecutor's statements were reasonable in light of the evidence that the whole idea of the kidnapping was to get money from Porter's family; appellant and his cohorts discussed ransoming the victim and demanded that the victim disclose his parents' telephone numbers[5]; and after the burglaries, the victim's father's answering machine was found in appellant's home, and the victim's mother's answering machine tape was missing from her apartment, but never recovered. Hence, we find, after examination of the challenged remarks that they contained only legitimate inferences based upon the evidence presented in the case.
The standard of review of a claim of error alleging improper and prejudicial remarks made by a prosecutor, is whether the unavoidable effect of the comments resulted, in the minds of the jurors, in fixed bias and hostility toward the *230 defendant, such that they could not weigh the evidence objectively and render a true verdict. Commonwealth v. Young, 524 Pa. 373, 572 A.2d 1217 (1990). There can be no conclusion, in this case, of any prejudice resulting from the contested statements by the prosecutor, since the statements were reasonable inferences drawn from the evidence.
Finally, we have examined the record and find that the sentence of death was a product of the evidence and not a product of passion, prejudice or any other factor. 42 Pa. C.S.A. § 9711(h)(3). Additionally, the circumstances of this crime and the record of this appellant justify our conclusion that the sentence of death imposed upon appellant is neither excessive nor disproportionate to the penalty imposed in similar cases.[6]See Commonwealth v. Frey, 504 Pa. 428, 475 A.2d 700 (1984), cert. denied, 469 U.S. 963, 105 S.Ct. 360, 83 L.Ed.2d 296 (1984) (and Appendix attached thereto).
For the foregoing reasons, we sustain the conviction of murder of the first degree and affirm the sentence of death.[7]
PAPADAKOS, J., did not participate in the consideration or decision of this case.
FLAHERTY and McDERMOTT, JJ., join this opinion in support of affirmance.
NIX, C.J., files an opinion in support of vacating sentence of death.
ZAPPALA, J., files an opinion in support of vacating sentence of death joined by CAPPY, J.
NIX, Chief Justice, in support of vacating sentence of death.
While I agree that the evidence offered on behalf of the Commonwealth was sufficient to convict the defendant of first degree murder, I would vacate the sentence of death and *231 remand for a new penalty hearing in accordance with the reasons stated in any Opinion In Support of Vacating Sentence of Death in Commonwealth v. Pelzer, ___ Pa. ___, 612 A.2d 407 (1992).[1]
ZAPPALA, Justice, in support of vacating sentence of death.
I agree with the majority that the evidence was sufficient to sustain the jury's verdict of murder in the first degree and would affirm the jury's finding of first degree murder, criminal conspiracy, kidnapping, robbery, and two counts of burglary. I must dissent, however, from the majority's conclusion that there was sufficient evidence to establish two of the aggravating circumstances, (1) that the offense was committed by means of torture, 42 Pa.C.S.A. § 9711(d)(8); and (2) that the victim was a prosecution witness to a murder or other felony committed by the defendant and was killed for the purpose of preventing his testimony against the defendant in any grand jury or criminal proceeding involving such offenses, 42 Pa.C.S.A. § 9711(d)(5).
In Commonwealth v. Pursell, 508 Pa. 212, 495 A.2d 183 (1985), the aggravating circumstance of an offense committed by means of torture, 42 Pa.C.S. § 9711(d)(8) was held to encompass the infliction of a considerable amount of pain and suffering on a victim which is unnecessarily heinous, atrocious, or cruel manifesting exceptional depravity. I dissented from the majority's holding because I believed that definition was overbroad and could be improperly interpreted to include acts that, while heinous, atrocious, or depraved, were not torturous. I stated that I would define "torture" as the continued or *232 prolonged infliction of physical or mental abuse with the intent to cause pain and suffering.
The specific intent to cause pain and suffering by inflicting physical or mental abuse on the victim is the critical factor that distinguishes an offense committed by the means of torture from an act intended to cause the death of the victim. There must be the separate intent to cause pain and suffering as well as the intent to kill the victim. When this distinction is not adequately explained to a jury, torture may be found to be an aggravating circumstance because the details of the murder are unpleasant.
The importance of this distinction was highlighted in Commonwealth v. Nelson, 514 Pa. 262, 279-280, 523 A.2d 728, 737 (1987), cert. denied 484 U.S. 928, 108 S.Ct. 293, 98 L.Ed.2d 253 (1987), in which this Court stated that, "Implicit in subsection 8 is the requirement of an intent to cause pain and suffering in addition to the intent to kill. There must be an indication that the killer is not satisfied with the killing alone." We held that the jury charge given during the sentencing phase in Nelson was prejudicially deficient. The significant difference between the jury charges given in Nelson and Pursell was that in Pursell the trial judge gave a charge that conveyed to the jurors the idea that the torture murderer, besides having an intent to kill, has an additional specific intent to inflict pain or suffering.
The Commonwealth did not establish beyond a reasonable doubt that the Appellant in this case specifically intended to inflict pain and suffering on the victim. The evidence that the majority finds to be sufficient to sustain the finding of torture included the abrasions on the victim's body and the length of time that the victim was locked in the trunk of the automobile. While the evidence supports the jury's finding that the victim had been kidnapped, it fails to establish an intent to inflict pain and suffering separate from the intent to kill.
The majority has not yet dispensed with the notion that torture is present in any instance in which the means of killing the victim did not result in an immediate death or were unpalatable. The inquiry the jury must make is not whether *233 the murder was committed in a manner that would produce the minimal amount of pain. Instead, the jury must examine whether the defendant had the specific intent of inflicting pain and suffering on the victim. It is an inquiry into the mental processes of the defendant.
According to the forensic pathologist who performed the autopsy in this case, the abrasions suffered by the victim were consistent with the victim having been bounced around in the trunk of the car. The abrasions did not result from physical blows delivered by the Appellant in order to inflict pain and suffering on the victim. Nor does the length of time that the victim was locked in the trunk demonstrate an intent to inflict pain and suffering. As the majority's statement of the facts indicates, the initial plan was to hold the victim for ransom. When that plan was abandoned in favor of killing the victim, the victim was restrained until they could find a place to effect the killing.
Therefore, the presence of abrasions and the length of time that the victim was restrained in the trunk relied upon by the majority establish only an intent to kidnap the victim and to demand ransom. The evidence does not demonstrate that there was the separate specific intent necessary to prove that the offense was committed by means of torture.
Nor was there sufficient evidence to support the aggravating circumstance of killing a prosecution witness to prevent his testimony. In Commonwealth v. Caldwell, 516 Pa. 441, 532 A.2d 813 (1987) and Commonwealth v. Crawley, 514 Pa. 539, 526 A.2d 334 (1987), we held that under § 9711(d)(5) evidence must be introduced to prove that the victim was a prosecution witness who was killed to prevent his testimony in a pending grand jury or criminal proceeding. We stated that the burden of the proof on the Commonwealth will not be met by simply showing that an individual who witnessed a murder or other felony committed by a defendant was also killed by the defendant.
In Commonwealth v. Appel, 517 Pa. 529, 539 A.2d 780 (1988), the application of § 9711(d)(5) was extended to include the killing of victims who were potential witnesses to a prosecution. *234 The Appel case was distinguished from our decisions in Caldwell and Crawley on the basis that the evidence showed that the defendant had enlisted others for a bank robbery to ensure that all persons who might be in the bank at the time of the robbery could be executed before an alarm could be pressed. The Court held that it is the fully formed intent prior to the event to kill a potential witness that provides the requisite animus to sustain the aggravating circumstance. 517 Pa. at 537, fn. 2, 539 A.2d at 784, fn. 2.
In Appel, the Commonwealth produced evidence that the defendant planned to kill potential witnesses to the bank robbery at the inception of the scheme. The Court expansively interpreted the phrase "prosecution witness" to include any witness who potentially could become a prosecution witness. We had specifically rejected that interpretation in Crawley. I believe that our holding in Caldwell and Crawley should not have been undermined by eliminating the requirement of a pending criminal proceeding. I would apply our reasoning in Caldwell and Crawley in this case and hold that the evidence was insufficient to support the aggravating circumstance in § 9711(d)(5). See also, Commonwealth v. Zettlemoyer, 500 Pa. 16, 454 A.2d 937 (1982), cert. denied 461 U.S. 970, 103 S.Ct. 2444, 77 L.Ed.2d 1327 (1983). I would vacate the death sentence and remand for a new penalty hearing.
CAPPY, J., joins in this opinion in support of vacating sentence of death.
NOTES
[1] At this point, Porter had been in the trunk for twenty-four hours.
[2] Appellant had a prior robbery conviction in California, for which he served a term of eight months in prison.
[3] Appellant's bail interview sheet showed that his prior employment was with U.P.S. in California. No mention was made of any employment with Korman Development, Sears, or elsewhere since his return to Philadelphia.
[4] Appellant's attorney argued that the information contained in the bail interview sheet is not admissible because it is obtained in violation of Miranda, is hearsay, and is subject to a confidentiality requirement.
[5] Appellant contends that the inference was illogical because the conspirator's asked for Porter's parents' numbers after they had burglarized their homes. However, it was consistent with the evidence for the jury to conclude that the ransom idea was conceived before the burglaries occurred.
[6] This information was accumulated for the Death Penalty Study and was supplied by the Administrative Office of Pennsylvania Courts.
[7] The Prothonotary of the Supreme Court of Pennsylvania is directed to transmit the full and complete record of the trial, sentencing hearing, imposition of sentence and review by this Court to the Governor. 42 Pa.C.S.A. § 9711(i).
[1] It is to be noted that the Appellant herein and the defendant in Commonwealth v. Pelzer, ___ Pa. ___, 612 A.2d 407 (1992), as co-conspirators to the same homicide were charged with four identical aggravating circumstances and each were found unanimously by the jury to have the same mitigating circumstance, although in Pelzer one juror found a second mitigating circumstance. In both instances the jury unanimously found that the aggravating circumstances outweighed the mitigating circumstances and, accordingly, sentenced the defendants to death. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3119966/ | Order entered October , 2012
In The
Qtourt of ZtppcaI
if ift Ottrict of 1Exa at afta
No. 05-12-01041-CR
MICAL DANTRAL FORD, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 194th Judicial District Court
Dallas County, Texas
Trial Court Cause No. F08-72750-M
ORDER
The Court ORDERS the trial court to conduct a hearing to determine why appellant’s
brief has not been filed. In this regard, the trial court shall make appropriate findings and
recommendations and determine whether appellant desires to prosecute the appeal, whether
appellant is indigent, or if not indigent, whether retained counsel has abandoned the appeal. See
TEx. R. App. P. 38.8(h). If the trial court cannot obtain appellant’s presence at the hearing, the
trial court shall conduct the hearing in appellant’s absence. See Meza v. State, 742 S.W.2d 708
(Tex. App.—Corpus Christi 1987, no pet.) (per curiam). If appellant is indigent, the trial court is
ORDERED to take such measures as may be necessary to assure effective representation, which
may include appointment of new counsel.
We ORI)ER the trial court to transmit a record of the proceedings, which shall include
written findings and recommendations, to this Court within THIRTY DAYS of the date of this
order.
This appeal is ABATED to allow the trial court to comply with the above order. The
appeal shall be reinstated thirty days from the date of this order or when the findings are
received, whichever is earlier.
DAVID L. BRIDGES
JUSTICE | 01-03-2023 | 10-16-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/3022241/ | UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT
___________
No. 97-8219
___________
*
Cyril A. Kolocotronis *
*
Appellant, * Appeal from the United States
* District Court for the
v. * Eastern District of Missouri
*
Veera Dr. Reddy, M.D. * [UNPUBLISHED]
Psychiat., *
*
Appellee. *
___________
Submitted: December 29, 1998
Filed: February 3, 1999
___________
Before BEAM, LOKEN, and MORRIS SHEPPARD ARNOLD, Circuit Judges.
___________
PER CURIAM.
Cyril A. Kolocotronis filed a 28 U.S.C. § 2254 habeas action contesting the
administration of psychotropic medication. The district court transferred the petition
to this court because Kolocotronis had not obtained our authorization prior to filing a
successive petition. Although Kolocotronis captioned his complaint as a federal
habeas petition, his claims should have been brought as a 42 U.S.C. § 1983 action
challenging forced medication as a condition of his confinement. See Washington v.
Harper, 494 U.S. 210 (1990); Walton v. Norris, 59 F.3d 67 (8th Cir. 1998). We
therefore remand this matter to the district court for further consideration of the matter
as a section 1983 claim.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
-2- | 01-03-2023 | 10-13-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1605150/ | 778 F. Supp. 37 (1991)
TMG II, et al., Plaintiffs,
v.
UNITED STATES of America, Defendant.
Civ. A. No. 85-2469-LFO.
United States District Court, District of Columbia.
September 30, 1991.
*38 *39 Allen I. Mendelsohn, for plaintiffs.
Michael Kearns and Edward Snyder, for defendant.
MEMORANDUM
OBERDORFER, District Judge.
From 1979 to 1983, through a series of limited partnerships that included plaintiffs' TMG Associates and TMG II (the "Partnerships"), Edward Markowitz "created and marketed more than $445 million in false and fraudulent federal income tax deductions through sham, non-existent and pre-arranged transactions in United States Government securities and precious metals forward contracts."[1] Eventually, the Government uncovered the scheme and prosecuted Markowitz as well as several of his associates for filing and conspiring to file fraudulent tax returns.[2]
This case arises out of a civil action brought against Markowitz. In 1983 and 1984, the Partnerships sued Markowitz for failing to account for partnership property before resigning as general partner. These claims were eventually settled, and in August, 1985, a judgment for nearly $900,000 was entered against Markowitz.[3] However, in January of that year, well before the Partnerships obtained their judgment, the Internal Revenue Service (IRS) filed over $5 million dollars in tax liens against Markowitz.[4] To establish the priority of their claims over the Government's, the Partnerships instituted this action.
Currently before the Court, are crossmotions for summary judgment. For the reasons stated below, the accompanying order will grant the defendant's motion for summary judgment, deny the plaintiffs' motion for summary judgment, and dismiss plaintiffs' claims.
I.
The Partnerships were organized in 1979 and 1980 as limited partnerships under New York law with Markowitz either as the managing general partner or as the controlling stockholder of the corporation acting as the general partner.[5] Officially, the Partnerships were to operate "as broker-dealer and market maker in commodities and metals, and futures and option contracts therein," and perhaps as well to "trade in exempt securities and currencies."[6] In private, however, promoters *40 promised that the Partnerships were excellent tax shelters and would produce four dollars in tax losses for every dollar invested.[7] Attracted by these promises, approximately 130 individuals and firms invested approximately $4.8 million in TMG Associates and TMG II,[8] and between 1980 and 1982 most of them did, in fact, take 4:1 write-offs on their investments.[9]
There were even then, signs, in addition to the promise of 4:1 write-offs, that Markowitz's activities might be questionable. In 1981, Markowitz, who had few assets before the formation of the limited Partnerships,[10] embarked on a massive buying spree. First, he purchased a home at 2323 Porter Street overlooking Rock Creek Park for $385,000.[11] Next, he bought a Rolls Royce.[12] Then, in short order, Markowitz purchased a house at 2329 Porter Street, for his sister, at a cost of nearly a half million dollars, established "Markowitz Stables" which eventually accumulated more than a million dollars in capital, and purchased a minority interest in the Washington Capitals hockey club for a quarter million dollars.[13]
Markowitz appears to have financed this spree at least in part by diverting partnership opportunities to himself. Most of the funds used to exploit the opportunities came from two entities owned by Markowitz: the Monetary Group, N.V. ("N.V."), a Netherlands Antilles corporation, and the Monetary Group Government Securities ("GSI"), an American corporation.[14] These two entities in turn acquired most of their assets from securities transactions with Hillcrest Equities, Inc., an entity that had originally traded with TMG II and perhaps TMG Associates as well.[15] By July, Hillcrest was trading exclusively with N.V. and then with GSI.[16] Markowitz admits that he instigated this switch entirely "for purposes of [his] own enrichment."[17]
Most importantly, from the perspective of the Partnerships' limited partners, Markowitz's transactions failed to produce legitimate tax losses. As early as 1981, Price Waterhouse, TMG Associates' original auditor, suspected that the Partnerships were not engaged in bona fide transactions.[18] In fact, the only thing that Markowitz bought or sold was documentation. The Partnerships paid its so-called trading partners "for the fraudulent documentation ... provided to substantiate the fictitious losses that TMG Associates passed on to its limited partners."[19] Similarly, the Partnerships, as well as N.V. and GSI, received commissions not for trading in securities but rather "for the fraudulent documentation" of "more than $350 million in false interest expenses."[20]
By 1983, both the Government and the Partnerships were closing in on Markowitz. Early in the year, the IRS opened an investigation *41 of Markowitz.[21] The partners in TMG II were, however, the first to institute legal action. On November 15, 1983, apparently in response to the IRS investigation, Markowitz resigned as general partner of both TMG Associates and TMG II.[22] A little less than a month later, Donald Weil, the remaining general partner in TMG II, sued Markowitz, alleging that Markowitz had breached his fiduciary duties to the Partnership by improperly appropriating the opportunity to trade with Hillcrest, by using Partnership employees for his own benefit, by converting Partnership funds to purchase, among other things, the stables and the houses for himself and for his sister, and by making improper loans to himself from the Partnership. A similar complaint, filed six months later by an ad hoc committee of TMG Associates limited partners, was consolidated with Weil v. Markowitz, and after a four month delay of the proceedings requested by the United States Attorney for the Southern District of New York and several more months of negotiation, the parties reached a compromise embodied in an Order of August 30, 1985.[23] According to the terms of the order, Markowitz and several of his wholly owned corporations agreed to the entry of a judgment against them in the amount of $897,177.96 representing a "full accounting, in equity, for specific Partnership property, including funds, that were entrusted to Mr. Markowitz in his fiduciary capacity as general partner."[24] TMG II and TMG Associates agreed in return to release all related claims against Markowitz and his corporations.[25] The agreement did not in any way affect the rights of limited partners,[26] many of whom would later claim to have lost both the equity they invested in the Partnerships and the tax deductions that they took between 1980 and 1982.[27]
Although the Partnerships were able to file suit before the Government, the Government drew first blood: After filing its lien against Markowitz in January, the IRS was able, in the next six months, to seize approximately $450,000 from bank accounts owned or controlled by Markowitz.[28] After entry of the Order of August 30, 1985 and the filing of the instant complaint, Markowitz voluntarily surrendered to the IRS approximately $270,000, constituting the proceeds from the sale of his home at 2323 Porter Street, the Rolls Royce, the Ford Bronco, and his stock in TMG Securities, as well as $5,000 from a Swiss bank account.[29] Finally, in 1988, the IRS received, from an escrow account established in Weil v. Markowitz, over $500,000 from the sale of the house at 2329 Porter Street bought for Markowitz's sister.[30]
The Partnerships filed the instant action in August of 1985 after the IRS filed its tax liens and levied upon Markowitz's bank accounts but before the surrender of the other assets. They alleged that their claims against Markowitz for fraud and for breach of fiduciary duty had priority over the IRS's claims against Markowitz for delinquent taxes. Plaintiffs also originally sought to recover any surplus from the tax levies and to estop the United States from denying the priority of their claims.
In the six years since this action was filed, the latter two claims have been abandoned. It is now clear that the tax levies did not produce a surplus; while the IRS *42 claims Markowitz owes over $5 million in back taxes, it has been able to recover less than a third of that amount.[31] The estoppel claim has also been resolved. The Partnerships contended that the Government should be estopped from denying the priority of their claims because it improperly delayed entry of judgment against Markowitz in Weil v. Markowitz.[32] This claim was considered and rejected when the plaintiffs in Weil v. Markowitz sought to enter the Order of August 30, 1985 nunc pro tunc, to before the filing of the Government's liens in January of 1985. See Weil v. Markowitz, 898 F.2d 198, 201-02 (D.C.Cir.1990), cert. denied, ___ U.S. ___, 111 S. Ct. 68, 112 L. Ed. 2d 42 (1990); see also Revised Order of March 10, 1988 (consolidating this matter with Weil v. Markowitz for the limited purpose of resolving the motion for entry of the consent order nunc pro tunc).
As a consequence, the only remaining issue in this action is whether the Partnerships' claims against Markowitz have priority over the Government's claims. This issue has also been refined since the filing of the original complaint. The Partnerships now claim that they have superior title to fourteen specific assets seized or recovered by the IRS. Even so limited, resolution of this claim is far from simple.
II.
Before considering the substance of the matter, it is first necessary to determine whether this Court has jurisdiction over all aspects of the claim. Congress has waived its sovereign immunity in suits alleging wrongful levies by the IRS. See 26 U.S.C. § 7426(a)(1) (1988).[33] As a consequence, this Court clearly has jurisdiction over the assets seized by the IRS from Markowitz's bank account during the early part of 1985. See supra p. 41. Congress has also consented to actions to "quiet title to ... real or personal property on which the United States has or claims a mortgage or other lien." 28 U.S.C. § 2410(a)(1).[34] On August 2, 1985, when the instant complaint was filed, the United States had liens on all of the other assets now claimed by the Partnerships. It would, therefore, appear that this Court has jurisdiction over those claims as well. The Government, however, contends that since those assets were later voluntarily surrendered to the IRS, this Court no longer has jurisdiction over claims concerning them. This contention is not persuasive.
The Government correctly notes that the waiver of sovereign immunity in 28 U.S.C. § 2410(a) does not apply when, at the commencement of litigation, the property at issue is in the possession of the United States. See, e.g., Trustees of the Puritan Church v. United States, 294 F.2d 734 (D.C.Cir.1961) (per curiam). There is, however, no precedent for the claim that the IRS may strip a federal court of jurisdiction under § 2410 by the simple expedient of obtaining possession of the property. Quite to the contrary, all three circuits that have considered this contention have rejected it. See Kulawy v. United States, 917 *43 F.2d 729, 734 (2d Cir.1990); Delta Savings & Loan Assoc. v. Internal Revenue Service, 847 F.2d 248, 249 n. 1 (5th Cir.1988); Bank of Hemet v. United States, 643 F.2d 661, 665 (9th Cir.1981).
Moreover, this rejection rests upon a sound reading of the statute. Simply put, there is "nothing in § 2410(a)(1) that permits the government to oust [a] court of jurisdiction validly invoked." Kulawy v. United States, 917 F.2d at 733-34 (citation omitted). Nor is there any reason to suppose that Congress intended to give the Executive Branch such power. "The existence of federal jurisdiction ordinarily depends on the facts as they exist when the complaint is filed." Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 109 S. Ct. 2218, 2222, 104 L. Ed. 2d 893 (1989) (citation omitted) (emphasis added). As a consequence, § 2410(a) is most naturally read to condition the waiver of sovereign immunity on the circumstances at the time the complaint is filed. Indeed, the Government's interpretation would defeat Congress' apparent purpose in consenting to quiet title suits. By consenting to such suits, Congress indicated that it wished title disputes to be resolved by law, not by brute force. The Government's interpretation would, however, give the IRS the power "to manipulate its position subsequent to the filing of the complaint" so as to bar potentially meritorious claims. Bank of Hemet v. United States, 643 F.2d at 665. Absent a clear indication to the contrary, Congress should not be presumed to have intended such an irrational and unjust result. See, e.g., Sunstein, Interpreting Statutes in the Regulatory State, 103 Harv.L.Rev. 405, 482 (1989).
In the alternative, the Government contends that plaintiffs' claims are barred because § 2410 does not authorize the recovery of money damages. Cf. Lehman v. Nakshian, 453 U.S. 156, 161, 101 S. Ct. 2698, 2701, 69 L. Ed. 2d 548 (1980) (noting that "this Court has long decided that limitations and conditions upon which the Government consents to be sued must be strictly observed and exceptions thereto are not to be implied") (quotation and quotation marks omitted). Be that as it may, nothing bars plaintiffs from receiving a declaratory judgment of their rights which might serve as the basis for a claim of conversion or from seeking some form of equitable relief. So, even if it is assumed that the Partnerships' remedies are limited, nothing prevents them from establishing their right to the assets in question.
III.
The Government asserts that it has a superior claim to the assets claimed by the plaintiffs based upon the tax liens filed in January, 1985. According to the Government, those liens have priority over the subsequent judgment obtained by TMG Associates and TMG II in Weil v. Markowitz. This contention is correct, but it does not resolve the case.
"Federal tax liens are wholly creatures of federal statute," United States v. Brosnan, 363 U.S. 237, 240, 80 S. Ct. 1108, 1110, 4 L. Ed. 2d 1192 (1960), and under federal law such liens may, with several exceptions not applicable here, be "primed" only by a previously and properly filed lien. See, e.g., United States v. New Britain, 347 U.S. 81, 85, 74 S. Ct. 367, 370, 98 L. Ed. 520 (1954). To be properly filed, a lien must be "choate." In other words, "the identity of the lienor, the property subject to the lien, and the amount of the lien" must all be established and nothing more left to be done to perfect the lien. Id. at 84, 74 S.Ct. at 367. The judgment lien in Weil v. Markowitz clearly fails to satisfy this standard. Although the complaints consolidated into that action were filed fully six months before the United States filed its lien against Markowitz on January 14, 1985, the Partnerships did not obtain a judgment against Markowitz in a specific amount until August 30 of that year. See Order of August 30, 1985 at 4. Moreover, as noted above, the Partnerships' request to have that order entered nunc pro tunc has been denied. See supra p. 42. As a consequence, the United States is entirely correct in arguing that its tax liens have priority over the plaintiffs' judgment liens.
*44 It does not, however, follow that the Partnerships' claim to the fourteen assets at issue here must be dismissed. Tax liens may attach only to "property ... belonging to [the taxpayer]." 26 U.S.C. § 6321.[35] They "cannot extend beyond the property interests held by the delinquent taxpayer." United States v. Rodgers, 461 U.S. 677, 690-91, 103 S. Ct. 2132, 2140-41, 76 L. Ed. 2d 236 (1983). Thus, if the Partnerships can show that at the time the Government filed its liens they, not Markowitz, were the true owners of the fourteen assets, they can establish their entitlement to those assets. See, e.g., United States v. Durham Lumber Co., 363 U.S. 522, 80 S. Ct. 1282, 4 L. Ed. 2d 1371 (1960). Moreover, in order to do so, the plaintiffs need not show that they had legal title to those assets. They need only show that they had a beneficial interest in those assets sufficient to give them equitable title under state law. See, e.g., Dennis v. United States, 372 F. Supp. 563 (E.D.Va.1974); see also Acquilino v. United States, 363 U.S. 509, 513, 80 S. Ct. 1277, 1280, 4 L. Ed. 2d 1365 (1960) (noting that "state law controls in determining the nature of the legal interest which the taxpayer had in the property sought to be reached by the statute") (quotation, quotation marks, and footnote omitted).
The Partnerships contend that in tax lien cases the burden of proof shifts to the Government. See Plaintiff's Opposition at 27; Plaintiff's Reply at 15. This contention is based primarily upon the authority of a Ninth Circuit decision, Flores v. United States, 551 F.2d 1169 (9th Cir. 1977). The contention is not persuasive. Both the facts and the reasoning in that case are easily distinguishable.
As in this case, in Flores a third party challenged a tax lien filed upon what the IRS contended was the property of a delinquent taxpayer. However, in contrast to this case, in Flores the Government seized property from the possession of the third party. See id. at 1171. The Ninth Circuit reasoned that in such a situation the Government should for two reasons bear the burden of proving that the property belonged to the delinquent taxpayer. First "the Internal Revenue Service needs probable cause at the time assets are initially seized to connect these assets to a taxpayer with outstanding taxes due." Id. at 1174-75 (footnote omitted). It then reasoned that
[s]ince the Internal Revenue Service has this obligation in any event, it seems highly appropriate for the Government to bear the burden of persuasion on what is really the identical question raised by the terms of the statute whether the levy is wrongful because the taxpayer has no interest in the property.
Id. at 1175. Second, the Flores Court found that it would be unfair to force the third party to establish that the taxpayer did not own the property because of the difficulties of proving "a negative fact about which he had absolutely no information." Id. & n. 7.
Neither of these rationales applies to this case. Because the property seized from Markowitz was in his possession, the nexus between the delinquent taxpayer and the property is obvious, and there is no need for the IRS to present additional evidence in order to satisfy their constitutional obligations. More importantly, in this case, the Partnerships would not be prejudiced by assuming the plaintiff's normal burden of proof: "In most situations, the plaintiff has the burden of proving his case, so it is not exceptional to expect a plaintiff attacking a tax levy to prove that the property was his own." Minges v. United States, No. H-75-186, at *2, 1981 WL 1763 (D.Conn. March 30, 1991) (LEXIS, Genfed Library, District Court Library). Indeed, in Flores the Ninth Circuit recognized that its ruling did not extend to this situation. See Flores, 551 F.2d at 1176 n. 8 (expressly reserving judgment on whether the burden of proof would shift to the Government where "the plaintiff makes a claim to the *45 property derivatively from the taxpayer"). Indeed, when finally faced with a case like this one, the Ninth Circuit placed the burden of proof on the plaintiff challenging the tax lien. See Arth v. United States, 735 F.2d 1190, 1193 (9th Cir.1984); see also Valley Finance, Inc v. United States, 629 F.2d 162, 171 n. 19 (D.C.Cir.1980) (suggesting that once the Government has proven the nexus between the property seized and the taxpayer the burden of persuasion returns to the plaintiff challenging the levy). Thus, while the Partnerships may prove their case by proving that they have equitable title to the assets seized, they must bear the burden of doing so.
IV.
The Partnerships contend that under District of Columbia law "an errant general partner, like Mr. Markowitz, is deemed to own no property of his own until all property due and owing the partnership has been accounted for and restored." Plaintiffs' Motion for Summary Judgment at 9. They draw this proposition from Moyers v. Cummings, 17 App.D.C. 269 (1900), aff'd sub nom. Consul v. Cummings, 222 U.S. 262, 32 S. Ct. 83, 56 L. Ed. 192 (1911), a decision rendered by the old Court of Appeals for the District of Columbia in 1900 that has not been previously cited by another court. Even if this derelict case is presumed to have precedential value, plaintiffs' contention must be rejected because their interpretation of Moyers is demonstrably incorrect.
Moyers involved a dispute between Gilbert Moyers and the estate of his former partner, George Edmonds. Moyers and Edmonds had agreed to cooperate in certain cases before the United States Court of Claims and split the fees from those cases 50-50. See Moyers, 17 App.D.C. at 270-71. After Edmonds' death, the administrator of his estate sued alleging that Moyers had collected some $26,000 in fees due the partnership and "deposited the same in [his] bank in his own name and ... commingled them with his own funds." Id. at 271. The estate requested, among other things, that the trial court appoint a receiver for the partnership and order Moyers to surrender partnership property including the fees, to that receiver. See id. at 271-72. The lower court concurred, and it ordered Moyers to deliver to the receiver "from the moneys heretofore collected by him on account of the fees paid by the claimants in the partnership claims.... the sum of nine thousand dollars." Id. at 275.
Moyers did not contest that he owed money to the partnership. He did, however, contest the authority of the lower court to order him to deliver funds from his bank account. He began by observing that receivers may only be authorized to take into custody "property which is the subject of litigation." Id. at 276. He then asserted that the funds in his bank account were his own, and not the property of the partnership. Thus, according to Moyers, while Edmonds' estate could file a judgment lien against him to secure his liability, it had no right to demand a specific asset like his bank account. His liability, "if it exists, is not as trustee, but as a simple debtor." Id.
The D.C. Court of Appeals rejected this argument. It found that
[i]f [Moyers] in fact collected money due the partnership, mingled it with his own and deposited the whole in a bank in his own name, such of it as he may have had at the time of the order would clearly be subject thereto.
Id. at 279. The D.C. Court of Appeals recognized that, because two years had elapsed since the funds were deposited there, it would be nearly impossible to prove that the exact funds paid by the debtors of the partnership were still in Moyers' bank account. It ruled, however, that "[h]is relation was so far fiduciary, at least that in mingling the fund with his own and drawing thereon on his individual account, he will be presumed to have first drawn and used his own money." Id. (citation omitted). The court then proceeded to consider the evidence presented by Edmonds. Finding no evidence to rebut the presumption that the remaining money represented the partnership's funds, it then affirmed the lower court's decree. Id. at 280-81.
*46 The Partnerships interpret this decision to announce that "equity regards all property in the general partner's hands as partnership property." Plaintiffs' Motion for Summary Judgment at 11 (emphasis in original). They base this interpretation primarily upon the following passage:
Consequently, so much of the fund remaining undrawn and unconverted in fact, as may not be in excess of the collection of partnership dues, will be regarded in equity as the property of the partnership.
Moyers, 17 App.D.C. at 279. The passage, however, refers only to "the fund," not to all of Moyers' property as the Partnerships contend. Indeed, in the very next sentence the D.C. Court of Appeals indicated that it was only concerned with funds that were at least arguably the Partnerships': It declared that "[t]he identity of the fund is not lost by the act of commingling." Id. at 279 (citation omitted). This reasoning is clearly incompatible with the Partnerships' proposition that all of an errant fiduciary's property is considered the partnership's until the debt to the partnership has been restored.
Moreover, the Partnerships' interpretation of Moyers is incompatible with the case's holding. The D.C. Court of Appeals did not stop, as it would have under plaintiffs' principle, with a finding of a breach of fiduciary duty and then deem Moyers' property to be the partnership's. Instead, it proceeded to determine whether the evidence showed that the funds in the bank account were traceable to the partnership. It is true that because of the presumption it imposed the scales were weighted in favor of finding the funds in the commingled account to be partnership funds. Nevertheless, the D.C. Court of Appeals left open the possibility that Moyers could defeat that presumption by showing that the funds were not traceable to the partnership. Indeed, it held that "[u]pon satisfying the court that he did not have the money or any part of it, in his possession or under his control, direct or indirect, he could secure a modification of the order with a complete or partial discharge of the rule...." Id. at 281.
In short, Moyers was a narrow decision. Cf. id. at 278-79 (not finding it necessary to consider whether a constructive trust was created given "the view that we have taken of those facts"). The D.C. Court of Appeals held that partnership property commingled in a fiduciary's account with other funds will be presumed to remain in that account and found that Moyers had failed to rebut that presumption. The Partnerships' attempt to read a broader principle into the case ignores both its reasoning and its holding and must be rejected.
Because of the conclusion reached here, there is no conflict between District of Columbia and New York law and, consequently, no need to consider the Government's claim that New York law controls.
V.
In the alternative, the Partnerships argue that Markowitz's breach of the fiduciary duties he owed to them created a constructive trust in their favor. As the Government concedes, tax liens do not attach to properties subject to a constructive trust because, while the taxpayer may have legal title, the constructive trust gives its "beneficiary" equitable title. See, e.g., United States v. Fontana, 528 F. Supp. 137 (S.D.N.Y.1981); Atlas, Inc. v. United States, 459 F. Supp. 1000 (D.N.D.1978); First Nat'l Bank of Cartersville v. Hill, 412 F. Supp. 422 (N.D.Ga.1976); Dennis v. United States, 372 F. Supp. 563 (E.D.Va. 1974). The Government argues instead that no constructive trust was created, or, in the alternative, that it does not extend to the assets in question. Finally, the Government argues that even if a constructive trust were created over those assets, it would arise too late to defeat the Government's tax liens.
A.
A constructive trust is essentially an equitable construct. As Justice Cardozo so eloquently put it,
[a] constructive trust is the formula through which the conscience of equity *47 finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.
Beatty v. Guggenheim, 225 N.Y. 380, 386, 122 N.E. 378, 380 (1919) (citation omitted). The Partnerships contend that a constructive trust was created when Markowitz defrauded the investors in the Partnerships. In the alternative, they contend that a constructive trust was created when Markowitz resigned from TMG Associates and TMG II without properly accounting for specific partnership property entrusted to him as general partner. See supra p. 41. The latter contention is persuasive.
The first one is not. In the first place, it is by no means clear that either the Partnerships or the limited partners proceeding derivatively on behalf of TMG Associates, have standing to claim that investors in the Partnerships were defrauded. Second, the Partnerships fail to present evidence supporting all elements of the fraud. Although Plaintiffs note that Markowitz was convicted of engaging in illegal transactions and that the placement memoranda for the Partnerships indicated that the Partnerships would engage in legal transactions, see Plaintiff's Motion for Summary Judgment at 14-15, they do not present any evidence that Markowitz made intentional misrepresentations. It is hornbook law that to prove fraud one must prove "knowledge or belief on the part of the defendant that the representation is false." D. Dobbs, R. Keeton, W. Keeton & D. Owen, Prosser and Keeton on Torts § 105, at 728 (5th Ed.1984) (student edition). Plaintiffs have failed to provide any evidence that at the time the limited partners invested in the Partnerships Markowitz intended to engage the Partnerships in illegal transactions. As the Supreme Court has noted,
the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.
Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). Third, even if plaintiffs could prove fraud, they have utterly failed to trace any of the capital initially contributed to the Partnerships to the assets now in the Government's hands. See infra pp. 47-48. Thus, a constructive trust may not be created on the theory that Markowitz defrauded the limited partners.
The Partnership's other theory is more promising. It is well-settled that a breach of fiduciary obligations may give rise to a constructive trust. See Hertz v. Klavan, 374 A.2d 871, 873 (D.C.1977); Miller v. Merrell, 53 N.Y.2d 881, 884, 423 N.E.2d 43, 44, 440 N.Y.S.2d 620, 621 (1981); see generally Restatement of Trusts § 190, at 780 (1937). It is equally clear that as the general partner of TMG Associates and TMG II Markowitz owed a duty to both the limited partners and the partnership as a whole to act in a fiduciary capacity. See Riviera Congress Assoc. v. Yassky, 18 N.Y.2d 540, 547, 223 N.E.2d 876, 879-80, 277 N.Y.S.2d 386, 392 (1966); Libby v. LJ Corp., 247 F.2d 78, 81 (D.C.Cir.1957). One of Markowitz's duties was to carefully account for all partnership property. See D.C.Code § 41-210(a)(2) (1986); N.Y. Partnership Law § 99(1)(b) (McKinney 1988); see generally A. Bromberg, Crane and Bromberg on Partnership §§ 67-68, at 386-97 (1968) (Hornbook edition). It is undisputed that "as of November 15, 1983, the day Mr. Markowitz resigned his general partnership" in both TMG Associates and TMG II, he had not "fully accounted for, repaid or returned" to the Partnerships the "specific partnership property, including funds, that were entrusted to Mr. Markowitz in his fiduciary capacity as general partner." Order of August 30, 1985 at 4. It, therefore, follows that Markowitz breached his fiduciary duties toward the Partnerships and that if he possesses any partnership property unaccounted for on November 15, 1983, he is not only likely guilty of embezzlement; the property taken by him is also subject to a constructive trust in favor of the Partnerships.
*48 B.
The plaintiffs do not contend that they ever held title to the fourteen assets either seized or recovered by the United States from Markowitz. Instead, they claim that under D.C. law all property of an errant fiduciary is impressed with a constructive trust. By contrast, under New York law it is clear that a constructive trust may only be imposed over property actually taken from the trust's "beneficiary" or traceable to such property. See, e.g., Fur & Wool Trading Co. v. George I. Fox, Inc., 245 N.Y. 215, 218, 156 N.E. 670, 671 (1927); Ferris v. Van Vechten, 73 N.Y. 113 (1878). Not surprisingly, the parties have invested considerable effort in arguing which state's law controls. It is not, however, necessary to resolve this choice-of-law question because there is no actual conflict between New York and D.C. law. The Partnerships' interpretation of D.C. law is simply incorrect.
Tracing is based upon the importance of identification: "In order to obtain a constructive trust, the plaintiff must identify specific property as the res of the trust to which he is entitled." G. Bogert & G. Bogert, The Law of Trusts and Trustees § 471, at 9 (2d Rev.Ed.1978) (footnote omitted) [hereinafter, "Bogert on Trusts"]. On a conceptual level, identification of particular property makes sense because it would be anomalous to talk of a trust without having a res. The real virtue of identification is, however, more practical. It allows the beneficiary of a constructive trust to argue that the property in question was first his or hers and to claim, based upon the principle of first in time first in right, a priority over other creditors of the wrongdoer. See V A.W. Scott, The Law of Trusts § 521, at 3649 (3d ed. 1967) [hereinafter, "V Scott on Trusts"]. This principle holds even when the property in question is converted because "[i]t is a fundamental principle in the English common law that a change of form in a thing does not change the ownership." Bogert on Trusts § 921, at 364-66; see V Scott on Trusts § 508.2, at 3580. The identification principle has even been extended to the situation addressed in Moyers the commingling of funds and, as in Moyers, courts have presumed that the wrongdoer spends his or her funds first. See Restatement of Restitution § 212, at 856; Bogert on Trusts § 926, at 407-08; V Scott on Trusts § 518, at 3635. The principle does, however, have its limits: Thus, it is clear that one must be able, at the very least, to trace funds into a commingled account. In the absence of such proof, courts have refused to enforce a constructive trust. See, e.g., Nat'l City Bank v. Hotchkiss, 231 U.S. 50, 57, 34 S. Ct. 20, 21, 58 L. Ed. 115 (1913) (Holmes, J.); Restatement of Restitution § 215, at 866.
Although no recorded District of Columbia case turns upon the requirement of tracing, there is no reason to think that the D.C. courts would depart from these general and well-accepted principles. Under Maryland law, "the source of the District's common law and an especially persuasive authority when the District's common law is silent," Napoleon v. Heard, 455 A.2d 901, 903 (D.C.1983), it is well-established that the would-be beneficiaries of a constructive trust must trace. See, e.g., Brown v. Coleman, 318 Md. 56, 68-71, 566 A.2d 1091, 1097-1101 (Md.1989); Drovers' & Mechanics' Nat'l Bank v. Roller, 85 Md. 495, 498, 37 A. 30, 32 (1897). In 1985, Judge Harold Greene sitting in diversity jurisdiction found the D.C. Court of Appeals likely to require tracing. See, e.g., In re Auto-Train Corp., 53 B.R. 990, 996-97 (1985). More importantly, the D.C. Court of Appeals recently suggested that it would require tracing. In Benvenuto v. Dechillo, the D.C. Court of Appeals noted that "the gravamen of appellees' complaint, and a key consideration in our affirmance here, is the attempt to trace the funds held in the trust for them into its product, real estate in the District of Columbia." Benvenuto v. Dechillo, 586 A.2d 1225, 1227 (D.C.1991) (footnote omitted). Although the question of tracing was not technically before the Benvenuto Court, the D.C. Court of Appeal nevertheless assumed tracing to be required in resolving the appellant's forum non conveniens argument. It is unlikely that the D.C. Court of Appeals *49 would have done so if it had serious misgivings about the tracing requirement.
Moreover, the Partnerships fail to cite a single case in which a court has directly rejected the tracing requirement. Instead, they attempt to extrapolate a rejection of the tracing requirement from their interpretation of Moyers. However, as discussed above, see supra pp. 45-46, in Moyers, the D.C. Court of Appeals upheld the lower court's decision on the ground that the partnership's fees had gone into Moyers' bank account and Moyers had failed to prove that the fees were no longer there. Moreover, the Court offered Moyers the opportunity to show that partnership funds could not be traced into his bank account. See supra p. 46. Thus, Moyers, in effect, imposed a tracing requirement on the plaintiffs.
The Partnerships also argue that the tracing requirement should be abandoned on "policy" grounds. First, they argue that "tracing is an unrealistic requirement in a world where, increasingly, monetary assets have no physical existence." Plaintiffs' Opposition at 22. The Partnerships fail, however, to suggest how they can claim priority over other creditors once the principle of identification has been abandoned. They might logically argue that victims of a breach of fiduciary duty should be distinguished from general creditors on the basis of the greater harm done to them. It is, however, unlikely that the D.C. Court of Appeals would accept that distinction as a basis for prioritizing their claims: As Scott notes in his treatise, "no court has gone so far as to base priority merely upon the character of the wrong done." V Scott on Trusts § 521, at 3648.
In the alternative, plaintiffs argue that no principled distinction can be drawn between funds commingled in a particular account and funds commingled in the wrongdoer's estate because in both cases the original res loses its separate identity. In their view, the extension of the identification principle to include commingled funds should itself be extended to include all property. In short, they argue that the tail should wag the dog. Given the moral ambiguities connected with tracing to a commingled fund, the more logical response to the inability to distinguish commingling in a particular account from commingling in the wrongdoer's estate would be to deny recovery in both cases. It is, however, possible to distinguish between the two situations. While it is true that once funds are commingled, and the wrongdoer withdraws and deposits other funds in the account the particular funds taken from the would-be beneficiaries cannot be definitively shown to remain, it is equally true that they cannot be proven to be absent. Thus, the would-be beneficiary can point to a particular fund and defy other's to prove that he is not entitled to a portion of that fund. A general creditor has no such ability. Thus there is a difference, albeit a slender one, between the commingling of funds in a particular account and commingling with the wrongdoer's assets in general, and that difference is a sufficient basis on which to distinguish the beneficiaries of a constructive trust and a general creditor. Moreover, if Moyers is any indication, it is likely that the D.C. Court of Appeals would accept this distinction; in that case, far from determining that the partnership fees, once commingled, were indistinguishable, the Court of Appeals held that "[t]he identity of the fund is not lost by the act of commingling." Moyers, 17 App.D.C. at 279 (citation omitted).
Finally, the Partnerships argue that tracing should be dispensed with in this particular case because the United States "stands in the taxpayer's shoes." They posit the following syllogism:
(1) The United States stands in Markowitz's shoes;
(2) Markowitz is required by the Order of August 30, 1985 to compensate the Partnerships for unaccounted-for partnership property;
(3) Therefore, the United States is required to compensate the Partnerships.
The problem with this syllogism, as with most syllogisms, lies in its premise. Plaintiffs derive this premise from a commentator's bon mot quoted in a parenthetical in footnote sixteen of United States v. Rodgers: *50 "[T]he tax collector not only steps into the taxpayer's shoes but must go barefoot if the shoes wear out." United States v. Rodgers, 461 U.S. 677, 691 n. 16, 103 S. Ct. 2132, 2141 n. 16, 76 L. Ed. 2d 236 (1983) (quoting 4 B. Bittker, Federal Taxation of Income, Estates, and Gifts ¶ 111.5.4, at 111-102 (1981)). Bittker's metaphor describes the doctrine, mentioned above, that state law determines whether a taxpayer has a sufficient property interest for federal tax liens to attach. See supra 14; see generally Acquilino v. United States, 363 U.S. 509, 80 S. Ct. 1277, 4 L. Ed. 2d 1365 (1960). The incorporation of state law stops, however, once the liens attach: As discussed in the text of the Rodgers opinion, "it has long been an axiom of our tax collection scheme that, although the definition of underlying property interests is left to state law, the consequences that attach to those interests is a matter left to federal law." Rodgers, 461 U.S. at 683, 103 S.Ct. at 2137 (citation omitted). Thus, Bittker's barefoot metaphor only applies to the question of attachment. Moreover, if it were extended any further, the result would be absurd. Since a taxpayer's claims are subordinated to all creditors, general and specific alike, under the Partnerships' logic, United States tax liens would be inferior to the claims of each and every creditor of the taxpayer.
In sum then, the overwhelming and uncontradicted weight of authority is that the beneficiary of a constructive trust must trace all property covered by the trust to property improperly taken from the beneficiary. This principle is clearly established under New York law, and the D.C. Court of Appeals has indicated that it accepts this principle as well. Nor is the D.C. Court of Appeals likely to be swayed by plaintiffs' demonstrably flawed policy arguments. Thus, whether D.C. or New York law applies, plaintiffs must trace all property upon which they wish this Court to enforce a constructive trust.
C.
The Partnerships contend that an injunction issued in Weil v. Markowitz on February 23, 1984, that effectively froze Markowitz's assets satisfies the tracing requirement. The Partnerships do not, however, explain why that injunction gives their claims priority over other creditors. Instead, they rely entirely upon what they interpret to be the holdings of two cases, United States v. Fontana, 528 F. Supp. 137 (S.D.N.Y.1981) and SEC v. Paige, 1985 WL 2335 (D.D.C. July 30, 1985). Their interpretation of these cases is, however, utterly without basis.
In Paige, the Court found that assets seized by the IRS could be traced back to the would-be beneficiary of the constructive trust. Specifically, Herbert Paige embezzled funds from General Cinema Corporation (GCC) and as a consequence of a suit by GCC to recover those funds, a permanent injunction established an escrow fund. SEC v. Paige, 1985 WL 2335, at *2-*3 (Stipulation of Facts ¶¶ 6-13). "The escrow assets were purchased by Paige with funds from the same general personal checking accounts into which he had deposited the [embezzled funds]." Id. at *3 (Stipulation of Facts ¶ 13). Thus, when the IRS levied upon the fund, the Court had no difficulty in finding that Paige had "no legal right or interest in the escrow assets previously turned over to the government to satisfy Paige's federal tax liability," that those funds were held in constructive trust for GCC, and that the IRS's liens filed against Paige could not, therefore, attach to the escrow fund. Id. at *7. Noting that the opinion does not discuss tracing, the Partnerships conclude that the issuance of the injunction creating the escrow fund dispensed with the need for tracing. The more natural reading is, however, that the Court never considered the effect of the injunction because the funds in the escrow account could be traced through his general personal checking accounts to the embezzled funds.
Similarly, in Fontana, the would-be beneficiaries' ability to trace was not at issue. That case had its ultimate origin in a suit filed by Great Lakes Carbon Corporation against Fred Fontana claiming that Fontana had violated his fiduciary obligations as an employee. See United States v. Fontana, *51 528 F.Supp. at 139. In connection with its claim, Great Lakes filed a writ of attachment against Fontana, and some of his assets were seized by the Sheriff of Westchester County. See id. at 142. The United States later filed tax liens against Fontana and claimed the assets held by the sheriff. See id. Addressing the Government's motion for summary judgment, Judge Sands determined that he had subject matter jurisdiction and rejected the Government's contention that any constructive trust imposed would be defeated by the Government's prior filed lien. See id. at 146. The Court then observed that "[t]he question of fact whether Fontana's acts gave rise to a constructive trust for the benefit of Great Lakes remains unsettled." Id. Again noting that "nothing in Fontana indicates that the embezzled funds were traced into the attached bank accounts," plaintiffs contend that the writ of attachment satisfied the tracing requirement. See Plaintiff's Reply at 14. The opinion does, however, indicate that the embezzled funds can be traced: It specifically mentions that Great Lakes "has asserted ... that the fund in question is traceable to wrongful acts by Fontana in breach of his fiduciary obligations as an employee." Id. at 139. Thus, as with Paige, the most natural reading of Fontana is that tracing was not an issuenot that the Court used an injunction or a writ of attachment in lieu of normal tracing.
More fundamentally, the Partnerships fail to explain how or why a writ of attachment or injunction could substitute for actual tracing. It cannot be that an injunction by itself defeats a tax lien, because preliminary injunctions and writs of attachment are clearly not sufficiently choate to prime a federal tax lien. See, e.g., United States v. Security Trust & Savings Bank, 340 U.S. 47, 71 S. Ct. 111, 95 L. Ed. 53 (1950). Nor does an injunction identify property as belonging to the beneficiary and or in any way establish the priority of the would-be beneficiary's claim to the property. In short, lacking a persuasive grounding in any cases and entirely devoid of any rationale, plaintiffs' contention that the preliminary injunction issued in Weil v. Markowitz satisfies the tracing requirement must be rejected.
D.
The Partnerships' primary contention is that it can trace $424,846.94 in assets seized or recovered by the Government to the "TMG Associates Bonus Account" at the NS & T Bank in Washington. With one exception, the Government concedes and indeed has stipulated that these assets can be traced to the TMG Associates Bonus Account. It asserts, however, that the money in that account did not belong to TMG Associates, but rather to one of Markowitz's wholly owned corporations, the Monetary Group, N.V. The Partnerships, of course, dispute this assertion. It is not, however, necessary to resolve this dispute because even if the Partnerships were to prove that the assets in the TMG Associates Bonus Account were theirs, they could not recover them through a constructive trust.
It is undisputed that in April, 1982, Edward Markowitz opened a bank account titled TMG Associates Bonus Account on behalf of TMG Associates by depositing a check in the amount of $130,000. See Markowitz Declaration ¶ 3. According to Markowitz, this account was to be used "to pay bonuses to employees of TMG Associates" and, indeed, bonuses totalling $53,872.90 were paid to TMG Associates employees. Id. ¶¶ 3-5. The remaining $76,127.10 was then returned to TMG Associates on June 3, 1982. See id. ¶ 5. Second Strzegowski Declaration ¶ 5. Beginning June 1, 1982, and continuing until June 23, 1982, Hillcrest Associates, an entity that had previously traded with TMG II, deposited $597,000 in the TMG Associates Bonus Account. See Stipulation ¶ 6; see also Government's Opposition at 20 n. 3 (noting a mistake in Stipulation's addition). On June 30, 1982, the TMG Associates Bonus Account was closed out and the money remaining in it transferred to an N.V. bank account into which subsequent commissions from Hillcrest were deposited. See Stipulation ¶¶ 10-12. Markowitz asserts that during June of 1982 Hillcrest was trading with *52 N.V. and that the TMG Associates Bonus Account was used simply "because it was an open account available for my use." Markowitz Declaration ¶ 8. The plaintiffs strenuously dispute this assertion, pointing out that Hillcrest had previously traded with the Partnerships and that Markowitz had previously professed not to remember anything about the TMG Associates Bonus Account.
One fact is, however, undisputed. The transactions with Hillcrest were a sham. Markowitz, whether through TMG Associates or N.V., "provided Hillcrest Securities with fraudulent trading losses in return for commissions." Id. ¶ 7. As a matter of fact, according to the Information to which he pleaded guilty, Markowitz supplied Hillcrest and other customers with over $350 million in false interest expenses. See Information ¶ 29. The Partnerships relied upon these facts in formulating their pleadings. For example, in addition to attaching the Information to their originally complaint, they also alleged that
[t]he individuals and entities who purchased limited partnership interests in the partnerships had no knowledge or information that Mr. Markowitz intended to use the partnerships for non-existent, bogus or sham trading transactions. Had the individuals and entities been given such information, they would not have invested in the partnerships.
Amended Complaint ¶ 23. Now, however, the Partnerships claim that they have a right to the proceeds of these "non-existent, bogus or sham" and, one might add, illegal "transactions." Indeed, they are claiming not only that they have a right to the fruits of these transactions but also that this Court should exercise its equitable powers to enforce a constructive trust to secure for them those fruits.
The Partnerships brazenly assert that it is not "relevant that the validity of the Hillcrest transactions may be subject to legal challenge." Plaintiffs' Reply at 22. This is simply wishful thinking. A constructive trust is a "purely equitable device." Osin v. Johnson, 243 F.2d 653, 656 (D.C.Cir.1957). As a consequence, courts enjoy great latitude in determining whether or not to enforce a constructive trust. A court sitting in equity may, for example, refuse to enforce a constructive trust unless the nominal titleholder is reimbursed for expenditures made in connection with the res. See Restatement of Restitution § 177, comment c, at 719. Most pertinently, "[a] complainant seeking the establishment of a constructive trust is naturally subject to the ordinary rules of equity that he must come into court with clean hands...." Bogert on Trusts, § 472, at 51-52.
It is hard to imagine a plaintiff approaching the Court with more soiled hands than the plaintiffs. TMG Associates not its partners who may have been defrauded by Markowitz and who may have lost their substantial investments, but the partnership itself claims that it owns the illegal commissions paid by Hillcrest in June, 1982, and asks this Court to subordinate another creditor. In all good conscience, that cannot be done because the only way that plaintiffs can claim title over the Hillcrest commissions is to admit that they were actively engaged in bogus transactions designed to generate fraudulent tax losses. Or to put it another way, the Hillcrest commissions are the functional equivalent of property stolen by Markowitz from someone other than plaintiffs. Whoever may be the victim, to whom that property should be restored, it is not the plaintiffs. Equity should not enforce such a claim.
E.
The Partnerships also claim that they can trace the funds used in 1981 to purchase Markowitz's 2323 Porter Street home to a Cayman Islands bank account with TMG Associates funds.
The Partnerships first made this claim in their July 11, 1990 Reply Brief. After the Government protested that these assertions contradicted the Partnerships' statement of material facts and that this belated proffer of evidence prejudiced its case, the parties were allowed to conduct additional discovery and submit supplemental memoranda. See Order of December *53 11, 1990, 1990 WL 290072; Order of September 24, 1990. While plaintiffs' supplemental memorandum filed on November 29, 1990, essentially repeated the claims asserted in its July 11, 1990 reply brief, the Government's opposition demonstrated that there were two Cayman Island bank accounts under the name of TMG Associates. One of those accounts was, however, opened by N.V., with N.V. funds, in order to act as a "Euro trading account." Third Strzegowski Declaration ¶ 15. Funds from this latter account were transferred on February 14, 1983, to another N.V. account and then used to purchase the 2329 Porter Street residence. See id. ¶ 16. In their supplemental reply brief, the Partnerships do not dispute this account. Instead, they present new evidence that the two TMG Associates accounts in the Cayman Islands were combined before the money used to purchase the 2323 Porter Street residence was transferred. On the basis of these facts, they ask the Court to enter summary judgment in their favor. The Government has not, however, had a chance to respond to this new evidence, nor indeed does it appear that the plaintiffs provided the Government with notice of this evidence during the additional discovery period. However, TMG's proffer of this evidence is so belated that it would be unfair to allow its submission. See Cope v. McPherson, 781 F.2d 207, 208 (D.C.Cir.1985).
F.
Finally, plaintiffs rather perfunctorily contend that they can trace five other assets seized or recovered by the Government. In fact, however, they really contend that they do not need to trace these assets at all.
The primary asset at issue is the 2323 Porter Street residence. Noting that Markowitz had few assets before the Partnerships were formed, see Stipulation ¶ 4, plaintiffs contend that Markowitz must have used Partnership funds in order to satisfy the $496,171.00 purchase price. It is, however, stipulated that the residence was purchased with funds from Monetary Group, N.V. See id. ¶ 39. Moreover, it is also undisputed that in one month's trading with Hillcrest more than $500,000 in commissions were earned. See id. ¶ 6. So, it is more than possible that Markowitz paid for the house at 2323 Porter Street without using Partnership funds. Given the evidence in the record, any assertion to the contrary is pure speculation insufficient to defeat defendant's motion for summary judgment. See, e.g., Siegel v. Mazda Motor Corp., 878 F.2d 435, 439 (D.C.Cir.1989).
Along a similar vein, the Partnerships argue that Markowitz should be deemed to have purchased 2323 Porter Street, the minority interest in the Washington Capitals, and the Ford Bronco with Partnership funds under the doctrine of swollen assets. This doctrine is recognized in a few jurisdiction as an exception to the tracing requirement. See Bogert on Trusts § 922, at 375-77. It is not, however, applicable here. The swollen assets doctrine is based upon
the theory that the use of trust funds to pay the personal debts of the trustee relieved him from using his individual property for that purpose and consequently increased the amount of it on hand at insolvency, and so it could be said that using trust funds to pay personal debts had "swelled" the assets on hand at the time of determining the rights of creditors and other claimants.
Id. at 376-77 (footnote omitted). The Partnerships do not allege that any debts were satisfied with Partnership funds. The swollen assets doctrine is, therefore, inapplicable.
Finally, the Partnerships argue that they can trace a transfer of $30,000 from Monetary Group, Ltd., to the Markowitz Stables account seized by the IRS. See Stipulation ¶ 31. Be that as it may, this fact does not establish their entitlement to those funds. The Monetary Group, Ltd., the general partner of TMG Associates, was owned by Edward Markowitz. There is nothing suspicious about Markowitz transferring money from a corporation to himself, and any claim that such funds include property of TMG Associates or TMG II is pure speculation, which *54 as mentioned above, is not sufficient to raise a genuine issue of fact.
G.
In sum, although the Partnerships have been able to establish that Markowitz breached a fiduciary duty owed them, they have failed to establish that any of the assets seized or recovered by the Government are traceable to Partnership property. They have presented some evidence suggesting that the funds used to purchase the 2323 Porter Street residence can be traced into a TMG Associates bank account in the Cayman Islands, but that late emerging evidence is not cognizable at this stage of these marathon proceedings.
VI.
Finally, the Government contends that even if a constructive trust were declared by this Court over the 2323 Porter Street property, such a trust would not defeat its tax liens because the constructive trust was not "choate" at the time the tax liens were filed. Implicitly, the Government contends that a constructive trust is created when a court decided to enforce it. However, as Judge Sands convincingly argues, the better view is that the constructive trust arises "when the duty to make restitution arises, not when the duty is subsequently enforced." United States v. Fontana, 528 F.Supp. at 146 (quoting V Scott on Trusts § 462.4, at 3421). The Government concedes the validity of the Fontana decision but attempts to distinguish it. It argues that in a case of theft or embezzlement like Fontana, title never passes to the wrongdoer, but in the case of fraud, since the transferor in fact intends to pass legal title, the wrongdoer gains voidable title sufficient to allow a lien to attach. See SEC v. Levine, 881 F.2d 1165, 1174-76 (2d Cir.1989). This is a provocative argument. However, the Partnerships' theory, that a constructive trust was created by Markowitz's fraudulent representations, has more obvious failings. See supra p. 47. Moreover, even on its own terms it does not apply to the Partnerships' theory that Markowitz embezzled Partnership funds because, in such a case, Markowitz would not have gained even voidable title to that property. Accordingly, the Government's argument is now moot.
VII.
For the reasons stated above, the accompanying order will enter summary judgment on behalf of the Government and dismiss plaintiffs' claims.
NOTES
[1] Information, United States v. Markowitz, 85 Cr. 393, ¶ 1 (S.D.N.Y. April 25, 1985) (Complaint, Attachment 1) [hereinafter, "Information"].
[2] See, e.g., United States v. Oshatz, 912 F.2d 534 (2d Cir.1990) (affirming the conviction of two lawyers associated with Markowitz); North River Ins. Co. Inc. v. Stefanou, 831 F.2d 484, 485 (4th Cir.1987) (noting the plea of an accountant associated with Markowitz); United States v. Markowitz, No. 85 Cr. 393, slip op. at *1, 1986 WL 3789 (S.D.N.Y. March 27, 1986) (WESTLAW, Federal library, Unreported District Court Cases file) (noting that on April 25, 1985, Markowitz pleaded guilty to conspiracy to defraud, aiding and assisting false returns, and tax evasion).
[3] See Order of August 30, 1985, Weil v. Markowitz, Nos. 83-3685 & 84-1680, at 4 [hereinafter, "Order of August 30, 1985"].
[4] See Notice of Federal Tax Lien Under Internal Revenue Laws, January 14, 1985 (Complaint, Attachment 2).
[5] See Weil v. Markowitz, 829 F.2d 166, 168 n. 1 (D.C.Cir.1987) (noting that while Donald Weil had a 35% general partnership interest in TMG II he had no day-to-day responsibilities) Markowitz Declaration ¶ 1.
[6] TMG II, Private Placement Memorandum, November 3, 1980, at ii (Second Strzegowski Declaration, Exhibit C); see TMG Associates, Private Placement Memorandum, November 1, 1979, § I, at 1 (Second Strzegowski Declaration, Exhibit B).
[7] See Letter from Barry M. Rosenblatt to Irwin Terach, December 3, 1980 (First Strzegowski Declaration, Exhibit A); see also United States v. Oshatz, 912 F.2d at 536 (describing how the Partnerships were supposed to generate tax savings through "straddle" and "repurchase" transactions).
[8] See Stipulation of Facts, filed March 13, 1990 ¶ 3 [hereinafter, "Stipulation"].
[9] See First Strzegowski Declaration ¶ 6; see also Information ¶ 21 (noting that Markowitz generated $60 million in deductions for the five limited partnerships, including TMG Associates and TMG II, operated by him).
[10] See Stipulation ¶ 4.
[11] See id. ¶ 41.
[12] See id. ¶ 7.
[13] See id. ¶¶ 26, 30-36, 38-40.
[14] See id. ¶¶ 10-24.
[15] See id. ¶¶ 10-15 (N.V.); id. ¶¶ 24-25 (GSI).
[16] See id. ¶ 10.
[17] See id. ¶ 10.
[18] TMG II v. Price Waterhouse & Co., ___ A.D.2d ___, ___, 572 N.Y.S.2d 6, 7 (1991) (noting that Price Waterhouse withdrew "after TMG was unable to document to Price Waterhouse's satisfaction that the transactions [recorded in TMG's books] were bona fide, and actually occurred").
[19] Information ¶ 23.
[20] Id. ¶ 29.
[21] See Second Strzegowski Declaration ¶ 4.
[22] See Amended Complaint ¶¶ 3, 8; Answer to First Amendment Complaint ¶¶ 3, 8.
[23] See also Memorandum of October 2, 1985, Weil v. Markowitz, Nos. 83-3684 & 84-1680 (explaining the Order of August 30, 1985); Weil v. Markowitz, 829 F.2d 166 (D.C.Cir.1987) (upholding that order in pertinent part).
[24] Order of August 30, 1985, at 4.
[25] See id. at 6.
[26] See id. at 8.
[27] See, e.g., Silverman v. Weil, 662 F. Supp. 1195, 1197 n. 2 (D.D.C.1987); TMG II v. Price Waterhouse & Co., ___ A.D.2d at ___, 572 N.Y.S.2d at 6.
[28] See Plaintiffs' Statement of Material Facts, Document 1.
[29] See Stipulation ¶¶ 1(b), 1(k)-(n), 2; Plaintiffs' Statement of Material Facts, Document 1.
[30] See Stipulation ¶¶ 1(a), 2.
[31] See Plaintiffs' Statement of Material Facts ¶ 4.
[32] See Amendment Complaint ¶¶ 37-53.
[33] That section provides in full:
If a levy has been made on property or property has been sold pursuant to a levy, any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States. Such action may be brought without regard to whether such property has been surrendered to or sold by the Secretary.
[34] That section provides in full:
Under the conditions prescribed in this section and section 1444 of this title for the protection of the United States, the United States may be named a party in any civil action or suit in any district court, or in any State court having jurisdiction of the subject matter
(1) to quiet title to,
(2) to foreclose a mortgage or other lien upon,
(3) to partition,
(4) to condemn, or
(5) of interpleader or in the nature of interpleader with respect to,
real or personal property on which the United States has or claims a mortgage or other lien.
[35] Section 6321 provides in relevant part:
If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount ... shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.
26 U.S.C. § 6321 (1988) (emphasis added). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1232854/ | 545 S.E.2d 385 (2001)
247 Ga. App. 843
CROSBY
v.
KENDALL et al.
No. A00A2503.
Court of Appeals of Georgia.
February 6, 2001.
*387 Louis K. Polonsky, Matthew D. Crosby, Atlanta, for appellant.
Taylor W. Jones & Associates, Taylor W. Jones, Jenny E. Jensen, Atlanta, for appellees.
*386 JOHNSON, Presiding Judge.
This lawsuit arose from a series of financial transactions in which the appellees[1] loaned money to certain corporations[2] for use in purchasing, renovating, and selling residential real estate. From 1991 through the end of 1995, the appellees made approximately 120 loans to the corporations, 64 of which were the subject of the appellees' lawsuit.
Samuel Les Caldwell controlled these corporations and made the vast majority of the business decisions for these entities. James Babb, a bookkeeper, acted as an agent for the corporations, and his duties included recruiting investors and serving as a liaison between Caldwell and the investors. Marc Slavny and Marci Caldwell had smaller roles in the corporations. Appellant David Crosby, an attorney and part-time DeKalb County magistrate, served as an escrow agent for some, but not all, of the loan transactions. With the exception of Crosby, all of the above-named individuals and corporations settled prior to trial.
The evidence shows that in January 1991, Caldwell retained Crosby as the escrow agent for some of the loan transactions between the various defendants and the appellees. Caldwell and Babb told the appellees that Crosby was a practicing attorney and a sitting judge, that he would serve as the escrow agent for the transactions, and that one of his major duties was to ensure that the appellees' funds were not released until the requirements contained in the escrow agent instructions had been completed.
Each loan was memorialized by the following documents: (1) a promissory note; (2) a copy of the purchase agreement for the property; (3) an investor summary; (4) a limited power of attorney from the appellees to Crosby; (5) an assignment of purchase agreement or deed to secure debt; and (6) escrow agent instructions.
Although the language of the escrow agent instructions varied slightly, all versions imposed substantially the same obligations upon Crosby. Crosby was required to perform the following acts:
1. Verify the end value of the property pursuant to a recent appraisal; 2. Obtain proper execution of the enclosed Promissory Note; 3. Verify that the principal amount of the Promissory Note; together with the remaining amount required to purchase the property; does not exceed 80% of the end value of the property; 4. Obtain [the corporation's] Purchase Agreement plus an Assignment of [the corporation's] contract rights to purchase the property from [the corporation] to the undersigned; 5. Verify that the term of the Promissory Note is less than the term of the assigned Purchase Agreement plus any extension authorized under the Purchase Agreement; and 6. Obtain a properly executed Deed to Secure Debt for use as substituted collateral to secure the terms of the Note in the event that borrowers purchase the property and take title to it.
The appellees' expert testified that his review of some of Crosby's files revealed that many of the documents required to perform these functions were absent. The expert further testified that in many cases, contrary to the escrow instructions, Crosby failed to verify that the term of the promissory note was less than the term of the assigned purchase agreement plus any extension authorized under the purchase agreement. The expert further testified that in many cases, Crosby *388 failed to obtain a properly executed deed to secure debt for use as substituted collateral and failed to verify that the principal amount of the note, together with the remaining amount required to purchase the property, did not exceed 80 percent of the end value of the property as the escrow instructions required.
Crosby himself admitted that some of his files were incomplete. He further admitted that he had no communication with the appellees until February 1996, when some of the appellees requested to meet with him and review his files. On the other hand, Crosby admitted he had frequent communications with Caldwell regarding these transactions. And, he acknowledged having prior attorney-client relationships with Caldwell. In addition, while acting as escrow agent for the appellees, Crosby incorporated and served as registered agent for Peachtree Realty, Inc., one of Caldwell's corporations and a defendant corporation in this lawsuit.
While Crosby maintains that he did not draft the escrow instructions, he testified at trial that prior to any of the transactions, he reviewed and revised the instructions that were subsequently provided to the appellees. He admitted providing a form promissory note to Caldwell and drafting security deeds for the transactions at issue. He further acknowledged that he filed 12 security deeds in 1993 without the appellees' knowledge because Caldwell was having problems with the Internal Revenue Service. Crosby admitted that his actions in filing the deeds violated his escrow instructions.
In January 1996, when the appellees began their investigation, they learned that their collateral was either nonexistent or worthless. Contrary to the terms of the escrow instructions, Crosby failed to confirm that the term of each promissory note was longer than the term of the purchase agreement, so the promissory notes expired after the right to purchase expired. In addition, the evidence showed that in more than a few instances, use of the same property as collateral for multiple loans caused the loan-to-value ratio to greatly exceed the 80 percent escrow instruction.
During trial, the appellees argued that Crosby breached the fiduciary duties he owed to them by (1) breaching his agreement with them; (2) drafting or approving transaction documents that were ambiguous or designed to protect the corporations to the detriment of the appellees; (3) failing to disclose potential conflicts of interest in Crosby serving as escrow agent and holding their limited power of attorney based on his prior and ongoing relationship with Caldwell and/or the corporations; (4) failing to maintain the neutrality required of a dual agent; (5) seeking and following directions from Caldwell regarding the escrow instructions while failing to communicate with the appellees or informing them that he could not fulfill his obligations as escrow agent; and (6) either intentionally or negligently failing to fulfill the obligations imposed upon him by the escrow instructions. The jury awarded the appellees over $500,000 in compensatory damages, as well as $100,000 in punitive damages. Crosby contends the trial court committed a number of errors during the course of this trial, including errors in its jury instructions and in its failure to grant three of Crosby's motions for directed verdict. We find no error.
1. Crosby contends that the trial court erred in instructing the jury that an attorney acting as an escrow agent "must meet the standards of the legal profession, including those set forth in the code of professional responsibility" and in instructing the jury on the State Bar of Georgia conduct standards governing attorneys. Whether the fiduciary duty an escrow agent owes to a principal encompasses standards of professional conduct where the agent is a practicing attorney has not been addressed in this state. And, we need not address the issue in this case because any error in the giving of these instructions was harmless.
The question presented to the jury was whether Crosby violated his fiduciary duty as an escrow agent to the appellees. Regardless of the standards of professional conduct which may or may not be relevant, the evidence in this case, in our opinion, demanded a finding that Crosby violated his fiduciary duty as escrow agent to the appellees.
*389 The evidence showed that the escrow agent instructions given to Crosby were not followed on a number of occasions, and Crosby admits that on at least one occasion he felt his actions violated the escrow instructions. While Crosby blames Caldwell for the fact that he could not obtain many of the documents required by the escrow agent instructions, the fact remains that Crosby failed to comply with the escrow agent instructions. "The verdict for the [appellees] being demanded by the evidence, the intermediate errors, if any, ... in certain instructions of the court ... are harmless, and require no specific consideration."[3]
2. Crosby maintains that the trial court erred in failing to grant his motions for a directed verdict, and subsequent motion for a judgment notwithstanding the verdict or for a new trial, regarding several of the appellees' claims. In considering a motion for a j.n.o.v. or a motion for a new trial, the trial court and the appellate court must review the evidence in the light most favorable to the party who secured the jury verdict.[4] Likewise, in considering a ruling on a motion for a directed verdict, the evidence must be construed most favorably to the party opposing the motion.[5] We review the trial court's denial of a motion for a directed verdict using the "any evidence" standard.[6] This standard of review requires Crosby "to show that there was no conflict in the evidence as to any material issue, and the evidence introduced, with all reasonable deductions therefrom, demanded the verdict sought."[7]
(a) Crosby contends that the trial court erred in failing to grant his motions regarding the appellees' loan transactions funded by Reliance Trust Corporation.[8] According to Crosby, no valid escrow was created because Crosby never received either the documents needed to comply with the escrow instructions or the funds that were to be used to purchase the properties in the RTC transactions. However, contrary to Crosby's assertion, there was sufficient evidence from which the jury was authorized to conclude that Crosby breached the fiduciary duties he owed to the appellees regarding the RTC transactions.
Crosby admitted that he received escrow agent instructions for the RTC transactions. He further acknowledged that the instructions authorized him to contact the appellees if any questions regarding the transactions arose. Nevertheless, Crosby never contacted either the appellees or RTC when questions arose about the transactions. Instead, Crosby called Caldwell and relied on his statements regarding the transactions. Clearly, Crosby's reliance on Caldwell's statements was misplaced. Equally clear is the fact that Crosby did not meet the requirements of the escrow instructions.
Crosby's contention that he did not owe the appellees a fiduciary duty with regard to the RTC transactions lacks merit in light of his actions in calling Caldwell with questions about the transactions and his attempts to obtain the required documents from Caldwell. These actions provide evidence that Crosby knew he had a fiduciary duty with respect to these transactions. Moreover, the escrow instructions regarding these transactions authorized him to contact the appellees if any questions regarding the transactions occurred. Had Crosby contacted the appellees regarding his concerns about the transactions or his inability to obtain the required documents from Caldwell, it is possible that the appellees' losses relating to the RTC transactions could have been minimized or prevented. We cannot say that the trial *390 judge improperly denied Crosby's motion for a directed verdict or motion for a j.n.o.v. or a new trial in this regard under the any evidence standard.
(b) Crosby further contends that the trial court erred in denying his motions regarding the appellees' claim for punitive damages. It is clear that a breach of a fiduciary duty may warrant the imposition of punitive damages.[9] However, Crosby argues that punitive damages were not warranted because he did not intend to injure the appellees and because he never made any misrepresentations to the appellees. Whether punitive damages should be awarded for a breach of fiduciary duties is ordinarily a question for the jury, and the controlling question for the appellate court is whether there was any evidence to support their award.[10]
OCGA § 51-12-5.1 permits punitive damages to be awarded where a plaintiff proves by clear and convincing evidence that the defendant's actions showed wilfull misconduct, malice, fraud, wantonness, oppression, "or that entire want of care which would raise the presumption of conscious indifference to consequences." The phrase "conscious indifference to consequences" means an intentional disregard of the rights of another, knowingly or wilfully disregarding such rights.[11]
The jury was authorized to conclude that evidence that Crosby communicated solely with Caldwell and failed to procure the necessary documents from him to fulfill his escrow agent duties showed a conscious disregard for consequences, especially in light of Crosby's past attorney-client relationships with Caldwell. Crosby could have contacted the appellees at any time and told them that he was unable to procure the necessary documents. He could have looked at his own paperwork and seen that the escrow agreement requirements were not being met. Instead, he blindly relied on statements made by a past, and possibly present, client to the detriment of those he represented as an escrow agent. Crosby knew he was not fulfilling the requirements of the escrow agreements, and he admitted that on at least one occasion he acted contrary to the escrow agent agreements in his attempt to help Caldwell. A jury question was presented,[12] and it was not error for the trial court to instruct the jury regarding the issue of punitive damages.
(c) Crosby contends that the trial court erred in failing to grant his motions regarding any loan transactions that occurred more than two years prior to the filing of the lawsuit. He bases this argument on the fact that the trial court's jury charges on attorney standards of conduct limited this case to a legal malpractice action, and the statute of limitation for a noncontractual action against an attorney sounding in tort is two years.[13] Crosby's contention lacks merit.
The appellees brought claims for legal malpractice and breach of fiduciary duty arising from Crosby's breach of the escrow agent agreements. The trial court granted Crosby's motion for a directed verdict regarding the appellees' legal malpractice claims, specifically excluding these claims from jury consideration. Whether the trial court's jury instructions regarding attorney standards of care were or were not proper, they did not, contrary to Crosby's argument, revive the appellees' claims for legal malpractice. The trial court properly held that the applicable statute of limitation for the appellees' claims of breach of fiduciary duty, which *391 arise out of a breach of the escrow agent agreements, was six years pursuant to OCGA § 9-3-24.
Judgment affirmed.
SMITH, P.J., and PHIPPS, J., concur.
NOTES
[1] Patricia Kendall, Janet Moore, Ozro Moore, Donald Stephenson, Melanie Stephenson, E.H. Hovey, Ann Hovey, Julie Franciskato, John Persall, Barbara Persall, Carl Moore, and Jerilyn Moore.
[2] General Realty Investment Corporation, Peachtree Realty, Inc., and AAA Realty, Inc. (collectively "the corporations").
[3] Davis v. Davis, 211 Ga. 714, 716, 88 S.E.2d 377 (1955); see Hankinson v. Rackley, 177 Ga.App. 734, 736(2), 341 S.E.2d 231 (1986); Parsons v. Grant, 95 Ga.App. 431, 436(3), 98 S.E.2d 219 (1957).
[4] See Denson v. City of Atlanta, 202 Ga.App. 325, 326(1), 414 S.E.2d 312 (1991).
[5] See Mattox v. MARTA, 200 Ga.App. 697(1), 409 S.E.2d 267 (1991).
[6] Id. at 698, 409 S.E.2d 267.
[7] (Citation and punctuation omitted.) Wheat Enterprises v. Redi-Floors, 231 Ga.App. 853, 854(1), 501 S.E.2d 30 (1998).
[8] The funds loaned by the appellees came from two sources, their personal funds and Individual Retirement Accounts. RTC was the custodian of the IRA funds.
[9] See Watkins & Watkins, P.C. v. Williams, 238 Ga.App. 646, 649(6), 518 S.E.2d 704 (1999); Home Ins. Co. v. Wynn, 229 Ga.App. 220, 225(10), 493 S.E.2d 622 (1997).
[10] See Home Ins. Co., supra at 223(2), 493 S.E.2d 622; Caswell v. Jordan, 184 Ga.App. 755, 760(7), 362 S.E.2d 769 (1987) (physical precedent only).
[11] Home Ins. Co., supra at 225(10), 493 S.E.2d 622.
[12] See Time Warner Entertainment Co. v. Six Flags Over Ga., 245 Ga.App. 334, 356(6)(a), 537 S.E.2d 397 (2000) (evidence that defendants were aware of their fiduciary duty to the plaintiffs but consciously and intentionally disregarded that duty supported a jury award for punitive damages); Byrne v. Reardon, 196 Ga.App. 735, 736(3), 397 S.E.2d 22 (1990).
[13] See OCGA § 9-3-33. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1342244/ | 278 S.C. 319 (1982)
295 S.E.2d 264
The STATE, Respondent,
v.
Wardell PATTERSON, Jr., Appellant.
21788
Supreme Court of South Carolina.
September 13, 1982.
*320 David I. Bruck, of S.C. Com'n of Appellate Defense, Columbia, for appellant.
Atty. Gen. Daniel R. McLeod, Sr., Asst. Atty. Gen. Brian P. Gibbes and Asst. Atty. Gen. Lindy Pike Funkhouser, Columbia and Sol. William L. Ferguson, York, for respondent.
September 13, 1982.
GREGORY, Justice:
Appellant pled guilty to armed robbery and murder and was sentenced to death as recommended by a jury. We vacate the guilty plea and death sentence and remand for a new trial.
We raise the validity of appellant's guilty plea and sentencing proceedings ex mero motu, although no exception was taken and no argument was made by counsel. On appeal from a murder conviction in which the death penalty is imposed, this court reviews the entire record for prejudicial error in favorem vitae, regardless of whether the error was properly preserved for review. State v. Shaw, 273 S.C. 194, 255 S.E. (2d) 799, cert. den. 444 U.S. 957, 100 S. Ct. 437 62 L.Ed. (2d) 329 (1979); State v. Boone, 228, S.C. 438, 90 S.E. (2d) 640 (1956).
Appellant and three codefendants were indicted for the August 18, 1980 armed robbery and murder of Ted Bryant Graham while he was working in a Fast Fare convenience *321 store in Fort Mill, South Carolina. On October 29, 1980, after a jury was impaneled, appellant pled guilty to murder and armed robbery, conditioned on his being sentenced by the jury. Two of appellant's codefendants were tried and found guilty of murder and armed robbery on October 31, 1980. After the sentencing hearing, the trial jury recommended a death sentence for appellant and life sentences for his two codefendants. The judge then imposed those sentences.
Section 16-3-20(B) of the 1976 South Carolina Code [Cum. Supp. 1981] provides in pertinent part:
Upon conviction or adjudication of guilt of a defendant of murder, the court shall conduct a separate sentencing proceeding to determine whether the defendant should be sentenced to death or life imprisonment. The proceeding shall be conducted by the trial judge before the trial jury as soon as practicable after the lapse of twenty-four hours unless waived by the defendant. If the trial jury has been waived by the defendant and the State, or if the defendant pleaded guilty, the sentencing proceeding shall be conducted before the court.... [Emphasis added]
Although Section 16-3-20(B) is imprecisely drafted, the portion emphasized above clearly governs sentencing after a plea of guilty to murder. It specifies the sentencing hearing shall be "before the court" if the trial jury has been waived or if the defendant plead guilty. When read in the context of the entire subsection, the word "court" obviously refers to the trial judge.
In this case, appellant's counsel informed the solicitor and the trial judge that appellant would plead guilty if the jury recommended his sentence. The solicitor argued vigorously there is no constitutional right to jury determination of sentence and the statute does not offer a defendant that option. The trial judge ruled a defendant has the statutory right to a jury determination of punishment and made that condition part of appellant's recorded plea bargain. In so ruling, the trial judge erred.[1]
*322 The question arises whether we must remand the case for a new sentencing proceeding before the trial judge or vacate the guilty plea and remand for a new trial altogether.
A plea of guilty is more than an admission of conduct; it is a conviction which leaves only the punishment to be determined. A defendant who pleas guilty simultaneously waives several constitutional rights, including the privilege against compulsory self-incrimination, the right to trial by jury and the right to confront his accusers. For such a waiver to be valid under the due process clause, it must be an intentional relinquishment or abandonment of a known right or privilege. Further, the record must clearly establish waiver. Boykin v. Alabama, 395 U.S. 238, 89 S. Ct. 1709, 23 L. Ed. (2d) 274 (1969).
The U.S. Supreme Court has held that the taking of a plea must be attended by safeguards to insure the defendant what is reasonably due in the circumstances. "[W]hen a plea rests in any significant degree on a promise or agreement of the prosecutor, so that it can be said to be part of the inducement or consideration, such promise must be fulfilled." Santobello v. New York, 404 U.S. 257, 262, 92 S. Ct. 495, 498-499, 30 L.Ed. (2d) 427 (1971).
We hold appellant's guilty plea and sentence must be vacated because a significant inducement for entering the plea was the condition that the jury determine punishment, an impermissible condition under the statutory mandate that the trial judge alone determines punishment when a defendant pleads guilty to murder.
Because of our disposition of this matter, we need not address appellant's numerous exceptions.
Accordingly, appellant's guilty plea and death sentence are vacated and the case remanded for a new trial.
Remanded.
LEWIS, C.J., and LITTLEJOHN, NESS and HARWELL, JJ., concur.
NOTES
[1] This issue was raised in Shaw v. State, 276 S.C. 190, 277 S.E. (2d) 140 (1981). Shaw was sentenced to death by the trial judge after pleading guilty. He argued the S.C. Death Penalty Act was unconstitutional in that it violated his right to a jury determination of punishment. This Court upheld the constitutionality of the Act in its entirety. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2520214/ | 54 F. Supp. 2d 379 (1999)
AMERICAN CYANAMID CO., Plaintiff,
v.
NUTRACEUTICAL CORP., Defendant.
No. Civ.A. 97-2018.
United States District Court, D. New Jersey.
May 28, 1999.
*380 *381 Donald A. Robinson, Robinson, Lapidus & Livelli, Newark, NJ, for plaintiff.
Peggy A. Tomsic, Casey K. McGarvey, Berman, Gaufin, Tomsic & Savage, Salt Lake City, UT, Gerald T. Ford, Diane J. Ruccia, Landman Corsi Ballaine & Ford, Newark, NJ, for defendant.
OPINION
WOLIN, District Judge.
This case involves claims for trademark infringement, unfair competition, and trademark dilution based on federal law and the laws of the State of New Jersey. The instant matter comes before the Court on defendant's motion for summary judgment, wherein defendant argues, mainly, that its allegedly infringing marks are simply too dissimilar to plaintiff's trademark to be capable of grounding any of plaintiff's *382 claims. Because the case involves a claim for infringement of plaintiff's color-spectrum trademark, the Court examines the degree of similarity required between competing marks that make use of common colors. In addition, the claim for dilution requires the Court to adopt an appropriate standard for cases alleging "blurring" of a senior mark.
STATEMENT OF FACTS
In 1981, plaintiff, American Cyanamid Company,[1] registered a color spectrum trademark with the United States Patent and Trademark Office. The registration claimed the mark for use with vitamin and mineral preparations. Accordingly, plaintiff has since used the mark to identify its "Centrum" products.[2]
The Centrum products, including Centrum (for the general consumer), Centrum Silver (directed at those over fifty years of age), and Centrum Kids (aimed at children over the age of two), are the largest selling multivitamin-multiminerals in the United States. They are sold in numerous trade classes-food, drug, mass merchandise, warehouse clubs, wholesalers, and military commissaries with almost one hundred percent distribution within these classes. In addition, fiscal year 1998 factory sales for the Centrum products are projected to exceed $275 million; unit sales for the same year are projected at 2.5 billion total tablets for Centrum, 1.4 billion for Centrum Silver, and 132 million for Centrum Kids; and plaintiff enjoys leading market shares for its Centrum and Centrum Silver products.
Plaintiff has spent considerable resources advertising and promoting Centrum products. A particular strategy in this marketing effort has been to reinforce consumers' familiarity with the Centrum color-spectrum trademark. According to Leading National Advertisers, a syndicated reporting service, $263 million in advertising has been spent on the Centrum products over the last twenty years.
Recently, plaintiff has contemplated expanding the Centrum product line to include individual nutritional supplements.[3] In 1998, plaintiff launched Centrum Herbals, a line of herbal supplements.[4] Plaintiff alleges that expansion of its product line to include Centrum Herbals is within plaintiff's natural zone of expansion.
The appearance of Centrum's trademark is critical to the determination of this motion. The registration certification shows a band of thirteen adjacent colored vertical standing rectangles aligned horizontally. From left to right, the colors of the boxes vary gradually from deep blue to deep red, noticeably imitating the colors of the visual spectrum.
Defendant, Nutraceutical Corporation, sells a wide range of vitamin and dietary supplement products under the trade-names "Solaray" and "Kal". Defendant's products are much more diverse than plaintiff's and include hundreds of different stock keeping units. It is clear, however, that the parties' products at least coexist within an overarching market for vitamins and health food supplements. For instance, Solaray products include the Guaranteed Potency Herb line, which is comparable to plaintiff's Centrum Herbals *383 products. Likewise, Solaray and Kal products include multivitamin-multimineral formulations. There is also evidence that, although defendant's Solaray and Kal products are sold primarily in health food and grocery stores, both plaintiff's and defendant's products are available at some locations.
Solaray and Kal products also bear labels incorporating colors of the visual spectrum. Defendant has offered testimony that the Solaray labels in question, or similarly designed labels, have been sold since as early as 1984. Plaintiff disputes this, but offers no evidence sufficient to give rise to a genuine issue of material fact. Defendant has used the Kal labels at issue on its products since as early as 1994.
The Solaray labels portray five colored stripes on which the word "Solaray" is superimposed in yellow. The stripes are red, orange, yellow, green, and blue. They appear lengthwise on the label and sit one over the other as in the colors of our country's flag.
The Kal labels depict a thin band of colors which range from indigo to blue to green to yellow to orange to red to yellow and then follow the same sequence in reverse. The band attaches to the bold green lettering of the name of the product on the label through the fluid extension of the letter into the color band. In addition, on the same labels, Kal uses a rectangle that includes a gold silhouette of a human form superimposed over a rectangular background colored with bands of colors of the visual spectrum ranging from indigo to green to yellow to orange to red. The color bands are arranged one over another as are the Solaray colored stripes, but are shorter and wider.
No evidence is before the Court that any consumer has, in fact, ever confused the Solaray or Kal brands of food supplement products with Centrum products.
Plaintiff charges that defendant's Solaray and Kal labels infringe Centrum's trademark pursuant to § 32 of the Federal Trademark Act (15 U.S.C. § 1114) and § 43(a) of the Federal Trademark Act (15 U.S.C. § 1125(a)), dilute Centrum's trademark in violation of § 43(c)(1) of the Federal Trademark Act (15 U.S.C. § 1125(c)), and constitute unfair competition under the laws of the State of New Jersey (N.J.S.A. §§ 56:4-1, 2). Defendant contends in this motion for summary judgment that the differences between, and qualities of, the parties' marks are so obvious that, as a matter of law, this Court should dismiss plaintiff's claims.
SUMMARY JUDGMENT STANDARD
Summary judgment shall be granted if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Hersh v. Allen Prods. Co., Inc., 789 F.2d 230, 232 (3d Cir.1986). In making this determination, a court must draw all reasonable inferences in favor of the non-movant. See Meyer v. Riegel Prods. Corp., 720 F.2d 303, 307 n. 2 (3d Cir.1983), cert. dismissed, 465 U.S. 1091, 104 S. Ct. 2144, 79 L. Ed. 2d 910 (1984). Whether a fact is "material" is determined by the substantive law defining the claims. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); United States v. 225 Cartons, 871 F.2d 409, 419 (3d Cir. 1989).
"[A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249, 106 S. Ct. 2505. Summary judgment must be granted if no reasonable trier of fact could find for the non-moving party. See id.
When the non-moving party bears the burden of proof at trial, the moving party's burden can be "discharged by `showing' that is, pointing out to the District Court *384 that there is an absence of evidence to support the non-moving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). If the moving party has carried its burden of establishing the absence of a genuine issue of material fact, the burden shifts to the non-moving party to "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). When the non-moving party's evidence in opposition to a properly-supported motion for summary judgment is merely "colorable" or "not significantly probative," the Court may grant summary judgment. See Anderson, 477 U.S. at 249-50, 106 S. Ct. 2505.
The Third Circuit has implied that trial courts should reserve grants of summary judgment in trademark actions for exceptional cases because "likelihood of confusion", a key element in trademark infringement and unfair competition claims, generally is itself a question of fact usually appropriate for a jury's determination. See Country Floors, Inc. v. Partnership of Gepner and Ford, 930 F.2d 1056, 1062-63 (3d Cir.1991); see also A & H Sportswear, Inc. v. Victoria's Secret Stores, Inc., 166 F.3d 197, 201-02 (3d Cir.1999) (en banc) ("`likelihood of confusion' between two marks is a factual matter, subject to review for clear error"). Concomitantly, however, Country Floors noted that "`courts retain an important authority to monitor the outer limits of substantial similarity within which a jury is permitted to make the factual determination whether there is a likelihood of confusion as to source.'" Country Floors, 930 F.2d at 1063 (quoting Universal City Studios, Inc. v. Nintendo Co., Ltd., 746 F.2d 112, 116 (2d Cir.1984)). Accordingly, courts in this Circuit have not been hesitant to grant summary judgment where no reasonable juror could find that a likelihood of confusion existed. See e.g. 800 Spirits, Inc. v. Liquor by Wire, Inc. 14 F. Supp. 2d 675, 678-81 (D.N.J.1998); Smith v. Ames Dept. Stores, Inc., 988 F. Supp. 827, 839-41 (D.N.J.1997); Taj Mahal Enters., Ltd. v. Trump, 745 F. Supp. 240, 244-45, 254 (D.N.J.1990).
DISCUSSION
A. Trademark Infringement and Unfair Competition
Plaintiff alleges that defendant's use of a color spectrum on its Solaray and Kal products infringes Centrum's trademark pursuant to § 32 of the Federal Trademark Act (15 U.S.C. § 1114) and § 43(a) of the Federal Trademark Act (15 U.S.C. § 1125(a)), as well as constitutes unfair competition pursuant to the law of the State of New Jersey (N.J.S.A. §§ 56:4-1, 2).[5]
"`The law of trademark protects trademark owners in the exclusive use of their marks when use by another would be likely to cause confusion.'" Fisons Horticulture, Inc. v. Vigoro Industries, Inc., 30 F.3d 466, 472 (3d Cir.1994) (quoting Interpace Corp. v. Lapp, Inc., 721 F.2d 460, 462 (3d Cir.1983)). Proof of trademark infringement requires plaintiff to show that "(1) the mark is valid and legally protectable, (2) the mark is owned by the plaintiff, and (3) the defendant's use of the mark to identify goods or services is likely to create confusion concerning the origin of the good or services." Fisons Horticulture, 30 F.3d at 472.
Likelihood of confusion has been described as the "linchpin" of a trademark infringement or unfair competition claim. See Matrix Essentials, Inc. v. Cosmetic Gallery, Inc., 870 F. Supp. 1237, 1251 (D.N.J.1994) (quoting Matrix Essentials, Inc. v. Emporium Drug Mart, Inc., 988 F.2d 587, 590 (5th Cir.1993), aff'd, 85 F.3d 612 (3d Cir.1996)). It is a necessary element for claims of federal trademark infringement *385 under 15 U.S.C. § 1114 and 15 U.S.C. § 1225(a), see Victoria's Secret Stores, 166 F.3d at 205 and Matrix Essentials, 870 F.Supp. at 1253, as well as for unfair competition under New Jersey common law and N.J.S.A. § 56:4-1. See Matrix Essentials, 870 F.Supp. at 1253; Apollo Distributing Co. v. Jerry Kurtz Carpet Co., 696 F. Supp. 140, 142-43 (D.N.J.1988).
Federal registration of the Centrum trademark is "prima facie evidence of the validity of the registered mark and of the registrant's ownership of the mark." Barre-National, Inc. v. Barr Labs., Inc., 773 F. Supp. 735, 740 (D.N.J.1991). Defendant does not question that plaintiff owns the Centrum trademark or that Centrum's federally-registered mark is legally protectable. Accordingly, plaintiff satisfies the first two elements of federal trademark infringement.
Defendant argues, however, that summary judgment on plaintiff's trademark infringement and unfair competition claims is appropriate because no reasonable juror could find, as a matter of law, that the Solaray and Kal labels are likely to be confused with Centrum's trademark. Plaintiff disagrees and urges that the likelihood of confusion issue should be decided by a jury.
1. Likelihood of Confusion Competing Goods
A likelihood of confusion is said to exist "`when consumers viewing the mark would probably assume that the product or service it represents is associated with the source of a different product or service identified by a similar mark.'" Ford Motor Co. v. Summit Motor Prods., Inc., 930 F.2d 277, 292 (3d Cir.1991) (quoting Scott Paper Co. v. Scott's Liquid Gold, Inc., 589 F.2d 1225, 1229 (3d Cir.1978)). The proof required depends upon whether the goods or services of the parties are in direct competition or are considered not to directly compete.
On this point, the Third Circuit has explained that, "[w]here the trademark owner and the alleged infringer deal in competing good or services, the court need rarely look beyond the mark itself." Interpace Corp. v. Lapp, Inc., 721 F.2d 460, 462 (3d Cir.1983) (citations omitted). "In those cases the court will generally examine the registered mark, determine whether it is inherently distinctive or has acquired sufficient secondary meaning to make it distinctive, and compare it against the challenged mark." Id. The Court then focuses on the marks to determine if they are "confusingly similar." See Country Floors, 930 F.2d at 1063. Where the good or services are not competing, however, the similarity of the marks is simply one of many factors the court must examine to determine likelihood of confusion.[6]See Lapp, 721 F.2d at 462-63.
Here, the parties have briefed the likelihood of confusion issue as if plaintiff's and *386 defendant's goods do not compete.[7] The Court finds the parties' decision to frame the issue in this manner unacceptable because there is no doubt that the parties' goods do compete.
First, the nature of the parties' products leads to the inescapable conclusion that they are in competition with one another. Plaintiff sells multivitamins-multiminerals as well as a line of herbal supplements. Defendant also sells multivitamins-multiminerals and herbal supplements. Both products are nutritional in that they intend to promote health and well being. A majority of the ingredients in the products are substantially similar if not identical. Thus, despite defendant's assertion that its products are superior because they are all-natural and contain greater amounts of source nutrients, it is clear that the products are intended to provide substantially similar benefits.
Second, evidence has been presented that some stores carry both plaintiff's and defendant's products, placing the parties' products in direct competition. Further, plaintiff notes that major retailers such as Walmart, Rite Aid, and Phar Mor are beginning to use "store-within-a-store" concepts that feature nutritional centers. Presumably, these outlets will create even greater competition between the parties' products.
Finally, from a consumer's standpoint, the parties' products are no doubt considered in large part functionally interchangeable. See 4 J.T. McCarthy, Trademarks and Unfair Competition § 24:23 (1999) (noting that one definition of "`competitive' goods is that they are goods that are reasonably interchangeable by buyers for the same purposes"). Although scientists and nutritionists may argue over the comparative virtue of all-natural products versus synthetically formulated substances, it is obvious that many consumers are satisfied that a somewhat comprehensive source of vitamins is a fungible good, obtainable through a number of alternative sources. The Court reaches the same conclusion with regard to the parties' herbal supplements.
Considering these facts, the Court concludes that the parties' products are in direct competition.
2. Likelihood of Confusion Degree of Similarity
"Trademark law recognizes categories of marks based on their level of inherent distinctiveness. From least to most distinctive, they are: (1) generic; (2) descriptive; (3) suggestive; (4) arbitrary; and (5) fanciful. The latter three categories are deemed `inherently distinctive' and are entitled to protection." Fisons Horticulture, 30 F.3d at 478.
*387 Here, it is clear that Centrum's thirteen bar color band is not generic, descriptive, or suggestive, and thus falls under either arbitrary or fanciful classification. There is, therefore, little doubt that it is inherently distinctive and entitled to protection.
The next issue is whether the Solaray and Kal labels are so similar to Centrum's trademark that they create a likelihood of confusion regarding the source, sponsorship, or affiliation of the parties' products. Preliminarily, the Court notes that, in order to be found likely to cause confusion, "[t]he marks need not be identical, only confusingly similar." Merchant & Evans, Inc. v. Roosevelt Bldg. Prods. Co., Inc., 963 F.2d 628, 636 (3d Cir.1992), overruled on other grounds by Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 112 S. Ct. 2753, 120 L. Ed. 2d 615 (1992). Furthermore, "[w]here the goods or services are directly competitive, the degree of similarity of marks needed to cause likely confusion is less than in the case of dissimilar goods or services." 4 J.T. McCarthy, Trademarks and Unfair Competition, § 24:22.
When comparing marks to determine if their similarity allows for a likelihood of confusion, the appropriate test is not a side-by-side comparison, but whether an average consumer, on viewing the marks in separate instances, would likely confuse or associate the two. See Fisons Horticulture, 30 F.3d at 477-78 (citing American Auto. Ass'n v. AAA Ins. Agency, Inc., 618 F. Supp. 787, 792 (W.D.Tex.1985)). An average consumer is considered the least sophisticated consumer in the potential class of buyers. See Ford Motor Co., 930 F.2d at 293. Upon considering the marks, the Court compares their appearance, sound, and meaning. See Taj Mahal Enterprises, 745 F.Supp. at 247. But it is "`the overall impression created by the mark as a whole rather than simply comparing individual features of the marks'" that is determinative. Id. (quoting John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 975 (11th Cir.1983)). Thus, a Court should not base its conclusion upon a dissection of the relevant marks and a contrasting of their unique differences. See 3 J.T. McCarthy, Trademarks and Unfair Competition § 23:41 (discussing the "anti-dissection" rule). Instead, the Court compares the overall impression of the marks, as a consumer normally would in the marketplace, to determine if it is likely that they would create confusion in the mind of an ordinary purchaser. Id.
McCarthy's well known treatise is of assistance when observing the subtleties of this comparison. His work cogently explains that it is not wrong to look at the composites of a mark to consider what characteristics weigh heavily in its makeup; dominant characteristics naturally influence the overall impression created by a mark. Id. Likewise, it is useful to the Court to compare dominant features in order to buttress its reasoning. Id. But this analysis should not be confused with the law observed by this Court that it is the overall impressions created by the marks that make them similar or dissimilar for the purposes of determining whether a likelihood of confusion exists.
Having undertaken to explain this much, the Court would be remiss not to acknowledge that, at bottom, the similarity of appearance test is "really nothing more than a subjective `eyeball' test." Id. at § 23:25 (quoting J. Wiss & Sons Co. v. Gee Whiz Tool Corp., 364 F.2d 910 (6th Cir. 1966)). Thus, the Court embarks on this endeavor with the understanding that it acts as "an important authority to monitor the outer limits of substantial similarity within which a jury is permitted to make the factual determination whether there is a likelihood of confusion as to source." See Country Floors, 930 F.2d at 1063 (quoting Universal City Studios, Inc. v. Nintendo Co., 746 F.2d 112, 116 (2d Cir. 1984)). In other words, the Court is authorized by law in a summary judgment *388 context to require a minimum of similarity between the marks before it will impanel a jury to pass upon the issue of whether a likelihood of confusion exists.
Having outlined the analysis, and undertaken a review of the exhibits, the Court concludes that defendant's Solaray and Kal labels cannot reasonably be considered to convey the same overall impression as plaintiff's Centrum trademark. The marks are simply too dissimilar to meet even the minimum threshold of similarity that would require the issue of likelihood of confusion to go to a jury.
Although the Court bases its conclusion on the overall impression the marks create after viewing each independent from each other in time and place, an examination of the marks in greater detail reveals the obvious reasons why the impressions left by the marks are so distinct.
It is clear that the marks make use of the common colors blue, green, yellow, orange, and red, and that the colors generally follow the order naturally found in the visual spectrum. There, however, the similarities end. In fact, the claim of the use of certain colors in the order they are found in the visual spectrum (or as depicted in a rainbow) is the sum total of Centrum's claim for infringement. It is not enough.
Centrum's trademark registration claims specifically "the colors thereof ranging from blue, green, yellow and orange to red as shown on the drawing," thus protecting the use of the colors in a certain arrangement. Clearly, the use of five common colors is not what is protected by Centrum's trademark; that would be somewhat akin to claiming the right to sole ownership of five letters of the alphabet. Rather, as the registration makes so clear, the protected mark is the use of the colors ranging from blue to red over a total of thirteen different colored rectangles all connected along a single band from left to right. Thus, the unavoidable impression left by each of the marks is certainly the use of color, but in a manner so distinct as to not allow for a likelihood of confusion.
A consideration of the differences between the marks provides some rationale for what is so obvious to the naked eye.
a. Centrum versus Solaray
As noted, Centrum's trademark consists of thirteen narrow adjacent upright colored rectangles aligned horizontally. From left to right, the colors of the boxes vary gradually from deep blue to deep red in the order of colors appearing in the visual spectrum. This arrangement makes up the totality of the allegedly infringed trademark.
In contrast, Solaray's label uses five long colored stripes ordered one on top of another as in the stripes of our country's flag. From top to bottom the colors range from red to blue. There is no gradation of hue in any color. Rather, red is red, orange is orange, yellow is yellow, green is green, and blue is blue. Further, the word "Solaray" is superimposed in yellow script over the colored stripes.
The comparison reveals the Solaray and Centrum marks to differ in that: (1) Centrum's colored rectangles vary gradually from deep blue to deep red over a thirteen bar spectrum whereas Solaray's stripes are distinct from each other with no closely related similar colors on the label; (2) Centrum's rectangles are narrow and stand upright whereas Solaray's stripes are long and stretch lengthwise; (3) Centrum's color spectrum moves from blue to red in the order of left to right whereas Solaray's stripes range from red to blue in the order of top to bottom; (4) Centrum uses thirteen different hues of color whereas Solaray uses only five; and (5) Centrum's color bar is plain and stands by itself whereas Solaray's colored stripes bear the word "Solaray" superimposed over them in yellow script.
*389 b. Centrum versus Kal
The Kal labels include a thin band of colors that range from indigo to blue to green to yellow to orange to red to yellow again, and then follow the same sequence in reverse. The band attaches to the green lettering of the name of the product on the label through the fluid extension of a letter into the band. In addition, Kal uses a rectangle that includes a gold silhouette of a human form superimposed over a rectangular background colored with bands of colors of the visual spectrum ranging from indigo to red. The color bands are arranged one over another and are short in width.
The Centrum and Kal marks thus differ in that: (1) Centrum's color trademark sits independent from any lettering whereas Kal's thin color bar blends into one letter of the name of the product, which is written in large green letters; (2) Centrum's trademark uses thirteen color grades each contained in a rectangle whereas Kal uses significantly less colors in fluid transition; (3) Centrum's color band is prominent and the colors are large whereas Kal's color band is a minor portion of its label and the band is small; (4) Centrum has nothing like Kal's gold colored human body silhouette; and (5) Centrum's colors range from blue to red in the order of left to right whereas Kal's color band reverses the order of colors in the middle, and the background colors in the box with the human silhouette vary from indigo to red in the order of top to bottom.
The dissimilarities between the marks fully support the Court's conclusion, based on the overall impression made by the exhibits, that no reasonable trier of fact could find the use of defendant's labels to create a likelihood of confusion as to source. The Court determines that, in this case, the appearance of the marks is dispositive of the issue.
c. Impression of Marks
Plaintiff, however, also argues that its mark conveys an impression of a rainbow and that defendant's marks create this impression also, so that a likelihood of confusion exists as to source. The Court disagrees for a simple reason: even assuming for purposes of this motion that a rainbow is represented by a graded display of colors, and that plaintiff's and defendant's marks could be said to evoke such a concept, the fact remains that the marks identify significantly different rainbows.[8] So different, in fact, that no likelihood of confusion could exist when recollecting the marks.[9] Further, as has been noted, the marks do not just use rainbow colors. Centrum uses thirteen colored rectangles arranged horizontally over a broad band. Solaray uses five stripes with the word "Solaray" superimposed over the colors. *390 Kal uses a color band, large green lettering, and an image of a gold human body over a color band. Thus, even if all the marks could be found to convey some impression of rainbows, there is no connection in the mind between these rainbows or their corresponding products.
Based on the foregoing analysis, the Court will grant summary judgment against plaintiff on the trademark infringement and unfair competition claims because plaintiff has failed to present evidence that a reasonable juror could find a likelihood of confusion to exist when considering the parties' marks.
B. Trademark Dilution
Plaintiff also charges that use of the Solaray and Kal labels dilutes Centrum's trademark. The federal anti-dilution statute, effective January 1, 1996, reads, in pertinent part, as follows:
The owner of a famous mark shall be entitled ... to an injunction against another person's commercial use in commerce of a mark or trade name, if such use begins after the mark has become famous and causes dilution of the distinctive quality of the mark.
15 U.S.C. § 1125(c).
Dilution is defined as:
the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of
(1) competition between the owner of the famous mark and other parties, or
(2) likelihood of confusion, mistake, or deception.
15 U.S.C. § 1127.
The anti-dilution statute thus created a new "federal cause of action to protect famous marks from unauthorized users that attempt to trade upon the goodwill and established renown of such marks and, thereby, dilute their distinctive quality." H.R.Rep. No. 104-374, at 3, reprinted in 1995 U.S.C.C.A.N. at 1030. In this context, the forbidden act is the use of a mark that lessens the capacity of a famous mark to identify and distinguish goods or services. See 15 U.S.C. § 1127. Importantly, the language of the anti-dilution statute does not require a finding of a likelihood of confusion. See Id. Further, the federal anti-dilution statute, unlike certain state anti-dilution statutes, applies to both cases involving competing and noncompeting goods. See I.P. Lund Trading ApS v. Kohler Co., 163 F.3d 27, 45-46 (1st Cir.1998); 4 J.T. McCarthy, Trademarks and Unfair Competition, § 24:90.
Congress has stated that dilution may result from either "uses that blur the distinctiveness of [a famous] mark or [that] tarnish or disparage it." H.R.Rep. No. 104-374, at 2, reprinted in 1995 U.S.C.C.A.N. at 1029. Although plaintiff has not identified which theory it intends to proceed under, the Court considers it obvious that plaintiff must allege a claim for blurring.
Blurring involves the classic "whittling away" of the strength of a famous mark through the use of a junior mark. The danger is that "[c]ustomers or prospective customers will see the plaintiff's mark used by other persons to identify different sources on a plethora of different goods and services", thus lessening the capacity of the famous mark to act as a "commercial symbol and identifier." See 4 J.T. McCarthy, Trademarks and Unfair Competition, § 24:94.
Courts have struggled with the proper analysis to apply for determining when blurring occurs.[10] In Mead Data Cent., Inc. v. Toyota Motor Sales, U.S.A., Inc., 875 F.2d 1026, 1035 (2d Cir.1989), Judge Sweet articulated a six step analysis for when dilution occurred through blurring in the context of the New York anti-dilution statute. The analysis required a consideration of (1) the similarity of the marks; (2) *391 the similarity of the products; (3) the sophistication of consumers; (4) the existence or nonexistence of predatory intent; (5) the renown of the senior mark; and (6) the renown of the junior mark. Id. Courts and commentators have criticized this analysis in the federal context, however, because it appears to adopt factors from the likelihood of confusion test relevant to trademark infringement. The criticism is that many of the factors are irrelevant to dilution claims. See I.P. Lund Trading ApS, 163 F.3d at 49 (finding that the six-factor test is inappropriate in determining whether dilution has occurred); Hershey Foods Corp. v. Mars, Inc., 998 F. Supp. 500, 520 (M.D.Pa.1998) (noting that "whether the products are similar or not adds nothing to the analysis" because dilution applies to competitors). McCarthy states clearly that he considers factors (2), (3), (4), and (6) to have little if any relevance to claims brought under the federal anti-dilution act. See 4 J.T. McCarthy, Trademarks and Unfair Competition, § 24:9.1 (making a compelling case that only similarity of the marks and renown of the senior mark are pertinent to the analysis).
With this background in mind, the Court considers a recent Fourth Circuit decision that considers directly the appropriate standard for finding trademark dilution. In Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Utah Div. of Travel Develop., 170 F.3d 449, 450 (4th Cir.1999), Ringling alleged that Utah's use of the trademark slogan, THE GREATEST SNOW ON EARTH, diluted Ringling's trademark slogan, THE GREATEST SHOW ON EARTH. At trial, Ringling took the position that "as a matter of statutory interpretation, `dilution' by `blurring' occurs whenever a junior mark is either identical to or sufficiently similar to the famous mark that persons viewing the two instinctively will make a `mental association' with the two." Id. at 452.
On appeal, the Fourth Circuit disagreed, finding that Ringling's proffered "mental-association-alone" interpretation was inadequate proof of dilution. The court found it critical that the federal statute "proscribes and provides remedy only for actual, consummated dilution and not for the mere likelihood of dilution." Id. at 458. Further, the court astutely observed that "by specifically defining dilution as `the lessening of the capacity of a famous mark to identify and distinguish good or services,' the federal Act makes plain what the state statutes arguably do not: that the end harm at which it is aimed is a mark's selling power, not the mark's `distinctiveness' as such." Id. Accordingly, the Court rejected Ringling's "mental-association-alone" interpretation. Instead, it set forth the following requirements for proof of dilution under the federal anti-dilution statute:
(1) a sufficient similarity between the junior and senior marks to evoke an "instinctive mental association" of the two by a relevant universe of consumers which (2) is the effective cause of (3) an actual lessening of the senior mark's selling power, expressed as "its capacity to identify and distinguish goods or services."
Id.[11]
Ultimately, the Court applied this standard to the facts and affirmed the district court's assessment that Ringling's consumer survey evidence failed to establish dilution. Id. at 462-63.[12]
*392 This Court is in agreement with the Fourth Circuit and adopts the standard enunciated by the court in Ringling. Utilizing that standard, it is now time to consider the parties' proofs.
Defendant argues that its labels are not sufficiently similar to plaintiff's trademark to dilute Centrum's mark. Further, defendant argues that plaintiff's trademark is not famous as required by the statute.
For the purposes of this motion, the Court accepts that Centrum's trademark is famous as measured by the totality of the eight factors listed in 15 U.S.C. § 1125(c)(1).[13] The key issue, as it appears to the Court, is whether defendant's labels are sufficiently similar to Centrum's trademark to be capable of diluting plaintiff's mark.
It has been commented that "[t]he federal anti-dilution statute is silent on the crucial question of how similar the conflicting marks must be to create a requisite `dilution.'" See 4 J.T. McCarthy, Trademarks and Unfair Competition, § 24:90.1 (noting that, for blurring or tarnishment to occur, "the marks must at least be similar enough that a significant segment of the target group of customers sees the two marks as essentially the same"). The Court holds that a substantial similarity must exist between the marks so that the junior and senior marks could be found to evoke an "instinctive mental association" of the two. See Ringling, 170 F.3d at 458.
The Court recognizes the danger in attempting to define too definitively the threshold requirement of similarity between two marks. It is more prudent to leave such examinations to a case by case basis, acknowledging that the potential for widely divergent mental association between individuals is great.
Notwithstanding this cautionary advice, the Court considers it reasonable to require two marks to be substantially similar, else it would be impossible for consumers to regard the marks as "essentially the same" or to trigger an "instinctive mental association" between the two. Indeed, a substantial degree of similarity logically forms the basis for the further requisite showing that the junior mark act as the effective cause of an actual lessening of the senior mark's selling power, expressed as "its capacity to identify and distinguish goods or services."
Applying this reasoning, the Court concludes that plaintiff's claim for dilution fails as a matter of law. First, the Court reiterates its finding that the overall impressions created by the marks are distinct from one another. The Court has already explained in detail that the only real similarity between any of the marks is the use of colors in the general order that they appear in the visual spectrum. Acknowledging that the similarity searched for here is not that of a likelihood of confusion, but rather a capacity to trigger *393 an "instinctive mental association" between the junior and senior marks such that the consumer regard the marks as "essentially the same," the Court finds that defendant's marks are incapable of triggering such mental association with plaintiff's mark.
Equally destructive to plaintiff's case on this point is the fact that plaintiff has failed to offer any evidence of actual lessening of Centrum's selling power through its mark's "capacity to identify and distinguish goods and services." Because plaintiff offers no evidence by which a jury could find actual dilution, the Court finds that plaintiff's dilution claim fails as a matter of law. The Court will therefore grant defendant's summary judgment motion on plaintiff's dilution claim.
CONCLUSION
The Court holds that no reasonable juror could conclude that a likelihood of confusion exists between Centrum's trademark and the Solaray and Kal labels. The Court will, therefore, grant summary judgment in favor of defendant on plaintiff's trademark infringement and unfair competition claims. Furthermore, the Court holds that defendant's labels are not sufficiently similar to plaintiff's trademark to be capable of creating an "instinctive mental association" between the parties' marks such that the marks would be regarded by a consumer as "essentially the same." In addition, the Court finds that plaintiff has totally failed to offer evidence by which a jury could find actual dilution through the lessening of Centrum's selling power, meaning its mark's "capacity to identify and distinguish goods and services." Accordingly, the Court will also grant summary judgment in favor of defendant on plaintiff's dilution claims. Because defendant has succeeded in obtaining summary judgment on all of plaintiff's claims, the Court will dismiss plaintiff's suit with prejudice.
ORDER
In accordance with the Court's Opinion filed herewith,
It is on this 28th day of May, 1999,
ORDERED that summary judgment in favor of defendant on plaintiff's trademark infringement and unfair competition claims is granted; and it is further
ORDERED that summary judgment in favor of defendant on plaintiff's dilution claims is granted; and it is further
ORDERED that plaintiff's suit is dismissed with prejudice.
NOTES
[1] American Cyanamid is a wholly-owned subsidiary of American Home Products Corporation.
[2] The Court notes that Whitehall-Robins actually markets the Centrum products on plaintiff's behalf. For the sake of simplicity in this Opinion, however, any actions of Whitehall-Robins will be attributed to plaintiff.
Also, the Court observes that plaintiff reports having used the mark to identify its Centrum products since 1978, three years before registration.
[3] Plaintiff introduced Centrum Singles, a line of single-vitamin products, in 1993-1994, but it subsequently withdrew the line from the market.
[4] There are currently six different Centrum Herbal products: St. John's Wort; Ginseng, Ginkgo Biloba; Garlic; Echinacea; and Saw Palmetto.
[5] Plaintiff's dilution claim will be considered later in this Opinion because it does not involve the element of likelihood of confusion. See 15 U.S.C. § 1125(c)(1).
[6] The Third Circuit has adopted a ten-factor test to apply in cases alleging trademark infringement and unfair competition against a producer of a non-competing product. The factors are as follows:
(1) degree of similarity between the owner's mark and the alleged infringing mark;
(2) the strength of the owner's mark;
(3) the price of the goods and other factors indicative of the care and attention expected of consumers when making a purchase;
(4) the length of time the defendant has used the mark without evidence of actual confusion arising;
(5) the intent of the defendant in adopting the mark;
(6) the evidence of actual confusion;
(7) whether the goods, though not competing, are marketed through the same channels of trade and advertised through the same media;
(8) the extent to which the targets of the parties' sales efforts are the same;
(9) the relationship of the goods in the minds of consumers because of the similarity of function; and
(10) other facts suggesting that the consuming public might expect the prior owner to manufacture a product in the defendant's market, or that he is likely to expand into that market.
See Lapp, 721 F.2d at 463; see also Ford Motor Co., 930 F.2d at 293; Scott Paper Co., 589 F.2d at 1229.
As noted, the ten-factor test for likelihood of confusion is not required when the goods directly compete. See Victoria's Secret Stores, 166 F.3d at 202.
[7] The parties' briefs are somewhat confused on this issue. Plaintiff argues in its opposition brief that "[p]laintiff and defendant in this case are competitors since both market multivitamin-multiminerals and individual supplements and it is also apparent that to some extent their products are sold in the same channels of trade." (Plaintiff's Brief in Opposition at 5). Despite this assertion, plaintiff responded to defendant's arguments raised in its moving brief, which treated the goods as not competing. Whether plaintiff acceded to defendant's formulation of the issues for purposes of strategy concluding that the ten-factor test raised more issues in defense of summary judgment or for the sake of completeness in responding to defendant's motion is unclear to the Court. It is apparent from the totality of plaintiff's assertions, however, that plaintiff considers the parties' goods to compete.
Defendant also, in its reply brief, concedes that the parties are "competitors with respect to multivitamin-multiminerals and individual food supplements," but goes on to state that "competing products alone is not a sufficient basis to prove likelihood of confusion." Defendant is undoubtedly correct on this point, but the Court finds it somewhat off the subject. The first question is whether the goods compete. The answer to this question determines the standard for judging infringement.
[8] Defendant's reference to its own mark as using a rainbow is immaterial in light of this analysis.
[9] As one court has astutely observed:
The very fact of calling to mind may indicate that the mind is distinguishing, rather than being confused by, the two marks.... Seeing a yellow traffic light immediately "calls to mind" the green that has gone and the red that is to come, or vice versa; that does not mean that confusion is being caused. As we are conditioned, it means exactly the opposite.
Application of Ferrero, 479 F.2d 1395, 1397 (C.C.P.A.1973).
Indeed, even the recollection of Centrum's trademark upon viewing defendant's labels is not sufficient without confusion:
"Likely ... to cause confusion" means more than the likelihood that the public will recall a famous mark on seeing the same mark used by another. It must also be established that there is a reasonable basis for the public to attribute the particular product or service of another to the source of the goods or services associated with the famous mark. To hold otherwise would result in recognizing a right in gross, which is contrary to principles of trademark law.
University of Notre Dame Du Lac v. J.C. Gourmet Food Imports Co., Inc., 703 F.2d 1372, 1374 (Fed.Cir.1983). This point is even more forceful here, where the marks are clearly not identical and the Court has found them so dissimilar as to be incapable of causing a likelihood of confusion.
[10] This Court has been unable to locate any Third Circuit decisions taking a stand on this issue. Accordingly, the Court looks to other Circuits for their thoughtful guidance.
[11] In setting forth this standard, the Fourth Circuit expressly disavowed Judge Sweet's six-factor test for blurring in the context of a claim for dilution under the federal statute. See Ringling, 170 F.3d at 464 ("of the factors, only mark similarity and, possibly, degree of `renown' of the senior mark would appear to have trustworthy relevance under the federal Act") (citing 4 J.T. McCarthy, Trademarks and Unfair Competition, § 24:9.1).
[12] The court found that survey evidence failed to prove that Utah's use of the mark lessened the capacity of Ringling's trademark slogan to identify and distinguish its circus as the subject's mark. Further, the Fourth Circuit agreed with the trial court's point that proofs relying on mental impressions invoked in consumers upon viewing the marks must go beyond mere recognition of a "visual similarity of the two marks to allow a reasonable inference that the junior mark's use has caused actual harm to the senior mark's selling or advertising power." Ringling, 170 F.3d at 463.
[13] (A) the degree of inherent or acquired distinctiveness of the mark;
(B) the duration and extent of use of the mark in connection with the goods or services with which the mark is used;
(C) the duration and extent of advertising and publicity of the mark;
(D) the geographical extent of the trading area in which the mark is used;
(E) the channels of trade for the goods or services with which the mark is used;
(F) the degree of recognition of the mark in the trading areas and channels of trade used by the marks' owner and the person against whom the injunction is sought;
(G) the nature and extent of use of the same or similar marks by third parties;
(H) whether the mark was registered under the Act of March 3, 1881, or the Act of February 20, 1905, or on the principal register.
15 U.S.C. § 1125(c)(1). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1924856/ | 234 B.R. 748 (1999)
In re William R. PICKETT, Debtor.
Universal Card Services f/k/a AT & T Universal Card Services, Plaintiff,
v.
William R. Pickett, Defendant.
Nationsbank of Delaware, N.A., Plaintiff,
v.
William R. Pickett, Defendant.
Bankruptcy No. 98-44602-1, Adversary Nos. 99-4015-1, 99-4016-1.
United States Bankruptcy Court, W.D. Missouri, Western Division.
June 15, 1999.
*749 *750 *751 Daniel S. Rabin, Overland Park, KS, Neil S. Sader, Kansas City, MO, for plaintiff.
Jonathan A. Margolies, Kansas City, MO, for defendant.
MEMORANDUM OPINION AND ORDER
JERRY W. VENTERS, Bankruptcy Judge.
On January 21, 1999, Universal Card Services ("Universal") and NationsBank of Delaware, N.A. ("NationsBank") filed adversary complaints against the Debtor, William R. Pickett, seeking to avoid the discharge of certain credit card debts incurred by the Debtor prior to the filing of his Chapter 7 bankruptcy on October 26, 1998. Both creditors seek determinations of nondischargeability pursuant to 11 U.S.C. §§ 523(a)(2)(A) and (a)(2)(C). With the agreement of the parties, the Court held a consolidated hearing on the Adversary Proceedings on May 19, 1999. Because of the similar and overlapping nature of these claims and the Debtor's defenses, the Court will issue this combined Memorandum Opinion and Order disposing of all issues in both proceedings. Separate judgments will be entered in the Adversary Proceedings. This Court has jurisdiction over these matters pursuant to 28 U.S.C. § 1334 and both proceedings are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(I).
For the reasons set out below, the Court finds that the Debtor is not entitled to discharge of the debts owed Universal and NationsBank by virtue of the provisions of § 523(a)(2)(A) and will therefore deny the discharge of those debts.
The following constitutes 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.
FACTUAL BACKGROUND
1. The Universal Complaint
Universal's Complaint requests a denial of discharge for $6,688.20 for two cash advances which were obtained by the Debtor against his Universal credit card account within 60 days of the filing of the Debtor's bankruptcy. The parties stipulated that the Debtor obtained a cash advance of $1,800.00 on his credit card account with Universal on August 31, 1998, and a second cash advance of $5,000.00 on September 9, 1998. It was also stipulated that the Debtor made payments on the account of $138.00 on October 6, 1998, and $183.00 on October 16, 1998, less than 30 days prior to the bankruptcy filing.
Susan Bender, a bankruptcy specialist for Universal, testified that Pickett's Universal account was opened in August 1998, less than 90 days before the bankruptcy filing, as the result of a telephone application by Pickett. The screening process used by Universal disclosed that Pickett was a good credit risk based on the representations made by Pickett and his financial history as obtained by Universal. In making the telephone application, Pickett represented that he had an annual gross income of $210,000.00. Universal's review showed that the Debtor was using only 22% of the credit that he had available to him, and that he had a satisfactory trade history with respect to 23 different bank revolving charge accounts and other credit accounts. Pickett also had a "good score" of 741 on the basis of the FICO screening employed by Universal (with 900 being the highest score possible and 680 being the lowest score at which a card would be offered to an applicant).[1] When this favorable *752 credit history was combined with the very substantial annual income reported by Pickett, Universal decided that a credit card could be issued to Pickett.
However, Bender testified that Universal would never have opened the account for Pickett if it had had the information which was subsequently disclosed in Pickett's bankruptcy schedules. For example, Schedule I showed that Pickett had a monthly net take-home pay of only $1,694.00 ($20,328.00 annually), whereas on his credit card application he represented that he had an annual income of $210,000.00, close to ten times his actual income, and Schedule J showed that Pickett had monthly living expenses of $5,185.00, resulting in a monthly shortfall of $3,491.00. Additionally, Schedule F reflected more than $389,000.00 in unsecured debt, and the statement of financial affairs reflected gambling losses of $100,000.00 in the preceding 12 months and either very small profits or losses in the Debtor's business operation in the preceding two years.
Typically, Universal conducts a bimonthly computer review of credit bureau reports on a cardholder. These bi-monthly reviews enable Universal to determine if payments are being made late, if a bankruptcy has been filed, or if there are matters that indicate potentially fraudulent activity. In the Debtor's case, Universal had not conducted any reviews before the Debtor filed his Chapter 7 bankruptcy, which was less than three months after opening his account.
Universal called as a witness a financial analyst from a Kansas City area gambling casino, the Flamingo,[2] who produced records indicating that Pickett lost $70,313.00 at the gambling tables in the last six months of 1998, including losses of $18,106.00 in August and $11,850.00 in September. Universal also offered in evidence the first two pages of Pickett's 1998 federal income tax return, which showed wage income of $56,937.43 and business losses of $471,000.00. Pickett's total income for 1998 was a negative $412,979.95.
2. The NationsBank Complaint
NationsBank seeks a determination of nondischargeability with respect to $16,271.92 in cash advances which the Debtor obtained on two separate NationsBank accounts between August 17 and September 13, 1998.
Pickett was originally invited to apply for a Visa credit card account with NationsBank because Pickett was a frequent U.S. Air customer. His original credit application, dated in May 1990, showed a gross monthly salary of $40,000.00. According to the Bank's witness, the Bank verified the income information provided by the Debtor and, after obtaining his FICO scores, supplied him a credit card with an initial credit limit of $5,000.00. At various times between 1990 and 1994, Pickett wrote letters to NationsBank requesting an increase in the credit limit. On several occasions, he provided NationsBank with additional financial information showing that he had a gross monthly salary ranging between $8,333.33 and $10,000.00. As a result of these various requests, Pickett's credit limit on the Visa account was eventually increased to $12,000.00.
*753 The Debtor also had a Mastercard account with NationsBank, although the testimony was not clear as to how the Debtor opened that account. In any case, the Mastercard account was opened on November 2, 1989. At the time of the bankruptcy filing, the credit limit on the Mastercard account was $6,200.00.
Prior to mid-1998, the Debtor had never taken any cash advances on either of the NationsBank credit card accounts. However, in August and September 1998, Pickett obtained $16,271.92 in cash advances on the two accounts. Three of the cash advances were in the sum of $4,000.00 each and were obtained at a local bank. On eight separate occasions in August and September 1998, Pickett obtained cash advances of $533.99 each at the Flamingo Casino in Kansas City, totaling $4,271.92.
The Debtor made payments on the Visa account of $4,731.80 on August 1, $72.09 on August 6, and $336.30 on October 13. He made a payment of $155.00 on the Mastercard account on October 3, 1998.
3. The Debtor's Defenses
For the 12 years prior to filing bankruptcy in October 1998, the Debtor was engaged in the operation of various weight loss clinics. Until 1996, the weight loss clinics were operated by corporate entities owned by Pickett, but in that year he changed to a sole proprietorship for most of his operations. Immediately prior to the bankruptcy filing, Pickett was operating six weight loss centers known as Slimmer Image Weight Loss Clinics. Up until 1998, the weight loss clinics had been very profitable, but in 1998 a serious downturn occurred. This downturn was brought about by a number of factors, according to Pickett, including a public disenchantment with weight loss clinics, the entry of a strong competitor in the local market, and the negative publicity that followed the Food and Drug Administration's withdrawal of its approval for a popular weight loss prescription drug know as Phen-Fen. Pickett testified that his businesses were not generating enough income to pay operating expenses, so he obtained cash advances against his personal credit card accounts and used those cash advances to pay the business operating expenses. However, Pickett could not recall if he used the money obtained at the casino for business operations, and he was also unable to produce documents showing where any of the money obtained by the cash advances went or where the money was deposited.
With respect to the gambling losses and the cash advances obtained at the gambling casino, Pickett disputed the losses shown by the records produced by the financial analyst from the Flamingo Casino, stating that he "never had that much money."
Pickett testified that he had every intention of repaying the credit card accounts and was hopeful of surviving his business financial difficulties, but on October 8, 1998, the Bank of Jacomo seized $52,176.83 from his account and applied that money to a past-due note held by the bank. Pickett testified that he had had financial problems before and had come out of them successfully, and that although "the business world is uncertain," he hoped to successfully come out of his financial difficulties in 1998. He "obviously hoped business would improve."
DISCUSSION
Both Universal and NationsBank contend that the debts owed to them should be declared nondischargeable pursuant to §§ 523(a)(2)(A) and (a)(2)(C).[3]
*754 In order to prevail under § 523(a)(2)(A), the creditor must prove, by a preponderance of the evidence:
(1) That the debtor made representations;
(2) That at the time he knew the representations were false;
(3) That he made the representations with the intention and purpose of deceiving the creditor;
(4) That the creditor justifiably relied on the representations; and
(5) That the creditor sustained a loss as the proximate result of the representations having been made.
In re Miller, 228 B.R. 237, 240 (Bankr. W.D.Mo.1998); Thul v. Ophaug (In re Ophaug), 827 F.2d 340, 342 (8th Cir.1987); Field v. Mans, 516 U.S. 59, 116 S. Ct. 437, 446, 133 L. Ed. 2d 351 (1995); Green Tree Fin. Corp. v. Beasley (In re Beasley), 202 B.R. 979, 983 (Bankr.W.D.Mo.1996). Exceptions to discharge are to be narrowly construed against the objecting creditor and liberally construed in favor of the debtor. In re Beasley, 202 B.R. at 983 (citing In re Wheatley, 158 B.R. 140, 143 (Bankr.W.D.Mo.1993)).
In most cases involving dischargeability of credit card debts, the key issues are whether the debtor has made a representation that he or she intends to repay the money borrowed, AT&T Universal Card Services Corp. v. Feld (In re Feld), 203 B.R. 360, 366 (Bankr.E.D.Pa.1996); Chevy Chase Bank v. Briese (In re Briese), 196 B.R. 440, 449 (Bankr. W.D.Wis.1996), and whether the creditor justifiably relied on the debtor's representation that he or she intended to repay, Field v. Mans, 516 U.S. 59, 73-75, 116 S. Ct. 437, 444, 133 L. Ed. 2d 351 (1995). Such is the case here. The other issues common to these cases are not in dispute: Pickett used his credit cards to obtain the cash advances and the plaintiffs were harmed by such use.
1. The Debtor's Intent and Ability to Repay
In recent years, bankruptcy courts have wrestled at some considerable length with the question of whether a debtor's use of a credit card to obtain goods or money is an implied or express representation that the debtor has both the ability and intent to repay the debt. In the earlier cases, some courts held that a debtor makes an implied representation with each use of a credit card that he or she has both the ability and intent to repay the debt. Advanta National Bank v. Kurtz (In re Kurtz), 213 B.R. 253, 259 (Bankr.N.D.N.Y.1997); Household Card Services/Visa v. Vermillion (In re Vermillion), 136 B.R. 225, 227 (Bankr.W.D.Mo.1992); FCC Nat'l Bank v. Bartlett (In re Bartlett), 128 B.R. 775, 779-80 (Bankr.W.D.Mo.1991); First Deposit Credit Services Corporation v. Preece (In re Preece), 125 B.R. 474, 477 (Bankr. W.D.Tex.1991). Other courts have held that the credit card company assumes the risk of nonpayment with the use of the card, unless the issuer has instructed the debtor to stop using its card. First Nat'l Bank of Mobile v. Roddenberry (In re Roddenberry), 701 F.2d 927, 932-33 (11th Cir.1983).
*755 The bankruptcy courts in this District have, more recently, held that, by using a credit card, a debtor makes the express representation that he or she has both the intent and the ability to repay. See Universal Card Services v. Miller (In re Miller), 228 B.R. 237, 240 (Bankr. W.D.Mo.1998), AT&T Universal Card Services v. Ellingsworth (In re Ellingsworth), 212 B.R. 326, 334 (Bankr.W.D.Mo.1997). Likewise, it is this Court's belief that, by using a credit card, the debtor is making a representation to the credit card issuer that he or she has both the intent and the ability to repay the debt in accordance with the requirements of the credit card agreement. At the very least, the debtor, by using his credit card to obtain a cash advance or make a purchase, is expressly telling the credit card issuer that he or she intends to repay the amount borrowed and has the ability to repay the amounts on the terms required by the issuer, whether that repayment is in the form of minimum monthly payments required by the credit card agreement or in some different or larger amounts.
Furthermore, it is this Court's view that the debtor's reckless disregard for the truth as to whether he or she has the intent to repay a credit card debt satisfies the element of misrepresentation that the debtor has made an intentionally false representation in obtaining the credit or, in this case, the cash advance. See Anastas v. American Savings Bank (In re Anastas), 94 F.3d 1280, 1286 (9th Cir.1996). If the court finds that a debtor knew he was unable to repay or incurred the debt with reckless disregard as to a reasonable belief that he could repay, then fraud is proven. Vermillion, 136 B.R. at 227.
Because direct proof of a debtor's actual intentions is nearly impossible to obtain, the courts have developed numerous circumstantial factors which, like the "badges of fraud" familiar to most courts and attorneys, may be relied upon to infer the debtor's true intent. Some of these circumstantial factors are:
1. The length of time between the charges made and the filing of bankruptcy;
2. Whether or not an attorney has been consulted concerning the filing of bankruptcy before the charges were made;
3. The number of charges made;
4. The amount of the charges;
5. The financial condition of the debtor at the time the charges are made;
6. Whether the charges were above the credit limit of the account;
7. Whether the debtor made multiple charges on the same day;
8. Whether or not the debtor was employed;
9. The debtor's prospects for employment;
10. The debtor's financial sophistication;
11. Whether there was a sudden change in the debtor's buying habits; and
12. Whether the purchases were made for luxuries or necessities.
Ellingsworth, 212 B.R. at 334-35; Citibank South Dakota N.A. v. Dougherty (In re Dougherty), 84 B.R. 653, 657 (9th Cir. BAP 1988); Caspers v. Van Horne (In re Van Horne), 823 F.2d 1285, 1287 (8th Cir. 1987); Sears, Roebuck and Co. v. Faulk (In re Faulk), 69 B.R. 743, 757 (Bankr. N.D.Ind.1986); Chase Manhattan Bank v. Carpenter (In re Carpenter), 53 B.R. 724, 730 (Bankr.N.D.Ga.1985).
A number of these factors are present in this case and convince the Court that the Debtor here did not have the intent or ability to repay the cash advances which he obtained from Universal and NationsBank.
First, the Debtor obtained cash advances exceeding $22,000.00 less than 90 days preceding his bankruptcy filing on October 26, 1998, on three different accounts from which cash advances had not *756 been obtained previously. The cash advances were in significant amounts, ranging from $533.99 to $4,000.00. Second, the cash advances were obtained at a time when the Debtor's weight loss clinics were losing money and were unable to pay their operating expenses on a current basis. Although the Debtor testified that the cash advances were used to pay the operating expenses of his business, the Debtor was unable to produce, or at least did not produce though requested, documentary evidence to establish that the funds were, in fact, used in the operation of his business.[4] Third, on eight separate occasions in the two months preceding the bankruptcy filing, Pickett obtained more than $4,200.00 in cash advances at a local gambling casino, and it is highly unlikely that those funds were used to pay the operating expenses of the Debtor's business. Much more likely, those funds were lost at the gambling tables at the casino, particularly in view of the fact that the casino's records showed that the Debtor had gambling losses of $18,106.00 in August and $11,850.00 in September. Several of the cash advances were obtained on dates that the Flamingo Casino's records showed that Pickett suffered gambling losses. For instance, on September 12, 1998, Pickett made three $500.00 cash advance withdrawals at the casino on the NationsBank account, and on that same date, the casino's records indicated that Pickett suffered gambling losses of $2,700.00. On September 13, an additional cash advance of $500.00 was taken and on that same date Pickett lost $1,100.00 at the casino. This evidence corroborates the Court's conclusion that many of the cash advances obtained by the Debtor in the month or two before the bankruptcy filing were used to support Pickett's gambling habits, not his business.
Fourth, the Debtor admitted, and his bankruptcy schedules showed, that the Debtor's personal living expenses in the months preceding the bankruptcy filing were more than $3,000.00 in excess of his monthly income, which would raise very serious questions in anyone's mind as to the Debtor's ability to repay the borrowings. Fifth, as shown by the Debtor's bankruptcy schedules, the Debtor had some $389,000.00 in unsecured debt alone at the time he was obtaining the cash advances from Universal and NationsBank. He also listed $42,000.00 in past-due alimony payments as a priority debt and $132,000.00 in secured debts. Given that amount of debt, the Debtor had to know, if he were being realistic, that he would not be able to repay the debts he was incurring. In short, he was hopelessly insolvent. Sixth, there are the losses that were being sustained by the Debtor in connection with his business. As just noted, the bankruptcy schedules showed that the Debtor had unsecured debts of $389,000.00. The Debtor's 1998 tax return indicated that the Debtor, a cash basis taxpayer, also lost $471,000.00 in his business operations. When these operating losses and nonpayment of supplier debts are combined, it appears the Debtor was accumulating losses of nearly $1 million in 1998. Granted, all of these losses most likely did not occur in 1998 alone but probably were the culmination of losses suffered over a longer period of time. Just the same, the Debtor had to be aware of *757 them. Seventh, the Debtor acknowledged that, many years ago, he studied accounting in college. With that background and his extensive background in business, the Debtor should have been aware that he would not be able to repay the debts he was incurring when he took the cash advances on his credit cards. Finally, the Debtor's assertions that he intended to repay these debts lose their force when the Debtor, by his own admissions, was in the process of gambling away $100,000.00 in the space of a single year.
The Debtor insisted that it was his intent to repay the cash advances obtained from Universal and NationsBank, and insisted that he would have been able to do so until Bank of Jacomo "grabbed my money," referring to the Bank of Jacomo's seizure of $52,176.83 in the Debtor's bank account on October 8, 1998. He points to the few small payments he made in October as proof of his intent to repay the debts. The Debtor said that he had had financial problems before and had managed to work his way out of them, and he was hopeful that he would come out of this difficult period in his business.
The Debtor's protestations are not credible in light of the very substantial evidence that the Debtor's business was losing substantial amounts of money in the period immediately preceding the bankruptcy filing on October 26, 1998, and in the face of evidence that the Debtor was losing substantial sums at the gambling tables during the same period of time. A mere profession of intent to repay is not sufficient if the Debtor is not credible as to his intent. Ellingsworth, 212 B.R. at 341; see also, La Capitol Federal Credit Union v. Melancon (In re Melancon), 223 B.R. 300, 335 (Bankr.M.D.La.1998) ("[A] statement of intent (I will repay) is distinguishable from a hope or a desire to repay. An intent to repay suggests a plan to repay."); Comerica Bank-Detroit v. Nahas (In re Nahas), 92 B.R. 726, 730 (Bankr.E.D.Mich. 1988) ("[A] mere hope to repay, without any basis in reality, is insufficient."). The Court regards the Debtor's minimal payments in October as nothing more than an attempt to further deceive the creditors as to his true inability to repay. Finally, the $52,000.00 seized by the Bank of Jacomo would have paid only a small fraction of Pickett's very substantial debts. The seizure of his bank account by the bank was not the cause of Pickett's business failure and his nonpayment of debts, although it may have been the final straw that broke the proverbial camel's back.
The Court believes that the cash advances being taken by the Debtor from the Universal and NationsBank accounts were acts of desperation in an attempt to save the Debtor's weight loss clinic business and to support his gambling habits. These borrowings occurred in the face of overwhelming evidence that should have made it obvious to Pickett that he would be unable to repay them. In obtaining these particular cash advances, Pickett recklessly disregarded the reasonableness of his intent to repay and therefore deceived and defrauded both Universal and NationsBank.
When all of these factors are taken into account, the Court is convinced beyond any doubt that the Debtor did not have the intent or ability to repay the debts he was incurring with Universal and NationsBank, and therefore the Debtor should be denied discharge of those debts pursuant to § 523(a)(2)(A).
In view of this holding, the Court need not reach the question of whether a portion of the debts is nondischargeable pursuant to § 523(a)(2)(C). However, the Court would observe that the creditors failed to meet their burden under that subsection, in that they failed to show that the debts were consumer debts or that they were obtained for the purchase of "luxury goods or services." 11 U.S.C. § 523(a)(2)(C).
2. The Creditors' Reliance
Next, the Court turns to a consideration of whether the creditors, Universal and *758 NationsBank, justifiably relied on the Debtor's representations of his intent to repay when he obtained the cash advances. In Field v. Mans, 516 U.S. 59, 73-75, 116 S. Ct. 437, 444, 133 L. Ed. 2d 351 (1995), the Supreme Court held that § 523(a)(2)(A) requires justifiable, but not reasonable, reliance on the part of the creditor in extending credit to a debtor. The Court explained the difference between justifiable and reasonable reliance by quoting the following from the Restatement (Second) of Torts (1976):
"Although the plaintiff's reliance on the misrepresentation must be justifiable ... this does not mean that his conduct must conform to the standard of the reasonable man. Justification is a matter of the qualities and characteristics of the particular plaintiff, and the circumstances of the particular case, rather than of the application of a community standard of conduct to all cases."
Field v. Mans, 516 U.S. at 70-71, 116 S. Ct. 437 (quoting Restatement (Second) of Torts, § 545A, comment b.).
The Court went on to explain that justifiable reliance requires the alleged victim of a misrepresentation to use his senses, and that he "cannot recover if he blindly relies upon a misrepresentation the falsity of which would be patent to him if he had utilized his opportunity to make a cursory examination or investigation." Field v. Mans, 516 U.S. at 71, 116 S. Ct. 437 (quoting Restatement (Second) of Torts, § 541, comment a.). See also, Wayne Lumber Co. v. Peternel (In re Peternel), 220 B.R. 923, 929 (Bankr.N.D.Ohio 1998) ("Justifiable reliance is a subjective standard that takes into account the qualities and characteristics of the particular creditor and the circumstances of the particular case."); First Deposit National Bank v. Mack (In re Mack), 216 B.R. 981, 985 (Bankr. N.D.Fla.1997) (justifiable reliance requires the creditor to exercise "at least some degree of diligence in determining the credit worthiness of the recipient.").
In the instant case, the Court believes that the creditors justifiably relied on Pickett's representations when they extended the credit at issue to him. Both creditors employed appropriate screening processes and neither creditor received any warning of fraud or other irregularities in time to take action to prevent the Debtor's fraud.
As to Universal, the screening process employed by Universal in the months just prior to the bankruptcy filing indicated that Pickett was a good credit risk in that his FICO score was 741. Universal's witness testified that Universal will not establish a new credit account for a debtor with a score of less than 680. Universal's investigation also indicated that the Debtor had a satisfactory credit history with other revolving charges and bank debt, and that he was using only 22% of the credit available to him at the time of the screening and application process. Furthermore, the Debtor himself had represented his annual income as $210,000.00, although, as things developed, this representation was patently false. The only red flag that came up during the application process in opening the Universal account was a discrepancy in the addresses used by Pickett in applying for the account, and this difference in home and business addresses was resolved to Universal's satisfaction.
According to Universal's witness, Universal typically checks or reviews a borrower's credit bureau scores every other month while the credit is open. In this instance, the Debtor's credit account was opened in August, he immediately obtained the cash advances, and then he filed bankruptcy before any bi-monthly review could be made. Under these circumstances, the creditor had no indication that the representations made by Pickett were in any way false or misleading and the creditor had no warning that it had been deceived so that it could have made an investigation to determine the true facts.
As for NationsBank, the evidence indicated that NationsBank follows procedures *759 much like those of Universal. The Bank's witness testified that, when the Debtor's accounts were established in 1989 and 1990, his financial information was verified and a FICO score was obtained. The witness indicated that NationsBank reviews its credit accounts every four to six months for any problems. There apparently were no indications of problems with the Debtor's account.
Pickett had not obtained cash advances on either of the NationsBank accounts prior to the cash advances which he obtained in August and September 1998. Even assuming that these cash advances were somehow abnormal or suspicious, NationsBank would not have had sufficient time prior to the bankruptcy filing in which to have reviewed the account and prevented the Debtor from obtaining further cash advances. The obtaining of cash advances in and of themselves would certainly not be suspicious or particularly unusual, inasmuch as the credit accounts are designed to allow for cash advances in the normal course of events. In short, the Debtor's obtaining of cash advances, particularly when the credit limit was not being exceeded, would not serve as any kind of warning that NationsBank was being deceived and that it should commence an investigation on its own.
3. Attorneys' Fees
Both Universal and NationsBank sought recovery of their attorneys' fees and expenses in their respective Adversary Proceedings.
Universal's credit card agreement provided:
[I]f we refer this claim to an attorney for collection, you will be liable for any reasonable attorney's fees we incur, plus the costs and expenses of any legal action.
Counsel for Universal did not adduce any evidence of the amount of his fees or expenses incurred in this case. The Court is aware that counsel for both parties conducted more than the usual amount of discovery in this case, and more than the usual number of discovery disputes arose (see footnote 4, supra). Plaintiffs counsel took the Debtor's Rule 2004 examination, as well, and was required to bring in a witness from the State of Florida.
The Court is considered an expert on attorneys' fees. First Deposit National Bank v. Cameron (In re Cameron), 219 B.R. 531, 542 (Bankr.W.D.Mo.1998). Upon consideration of the entire file, the Court finds that Universal should be awarded the sum of $2,500.00 in attorneys' fees, plus the cost of the Debtor's Rule 2004 examination and $150.00 for the filing fee paid herein.
NationsBank's credit card agreement contained a slightly different provision for the recovery of attorneys' fees and expenses. It stated:
If we referred collection of the Account to a lawyer or have to determine the non-dischargeability of the Account debt in a bankruptcy court, you will pay our reasonable attorney fees plus court costs and all other fees allowed by law.
NationsBank's witness testified that NationsBank had incurred $1,950.00 in attorneys' fees and travel expenses of $1,087.00 for its out-of-state witness. The Court will award NationsBank its attorneys' fees of $1,950.00, but the cardholder agreement does not authorize recovery of the witness's travel costs. The agreement allows only for recovery of "all other fees allowed by law." (emphasis added) Travel expenses are not fees. Had NationsBank's agreement provided for recovery of the costs and expenses of any legal action, as Universal's agreement did, the Court would not hesitate to award NationsBank the $1,087.00 in travel costs incurred by the witness. However, such is not the case.
4. The Debtor's "Claims"
In the Universal case, the Debtor filed a pro se responsive pleading in which he asserted that Universal's Complaint was *760 not timely filed. That claim is without merit. The deadline for filing dischargeability complaints was January 22, 1999, 60 days after the scheduled meeting of creditors (F.R.Bankr.P.4004(a)), and Universal's Compliant was filed on January 21, 1999.
In the NationsBank case, the Debtor, again responding pro se, made several assertions under the caption "Defendant's Claims." These so-called claims were, at best, affirmative defenses, and were not counterclaims on which any affirmative relief against NationsBank was sought. The Court has considered these "claims" and the evidence (if any) offered in support of them, and finds that they are without merit.
CONCLUSION
For the reasons set out above, it is
ORDERED that the debt of $6,688.20 owed to Plaintiff Universal Card Services by the Debtor, William R. Pickett, be and is hereby determined to be nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and the Debtor is denied discharge as to said indebtedness. Plaintiff Universal Card Services is denied the relief requested under 11 U.S.C. § 523(a)(2)(C). It is FURTHER ORDERED that Plaintiff Universal Card Services be and is hereby awarded $2,500.00 in attorneys' fees, plus the costs of the Debtor's Rule 2004 examination and the $150.00 filing fee incurred herein. It is
FURTHER ORDERED that the debt of $16,271.92 owed to Plaintiff NationsBank of Delaware by the Debtor, William R. Pickett, be and is hereby determined to be nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and the Debtor is denied discharge as to said indebtedness. Plaintiff NationsBank of Delaware is denied the relief requested under 11 U.S.C. § 523(a)(2)(C). It is
FURTHER ORDERED that Plaintiff NationsBank of Delaware be and is hereby awarded $1,950.00 in attorneys' fees, plus the $150.00 filing fee incurred herein. It is
FURTHER ORDERED that Debtor/Defendant William R. Pickett is denied any and all affirmative relief sought in his responsive pleadings.
The Clerk shall enter separate Judgments in Adv. Nos. 99-4015 and 99-4016 in accordance herewith.
NOTES
[1] The FICO score is a standardized rating of a person's "creditworthiness" developed by the Fair, Isaac and Co. It is the product of a computer modeling based on all of the information contained in credit bureau reports. Although the exact factors considered and their relative weight are not disclosed, they supposedly include: payment history, public records and collection items, delinquencies, outstanding debts, number of balances, average balances across all trade lines, relationship between total balances and total credit limits on revolving trade lines, credit history, age of oldest trade line, and several other factors. Judge Arthur B. Federman of this Court provides a thorough discussion of the credit granting process and the use of FICO scores in In re Ellingsworth, 212 B.R. at 330-332. See also, Bob Kerlin, Knowing the score on credit, THE WASHINGTON TIMES, March 21, 1997, at F.
[2] The Flamingo Casino is a state-licensed gambling casino on the Missouri River.
[3] Sections 523(a)(2)(A) and (a)(2)(C) provide:
(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
* * *
(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;
* * *
(C) for purposes of subparagraph (A) of this paragraph, consumer debts owed to a single creditor and aggregating more than $1,075 for "luxury goods or services" incurred by an individual debtor on or within 60 days before the order for relief under this title, or cash advances aggregating more than $1,075 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 60 days before the order for relief under this title, are presumed to be nondischargeable; "luxury goods or services" do not include goods or services reasonably acquired for the support or maintenance of the debtor or a dependent of the debtor; an extension of consumer credit under an open end credit plan is to be defined for purposes of this subparagraph as it is defined in the Consumer Protection Act;
[4] In the Universal case, there were substantial and continuing disputes between the attorneys over the Debtor's failure to produce numerous records requested by the Plaintiff. The Court's intervention was required to resolve those disputes. A week before the hearing, the Court denied Universal's request for a continuance because of the Debtor's failure to produce requested documents showing in detail how the cash advances were used by the Debtor. (The Debtor, in answers to interrogatories, had said simply that the money was used for "working capital.") The Court stated at that time that the Debtor's specific use of the funds obtained was not a material issue in the case, and that is still true. However, it seems to the Court that it was incumbent on the Debtor to prove, by other than his oral testimony that the funds at least were deposited in the business bank account. This he did not do. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2367793/ | 628 S.W.2d 552 (1982)
John W. WALKER, Appellant,
v.
SUPREME COURT OF ARKANSAS COMMITTEE ON PROFESSIONAL CONDUCT, Appellee.
No. 81-158.
Supreme Court of Arkansas.
February 16, 1982.
As Amended on Denial of Rehearing March 29, 1982.
*553 John P. Sizemore, Little Rock, and E. J. Ball, Fayetteville, and Vashti O. Varnado, Little Rock, for appellant.
Winslow Drummond, Little Rock, for appellee.
PER CURIAM.
This appeal is brought before this Court from a proceeding and determination of the Arkansas Supreme Court's Committee on Professional Conduct, involving the conduct of appellant, John W. Walker, who is a member of the bar of this state. Roosevelt Watson, the complainant, having been previously represented by the law firm of Kaplan & Walker, of which appellant was a member allegedly engaged appellant to represent him in connection with an automobile accident which occurred on July 8, 1975. On July 12, 1980, Mr. Watson initiated proceedings before the Committee on Professional Conduct alleging that appellant failed to undertake any legal action on his behalf during the period permitted by the Statute of Limitations. On April 6, 1981, after hearing, the Committee determined appellant's conduct to be in violation of DR6-101(A)(3) and DR6-102(A). A Caution was accordingly given to appellant by the committee. This appeal was thereafter instituted by appellant, John W. Walker.
Appellant bases his appeal upon four points:
I.
Appellant submits that he was deprived of procedural due process by being deprived of the right to participate in an inquiry by the committee addressed to this court regarding use of discovery procedures in proceedings before the committee.
II.
Appellant further alleges that he was denied procedural due process by the failure of the committee to separate the adjudicatory and prosecutorial functions of its Executive Secretary.
*554 III.
Appellant further states that he was deprived of procedural due process when he was found to be in violation of DR6-102(A) without having first been charged with such violation.
IV.
Appellant lastly states that the finding that appellant's conduct was in violation of DR6-101(A)(3) and DR6-102(A) is not supported by a preponderance of the evidence presented before the committee.
The Court will address each of these points in the order presented.
I.
Appellant submits, in support of his first point, that the ex parte communication of the committee, through its Executive Secretary, and the response thereto by this court, constituted a proceeding before and a determination by this court of appellant's right to discovery procedures before the committee. Appellant cites, as supportive of his right to discovery, Weems v. Supreme Court Committee on Professional Conduct, 257 Ark. 673, 523 S.W.2d 900 (1975). This court is unable to extrapolate from the principles of the Weems decision, supra, that any right to discovery exists in disciplinary proceedings before the Committee on Professional Conduct. Hearings before the Committee on Professional Conduct take neither the form of criminal nor civil trials. They are, for the most part, administrative proceedings carried out through an administrative agency of the court, to-wit: The Committee on Professional Conduct. The rules of procedure promulgated by this court make no provision therein for discovery in disciplinary proceedings. Discovery in such instances appears also to be unauthorized by the statutes of this state. This court feels compelled to establish such discovery procedures, as a matter of right, to proceedings of the Committee on Professional Conduct.
The record of this case does not reflect that appellant Walker was involved in the communication between this court and the Committee on Professional Conduct regarding discovery. This communication consisted of no more than administrative inquiry to the court by its own committee, seeking advice under the rule-making power of the court. Such action did not constitute a "proceeding" before this court involving appellant and appellant's exclusion from such process could not deprive him of procedural due process. The action of the committee and this court was not one of adjudication, but was one of rule-making. Supreme Court of Virginia, et. al. v. Consumers Union of the United States, et. al., 446 U.S. 719, 100 S. Ct. 1967, 64 L. Ed. 2d 641 (1980).
II.
Appellant Walker submits, in support of his second point, that the Executive Secretary of the committee, Taylor Roberts, acted as "prosecutor" before the committee and was permitted to participate in the deliberations of the committee. He alleges this deprived him of procedural due process of law. Such a committee, with dual functions of prosecution and adjudication has been held constitutional. Withrow v. Larkin, 421 U.S. 35, 95 S. Ct. 1456, 43 L. Ed. 2d 712 (1975). The Executive Secretary did remain with the committee when it deliberated. But there is no evidence he participated or acted improperly in any way. The appellant has the burden of demonstrating that he was denied due process of law. Omni Farms, Inc. v. Arkansas Power & Light Co., 270 Ark. 61, 607 S.W.2d 363 (1980). He has not done so. The Executive Secretary should not have remained with the committee when it deliberated. No doubt this caveat will prevent such actions in the future.
III.
It appears that appellant's argument is uncontroverted regarding the committee's finding that appellant's conduct was a violation of DR6-102(A). The basic principles of procedural due process support appellant's entitlement to notice of any alleged violation of this rule. In re Ruffalo, *555 390 U.S. 544, 88 S. Ct. 1222, 20 L. Ed. 2d 117 (1968). No notice of such charge appears to have been given appellant in advance of the proceeding and the finding of the committee in this respect cannot be permitted to stand. The finding of the committee regarding appellant's violation of the provisions of DR6-102(A) is, therefore, accordingly, vacated.
IV.
Having disposed of the committee's finding that appellant's conduct constituted a violation of DR6-102(A) upon the reasons hereinbefore stated, this court will consider appellant's fourth point only in light of the charge that his conduct was a violation of DR6-101(A)(3).
Review of the transcript in this proceeding leads this court to conclude that the findings of the committee, whereby appellant has been found to be in violation of DR6-101(A)(3), are supported by a preponderance of the evidence. The findings of the committee, in this respect, are not contrary to the weight of the evidence and must be affirmed. Hurst v. Bar Rules Committee of the State of Arkansas, 202 Ark. 1101, 155 S.W.2d 697 (1941). This court is not unaware that "neglect", as set out in DR6-101(A)(3), can be interpreted to mean any conduct ranging from a single act or omission to one of gross negligence which would support an action for malpractice. However, this court takes notice that the guidelines of this rule have been sufficiently established by its previous applications and review. The Weems case, supra, is illustrative of such. Any neglectful conduct of a member of this bar regarding the interests of a client is, in fact, contemplated as answerable under the provisions of DR6-101(A)(3). That is not to say, however, that citations incommensurate with the degree of neglect involved under this rule will never be subject to review by this court. In the instant case it is argued by appellant Walker that his conduct falls far short of negligence which might be required to support an action for malpractice and he should not, therefore, be held accountable under the provisions of the rule. For the reasons aforesaid, this court is unable to be so persuaded. It is also to be noted that the citation levied by the committee was a "Caution" rather than a "Reprimand". We believe such action is not incommensurate with the neglect of appellant Walker as reflected by the evidence in this proceeding. The findings of the committee in this respect will be undisturbed by this court.
With the exception of the modification of the finding as to appellant's violation of DR6-102(A), the findings and decision of the Committee on Professional Conduct are affirmed.
CLAUDE M. WILLIAMS, Jr., Special Justice, joins in this opinion.
GEORGE ROSE SMITH, J., not participating.
DUDLEY, J., did not participate in the final decision. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2317793/ | 18 N.J. 400 (1955)
113 A.2d 768
BOROUGH OF LITTLE FERRY, A TAXING DISTRICT IN THE COUNTY OF BERGEN, PETITIONER-APPELLANT,
v.
BERGEN COUNTY BOARD OF TAXATION AND DIVISION OF TAX APPEALS IN THE DEPARTMENT OF THE TREASURY OF THE STATE OF NEW JERSEY, RESPONDENTS.
The Supreme Court of New Jersey.
Argued March 14, 1955.
Decided May 2, 1955.
*401 Mr. Alfred W. Kiefer argued the cause for appellant (Mr. Christian Bollermann on the brief).
Mr. Harold Kolovsky argued the cause for respondents (Mr. Grover C. Richman, Jr., Attorney-General of New Jersey, attorney).
*402 The opinion of the court was delivered by BRENNAN, JR., J.
The Borough of Little Ferry appeals from the dismissal by the Division of Tax Appeals of its complaint under N.J.S.A. 54:2-37 for the review, and correction and revision, of the 1954 equalization table promulgated by the Bergen County Board of Taxation. We certified the appeal of our own motion while the appeal was pending in the Appellate Division.
The judgment of the Division will be reversed and the cause remanded with direction to the Division to revise and correct the 1954 Bergen County equalization table in further proceedings pursuant to N.J.S.A. 54:2-37 conducted according to the principles more fully set forth in our decision filed herewith in City of Passaic v. Passaic County Board of Taxation, 18 N.J. 371 (1955).
The Bergen County Board of Taxation prepared a preliminary equalization table which was submitted to the local assessors and representatives of the local governing bodies at a meeting on January 25, 1954 called pursuant to N.J.S.A. 54:3-17. The table showed increases in the aggregates of real estate valuations appearing on the duplicates of 41 taxing districts, decreases in the aggregates of 6 municipalities, and no change in the aggregate of 23 taxing districts. The aggregate shown on the Little Ferry duplicate was increased $478,102, or 15% above the submitted aggregate of $3,187,350.
The presiding member of the board, Mr. Moss, addressed the meeting when it commenced. His statement shows that the board is fully aware of the nature of the equalization function and the reason underlying the requirement, and the board's duty in the premises. The statement correctly observes:
"This preliminary equalization table and the final table to be adopted by March 10th is not an order by the Board to assessors to increase or decrease valuations. The ratios or percentages shown on these tables are simply for the proper distribution of county tax it does not mean that an assessor must increase or decrease the assessments in his books by such percentages. It is merely a mathematical *403 operation to equitably distribute to every taxpayer a fair and just share of the county tax levy. The purpose of this table is just what we have so often told you a means of bringing about an equalization of values for payment of county tax. You as assessors know there are many districts in the county that have escaped paying a fair share of the county tax burden by keeping valuations at a low figure." [Emphasis supplied]
Mr. Moss also revealed that in the preparation of the table, "We have exerted every effort to comply with the instructions and suggestions of the State Director [of the Division of Taxation] and have used the best known sources in arriving at the table we have adopted." The error into which the board fell, at that meeting and at the several adjourned meetings held before the preliminary table was finally adopted on March 10, was in failing to disclose, and affording the local assessors and local representatives a fair opportunity to meet, the data obtained from the "best known sources" referred to. And the Division of Tax Appeals compounded the error in the proceeding before that body in acquiescing in the position taken by the Attorney-General that the county "board isn't to present facts to the taxing district. If the taxing districts have any objections they are to present them to the board. He is asking what factual data was presented by the county board. It should be the converse and the statute implies it to be."
For the reasons stated in City of Passaic v. Passaic County Board of Taxation, supra, it was the duty of the county board to lay before the meeting of January 25 the data underlying the determinations of average assessment ratios and to afford the taxing districts fair opportunity both for refutation of such data, and to present their own. A municipality has the right not only to challenge the ratio determined for it, but also, under N.J.S.A. 54:3-18, "at the first hearing * * * may object to the ratio or valuations fixed for any other district, but no increase in any valuation as shown in the table shall be made by the board without giving a hearing, after three days' notice, to the governing body of the taxing district affected."
*404 The error was fatal to the proceedings and particularly unfortunate because the county board commendably undertook a comparison of 26,000 property sales in Bergen County in determining the average assessment ratios and in bringing them into equivalence on the basis of 25% of true value. This was not discovered, however, until upon the request of this court on the oral argument it was revealed to the Attorney-General and the attorney for the borough and the facts were made the subject of a stipulation filed with us as a supplement to the record. The stipulation states:
"* * * the percentages of true value as determined by the respondent * * * are based upon analyses of real estate transactions recorded in the Bergen County Clerk's office. The approximate selling price of various properties as calculated from revenue stamps appearing on deeds recorded from 1950 to 1953 was compared with the local assessment figures for the properties in question.
Equalization was primarily made on the basis of 25% of true value. True value in turn was determined in the main from recorded real estate transactions * * *. In addition, respondent engaged independent real estate appraisers to make spot check appraisals of various properties throughout Bergen County and also caused appraisals to be made on a spot check basis by its own employees. Such appraisals were utilized on a much more limited scale than the method of analyzing real estate transactions in the Bergen County Clerk's Office. It was the purpose of these appraisals to verify the accuracy of the latter method. The respondent also took into account information it acquired from various local tax appeals * * *.
The figures used by the State Director are based on an analysis of 3,000 property sales in Bergen County as compared to 26,000 property sales considered by the Bergen County Board of Taxation."
In the performance of the legislative or quasi-legislative function of equalizing aggregates, boards charged with the duty may properly consult and rely upon official records of real estate transactions and draw inferences of true values of properties from revenue stamps on recorded deeds, cf, N.J.S.A. 54:3-22, or the amounts of mortgages on such properties, and may consult appraisals in the files of mortgage lending institutions or of such agencies as the Veterans Administration or the Federal Housing Administration. And the sampling need be merely reasonable in light of the purpose *405 and not exhaustive. Such are the techniques used by men in the conduct of ordinary affairs. The boards may also, and should, take official notice of and give consideration to the real estate average assessment ratios for the municipalities of the county as determined by the Director of the Division of Taxation pursuant to N.J.S.A. 54:1-35.1 et seq. Precision in valuations is not requisite, State, Weehawken Twp., Pros., v. Roe, 36 N.J.L. 86 (Sup. Ct. 1872). The problems of valuation in a highly developed industrial urbanized state, however, require that the boards consult proofs of such quality if they are to form intelligent judgments as to existing assessment ratios. The day is past when estimates from generalized information or knowledge will suffice, at least in the absence of credible admissions by local assessors as to the extent of local undervaluation.
But the municipalities must be informed what data was consulted and considered by the county board in determining the assessment ratios and be afforded a fair opportunity to refute such data, and to present their own. The statute, N.J.S.A. 54:3-18, requires as much and indeed from the very nature of such proofs it would be requisite without the statute as a matter of simple fairness and justice. The municipalities may well be able to offer similar or other data giving rise to doubts of the inferences drawn from the board's own data and resulting in revision of the board's conclusions. The boards should welcome such aid from the municipalities to assure that the assessment ratios finally promulgated are as accurate as circumstances will permit, with due regard to the statutory time limits within which the tables must be completed. City of Passaic v. Passaic County Board of Taxation, supra; Pennsylvania Railroad Co. v. Dept. of Public Utilities, 14 N.J. 411 (1954).
There is another reason why this table must be set aside and another promulgated by the Division of Tax Appeals. We learn from the stipulation that after equating all aggregates to 25% of true value, some aggregates were reduced below that standard for reasons, among others, that *406 "the percentage of increase as determined from its figures would have worked a hardship upon the municipality affected, and in other municipalities the respondent was satisfied that the local authorities were making an effort to increase assessments to the required level." But thereby the county board created not balance but imbalance in the several assessment ratios decreasing the percentage shares of the common burden of the municipalities so favored and saddling the other municipalities with more than their proportionate shares. The taxing districts thus favored are not identified, and the error can be rectified only by the promulgation of a new table.
Reversed.
VANDERBILT, C.J. (concurring).
I concur in the result of the majority opinion and my sentiments expressed in my concurring opinion in City of Passaic v. Passaic County Board of Taxation, 18 N.J. 371 (1955), are equally applicable here.
VANDERBILT, C.J., and HEHER, J., concurring in result.
For reversal Chief Justice VANDERBILT, and Justices HEHER, OLIPHANT, WACHENFELD, BURLING, JACOBS and BRENNAN 7.
For affirmance None. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3119975/ | Order issued October 29, 2012
In The
(i.uttrt nf Aiiii.zt1i
fiftIi Oitrirt nf Lixu ut Ju11ai
No. OS-I O-00221-CV
CANINE, INC., Appellant/Cross-Appellee
V.
KATHY C OLLA, Appellec/Cross-Appellant
ORDER
Before Justices Bridges. ONei11. and Fillmore
Appellee’s August 27. 2012 motion for rehearing is DENIEI).
DAVID L. BRI fG ES
JUSTI CE | 01-03-2023 | 10-16-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/8326631/ | Lauriat, Peter M., J.
The legal saga of the Big Dig continues. In these consolidated actions, the plaintiff, Perini-Kiewit-Cashman Joint Venture (“PKC”), has appealed from the CA/T Project Director’s decisions as to the arbitrability of PKC’s Mainline and MBTAImpact Claims, No. 2009-0795-BLS1 and NO. 11-1593-BLS1 (respectively, the “Mainline Claim” and the “MBTA Claim”). Now before the court is PKC’s motion for summaiy judgment. For the reasons set forth below, this motion is denied.
BACKGROUND
The court assumes that the parties are familiar with the background to their dispute. For the purposes of this motion, the court notes the following. On October 12, 2000, the CA/T exercised its contractual right to not renew the Second DRB (“DRB2”). At that time, according to the CA/T, PKC had not submitted its Mainline or MBTA Claims. In January 2002, the CA/T asked the DRB2 to identify which claims it believed it had jurisdiction over. Before the DRB2’s response, PKC identified several claims as pending; the list did not include the Mainline or MBTA Claims.
On January 18, 2005, PKC submitted a position paper to the DRB2, requesting that the DRB2 issue an order that the Mainline and MBTA Claims after April 30, 1999, were pending, and should be decided by the DRB2 as opposed to its successor DRB panel. On February 25, 2005, PKC submitted the Mainline Claim, in which it stated that, as part of the parties’ attempt to negotiate a settlement, it had in October 2002, submitted to the DRB2 a “first draft” of the claim covering the period through April 31, 1999, and a “second draft” in April 2003, covering the entire period of the Mainline construction until substantial completion. PKC’s 2005 Mainline Claim calculated the claim separately for the periods prior to and after April 30, 1999. PKC submitted its MBTA Claim on April 14, 2005. As with the Mainline Claim, it was calculated separately for the periods before and after April 30, 1999. Nevertheless, it is undisputed that the parties argued the merits and arbitrability of the entire Mainline and MBTA Claims, that is until substantial completion, before the DRB2.
On April 19, 2005, the DRB2 issued Order 14, in which it noted that the Mainline and MBTA Claims were part of the overall Impact Claim under consideration at the time of the non-renewal. It concluded that it had jurisdiction over those two claims under the terms of the March 25, 1999 agreement (the “Agreement”). On December 2, 2005, the DRB2 issued Order 16, in which it stated that “The Board finds that the disputes between the Parties over the PKC Mainline Impact Claim and MBTA Impact Claim for costs through Substantial Completion are subject to binding adjudication in accordance with the Binding DRB Agreement dated March 25, 1999.” (Emphasis in the original.)
Nonetheless, the DRB2 specifically limited the scope of its award in the Mainline and MBTA Claims to “costs in the period from December 2, 1996 to April 30, 1999.” Although the DRB2 stated that it was clear that delays, impacts, and inefficiencies continued after April 30, 1999, it concluded that “it is now for the Third DRB to adjudicate the Mainline Impact Claim and MBTA Impact Claim for this period . . .” The court confirmed Order 16 on January 6, 2009.
Both parties submitted position papers to the Third DRB (“DRB3”) on several claims, including the Mainline and MBTA Claims. At issue from the outset was whether the DRB3 could arbitrate arbitrability. The CA/T took the position that only those claims listed on Exhibit 1 were subject to binding arbitration; PKC argued that it was for the DRB to make that determination.1 In an August 10, 2006, decision, the DRB3 concluded that it was not bound by prior DRB’s determinations as to what claims were subject to binding arbitration, but would make its own binding arbitral decision on arbitrability.
*152On October 24, 2008, the DRB3 issued its determination on the Mainline Claim after April 30, 1999 and, in a separate determination dated November 14, 2008, made findings and conclusions as to which claims were arbitrable (the “Binding/Non-Binding Determination”). With respect to Order 16, the DRB3 concluded that the statement in Order 16 that the Mainline and MBTA Claims through substantial completion were subj ect to binding arbitration did not have a preclusive effect on the claims and issues before the DRB3. Specifically, the DRB3 stated that, although the DRB2 could make a determination as to the Mainline and MBTA Claims regarding the period through April 30, 1999, “this DRB may, and does, ignore that purported determination as it applies to the period commencing May 1,1999.” The Fourth DRB (“DRB4”) issued its determination on the MBTA Claim in September 2010. As had the DRB3, the DRB4 made binding decisions on what claims were subject to binding arbitration.
On November 28, 2008, the Project Director issued his decision in the Mainline Claim, and on January 28, 2011, issued his decision on the MBTA Claim.2 He treated both the DRB3’s Mainline Determination and the DRB4’s MBTA Determination regarding post-April 30, 1999 claims as recommendations pursuant to the process for dispute resolution outlined in subsection 7.16 of the C11A1 Contract.3 He thus rejected the DRBs’ conclusions that they had authority to determine the arbitration issue. PKC now appeals from the Project Director’s decisions. It argues that the DRB2’s Order 16 holding that the Mainline and MBTA Claims were fully arbitrable through substantial completion must be given res judicata effect because the DRB2 had litigated the identical issues of law.4 The Project Director’s failure to do so, it contends, is an error of law and his decisions on those claims must be overturned.
DISCUSSION
As a threshold matter, it is for each DRB to make a determination as to over which claims it has jurisdiction. See Massachusetts Highway Dept. v. Perini Corp., 444 Mass. 366, 376-77 (2005). The question is procedural in nature, and not a substantive limitation on the DRB’s authority; the answer has no bearing on the DRB’s ultimate disposition and involves only which DRB will hear a given dispute. Id. at 377. Therefore the DRB2 had the authority to determine that it did not have jurisdiction over the Mainline and MBTA Claims, to the extent that they involved post-April 31, 1999 claims. And the DRB3 and the DRB4 had the authority to determine that they would adjudicate those claims.
PKC argues that because the parties litigated and the DRB2 decided the issue of arbitrability with respect to both the Mainline and MBTA Claims to substantial completion, the Project Director must be bound by the DRB2’s determination regarding post-. April 30, 1999 claims.5 The post-April 30, 1999 claims might be different, PKC maintains, but the issue of arbitrability is the same. The CA/T responds that PKC cannot establish the elements of issue preclusion because Order 16 concerned different issues and, in any event, the DRB2’s determination in the underlined statement, supra, with respect to post-April 30, 1999 arbitrability was not essential to that order.
“The term ‘res judicata’ includes both claim preclusion and issue preclusion.” Sarvis v. Boston Safe Deposit & Trust Co., 47 Mass.App.Ct. 86, 98 (1999). “Issue preclusion prevents relitigation of an issue determined in an earlier action where the same issue arises in a later action, based on a different claim.” TLT Constr. Corp. v. A. Anthony Tappe & Assocs., Inc., 48 Mass.App.Ct. 1, 5 (1999). To succeed on a motion for summary judgment on the basis of issue preclusion, the burden is on the party asserting preclusion to prove that (1) there was a final judgment on the merits in the prior adjudication; (2) the party against whom estoppel is asserted was a party to the prior adjudication; (3) the issue in the prior adjudication is identical to the issue in the current adjudication; and (4) the issue decided in the prior adjudication was essential to the earlier judgment. Id. (internal citations and quotations omitted). Because issue preclusion can only be asserted to prevent relitigation of issues already litigated, the court must determine what was actually litigated. Id.
The problem with PKC’s argument is that the DRB2 made determinations as to arbitrability only with respect to claims through April 30, 1999. It made no such determination with respect to post-April 30, 1999 claims, since it determined that it had no authority to do so. Whether those claims, or portions of those claims, were arbitrable is dependent entirely upon the substance of the claims themselves. As this court has repeatedly held, only those claims listed on Exhibit 1 are subject to binding arbitration. Contrary to PKC’s contention, the issue of arbitrability with respect to the pre-April 30,1999 claims is notidentical to that with respect to the post-April 30, 1999 claims.6 PKC therefore has failed to meet its burden of proving the third requirement for issue preclusion.
Even were the court to conclude otherwise, the DRB2’s statement as to the arbitrability of the Mainline and MBTA Claims through substantial completion cannot have been essential to its judgment, since it conceded that it did not have jurisdiction over the totality of those claims. See, e.g., McSorley v. Town of Hancock, 11 Mass.App.Ct. 563, 567-68 (1981) (issue preclusion applies “where it is plain that an issue attempted to be raised in the second case was the same issue which was so necessarily involved in the first action that the judgment which was entered therein could not possibly have been entered on any ground other than that this issue was adjudicated adversely to the party later attempting to present it”). Here, the *153DRB2 could have decided that the post-April 30, 1999, claims were not arbitrable, without any change in the award it issued. PKC has thus failed to meet its burden of proof with respect to the fourth requirement for issue preclusion.
CONCLUSION AND ORDER
For the forgoing reasons, PKC’s Motion for Summary Judgment on Project Director’s Decisions is DENIED.
In a letter to the DRB3 dated January 12, 2006, PKC stated: “PKC agrees that the issue of whether the post-April 30, 1999 portion of the Mainline and MBTA impact claims are subject to binding adjudication is for the Third DRB to decide. In making that decision, PKC believes that the Third DRB should give weight to the Second DRB’s determination on that issue . . .”
For this Court’s decisions with respect to the Binding/Non-Binding issue, see Memorandum of Decision and Order on Cross Motions for Summary Judgment on the Binding DRB Issue, Civil Action No. 2008-5300-BLS 1 consolidated with Civil Actions Nos. 2008-5564-BLS1 and 2009-0795-BLS1 (December 23, 2010) (Hinkle, J.); Memorandum of Decision and Order on Perini-Keiwit-Cashman, Joint Venture’s Motion to Clarify, Civ. No. 2008-5300-BLS 1 consolidated with Civ. Nos. 2008-5563-BLS1 and 2009-0795-BLS1 (March 7, 2011) (Lauriat, J.); Memorandum of Decision and Order on PKC's Motion for Reconsideration of March 7, 2011 Memorandum of Decision and Order, Civ. No. 2008-5300-BLS 1 consolidated with Civ. Nos. 2008-5563-BLS1 and 2009-0795-BLS1 (June 2, 2011) (Lauriat, J.); Memorandum of Decision and Order on PKC’s Motion to Confirm Arbitration Award and Massachusetts Transportation Authority’s Cross Motion for Summary Judgment Civ. No. 2010-3879-BLSlconsolidated with Civ. Nos. 200808-5300-BLS1, 2008-5564-BLS1, 2009-0795-BLS1, 2009- 1080-BLS1, 2009-1214-BLS1, and 2009-2940-BLS1 (October 27, 2011) (Lauriat, J.).
The CA/T filed motions to vacate and/or modify the DRB3’s Mainline Determination (Civ. No. 2008-5300) and the DRB4’s MBTA Determination (Civ. No. 2010-3879), on the grounds that those DRB’s (1) had wrongfully issued an arbitral award for which there was never any agreement to arbitrate, and (2) exceeded their authority in making a binding award for matters not subject to binding arbitration. This Court has ruled repeatedly that the DRB did not have the authority to determine as an arbitral award which claims were subject to the Agreement, and has vacated those awards. See n.2, supra.
PKC’s position is in direct contrast to the position it took before the DRB3, where it contended that the DRB2’s determination should not bind the DRB3. See n. 1, supra.
The parties do not dispute the DRB2’s determination regarding the pre-April 30, 1999, Mainline and MBTA Claims, which were closed.
Ultimately, of course, this court decided that the DRB3 had exceeded its authority in making that determination. Memorandum of Decision and Order on Cross Motions for Summary Judgment on the Binding DRB Issue, Civil Action No. 2008-5300-BLS 1 consolidated with Civil Actions Nos. 2008-5564-BLS1 and 2009-0795-BLS1 (December 23, 2010) (Hinkle, J.). | 01-03-2023 | 10-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/1442850/ | 164 S.W.3d 892 (2005)
Concepcion SAUCEDA, et al., Appellants,
v.
Gilbert KERLIN, Individually, Gilbert Kerlin, Trustee, Windward Oil & Gas Corporation, and P.I. Corporation, Appellees.
No. 13-01-00062-CV.
Court of Appeals of Texas, Corpus Christi-Edinburg.
June 9, 2005.
Rehearing Overruled July 7, 2005.
*902 Britton D. Monts, Dallas, Robert F. Johnson, III, Tom C. McCall, McCall & *903 Ritchie, Hector H. Cardenas, Jr., Law Office Hector H. Cardenas, Jr., Austin, for appellants.
Frank Costilla, Horacio L. Barrera, Martinez & Barrera, Brownsville, M. Steve Smith, Houston, Russell H. McMains, Law Office of Russell H. McMains, Corpus Christi, Brian T. Smith, Steven M. Zager, Brobeck, Phileger & Harrison, Austin, Juan Jose Martinez, Olmito, for appellees.
Rebecca Gomez Sexton, McAllen, pro se.
Before Justices HINOJOSA, YAÑEZ, and CASTILLO.
OPINION
Opinion by Justice HINOJOSA.
Appellants, descendants of Juan Jose Balli ("Balli Claimants"), sued appellees, Gilbert Kerlin, individually and as trustee, Windward Oil and Gas Corporation, and P.I. Corporation ("Kerlin Group"), for: (1) breach of contract; (2) breach of fiduciary duty; (3) fraud; and (4) conspiracy to commit fraud and breach of fiduciary duty. The Balli Claimants also asked for a declaratory judgment, an accounting, and the imposition of a constructive trust. See TEX.R. CIV. P. 274; Morales v. Morales, 98 S.W.3d 343, 346 (Tex.App.-Corpus Christi 2003, pet. denied). After a lengthy jury trial, judgment was rendered in favor of the Balli Claimants. The Balli Claimants' appeal raises two issues and the Kerlin Group's cross-appeal raises twelve issues. We reverse that part of the trial court's judgment denying an equitable accounting and remand that issue to the trial court with instructions to order an equitable accounting. We affirm the remainder of the trial court's judgment.
I. BACKGROUND
In 1829, the Mexican State of Tamaulipas concluded proceedings to confirm the grant of the area now known as Padre Island to Padre Nicolas Balli and his nephew, Juan Jose Balli. The size of the grant was estimated at approximately 49,913 acres. Padre Nicolas Balli died before the grant was finalized and his interest in Padre island passed by devise to his nieces and nephews, including Juan Jose Balli.
On January 19, 1830, Juan Jose Balli conveyed his interest in Padre Island, which consisted of the northern one-half of the island (the "northern division") and the portion he inherited from Padre Nicolas Balli, to Santiago Morales.
On March 20, 1830, Morales appeared before a judge in the city of Matamoros in the Mexican State of Tamaulipas. Morales asserted that the Padre Island grant was defective and that he did not want to invest in the property until the title to Padre Island was clear. He asked that Juan Jose Balli return the purchase money, with the understanding that the sale could be reinstated if the title was cleared. In his response, Juan Jose Balli denied that the title was defective but said he would return the purchase money if Morales desired. Both men subsequently entered into a rescission agreement.
Despite the existence of this rescission agreement, in 1842 Morales mortgaged the southern half of the property that he had acquired from Juan Jose Balli to Maria de los Dolores. In 1845, Morales also conveyed the remaining interest to Jose Maria Tovar. The heirs of Padre Nicolas Balli conveyed their interests in the southern half of Padre Island (the "southern division") to Nicolas Grisante during the 1840s.
In 1902, the heirs of Nicolas Grisante filed suit for possession of Padre Island in the United States Circuit Court for the Southern District of Texas in Laredo. In 1905, the court rendered a judgment granting possession of Padre Island to a *904 number of defendant parties, including Pat F. Dunn, Jno. [sic] S. McCampbell, Mrs. H.M. King, Eddie White McCampbell, Oscar W. Staples, Jay Cook, Pauline J. Wells, Eugine R. Raphael, and Mrs. Conrad Menley. See Grisanti v. Am. Trust Co. of New Jersey, No. 18 (C.C.S.D.Tex. Nov. 16, 1905).
A. Havre v. Dunn
In 1923, Lizzie Havre filed a trespass to try title suit against Pat F. Dunn, Sam A. Robertson, and W.E. Callahan. Dunn, Robertson, and Callahan filed a cross-action against approximately 120 other persons for the recovery of title and possession of Padre Island, except for the southernmost 7,500 acres. Many of the cross-defendants were cited by publication, including the heirs of Padre Nicolas Balli and the heirs of Juan Jose Balli. Most of the cross-defendants cited by publication did not personally appear during the proceedings. All of the cross-defendants were represented by a single attorney ad litem, who, acting on behalf of the cross-defendants, told the court that the law and facts were in favor of Robertson and Callahan.
In June 1928, the 103rd District Court of Cameron County rendered a judgment in Havre v. Dunn. Havre v. Dunn, No. 12469 (103rd Dist. Ct., Cameron County, June 9, 1928). Havre's claims against Dunn, Robertson, and Callahan were nonsuited. Dunn's claims against the cross-defendants were nonsuited also. The district court's judgment granted title and possession of Padre Island, except for the southernmost 7,500 acres, to Robertson and Callahan. All other parties were denied relief on their respective pleadings.
A petition for bill of review was timely filed by Merrill W. Staples, one of the cross-defendants cited by publication, and Joseph G. Bowen. Robertson and Callahan jointly filed answers consisting of general demurrer and general denial. Merrill W. Staples was deposed in 1931. No major action was taken in the case until October 24, 1938.
B. Kerlin and Associates
In 1937, Frederic Gilbert, a partner in the law firm of Sherman & Sterling in New York City, was contacted by Elmer Johnson, a business associate. Johnson proposed a business venture in south Texas. Johnson introduced Gilbert to E.R. Fry, J.Q. Henry, A.W. Phillips, and Herman Nami. Fry, Henry, Phillips, and Nami claimed that they had found documents in the archives of Matamoros, rescinding the land sale agreement between Juan Jose Balli and Santiago Morales. Fry, Henry, Phillips, and Nami promoted the documents as evidence that the title of Juan Jose Balli might still confer valid ownership to the northern division of Padre Island.
Gilbert hired F.W. Seabury, an attorney in Brownsville, to research the proposed venture. Seabury expressed reservations regarding the validity of the Juan Jose Balli title. Nevertheless, Gilbert entered into a joint partnership agreement with Phillips, Fry, Nami, and Henry to assert that the rescission agreement was valid and thereafter make claim to Juan Jose Balli's interest in Padre Island.
Gilbert looked to his nephew, Gilbert Kerlin, to manage the venture. Kerlin was a 1936 graduate of Harvard Law School who was working for Gilbert at Sherman and Sterling. In 1938, Gilbert directed Kerlin to travel to Brownsville to purchase Juan Jose Balli's title to Padre Island.
Upon arriving in Brownsville, Kerlin contacted Primitivo Balli, an heir of Juan Jose Balli and patriarch of the Balli family. *905 Primitivo Balli agreed to assist Kerlin in finding and acquiring all of Juan Jose Balli's interest in Padre Island from the heirs-at-law. Tomas Tijerina, an heir of Juan Jose Balli, assisted by translating for Kerlin. Primitivo Balli's daughter, Librada Balli, worked as a secretary for Kerlin. Kerlin explained to Primitivo and Librada Balli that he was obtaining the deeds to clear title to Padre Island and that each deed would reserve a 1/64 royalty interest in each Balli grantor. Kerlin also made assurances that each Balli grantor would receive something if Kerlin received anything through the deeds.
Soon thereafter, Kerlin, as trustee, obtained from the heirs of Juan Jose Balli (the "Balli Grantors"), twelve general warranty deeds to the land constituting Juan Jose Balli's interest in Padre Island. Only eleven of the deeds were recorded, as one appeared to be a duplicate. Seabury drafted each deed. Each deed contained an oil and gas reservation clause, which contained the following or substantially similar language:
It being my contention (sic) to convey all of the interest which I have in the here and above (sic) described premises, and each and every part thereof, by reason of my being one of the lawful heirs of said Juan Jose Balli, irrespective of the acreage or quantity thereof, save and except that there is specifically reserved to me a one-sixty-fourth (1/64th) of the royalty of one-eighth (1/8th) of any and all oil and/or gas or other minerals in, on, and under my pro rata interest in the above described premises.
C. Re-Opening Havre v. Dunn
Kerlin and Gilbert decided to pursue other interests in Padre Island that would not be subject to the partnership venture with Fry, Henry, Phillips, and Nami. By the end of 1938, Kerlin had acquired a number of titles to Padre Island, each of which had been cut off by the Havre v. Dunn judgment. Kerlin intended to claim ownership of this Padre Island property by asserting the validity of the titles he held. Kerlin and Gilbert sought to accomplish this by attacking and setting aside the judgment in Havre v. Dunn.
Gilbert approached the widow of Joseph G. Bowen, one of the cross-defendants in Havre v. Dunn who had attempted to obtain a new trial in 1930. Gilbert and Mrs. Bowen agreed that Kerlin would acquire oil, gas, and mineral leases on Padre Island as well as a power of attorney to prosecute, at his own expense, the bill of review previously filed by Staples and Bowen in Havre v. Dunn. Seabury was retained to reopen and prosecute the suit.
Seabury represented multiple clients in the Havre v. Dunn case, many of whom held conflicting titles to interests on Padre Island. Seabury represented Kerlin, individually and as trustee, Mrs. Bowen, George Warren, individually and as trustee, and the heirs of Juan Jose Balli. In the Havre v. Dunn case, Seabury filed an amended motion for new trial, an answer, a cross-action, and an amended cross-action on behalf of (1) the heirs of Juan Jose Balli; (2) Kerlin, individually and as trustee; and (3) George Warren. The heirs of Juan Jose Balli were never told that Seabury had filed a cross-action on their behalf, nor did Seabury ever communicate with the Ballis.
The cross-action alleged in part: "this defendant [the heirs of Juan Jose Balli] owns said premises from and under the sovereignty of the soil and in particular under and by virtue of an original grant thereof made by the State of Tamaulipas, Mexico, in the year 1828, to Nicolas Balli and Juan Jose Balli whose title and rights this defendant now has." The amended cross-action attempted to establish the validity *906 of the Juan Jose Balli title, as well as the other titles acquired by Kerlin.
On December 30, 1938, the presiding judge granted the amended motion for new trial filed by Seabury in Havre v. Dunn. On January 1, 1939, the judge's term expired and a new judge took office. The succeeding judge rescinded the order granting a new trial on the grounds that the motion for new trial had been waived, abandoned, and determined by operation of law prior to the proceedings. On appeal, it was held that the succeeding judge had erred in rescinding the order granting the new trial. See Staples v. Callahan, 138 S.W.2d 206, 208 (Tex.Civ.App.-San Antonio 1940), aff'd, Callahan v. Staples, 139 Tex. 8, 161 S.W.2d 489 (1942).
D. Additional Suits for Padre Island
In 1940, while the Havre v. Dunn case was pending on appeal, the State of Texas filed suit, alleging that all of Padre Island was state property. Under the circumstances, parties with opposing claims of interest to Padre Island organized to form a united defense. These conflicting chains of title, named as defendants in the case, agreed to assert their collective titles against the State. The State of Texas ultimately lost the case at the Texas Supreme Court, and the United States Supreme Court denied certiorari. State v. Balli, 144 Tex. 195, 190 S.W.2d 71 (1944), cert. denied, Texas v. Balli, 328 U.S. 852, 66 S. Ct. 1341, 90 L. Ed. 1624 (1946).
In 1940, Kerlin filed suit against the King Ranch. Kerlin asserted title to 6,000 acres of land on Padre Island. During the suit, Kerlin relied on the deeds from the Balli Grantors, as well as the rescission agreement between Santiago Morales and Juan Jose Balli. The case was settled, and the King Ranch conveyed a 6,000 acre tract to Kerlin. See Kerlin v. King Ranch, No. 18,1987 (103rd Dist. Ct., Cameron County, Texas) (filed Aug. 8, 1941).
During the litigation of State v. Balli, a State-conducted survey by J. Stuart Boyles determined that the size of Padre Island had grown to 135,213 acres. In the summer of 1941, the United States sued to condemn 34,884 acres of Padre Island to create a bombing range. The suit named many parties as defendants, including the Balli Grantors. The suit was abated until the decision in State v. Balli was resolved on appeal. See U.S. v. 34,884 Acres, No C.A. 142 (S.D.Tex.1948), aff'd 182 F.2d 750 (5th Cir.1950).
E. Settlement Negotiations in Havre v. Dunn
On February 28, 1940, Kerlin, Gilbert, and Seabury met with opposing parties to discuss a proposed settlement of the Havre v. Dunn case. During the meeting Seabury asserted the validity of the deeds from the Balli Grantors and proposed that his "group" should receive forty percent of the entire acreage of Padre Island.
On March 24, 1942, Marcellus G. Eckhardt and Harbert Davenport, attorneys for some of the parties opposing Kerlin, shared correspondence inquiring whether there was a possibility of settling with the Balli Grantors. In other correspondence, Davenport expressed concerns to other counsel that in a new trial the Balli Grantors could claim an interest in Padre Island.
On June 8, 1942, Seabury called Davenport and requested that a settlement conference in Havre v. Dunn be held on June 9, 1942. On June 9, 1942, Seabury submitted a written proposal to settle the case. Seabury proposed that 25,542.6 acres of Padre Island be set aside to Kerlin and associated parties. A portion of these 25,542.6 acres was described by Seabury as being:
*907 In Kleberg or Kenedy County, a tract of 7,444 acres lying in the extreme south end of what in the Laredo judgment was called the northern division of Padre Island. Juan Jose Balli owned one-half and one-seventh of the other half of the island, a total of 77,264 acres on the Boyles' survey. He conveyed to Santiago Morales the north half of the island plus one-half league, which on the same figures makes 69,820 acres. The difference, 7,444 acres, is the acreage that was never divested out of Juan Jose Balli on any theory of the case. Gilbert Kerlin and Associates want this to comply with their commitments with the heirs of Juan Jose Balli whose title is now in Gilbert Kerlin, Trustee....
On June 15, 1942, Gilbert wrote Kerlin a letter setting out the terms of Seabury's settlement proposal. As part of the proposed settlement, Gilbert described a 20,000 acre tract formed from various tracts. One of these tracts was described as 7,500 acres "[f]or the Juan Jose interest."
On September 29, 1942, Davenport wrote Seabury that Dunn would agree to settle for the land described in the settlement agreement, plus a one-third mineral interest in the southern portion of the island. Davenport was sure that there was enough acreage to satisfy all the legitimate claims of Seabury's clients because of the island's increase in size that was discovered during State v. Balli.
A hearing on the motion for new trial was set in Havre v. Dunn for November 9, 1942. Kerlin, who was serving in the army, secured a three-day pass to be present in Brownsville, Texas during that period. On November 9, 1942, a stipulation was filed with the court, stating that all matters in Havre v. Dunn had been settled. Pursuant to that stipulation, Kerlin was to receive all interest in and to the minerals on and underlying 1,000 acres out of a portion of Padre Island in Nueces County. Kerlin was also to receive conveyances, assignments, and releases sufficient to vest in Kerlin, individually and as trustee, the fee simple title to 20,000 acres of land out of the southern division of Padre Island.
Also on November 9, 1942, Kerlin attended a meeting with Gilbert and Seabury. At the meeting, Seabury advised abandonment of the Balli claim. Kerlin, individually and in his capacity as trustee, then executed reconveyance deeds to the Balli Grantors. The reconveyance deeds specifically recited that the Balli Grantors were advised of the reconveyance. However, Kerlin never informed the Balli Grantors of the reconveyance deeds, nor were the deeds ever recorded or delivered to the Balli Grantors.
While he was in Brownsville during his three-day pass from the army, Kerlin visited Librada Balli's place of employment. Kerlin told Librada Balli that he was in town to take care of a little business. He did not mention the settlement of Havre v. Dunn. In fact, none of the Balli Grantors were informed of the settlement of Havre v. Dunn by either Kerlin or Seabury.
After the settlement stipulation was executed, Seabury filed a motion to dismiss the claims asserted in Havre v. Dunn, including the Balli cross-action. After November 9, 1942, Gilbert also told the partners in the Balli venture that he had abandoned the Balli claim.
In order to effectuate the settlement in Havre v. Dunn, the parties were required to execute cross-conveyance deeds to the respective acreage each party received in the settlement. By letter dated December 12, 1942, Davenport advised Eckhardt that Seabury had agreed to not give the Balli Grantors any recordable instrument that could cast a cloud on the Dunn title. On *908 December 19, 1942, Gilbert advised Seabury that the McCampbells, a party to the settlement agreement, could be assured that no transfer of interest would be secured from the Balli Grantors, but rather that the Balli interest would "die in Kerlin."
F. Post-Settlement History
Seabury died in 1946. Upon his death, Harbert Davenport became Kerlin's attorney. Kerlin took all of Seabury's papers and files concerning Padre Island and kept them in the basement of his home in New York.
In a letter to Gilbert, dated January 10, 1952, Elmer Johnson, the man who arranged the venture between Gilbert and Fry, Henry, Phillips, and Nami, claimed he was owed a commission for the Balli venture. Gilbert replied that Seabury had a change of vision during the trial of State v. Balli and that no recovery could be had on the basis of the Balli title.
On November 30, 1953 and December 17, 1953, Primitivo Balli wrote letters to Kerlin, requesting documents showing his interest in Padre Island. By letter dated December 16, 1953, Kerlin responded that he had acquired no title under the deeds from the Balli Grantors. Kerlin did not tell Primitivo about the reconveyance deeds or that Havre v. Dunn had been settled and dismissed. On May 10, 1954, Primitivo Balli wrote Kerlin acknowledging receipt of the December 16 letter and requesting that Kerlin return his birth certificate. On May 27, 1954, Primitivo Balli again requested his birth certificate, which was later returned by Kerlin.
On June 2, 1954, Kerlin again wrote to Primitivo Balli. Kerlin said he was unable to establish that Juan Jose Balli did not sell all of his interest in Padre Island and that the heirs of Juan Jose Balli had no basis to claim any interest in Padre Island. On June 2, 1954, Kerlin also wrote a letter to Davenport, informing him that Primitivo Balli had written and he did not know whether Primitivo's letter was preliminary to a claim. After June 2, 1954, Kerlin had no further communication with Primitivo Balli.
On June 28, 1961, Kerlin sold the surface of the 20,000 acre tract that he received in the Havre v. Dunn settlement, together with other land, for $3,412,500. Kerlin and his wife also conveyed all mineral interests in Padre Island to P.I. Corporation, which was entirely owned by Kerlin. North Central Oil Corporation acquired the one-fourth interest of George de Peyster, a partner of Kerlin, in the Padre Island minerals. North Central Oil subsequently conveyed the de Peyster interest to Windward Oil & Gas Corporation, which is also wholly owned by Kerlin.
In 1985, Connie Sauceda, a descendant of the Balli Grantors, contacted Kerlin regarding the royalty reservations in the deeds signed by the Balli Grantors. Kerlin told Sauceda that the deeds were invalid and that she was wasting her time. Although Sauceda did not mention a lawsuit, Kerlin told Sauceda that she would have the burden of proof, an action would cost a lot of money, and that an action would take years to find out what happened.
G. The Ensuing Lawsuit
In February 1993, some of the Balli Claimants filed suit against the Kerlin Group. As the suit progressed, additional Balli Claimants joined the suit, as well as intervenors asserting different causes of action from the Balli Claimants.
In their seventh amended petition, the Balli Claimants alleged the following causes of action: (1) breach of contract; (2) breach of fiduciary duty; (3) fraud; *909 and (4) conspiracy to commit fraud and breach of fiduciary duty. The Balli Grantors sought compensation for their damages, declaratory judgment, accounting, constructive trust, and attorney fees. The pleading also asserted the discovery rule and fraudulent concealment. In their second amended answer, the Kerlin Group asserted several affirmative defenses, including res judicata, estoppel, statute of limitations, laches, and the statute of frauds.
The jury found that: (1) Kerlin was estopped from denying the validity of the Balli deeds and the royalty reservations set out therein; (2) Kerlin acquired an individual interest in the eleven Balli deeds; (3) the royalty interest intended to be collectively reserved to the Balli Grantors was 1/64 of a 1/8 royalty; (4) Kerlin and P.I. Corporation failed to comply with the fiduciary duties to each of the Balli Grantors, with respect to the royalty interests reserved in the eleven deeds; (5) Seabury breached the fiduciary duty owed to the Balli Grantors during the settlement of Havre v. Dunn; (6) Kerlin was part of a conspiracy with Seabury to breach the fiduciary duties owed to the Balli Grantors in the settlement of Havre v. Dunn; (7) Seabury committed fraud against the Balli Grantors during the settlement of Havre v. Dunn; (8) Kerlin was part of a conspiracy with Seabury to commit fraud against the Balli Grantors in the settlement of Havre v. Dunn that damaged the Balli Grantors; (9) Kerlin failed to comply with his fiduciary duty to each of the Balli Grantors with respect to the royalty interest reserved in the eleven deeds during the settlement of Havre v. Dunn; and (10) Kerlin acquired in his own name 7,500 acres of land on Padre Island for the benefit of the Balli Grantors during the settlement of Havre v. Dunn, which he did not share with the Balli Grantors.
The Balli Grantors subsequently filed motions to disregard some of the jury findings and for judgment notwithstanding the verdict. The trial court granted the Balli Claimants' request to disregard the jury's answers to Jury Charge Question Numbers 20, 21, and 22 and denied their request to disregard the jury's answers to Jury Charge Question Numbers 2, 3, and 7. On the same day, the trial court denied the Kerlin Group's motion for judgment notwithstanding the verdict and the Balli Claimants' request that the court order an accounting and disgorgement of profits.
The trial court signed the final judgment on November 20, 2000. On December 15, 2000, the Balli Claimants filed a motion to modify the final judgment, and on December 20, 2000, the Kerlin Group filed a motion for new trial and motion to modify, correct, or reform the final judgment. On December 20, 2000, the trial court signed an order granting in part and denying in part the Balli Claimants' motion to modify the final judgment. A modified final judgment was signed on December 20, 2000. The Kerlin Group's motion for new trial and motion to modify, correct, or reform the judgment were overruled by operation of law. The Balli Claimants filed and duly perfected appeal. The Kerlin Group also duly perfected appeal.
II. THE KERLIN GROUP'S ISSUES ON CROSS-APPEAL
By cross-appeal, the Kerlin Group raises twelve issues, including challenges to the trial court's conclusions of law, admission of evidence, jury charge questions, sufficiency of the evidence, and damages.
A. Conclusions of Law
The Kerlin Group challenges several conclusions of law made by the trial court. We review a trial court's conclusions of law de novo to determine whether the trial *910 court drew the correct legal conclusions from the facts. State v. Heal, 917 S.W.2d 6, 9 (Tex.1996); Aguero v. Ramirez, 70 S.W.3d 372, 373 (Tex.App.-Corpus Christi 2002, pet. denied); Dallas Morning News v. Bd. of Trustees, 861 S.W.2d 532, 536 (Tex.App.-Dallas 1993, writ denied). We are not bound by the trial court's conclusions of law. An appellate court is free to draw its own legal conclusions. Aguero, 70 S.W.3d at 373.
Conclusions of law will not be reversed unless they are erroneous as a matter of law. Stable Energy, L.P. v. Newberry, 999 S.W.2d 538, 547 (Tex.App.-Austin 1999, pet. denied). Conclusions of law will be upheld on appeal if the judgment can be sustained on any legal theory supported by the evidence. Mack v. Landry, 22 S.W.3d 524, 528 (Tex.App.-Houston [14th Dist.] 2000, no pet.); Spiller v. Spiller, 901 S.W.2d 553, 556 (Tex.App.-San Antonio 1995, writ denied). Conclusions of law will not require reversal if the controlling finding of facts will support a correct legal theory. Long Distance Int'l, Inc. v. Telefonos de Mexico, S.A. de C.V., 49 S.W.3d 347, 351 (Tex.2001); Aguero, 70 S.W.3d at 373.
1. Stare Decisis, Res Judicata, and Collateral Estoppel
In its first issue, the Kerlin Group contends that the doctrines of stare decisis, res judicata, and collateral estoppel precluded the Balli Claimants' filing of the underlying action.
a. Stare Decisis
The Kerlin Group asserts that the decision in State v. Balli bars the Balli Claimants' suit. The Kerlin Group argues that the dispute as to how the land titles of Padre Island should be interpreted has already been determined by the Texas Supreme Court in State v. Balli. Therefore, a subsequent determination is barred by the doctrine of stare decisis.
The doctrine of stare decisis provides that after a principle, rule, or proposition of law has been decided by the Texas Supreme Court, or the highest court of the State having jurisdiction over a particular case, the decision is accepted as binding precedent by the same court or other courts of lower rank when the point is presented in a subsequent suit between different parties. Swilley v. McCain, 374 S.W.2d 871, 875 (Tex.1964). As generally applied, the doctrine governs only the determination of questions of law, and observance does not depend on the identity of the parties. Id. Stare decisis is generally not conclusive as to the determination of a disputed issue of fact when the same issue arises in another case between persons who are strangers to the record in the first suit. Id.
The doctrine of stare decisis applies to suits involving claims to titles of land. Robbins v. HNG Oil Co., 878 S.W.2d 351, 361 (Tex.App.-Beaumont 1994, writ dism'd w.o.j.). Where the supreme court has given definite effect to a specific writing or a particular fact situation, such as when it determines the true construction of a will or the validity of a deed, that determination is binding and conclusive in all subsequent suits involving the same subject matter, whether the parties and the property are the same or not. Case-Pomeroy Oil Corp. v. Pure Oil Co., 279 S.W.2d 886, 888 (Tex.Civ.App.-Waco 1955, writ ref'd). This is true because of the importance of establishing stability of land titles, sales, and transactions. Robbins, 878 S.W.2d at 361.
While in State v. Balli, the supreme court did review issues of fact that were relevant to the issue of whether the State of Texas had a valid claim to Padre *911 Island, the court did not issue a proposition of law that bars consideration of the issues of fact in controversy in this case. Nor did the supreme court construe or give definite meaning to any of the twelve warranty deeds conveyed by the heirs of Juan Jose Balli to Kerlin. Finally, the ultimate question of law in State v. Balli was whether the defendant's failure to comply with the Relinquishment Act[1] and Section 8, Article 14 of the Texas Constitution of 1876 forfeited the land grant of Padre Island. We conclude that the question presented in State v. Balli is manifestly different from the questions of law presented in the instant case. "Clearly, we think, the decision of the former `question of law' could not and should not apply to, control, or determine the latter `question of law', a separate and distinct question, determinable under entirely different principles and decisions." Joslin v. State, 146 S.W.2d 208 (Tex.Civ.App.-Austin 1940, writ ref'd). Accordingly, we hold that the doctrine of stare decisis did not bar the Balli Claimants' claims against the Kerlin Group.
b. Res Judicata
The Kerlin Group further asserts that the claims of the Balli Claimants are barred by the doctrine of res judicata. Specifically, the Kerlin Group contends that these claims are barred by the court decisions in U.S. v. 34,884 Acres and State v. Balli.
Res judicata, also referred to as claim preclusion, prevents the relitigation of a finally adjudicated claim and related matters that should have been litigated in a prior suit. State & County Mut. Fire Ins. Co. v. Miller, 52 S.W.3d 693, 696 (Tex.2001); Barr v. Resolution Trust Corp., 837 S.W.2d 627, 628 (Tex.1992). Claim preclusion prevents splitting a cause of action. Barr, 837 S.W.2d at 628; Jeanes v. Henderson, 688 S.W.2d 100, 103 (Tex.1985). The policies behind the doctrine reflect the need to bring all litigation to an end, prevent vexatious litigation, maintain stability of court decisions, promote judicial economy, and prevent double recovery. Barr, 837 S.W.2d at 628.
Federal law controls the determination of whether res judicata will bar a later state court proceeding. San Antonio Indep. Sch. Dist. v. McKinney, 936 S.W.2d 279, 281 (Tex.1996); Eagle Props., Ltd. v. Scharbauer, 807 S.W.2d 714, 718 (Tex. 1990). Therefore, we will review whether the doctrine of res judicata bars the claims of the Balli Claimants using two different standards of review.
i. Res Judicata Under the Texas Standard
Texas follows the transactional approach to res judicata. State & County Mut. Fire Ins. Co., 52 S.W.3d at 696. This approach mandates that a defendant bring as a counterclaim any claim arising out of the transaction or occurrence that is the subject matter of the opposing party's suit. Id. However, when the parties are co-parties rather than opposing parties, the compulsory-counterclaim rule and res judicata only act as a bar to a co-party's claim in a subsequent action if the co-parties had "issues drawn between them" in the first action. Id. (citing Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794, 800 (Tex.1992)). For purposes of res judicata, co-parties have issues drawn between them and become adverse when one co-party files a *912 cross-action against a second co-party. See id.
In State v. Balli, the heirs of Juan Jose Balli and Kerlin were co-defendants, alongside various other holders of conflicting title to Padre Island. While Kerlin did file a cross-claim against the State, Kerlin and the heirs of Juan Jose Balli remained co-parties as opposed to cross-parties during the proceedings. It was not the intent of parties defending against the suit to resolve title ownership claims. In fact, the defendants in the case actually stipulated that they waived all rights to prosecute cross-actions and controversies among themselves. The parties also stipulated that "nothing done in this case is to be considered as res adjudicata (sic) or shall prejudice the rights of said defendants as to any issues between those defendants...." As there were no "issues drawn between them," Kerlin and the heirs of Juan Jose Balli were not compelled to bring counterclaims against the other in the State v. Balli case. See id. Therefore, the claims of the Balli Claimants were not precluded by the decision in State v. Balli and the doctrine of res judicata.
ii. Res Judicata Under the Federal Standard
We must apply federal law in analyzing whether the claims of the Balli Claimants are barred by the decision in U.S. v. 34,884 Acres, because that case was a federal court decision now being used to bar a state court proceeding. See San Antonio Indep. Sch. Dist., 936 S.W.2d at 281; Eagle Props., Ltd., 807 S.W.2d at 718. Under federal law, the doctrine of res judicata will apply if: (1) the parties are identical or in privity; (2) the prior judgment is rendered by a court of competent jurisdiction; (3) there is a final judgment on the merits; and (4) the same cause of action is involved in both cases. Southmark Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925, 934 (5th Cir.1999); San Antonio Indep. Sch. Dist., 936 S.W.2d at 281; Eagle Props., Ltd., 807 S.W.2d at 718.
It is a fundamental principle of American jurisprudence that a person cannot be bound by a judgment in litigation to which he was not a party. Meza v. Gen. Battery Corp., 908 F.2d 1262, 1266 (5th Cir.1990). Nevertheless, federal courts have held that in certain circumstances, judgments can bind persons not party to the litigation in question. Id. This applies to persons in privity with parties to the litigation. Id. For res judicata purposes, privity exists under three circumstances. First, a non-party who has succeeded to a party's interest in property is bound by any prior judgments against the party. Second, a non-party who controlled the original suit will be bound by the resulting judgment. Third, federal courts will bind a non-party whose interests were represented adequately by a party in the original suit. Id.; Southwest Airlines Co. v. Tex. Int'l Airlines, Inc., 546 F.2d 84, 95 (5th Cir.1977).
The Balli Claimants stand in privity with the Balli Grantors, because they have succeeded to those parties' interest in property bound by U.S. v. 34,884 Acres. Thus, we conclude that the first element of federal claim preclusion is satisfied.
The second and third elements of federal claim preclusion also appear satisfied. Neither party has questioned whether the court in U.S. v. 34,884 Acres had competent jurisdiction, and neither party has questioned the validity of the judgment in that case.
To determine whether two suits involve the same claim under the fourth element, the Fifth Circuit has adopted the transactional *913 test of the Restatement (Second) of Judgments, Section 24. In re Southmark Corp., 163 F.3d at 934. The critical issue is whether the two actions under consideration are based on "the same nucleus of operative facts." Id.
The Kerlin Group failed to set forth an argument demonstrating whether the present suit and the suit in U.S. v. 34,884 Acres arise out of the same nucleus of operative facts. Furthermore, it appears that the core facts from which U.S. v. 34,884 Acres and the present action arise differ. U.S. v. 34,884 Acres was a condemnation suit against all possible holders of title to Padre Island. By contrast, the core facts in the present suit concern whether Kerlin breached his fiduciary duty and committed fraud by concealing and converting property interests owed to the Balli Claimants. Although both suits are derived out of the initial grant by the State of Tamaulipas, Mexico to Juan Jose Balli and the conflicting chains of title from that grant, the "nucleus of operative facts" or facts rudimentary to discerning the claims at issue are dissimilar.
Thus, the Kerlin Group failed to demonstrate that federal claim preclusion barred the instant case under U.S. v. 34,884 Acres. Accordingly, we hold that res judicata does not bar the present claim under either State v. Balli or U.S. v. 34,884 Acres.
c. Collateral Estoppel
The Kerlin Group asserts that the Balli Claimants were collaterally estopped from bringing the underlying suit because of U.S. v. 34,884 Acres. Collateral estoppel, or issue preclusion, prevents relitigation of particular issues already resolved in a prior suit. Barr, 837 S.W.2d at 628. The Texas Supreme Court has declined to decide whether state or federal collateral estoppel law governs the preclusive effect of a prior federal judgment on a subsequent state court action. Johnson & Higgins v. Kenneco Energy, 962 S.W.2d 507, 519 n. 7 (Tex.1998). This is because the court has determined that the standard of review for issue preclusion is the same under both the federal and state standards. Id.; John G. & Marie Stella Kenedy Mem. Found. v. Dewhurst, 90 S.W.3d 268, 288 (Tex.2002); Eagle Props., Ltd., 807 S.W.2d at 721. Under both federal and Texas law, a party seeking to assert the bar of collateral estoppel must establish that: (1) the facts sought to be litigated in the second action were fully and fairly litigated in the first action; (2) those facts were essential to the judgment in the first action; and (3) the parties were cast as adversaries in the first action. John G. & Marie Stella Kenedy Mem. Found., 90 S.W.3d at 288.
The Kerlin Group failed to provide reasons why collateral estoppel should bar the case at hand. Nevertheless, we conclude that the decision in U.S. v. 34,884 Acres does not support the imposition of collateral estoppel. It is a generally accepted proposition that collateral estoppel is not applied to an action unless the parties were adversaries in the original action. Restatement (Second) of Judgments, Section 38 provides:
Parties who are not adversaries to each other under the pleadings in an action involving them and a third party are bound by and entitled to the benefits of issue preclusion with respect to issues they actually litigate fully and fairly as adversaries to each other and which are essential to the judgment rendered.
RESTATEMENT (SECOND) OF JUDGMENTS § 38 (1982); see also Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 821 n. 1 (Tex. 1984) (J. McGee, dissenting). In U.S. v. 34,884 Acres, Kerlin and the heirs of Juan Jose Balli were co-parties who did not *914 maintain adversarial positions during the proceedings. The doctrine of collateral estoppel cannot be applied under these circumstances.
Thus, the doctrines of stare decisis, res judicata, and collateral estoppel did not bar the case at hand. Accordingly, we overrule the Kerlin Group's first issue.
2. Laches
In its sixth issue, the Kerlin Group generally asserts that the claims of the Balli Claimants were barred as a matter of law by the equitable doctrine of laches.
The doctrine of laches is described as a party's unreasonable delay in asserting legal or equitable rights and another's detrimental good-faith change in position because of the delay. Wayne v. A.V.A. Vending, Inc., 52 S.W.3d 412, 415 (Tex.App.-Corpus Christi 2001, pet. denied). The application of laches is limited to actions at law that are essentially equitable in character. Id. A party must establish the following two elements to claim laches: (1) unreasonable delay by one having legal or equitable rights in asserting them; and (2) a good faith change of position by another to his detriment because of the delay. Caldwell v. Barnes, 975 S.W.2d 535, 538 (Tex.1998). A mere showing of delay does not satisfy the requirements of laches. Wayne, 52 S.W.3d at 416. The delay must have injured the defendant. Id. The party asserting laches has the burden of proving it. Brewer v. Nationsbank of Texas, 28 S.W.3d 801, 804 (Tex. App.-Corpus Christi 2000, no pet.).
The Kerlin Group argues that all facts and occurrences relating to the Balli Claimants were known or readily available more than fifty years before this case was filed. Assuming that the first element of laches is satisfied, we conclude that the Kerlin Group failed to show detriment or harm resulting from the delay.
Accordingly, we hold that laches does not bar the claims of the Balli Claimants. We overrule the Kerlin Group's sixth issue.
3. Statutory Tolling Defense
In its seventh issue, the Kerlin Group raises the following two sub-issues: (1) whether the trial court erred in holding that limitations were statutorily tolled as a matter of law; and (2) whether the trial court erred in granting the Balli Claimants' motion for judgment notwithstanding the verdict on Jury Charge Question Numbers 21 and 22.
Section 16.063 of the Texas Civil Practices and Remedies Code provides: "The absence from this state of a person against whom a cause of action may be maintained suspends the running of the applicable statute of limitations for the period of the person's absence." TEX. CIV. PRAC. & REM. CODE ANN. § 16.063 (Vernon 1997).
The Kerlin Group argues that the tolling provisions of section 16.063 are inapplicable in this case because the section generally does not apply to nonresidents. See Wyatt v. Lowrance, 900 S.W.2d 360, 362 (Tex.App.-Houston [14th Dist.] 1995, writ denied). However, the tolling provision does apply to a nonresident who was present in the state when the obligation arose. Howard v. Fiesta State Show Park, Inc., 980 S.W.2d 716, 723 (Tex.App.-San Antonio 1998, pet. denied); Wyatt, 900 S.W.2d at 362.
The Kerlin Group has failed to make a cogent argument as to why the trial court erred in applying section 16.063 in this case. Because section 16.063 appears to be a relevant and applicable rule of law in this case, we overrule the first sub-issue of the Kerlin Group's seventh issue. We will *915 address the second sub-issue later in this opinion.
4. Estoppel by Deed
In its second and third issues, the Kerlin Group questions whether the trial court appropriately allowed submission of the theory of "estoppel by deed" to the jury.
Estoppel by deed stands for the general proposition that "all parties to a deed are bound by the recitals therein, which operate as an estoppel, working on the interest in the land if it be a deed of conveyance, and binding both parties and privies; privies in blood, privies in estate, and privies in law." Wallace v. Pruitt, 1 Tex. Civ. App. 231, 20 S.W. 728, 728-29 (1892, no writ). Estoppel by deed or contract precludes parties to a valid instrument from denying its force and effect. Schroeder v. Tex. Iron Works, Inc., 769 S.W.2d 625, 628-29 (Tex.App.-Corpus Christi 1989), aff'd on other grounds, 813 S.W.2d 483 (Tex.1991). To determine whether the doctrine of estoppel by deed should apply to a deed and the recitals therein, we look to the intention of the parties to the instrument, to be determined from the writing itself by the consideration whether the recital was designed to furnish a basis of action by the parties. Wallace, 20 S.W. at 729. In other words, whether the parties intended to bind themselves, to contract, as set forth in the instrument. Id.
The Kerlin Group first argues that the Balli Claimants' estoppel by deed theory was improperly brought, thus violating the "defensive character" of the doctrine of estoppel. In support, the Kerlin Group cites Southland Life Ins. Co. v. Vela, which stated:
An estoppel is defensive in character. It does not create a cause of action. Its function is to preserve rights, and not to bring into being a cause of action.
147 Tex. 478, 217 S.W.2d 660, 663 (1949).
However, the Kerlin Group has misconstrued the theory of estoppel by deed as applied in this case. The Balli Claimants did not allege a cause of action arising out of their claim of estoppel by deed. Rather, they pleaded estoppel by deed to block the Kerlin Group from disavowing the royalty reservations in the deeds drafted by Seabury and Kerlin. Estoppel by deed is a bar that precludes a party from denying the truth of a deed. Talley v. Howsley, 170 S.W.2d 240, 243 (Tex.Civ.App.-Eastland), aff'd, 142 Tex. 81, 176 S.W.2d 158 (1943). The doctrine may be invoked in a suit concerning a right arising out of a deed. Id. As such, the use of estoppel by deed by the Balli Claimants does not act offensively, but is simply effected to prohibit the Kerlin Group from denying the existence of an agreement into which the Kerlin Group entered.
Secondly, the Kerlin Group argues that estoppel by deed does not conceptually apply to reservations. This proposition is incorrect. Although estoppel by deed most commonly operates upon a grantor in favor of a grantee, the doctrine may be applied against a grantee in favor of a grantor through covenants of the grantee that run with the land purportedly conveyed. Id., 170 S.W.2d at 243. The general rule is "that the grantee in a deed accepted by him is a party to the deed ... and that he is concluded by recitals in the deed and by reservations contained therein in favor of the grantor." Greene v. White, 137 Tex. 361, 153 S.W.2d 575, 583 (1941); see also Waco Bridge Co. v. City of Waco, 85 Tex. 320, 20 S.W. 137, 139 (1892). Because the deeds in question contain reservations in favor of the Balli Grantors, we conclude the trial court did not err in submitting the issue of "estoppel *916 by deed" to the jury. We overrule the Kerlin Group's second and third issues.
5. Breach of Fiduciary Duty
In its fourth issue, the Kerlin Group contends that the trial court erred in holding as a matter of law that Gilbert Kerlin, as owner of the executive rights, owed a fiduciary duty to the Balli Grantors, non-participating royalty interest holders.[2]
Texas courts generally have applied a standard of "utmost good faith" to one who exercises executive rights to lease or develop minerals. Hlavinka v. Hancock, 116 S.W.3d 412, 417 (Tex.App.-Corpus Christi 2003, pet. denied) (citing Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d 543, 545 (1937); Luecke v. Wallace, 951 S.W.2d 267, 274 (Tex.App.-Austin 1997, no writ)). In Manges v. Guerra, 673 S.W.2d 180 (Tex.1984), the supreme court determined that, apart from any contract, when an executive exercises his rights, "[a] fiduciary duty arises from the relationship of the parties.... [T]hat duty requires the holder of the executive right to acquire for the non-executive every benefit that he exacts for himself." In re Bass, 113 S.W.3d 735, 744 (Tex.2003) (quoting Manges, 673 S.W.2d at 183-84); see Hlavinka, 116 S.W.3d at 417. The supreme court thereby created a fiduciary duty between executive and non-executive interest holders in mineral deeds. See Bass, 113 S.W.3d at 744 (citing Manges, 673 S.W.2d at 180). However, this fiduciary duty is only imposed on an executive in conjunction with the execution of oil and gas leases. See Id. (citing Schlittler v. Smith, 128 Tex. 628, 101 S.W.2d 543, 545 (Tex.1937)); Hlavinka, 116 S.W.3d at 420. If the executive never exercises his power, there can be no imposition or breach of a fiduciary duty. Hlavinka, 116 S.W.3d at 420.
In the instant case, the evidence shows that the Balli Grantors executed deeds conveying to Kerlin "all of the interest which [they] had [in Padre Island] ... irrespective of the acreage or quantity therefore," reserving only a royalty interest. Although the acreage of and title to the lands covered by the deeds were contested, the Kerlin Group asserted the validity of the Balli Grantors' deeds during the settlement negotiations to resolve ownership claims to Padre Island. The evidence showed, and the jury found, that 7,500 acres of the property received by Kerlin as a result of the settlement was based on Kerlin's assertion of the Balli deeds, and had been awarded to Kerlin for the benefit of the Balli Grantors. However, when the Balli Grantors inquired as to the status of their interests, Kerlin asserted that he had obtained no interest based on their conveyances to him. By claiming that the property he acquired as a result of the settlement agreement was not derivative of nor based on the conveyances from the Balli Grantors, Kerlin attempted to eliminate or circumvent the royalty interests reserved by the Balli Grantors. He subsequently withheld from the Balli Grantors all of the money to which they were entitled under the deeds.
When Kerlin executed leases on the property, he was exercising his executive right. The nonparticipating royalty interests *917 reserved by the Balli Grantors are, by definition, non-executive interests. See Bass, 113 S.W.3d at 744. Therefore, under the supreme court's holding in Manges, a fiduciary duty was imposed between the Balli Grantors as the non-executive and Kerlin as the executive.
We determine that the trial court did not err in concluding that Kerlin owed a fiduciary duty to the Balli Grantors. We overrule the Kerlin Group's fourth issue.
6. Conspiracy
As an additional issue, the Kerlin Group argues that Kerlin cannot be "charged" as a conspirator because of his status as a co-client with Seabury. In support, the Kerlin Group cites Bradt v. West, 892 S.W.2d 56 (Tex App.-Houston [1st Dist.] 1994, writ. denied).
The court in Bradt v. West held that a client cannot be liable for the attorney's conduct, unless a client is implicated in some way other than merely having entrusted legal representation to the attorney. Id. The holding in Bradt v. West does not support the proposition that the Kerlin Group espouses. Because the Kerlin Group did not provide any additional references to the record or citations to authority, we conclude that the trial court committed no error with regard to this issue. Accordingly, we overrule this additional issue.
7. Fraudulent Concealment
In its eighth issue, the Kerlin Group argues, in part, that the trial court erred in applying fraudulent concealment as a legal theory.
Fraudulent concealment is an equitable doctrine that provides defense to the bar of limitations. Santanna Natural Gas Corp. v. Hamon Operating Co., 954 S.W.2d 885, 890 (Tex.App.-Austin 1997, pet. denied). Under the doctrine of fraudulent concealment, the accrual of the plaintiff's cause of action is deferred because a defendant cannot be permitted to avoid liability for its actions by deceitfully concealing wrongdoing until the statute of limitations has run. Id. The essence of fraudulent concealment is first, actual knowledge that a wrong has occurred, and second, a fixed purpose to conceal the facts necessary for the plaintiff to know that the cause of action has accrued. Arabian Shield Dev. Co. v. Hunt, 808 S.W.2d 577, 584 (Tex.App.-Dallas 1991, writ denied).
The elements of fraudulent concealment are: (1) the existence of an underlying tort; (2) the defendant's knowledge of the tort; (3) the defendant's use of deception to conceal the tort; and (4) the plaintiff's reasonable reliance on the deception. Mitchell Energy Corp. v. Bartlett, 958 S.W.2d 430, 439 (Tex.App.-Fort Worth 1997, pet. denied); DiGrazia v. Old, 900 S.W.2d 499, 502 (Tex.App.-Texarkana 1995, no writ); Arabian Shield Dev. Co., 808 S.W.2d at 585. To establish the affirmative defense of fraudulent concealment, the plaintiff has the burden of putting forth proof that raises an issue of fact with respect to that claim. Santanna Natural Gas Corp., 954 S.W.2d at 890.
The Kerlin Group contends that fraudulent concealment is inapplicable because the disposition of Havre v. Dunn was a matter of public record. The Kerlin Group argues that when constructive notice of matters of public record is imputed, it is conclusive over any claimed lack of actual notice. Kerlin Group cites HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886 (Tex.1998), but does not provide any further argument in support of its position.
In HECI Exploration Co. v. Neel, the Texas Supreme Court articulated *918 two principles that apply to the discovery rule. HECI Exploration Co., 982 S.W.2d at 886. These principles are that the nature of the injury must be inherently undiscoverable and that the injury itself must be objectively verifiable. Id. The discovery rule exception operates to defer accrual of a cause of action until the plaintiff knows or, by exercising reasonable diligence, should know of the facts giving rise to the claim. Wagner & Brown v. Horwood, 58 S.W.3d 732, 734 (Tex.2001). However, the Kerlin Group cites HECI Exploration Co. v. Neel for a proposition affecting the application of the doctrine of fraudulent concealment. The discovery rule and fraudulent concealment are distinct concepts that exist for different reasons. Id. at 736. The courts observe a distinction between the two doctrines because each is characterized by different substantive and procedural rules. S.V. v. R.V., 933 S.W.2d 1, 4 (Tex.1996). Even the Court in HECI Exploration Co. v. Neel recognized the distinction, stating, "Although we determine whether the discovery rule applies to particular types of cases rather than to a particular case, we note that HECI gave the Neels whatever information they wanted when asked. Of course, if an operator fraudulently concealed information from a lessee, decisions of this and other courts indicate that limitations may be tolled." HECI Exploration Co., 982 S.W.2d at 886.
We hold the trial court did not err in allowing the doctrine of fraudulent concealment. We overrule that part of the Kerlin Group's eighth issue relating to fraudulent concealment.
B. Motion for Judgment Notwithstanding the Verdict
In the second sub-issue of its seventh issue, the Kerlin Group questions whether the trial court erred in granting the Balli Claimants' motion for judgment notwithstanding the verdict on Jury Charge Question Numbers 21 and 22. Question Numbers 21 and 22 concern application of the statutory tolling provision. See TEX. CIV. PRAC. & REM.CODE § 16.063 (Vernon 1997).
Question Number 21 asked the jury:
Do you find that Gilbert Kerlin was physically present in the State of Texas and committed any act in furtherance of the conspiracy during any time that F.W. Seabury breached his fiduciary duties to the Juan Jose Balli grantors in the settlement of Havre v. Dunn?
Question Number 22 asked the jury:
Do you find that Gilbert Kerlin was physically present in the State of Texas during any time that he breached his fiduciary duty to the Juan Jose Balli grantors in the settlement of Havre v. Dunn?
Both Questions contained the following instruction: "You are instructed that `presence' means actual physical presence within the territorial limits of the State of Texas. Presence for only part of a day is not counted as a presence for the whole day."
The jury answered "no" to both Questions. In their motion for judgment notwithstanding the verdict, the Balli Claimants asserted that the undisputed evidence showed that Gilbert Kerlin was in Texas during the period from November 6, 1942 to November 9, 1942. The trial court agreed and granted the Balli Claimants' motion for judgment notwithstanding the verdict on Jury Charge Question Numbers 21 and 22.
A trial court may grant a judgment notwithstanding the verdict if there is no evidence to support one or more of the jury findings on issues necessary to liability. Brown v. Bank of Galveston, *919 N.A., 963 S.W.2d 511, 513 (Tex. 1998); see also TEX.R. CIV. P. 301. In determining whether there is no evidence to support the jury verdict and thus uphold the judgment notwithstanding the verdict, we consider the evidence in the light most favorable to the verdict and reasonable inferences that tend to support it. Brown, 963 S.W.2d at 513.
Jury Charge Question Number 21 was predicated on the jury's answers to Question Numbers 9 and 10. In Question Number 9, the jury answered that Seabury breached his fiduciary duties during the settlement of Havre v. Dunn. In Question Number 10, the jury answered affirmatively to the question "Was Gilbert Kerlin part of a conspiracy with F.W. Seabury to breach his fiduciary duties to the Juan Jose Balli grantors in the settlement of Havre v. Dunn that damaged the Juan Jose Balli grantors?" The Kerlin Group did not challenge the jury's answers to Question Numbers 9 or 10.
The undisputed evidence shows that Kerlin took a three-day leave from the army and came to Texas between November 6, 1942 and November 9, 1942. His purpose in coming to Texas was to sign the settlement agreement in Havre v. Dunn, which had been negotiated by Seabury. Accepting the jury's unchallenged answers that Seabury breached his fiduciary duty in the settlement of Havre v. Dunn and the jury's finding that Kerlin conspired with Seabury to breach those fiduciary duties, Kerlin's presence in Texas to consummate the Havre v. Dunn settlement is sufficient proof to result in an affirmative finding to Question Number 21. The Kerlin Group did not set forth any contrary evidence.
We find no evidence in the record to support the jury's answer to Question Number 21. Accordingly, we affirm the trial court's order granting the Balli Grantors' motion for judgment notwithstanding the verdict on Question Number 21.
Similarly, Question Number 22 was predicated on Question Number 13. In Question Number 13, the jury found that during the settlement of Havre v. Dunn, Kerlin failed to comply with his fiduciary duty to each of the Juan Jose Balli grantors arising out of the royalty reservations in deeds conveyed. By implication, Kerlin's presence in Texas to consummate the settlement of Havre v. Dunn necessarily satisfies the question of "presence" in Question Number 22.
Again, the record contains no evidence to support the jury's answer to Question Number 22. Accordingly, we affirm the trial court's order granting the Balli Grantors' motion for judgment notwithstanding the verdict on Question Number 22. The second sub-issue of the Kerlin Group's seventh issue is overruled.
C. Evidence
In its ninth issue, the Kerlin Group contends, in part, that the trial court erred in admitting evidence of a settlement proposal. In response, the Balli Claimants argue that the Kerlin Group waived objection to this evidence because the settlement proposal was later offered into evidence and was admitted without objection.
As a general rule, error in the admission of testimony is deemed harmless if the objecting party subsequently permits the same or similar evidence to be introduced without objection. Richardson v. Green, 677 S.W.2d 497, 501 (Tex.1984); Atkinson Gas Co. v. Albrecht, 878 S.W.2d 236, 242-43 (Tex.App.-Corpus Christi 1994, writ denied). Even though an objection to evidence is properly made, prior or subsequent presentation of essentially the same evidence without objection waives error. *920 Atkinson Gas Co., 878 S.W.2d at 242-43; Celotex Corp. v. Tate, 797 S.W.2d 197, 201 (Tex.App.-Corpus Christi 1990, no writ); Trailways, Inc. v. Clark, 794 S.W.2d 479, 488 (Tex.App.-Corpus Christi 1990, writ denied).
However, a seemingly contradictory presumption has also been generally accepted that, when a party makes a proper objection to the introduction of certain testimony by a witness and is overruled, he is entitled to assume that the judge will make the same ruling as to other offers of similar evidence, and he is not required to repeat the objection. Atkinson Gas Co., 878 S.W.2d at 242-43. This is particularly true when the party has obtained a running objection concerning similar evidence elicited from the same witness. Id.
This Court has concluded that the determination of whether a prior objection is sufficient to cover a subsequent offer of similar evidence depends upon a case-by-case analysis, based on such considerations as the proximity of the objection to the subsequent testimony, which party has solicited the subsequent testimony, the nature and similarity of the subsequent testimony as compared to the prior testimony and objection, whether the subsequent testimony has been elicited from the same witness, whether a running objection was requested or granted, and any other circumstances which might suggest why the objection should not have to be reurged. Id.
The settlement proposal was offered by the Balli Claimants during Kerlin's examination. A timely objection was raised, but the trial court overruled the objection. The Kerlin Group then requested a running objection to the evidence. Later, during the cross-examination of Kerlin, the Kerlin Group introduced the settlement proposal and referred to it at length. The Kerlin Group recited almost the entirety of the settlement proposal and accompanying cover letter. Kerlin never refuted the validity of the contents of the document. The Kerlin Group subsequently introduced other documents related to the settlement negotiations, which may have been otherwise inadmissible under the same grounds of objection.
We hold that the Kerlin Group waived its objection to the settlement proposal when it later introduced the same settlement proposal into evidence. We overrule that part of the Kerlin Group's ninth issue relating to the trial court's admission of the settlement proposal into evidence.
D. Charge Error
In its fifth, seventh, eighth, ninth, and twelfth issues, the Kerlin Group contends the trial court erred in submitting and refusing to submit certain charge questions to the jury.
The goal of the charge is to submit to the jury the issues for decision logically, simply, clearly, fairly, correctly, and completely. Hyundai Motor Co. v. Rodriguez, 995 S.W.2d 661, 664 (Tex.1999). Toward that end, the trial judge is accorded broad discretion so long as the charge is legally correct. Id. A trial court abuses its discretion if it acts arbitrarily, unreasonably, or without reference to any guiding rules or principles. Kajima Int'l v. Formosa Plastics Corp., 15 S.W.3d 289, 291 (Tex.App.-Corpus Christi 2000, pet. denied).
1. Estoppel by Deed
In its fifth issue, the Kerlin Group contends the trial court erred in submitting Jury Charge Question Number 1 to the jury. Question Number 1 asked the jury, in part, "Is Gilbert Kerlin estopped to deny the validity of the eleven Balli *921 deeds and the royalty reservations contained therein?"
An appellant's brief must contain a clear and concise argument for the contentions made, with appropriate citations to relevant authority and to the record. TEX.R.APP. P. 38.1(h). Failure to cite authority in support of an issue on appeal waives the complaint. In re Barr, 13 S.W.3d 525, 555 (Tex.Rev.Trib.1998). Because the Kerlin Group failed to support this contention with citations to authority or the record, we hold it is waived.
2. Breach of Fiduciary Duty
Also in its fifth issue, the Kerlin Group contends the trial court erred in submitting Jury Charge Question Number 6 to the jury.
In Question Number 6, the trial court instructed the jury that Gilbert Kerlin, as owner of the executive rights, owed a fiduciary duty to the Balli Grantors and their heirs, as nonparticipating royalty interest holders. The jury was asked whether Gilbert Kerlin and the P.I. Corporation failed to comply with that fiduciary duty. The jury answered "yes" to Question Number 6. However, the jury found no damages arising from the failure to comply.
We have previously held that the trial court did not err in concluding that an executive rights owner owes a fiduciary duty to nonparticipating royalty interest holders. Accordingly, we hold the trial court did not abuse its discretion in submitting Question Number 6 to the jury.
3. Evidence of Settlement
In its ninth issue, the Kerlin Group contends the trial court erred in submitting Question Number 14 to the jury because it was a direct comment on the weight of the evidence. We hold that the Kerlin Group has waived this issue on two grounds.
First, despite its claim to the contrary, the Kerlin Group did not object to the submission of this question on the ground that it commented on the weight of the evidence. A complaining party must object to the submission of an erroneous question, instruction, or definition. TEX.R. CIV. P. 274; Morales v. Morales, 98 S.W.3d 343, 346 (Tex.App.-Corpus Christi 2003, pet. denied). Failure to raise an objection to Question Number 14 on the grounds specified on appeal constitutes waiver. See TEX.R. CIV. P. 274; Morales, 98 S.W.3d at 346.
Secondly, the Kerlin Group failed to make a discernable argument regarding this issue. Failure to adequately brief an issue results in waiver. See TEX.R.APP. P. 38.1(h); see also Smith v. Smith, 112 S.W.3d 275, 280 (Tex.App.-Corpus Christi 2003, pet. denied).
4. Fraudulent Concealment
In its fifth and eighth issues, the Kerlin Group also contends the trial court erred in submitting questions regarding the issue of fraudulent concealment to the jury. The Kerlin Group asserts that the Balli Claimants should have submitted an issue regarding whether the Ballis knew or should have known that they might have a right of action, which is necessarily a component to a fraudulent concealment defense. In support, the Kerlin Group cites Advent Trust Co. v. Hyder, 12 S.W.3d 534 (Tex.App.-San Antonio 1999, pet. denied).
Advent Trust v. Hyder arose out of an oil and gas dispute. A complaint was filed with the Texas Railroad Commission that resulted in the complaining party's settlement and surrender of interests in an oil and gas field. Id. at 537. The complainant later filed a claim against the oil and gas operator for recovery of the value *922 of the interest surrendered. Id. at 538. The complainant alleged that the operator, who was responsible for filing required reports with the Texas Railroad Commission, negligently or fraudulently had failed to file required reports, thereby misrepresenting the nature and extent of gas in the surrendered fields. Id. The responding party answered that all claims were barred by limitations. Id. The complainant responded that the discovery rule, fraudulent concealment, and equitable estoppel applied. Id. A jury found for the complainant, but the court of appeals reversed. Id.
The complainant submitted questions to the jury regarding fraud, proximate cause, and damages. Id. at 541. Premised on affirmative responses to those questions, the charge asked, "On what date do you find from a preponderance of the evidence that Plaintiffs discovered, or through the exercise of reasonable care and diligence should have discovered, the fraud of ... Ginther?" Id. at 542. The same question followed questions regarding breach of contract, negligence, and negligent misrepresentation. Id. Questions regarding fraudulent concealment were not submitted to the jury. Id. The court of appeals concluded that the questions submitted to the jury involved the substantive tort of fraud, not fraudulent concealment. Id. Thus, the respondent was not on notice of the possibility of a deemed finding on fraudulent concealment or equitable estoppel. Id.
The jury charge questions concerning fraudulent concealment in this case differ significantly from the charge questions in Advent Trust v. Hyder. In this case, Jury Charge Question Numbers 24 and 25 expressly concern the issue of fraudulent concealment. In Question Number 24, the jury found that Gilbert Kerlin and P.I. Corporation fraudulently concealed the fact that from January 1, 1966 through February 8, 1991, they received royalty payments that belonged to the Balli Grantors and their heirs. In Question No. 25, the jury found that from November 9, 1942 through February 8, 1991, Gilbert Kerlin fraudulently concealed the facts, details, and circumstances surrounding the settlement of the Havre v. Dunn case from the Balli Grantors and their heirs. In both charge questions, the trial court instructed the jury:
You are instructed that "fraudulent concealment" means actual suppression of the truth or failure to disclose where there is a duty to disclose. A duty to disclose arises in four situations: 1) Where there is a fiduciary relationship, 2) when one voluntarily discloses information, the whole truth must be disclosed, 3) when one makes a representation, new information must be disclosed when that new information makes the earlier representation misleading or untrue, and 4) when one makes a partial disclosure and conveys a false representation.
We conclude that the charge questions are sufficient to have placed the Kerlin Group on notice of the possibility of a deemed finding of fraudulent concealment. It was, therefore, the Kerlin Group's duty to raise an objection to the proposed charge questions. Because the Kerlin Group raised no objection comporting with the issues now raised on appeal, we hold they are waived. TEX.R. CIV. P. 274; Morales, 98 S.W.3d at 346.
5. Attorney Fees
In its twelfth issue, the Kerlin Group contends the trial court erred in submitting Jury Charge Question Number 4 because it failed to segregate the causes of action for which attorney fees are recoverable from those in which attorney fees were not recoverable.
*923 When one or more causes of action for which attorney fees are not permitted by statute or contract are alleged in a petition and are investigated and pursued at trial, it is incumbent upon the party asserting those causes of action to segregate them from those for which attorney fees can be recovered. Aetna Cas. & Sur. v. Wild, 944 S.W.2d 37, 40-41 (Tex. App.-Amarillo 1997, writ denied). A recognized exception to this duty to segregate arises when the attorney fees rendered are in connection with claims arising out of the same transaction and are so interrelated that their "prosecution or defense entails proof or denial of essentially the same facts." Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 11 (Tex.1991). When the causes of action involved in the suit are dependent upon the same set of facts or circumstances and thus are "intertwined to the point of being inseparable," the party suing for attorney fees may recover the entire amount covering all claims. Id.
After reviewing the entire record, we find that the facts of this case are deeply intertwined and conclude it is very difficult to separate which set of facts or circumstances support the individual causes of action. We also note that the Kerlin Group did not make an attempt to demonstrate the factual distinctions. Accordingly, we cannot say that the trial court abused its discretion by submitting Question Number 4 to the jury.
6. Conspiracy to Commit Fraud, Laches, and other issues
In its fifth issue, the Kerlin Group also contends the trial court erred in submitting jury charge questions on conspiracy to commit fraud, conspiracy to commit breach of fiduciary duty, laches, and damages. We hold this issue is waived because the Kerlin Group provided no argument in support of these contentions. TEX R.APP. P. 38.1(h); see Smith, 112 S.W.3d at 280.
We overrule the Kerlin Group's fifth, seventh, eighth, ninth, and twelfth issues as they relate to the jury charge.
E. Legal and Factual Sufficiency
In several issues, the Kerlin Group contends the evidence is legally and factually insufficient to support the jury's answers to certain Jury Charge Questions.
When we review a "no evidence" or legal sufficiency of the evidence issue, we must view the evidence in a light that tends to support the finding of the disputed fact and disregard all evidence and inferences to the contrary. Bradford v. Vento, 48 S.W.3d 749, 754 (Tex.2001). A no evidence issue will be sustained when the record discloses that: (1) there is a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence conclusively establishes the opposite of the vital fact. Merrell Dow Pharms. v. Havner, 953 S.W.2d 706, 711 (Tex.1997). If there is more than a scintilla of evidence to support the finding, the no evidence challenge fails. Wal-Mart Stores, Inc. v. Canchola, 121 S.W.3d 735, 739 (Tex.2003). When the evidence offered to prove a vital fact is so weak as to do no more than create a mere surmise or suspicion of its existence, the evidence is not more than a scintilla and, in legal effect, is no evidence. Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex.1983). More than a scintilla of evidence exists where the evidence supporting the finding, as a whole, rises to a level that would enable reasonable and fair-minded people to differ in their conclusions. Havner, 953 S.W.2d at 711.
*924 When we review an "insufficient evidence" or factual sufficiency of the evidence issue, we consider, weigh and examine all of the evidence which supports or undermines the jury's finding. Dow Chemical Co. v. Francis, 46 S.W.3d 237, 242 (Tex.2001); Plas-Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex. 1989). We review the evidence, keeping in mind that it is the jury's role, not ours, to judge the credibility of the witnesses and the weight to be given to their testimony. Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 761-62 (Tex.2003). We then set aside the verdict only if the evidence is so weak or if the finding is so against the great weight and preponderance of the evidence that it is clearly wrong and unjust. Francis, 46 S.W.3d at 242; see Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex.1986).
1. Question No. 14
In its tenth issue, the Kerlin Group contends the evidence is legally and factually insufficient to support the jury's answer to Jury Charge Question Number 14. Question Number 14 asked the jury:
During the settlement of Havre v. Dunn, did Gilbert Kerlin acquire, in his name, 7,500 acres of land on Padre Island for the benefit of the Juan Jose Balli grantors that he did not share with them?
The trial court instructed the jury:
In answering this question, you are instructed that any evidence referring to 7,444 acres shall be treated as 7,500 acres.
The jury answered "yes" to Question Number 14.
a. Legal Sufficiency
The Kerlin Group argues generally that there is no evidence in the record that Gilbert Kerlin received any property intended for the Ballis. In response, the Balli Claimants cite portions of the settlement proposal presented by Seabury on June 9, 1942. In the proposal, Seabury stated:
Juan Jose Balli owned one-half and one-seventh of the other half of the Island, a total of 77,264 acres as per Mr. Boyles' survey. He conveyed to Santiago Morales the north half of the Island plus one-half league, which on the same figures would make 69,820 acres. The difference, 7,444 acres, is the acreage that never was divested out of Juan Jose Balli on any theory of the case.
Seabury then stated:
Gilbert Kerlin and Associates want this to comply with their commitments with the heirs of Juan Jose Balli, whose title is now in Gilbert Kerlin, trustee.
In describing a 20,000 acre tract requested in the settlement, the settlement proposal stated that 7,500 acres was included in that tract "for the Juan Jose interest." On November 9, 1942, a stipulation of settlement was filed with the Havre v. Dunn court. The stipulation provides that Gilbert Kerlin received a 20,000 acre tract in the southern division of Padre Island, together with 1,000 mineral acres in the northern division of the island. On December 12, 1942, Davenport wrote to Eckhardt:
Seabury has agreed to avoid, if possible, giving the Ballis any sort of instrument which might be so recorded as to cast a cloud upon our title; and in any event, to give them nothing in writing which we have not previously seen.
Conflicting interpretations of the settlement proposal and letters between opposing counsel were argued to the jury.
We find more than a scintilla of evidence was presented at trial from which the jury could conclude that Gilbert Kerlin acquired 7,500 acres of land for the benefit of the *925 Balli Grantors, which he did not share with them. Accordingly, we hold the evidence is legally sufficient to support the jury's answer to Jury Charge Question Number 14.
b. Factual Sufficiency
The Kerlin Group argues generally that the evidence in the record is factually insufficient to support the jury's answer to Jury Charge Question Number 14. We note that the Kerlin Group has failed to cite any evidence from the record contrary to the jury finding on Jury Charge Question Number 14.
An appellant bears the burden of discussing its assertion of error and pointing the appellate court to the portions of the record that support its complaint. Barham v. Turner Constr. Co., 803 S.W.2d 731, 740 (Tex.App.-Dallas 1990, writ denied). A court of appeals has no duty to search a voluminous record without guidance from appellant to determine whether an asserted error is valid. Casteel-Diebolt v. Diebolt, 912 S.W.2d 302, 305 (Tex.App.-Houston [14th Dist.] 1995, no writ). Because the Kerlin Group has cited no evidence in support of its factual sufficiency challenge to the jury's answer to Jury Charge Question Number 14, we hold it is waived. See id. We overrule the Kerlin Group's tenth issue.
2. Waiver of Sufficiency Challenges
In an additional issue, the Kerlin Group contends the evidence is legally and factually insufficient to support the jury's findings on the Balli Claimants' conspiracy claims against Gilbert Kerlin. However, we are unable to discern any argument correlating with the issue set out. In accordance with rule 38.1(h) of the Texas Rules of Appellate Procedure, we only consider contentions that are supported by clear and concise arguments with appropriate citations to authorities and to the record. TEX.R.APP. P. 38.1(h). Because the issue raised is not adequately briefed, we will not address it. See Smith, 112 S.W.3d at 280.
In its eighth issue, the Kerlin Group also contends the evidence is legally insufficient to support the jury's finding of fraudulent concealment. The Kerlin Group did not support this contention with references to the record or citation of authority. Accordingly, we hold that the Kerlin Group waived this portion of its eighth issue. See TEX.R.APP. P. 38.1(h); Smith, 112 S.W.3d at 280.
F. Election of Remedies
In an additional issue, the Kerlin Group contends the trial court erred by: (1) failing to require that the Balli Claimants elect theories of recovery, and (2) failing to modify, reform, and correct the judgment accordingly.
The election of remedies doctrine may constitute a bar to relief when (1) one successfully exercises an informed choice (2) between two or more remedies, rights, or states of facts (3) which are so inconsistent as to (4) constitute manifest injustice. Medina v. Herrera, 927 S.W.2d 597, 600 (Tex.1996) (quoting Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 850-52 (Tex.1980)). An election of remedies does not occur unless a party having two or more inconsistent remedies pursues one of them to the exclusion of the others. Fina Supply v. Abilene Nat'l Bank, 726 S.W.2d 537, 541 (Tex.1987) (citing Bocanegra, 605 S.W.2d at 851). The doctrine is designed to prevent a party who has obtained a specific form of remedy from obtaining a different and inconsistent remedy for the same wrong. Id. The doctrine is not favored, and its scope should not be extended. Am. Sav. & Loan Ass'n of *926 Houston v. Musick, 531 S.W.2d 581, 588 (Tex.1975).
The Kerlin Group argues that the election of remedies doctrine bars recovery of damages for unpaid royalty interests and recovery of damages for the sale of the surface rights to the 7,500 acres. However, each of these damages arise out of separate causes of action for separate wrongs. Accordingly, the election of remedies doctrine is not applicable as argued by the Kerlin Group. Therefore, we overrule this additional issue.
G. Additur of Damages
In its eleventh issue, the Kerlin Group complains that the trial court added an additional amount of damages after it received the jury's answer to Jury Charge Question Number 14. The Kerlin Group asserts this is error because no question of damages was submitted in conjunction with Question Number 14.
In response, the Balli Claimants argue that the judgment of partial accounting against Kerlin for the wrongfully retained rentals was an order of disgorgement, not an additur. They assert that the issue of profit disgorgement by a breaching fiduciary does not present a fact question and is not an issue on which a jury question is required. Furthermore, the Balli Claimants point out that the leases executed by Kerlin for the 20,000 acres received in the Havre settlement are in evidence. The leases were admitted in connection with the Balli Claimants' request for accounting.
After the trial court received the jury's answers to the Jury Charge Questions, the Balli Claimants asked the court for an order of accounting, profit disgorgement, and imposition of a constructive trust. The trial court denied the motion for accounting and profit disgorgement, but determined, based on the jury's verdict, that the Balli Claimants were entitled to a constructive trust on mineral interests in certain lands.
A constructive trust is an equitable remedy used to prevent unjust enrichment. Teve Holdings, Ltd. v. Jackson, 763 S.W.2d 905, 908 (Tex.App.-Houston [1st Dist.] 1988, no writ). Although a litigant has the right to a trial by jury in an equitable action, only ultimate issues of fact are submitted for jury determination. State v. Tex. Pet Foods, Inc., 591 S.W.2d 800, 803 (Tex.1979). As a general rule, the jury does not determine the expediency, necessity, or propriety of equitable relief. Burrow v. Arce, 997 S.W.2d 229, 245 (Tex. 1999); Tex. Pet Foods, Inc., 591 S.W.2d at 803; Alamo Title Co. v. San Antonio Bar Ass'n, 360 S.W.2d 814, 816 (Tex.Civ.App.-Waco 1962, writ ref'd n.r.e.). Consistent with the rule, whether a constructive trust should be imposed must be determined by a court based on the equity of the circumstances. Burrow, 997 S.W.2d at 245. Its scope and application, within some limitations, is generally left to the discretion of the court imposing it. Wheeler v. Blacklands Prod. Credit Ass'n, 627 S.W.2d 846, 849 (Tex.App.-Fort Worth 1982, no writ).
We conclude the trial court committed no error in the imposition of a constructive trust and the damages emerging out of the trust. As the trial court stated in its modified final judgment, the constructive trust was premised on the fact findings of the jury. We hold the constructive trust was not a post-verdict additur of damages. The Kerlin Group's eleventh issue is overruled.
III. THE BALLI CLAIMANTS' ISSUES ON APPEAL
The Balli Claimants raise two issues on appeal. They complain of the trial court's refusal: (1) to order an accounting and *927 disgorgement of all profits and (2) to award prejudgment interest.
A. Accounting and Disgorgement of all Profits
In their first issue, the Balli Claimants contend the trial court erred in refusing to issue an order for equitable accounting and disgorgement of all profits made as a result of Kerlin's breach of fiduciary duty. The Balli Claimants assert a claim of equity requiring a determination of what monies the Kerlin Group received from the 7,500 acres that Gilbert Kerlin took as trustee for the Balli Grantors but never shared. The Balli Claimants allege that the Kerlin Group received additional monies attributable to the 7,500 acres in the form of delay rentals and bonuses under various oil and gas and agricultural leases executed on the property.
An action for accounting may be a suit in equity, or it may be a particular remedy sought in conjunction with another cause of action. Michael v. Dyke, 41 S.W.3d 746, 754 (Tex.App.-Corpus Christi 2001, no pet.); compare T.F.W. Mgmt. v. Westwood Shores Prop. Owners Ass'n, 79 S.W.3d 712, 717 (Tex.App.-Houston [14th Dist.] 2002, pet. denied) (treating an accounting as a cause of action based on alleged contractual obligations and principles of equity) with Hutchings v. Chevron U.S.A., Inc., 862 S.W.2d 752, 762 (Tex. App.-El Paso 1993, writ denied) (treating accounting as an equitable remedy for determining amount of damages). The equitable remedy of an accounting may apply under various circumstances. T.F.W. Mgmt., 79 S.W.3d at 717; Southwest Livestock & Trucking Co. v. Dooley, 884 S.W.2d 805, 809 (Tex.App.-San Antonio 1994, writ denied). The decision to grant an accounting is within the discretion of the trial court. Michael, 41 S.W.3d at 754; Dooley, 884 S.W.2d at 810. In matters of equity, a trial court abuses its discretion if it rules: (1) arbitrarily, unreasonably, or without regard to guiding legal principles; or (2) without supporting evidence. Welder v. Green, 985 S.W.2d 170, 180 (Tex. App.-Corpus Christi 1998, pet. denied).
An equitable accounting is proper when the facts and accounts presented are so complex that adequate relief may not be provided for at law. Hutchings, 862 S.W.2d at 762 (citing Richardson v. First Nat'l Life Ins. Co., 419 S.W.2d 836, 838 (Tex.1967)); Michael, 41 S.W.3d at 754. When a party can obtain adequate relief at law through the use of standard discovery procedures, such as requests for production and interrogatories, a trial court does not err in not ordering an accounting. T.F.W. Mgmt., 79 S.W.3d at 718. Generally, an accounting is appropriate when there was a close a fiduciary relationship between the parties. Richardson, 419 S.W.2d at 838.
The case at hand demonstrates the circumstances necessary to qualify for an equitable accounting. The trial court correctly determined that Kerlin, as executive interest holder, owed a fiduciary duty to the Balli Grantors. The jury found that Kerlin had breached that duty. However, regular discovery practices are inadequate to determine the amount of profit Kerlin received as a result of this breach; the Kerlin Group denies possessing the records necessary to account for profits through ordinary discovery. The Balli Claimants could not obtain adequate relief at law through use of other legal procedures. Under the standards thus established, we conclude that the trial court abused its discretion by denying the imposition of an accounting. We sustain the Balli Claimants' first issue.
*928 B. Prejudgment Interest
In their second issue, the Balli Claimants contend the trial court erred by refusing to award prejudgment interest on the $1,092,000 withheld by Gilbert Kerlin from the date of sale of the surface estate interests in Padre Island until the date the Balli Claimants filed suit.
Prejudgment interest is "compensation allowed by law as additional damages for lost use of the money due as damages during the lapse of time between the accrual of the claim and the date of judgment." Johnson & Higgins, 962 S.W.2d at 528. There are two legal sources for an award of prejudgment interest: (1) general principles of equity and (2) an enabling statute. Id.
In Johnson & Higgins v. Kenneco Energy, the Supreme Court of Texas held that, "under the common law, prejudgment interest begins to accrue on the earlier of (1) 180 days after the date a defendant receives written notice of a claim or (2) the date suit is filed." Id. at 531. The Balli Claimants assert that Johnson & Higgins v. Kenneco Energy should not apply to breach of fiduciary duty cases. In this case, they argue, the Kerlin Group was enriched by the breach of fiduciary duty from the day of the breach.
The Houston Fourteenth Court of Appeals recently addressed the issue of whether prejudgment interest should be calculated from the date a breach occurred, rather than under the standard set out in Johnson & Higgins v. Kenneco Energy. Lee v. Lee, 47 S.W.3d 767 (Tex. App.-Houston [14th Dist.] 2001, pet. denied). The Lee court held that despite prior holdings that prejudgment interest be paid from the date of the breach in breach of fiduciary duty cases, the supreme court had declared in Johnson & Higgins v. Kenneco Energy that the standard announced in that case for the award of prejudgment interest applied to all cases not falling within the statutory guidelines for prejudgment interest. Lee, 47 S.W.3d at 800. The Lee court interpreted the language in Johnson & Higgins v. Kenneco Energy to impliedly overrule all contrary cases. Id. We agree with our sister court and hold that there is no recognized exception for the imposition of prejudgment interest in breach of fiduciary duty cases. We overrule the Balli Claimants' second issue.
IV. CONCLUSION
We overrule all of the Kerlin Group's issues on appeal. We sustain the Balli Claimants' first issue and overrule their second issue.
We reverse that part of the trial court's judgment denying an equitable accounting and remand that issue to the trial court with instructions to order an equitable accounting. We affirm the remainder of the trial court's judgment.
NOTES
[1] See Act approved February 10, 1852, 2nd Leg., R.S., ch. 71 § 1, 1852 Tex. Gen. Laws 2, 2, reprinted 3 H.P.N. GAMMEL, THE LAWS OF TEXAS 1847-1854, at 941 (Austin, Gammel Book Co. 1898).
[2] A non-participating royalty interest is an interest in minerals which does not entitle the owner to produce the minerals himself, or permit him to join in leases of the mineral estate to which the royalty is appurtenant, and does not entitle the owner to share in the bonus or delay rentals, if any, paid for such lease. It merely entitles the owner to a certain share of the production under said lease free of expenses of exploration and production. Arnold v. Ashbel Smith Land Co., 307 S.W.2d 818, 825 (Tex.Civ.App.-Houston [1st Dist.] 1957, writ ref'd n.r.e.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1595026/ | 28 So. 3d 353 (2009)
Kenneth G. BURG and Ashton J. Burg, Jr., Individually and on Behalf of Decedent, Norma Sciortino
v.
LIVING CENTERSEAST INC. d/b/a Metairie Heatlh Care Center.
No. 09-CA-248.
Court of Appeal of Louisiana, Fifth Circuit.
October 27, 2009.
*354 Jeffrey M. Burg, Attorney at Law, Kenner, LA, for Plaintiff/Appellant.
Jeremy D. Goux, Martha D. Bowden, Attorneys at Law, Covington, LA, for Defendant/Appellee.
Panel composed of Judges CLARENCE E. McMANUS, FREDERICKA HOMBERG WICKER, and JUDE G. GRAVOIS.
JUDE G. GRAVOIS, Judge.
Plaintiffs, Kenneth G. Burg and Ashton J. Burg, Jr., individually and on behalf of their deceased mother, Norma Sciortino, appeal the trial court's judgment granting defendant Metairie Operations, L.L.C.'s exception of prescription. After thoroughly reviewing the record and the applicable law, for the reasons that follow, we affirm.
Factual Background and Procedural History
The record shows that Mrs. Sciortino, after suffering several disabling strokes, was admitted in February 2005 to the Metairie Health Care Center, a long term care facility, as a permanent resident. She left the facility on June 13, 2005 and died shortly thereafter on July 10, 2005. Plaintiffs' suit alleged that while Mrs. Sciortino was a resident of the facility, she received substandard medical treatment and nursing care which caused her accelerated deterioration and eventual death.
Plaintiffs' petition for damages, which was filed on July 10, 2006, named Living Centers-East, Inc. d/b/a Metairie Healthcare as defendant. Next in the record is a motion for an extension of time to plead filed on November 21, 2006 by Metairie Operations, L.L.C. ("Metairie Operations"), asserting that Metairie Operations, which was "sought to be made a defendant herein," had "received" a copy of plaintiffs' petition for damages on or about November 8, 2006 and desired an extension of time to answer or otherwise plead in this matter. The trial court thereupon granted Metairie Operations an extension of an additional thirty (30) days or until December 21, 2006 in which to answer or otherwise plead in this matter. Metairie Operations did not, however, file any responsive pleadings within the extension period so granted.
The next pleading in the record is a supplemental and amending petition filed by plaintiffs on June 28, 2007, in which plaintiffs replace "Living Centers-East, Inc. d/b/a Metairie Healthcare" with "Metairie Operations, LLC d/b/a Metairie Health Care Center" as defendant in this *355 case. On the same day, plaintiffs voluntarily dismissed the originally named defendant, Living Centers-East, Inc. d/b/a Metairie Healthcare, with prejudice.
On July 27, 2007, Metairie Operations filed exceptions of prematurity, prescription, and no cause of action. Plaintiffs filed an opposition to these exceptions, to which Metairie Operations replied. A hearing on the exceptions was held on August 20, 2008. The trial court took the matter under advisement and rendered a judgment on October 27, 2008 granting Metairie Operation's exception of prescription. The other exceptions were appropriately found to be moot by the trial court. This timely appeal followed.
Analysis
In reviewing a peremptory exception of prescription, an appellate court will review the entire record to determine whether the trial court's finding of fact was manifestly erroneous. Katz v. Allstate Ins. Co., 04-1133 (La.App. 4 Cir. 2/2/05), 917 So. 2d 443.
The prescriptive period found in LSA-C.C. art. 3492 of one year from the day injury or damage is sustained is applicable to the causes of action asserted by plaintiffs in this case.
LSA-C.C.P. art. 1153, which governs the relation back of pleadings, provides:
When the action or defense asserted in the amended petition or answer arises out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of filing the original pleading.
Considering the applicable prescriptive period and the undisputed facts of this case, the causes of action asserted by plaintiffs have prescribed unless plaintiffs' supplemental and amending petition relates back to the date of filing of plaintiffs' original petition for damages.
In Renfroe v. State through Department of Transportation and Development, 01-1646 (La.2/26/02), 809 So. 2d 947, the Supreme Court reiterated the four-part test, as originally laid out in Ray v. Alexandria Mall, 434 So. 2d 1083 (La.1983), to determine if a supplemental petition relates back to the original petition for prescription purposes:
(1) The amended claim must arise out of the same conduct, transaction or occurrence set forth in the original petition;
(2) The purported substitute defendant must have received notice of the institution of the action such that he will not be prejudiced in maintaining a defense on the merits;
(3) The purported substitute defendant must know or should have known that but for a mistake concerning the identity of the proper party defendant, the action would have been brought against him; and
(4) The purported substitute defendant must not be a wholly new or unrelated defendant, since this would be tantamount to assertion of a new cause of action which would have otherwise prescribed.
Plaintiffs argue on appeal, as they did in the district court, that their amended petition relates back to the original petition because it satisfies all four relation back criteria outlined above. They assert that the trial court found that factors 1 and 2 outlined above were met, and so do not include argument on those in brief. They argue that they sued the correct facility and that there was only a mistake in the identity of the party that owned or operated the facility. They further argue that there is an "identity of interest" between Living Centers-East, Inc. and Metairie *356 Operations because they both operated out of the same physical facility. Plaintiffs argue that their search for the identity of the appropriate defendant herein on the Louisiana Secretary of State's website constituted requisite due diligence to ascertain the identity of the appropriate defendant herein, and that no further action with respect thereto was required on their part.
The record establishes and it is likewise undisputed that the originally named defendant, Living Centers-East, Inc., sold or transferred the facility in question to Metairie Operations sometime during 2003, and therefore neither owned nor operated the nursing home facility in question at any of the time during 2005 that Mrs. Sciortino resided there. The record is also clear that the actual owner and operator of the facility during Mrs. Sciortino's residency there, Metairie Operations, first gained knowledge of the suit when counsel for Living Centers-East, Inc. sent Metairie Operations' counsel an email alerting them of the suit, which had been served upon Living Centers-East, Inc.'s agent. This email was dated November 6, 2006, which is well after the running of the prescriptive period applicable to plaintiffs' alleged causes of action herein.
In its Reasons for Judgment, the trial court found that the first two relation back criteria had been met, but third and fourth were not:
Factors 3 and 4, however, present a problem for plaintiffs. Living Centers-East and Metairie Health Care are two separate and distinct entities, with different domicile addresses and registered agents. Plaintiffs argue that they are related because they both operated (at different times) out of the same physical facility; however, this argument was rejected by the Fifth Circuit in Melerine v. American Multi-Cinema, Inc., 882 So. 2d 628 (La.App. 5th Cir.2004). In Melerine, plaintiff filed suit against the current owner of the movie theater where she fell, but her accident occurred when the theater was owned by another entity. More than a year after her accident, she filed suit against the correct defendant; however, an exception of prescription filed by that defendant was granted by this Court and upheld by the Fifth Circuit. In Melerine, the Fifth Circuit stated that if an amendment is to relate back, a plaintiff cannot sue a new and unrelated defendant. The original and new defendants must have an identity of interest. An identity of interest has been found between a parent corporation and a wholly owned subsidiary and between corporations with interlocking officers. Living Centers-East was part of a nationally traded company out of Atlanta and Metairie Operations is a Louisiana Limited Liability company whose members are local citizens. There is no parent corporation and/or wholly owned subsidiary relationship between these two defendants, and they share no officers. Although the result is harsh, it is apparent from the applicable Fifth Circuit caselaw that there is no relation back from the amended petition to the timely filed original petition.
We find no manifest error in the trial court's findings of fact or application of the law in this case. There is no "identity of interest" between Living Centers-East, Inc. and Metairie Operations. The facts in this case are actually stronger than those in Melerine, in that in this case at all times pertinent hereto (i.e., for the entire time that Mrs. Sciortino actually resided at the facility in question), the facility in question was actually owned and operated by Metairie Operations, rather than by Living Centers-East, Inc.
*357 Plaintiffs further argue that their search of the Secretary of State's website prior to filing suit as an attempt to find and identify the correct owner/operator of the facility in question constituted due diligence on their part. They argue that the information on the website was incorrect and misleading, thereby excusing their mistake in naming the correct defendant herein. Defendant Metairie Operations countered that due diligence by the plaintiffs in this particular case required additional relatively non-onerous action on the part of the plaintiffs that could have easily allowed plaintiffs to identify the then-current owner/operator of the facility in question. Plaintiffs would have thus been able to appropriately name the correct party defendant in this proceeding when they originally filed their petition for damages.
We agree with Metairie Operations. Under the particular facts and circumstances involved in this case, due diligence in this case required more action and research on the part of the plaintiffs. Phone calls by the plaintiffs to the appropriate public agency which regulates facilities of this type, or to the facility itself, seemingly would have allowed plaintiffs to easily find and accurately identify the then-current registered owner/operator of the facility in question. Such additional action by the plaintiffs would not have been so onerous on plaintiffs so as to be considered unreasonable and inappropriate under the particular facts and circumstances involved in this case.
Conclusion
For the reasons stated above, the trial court's judgment granting defendant Metairie Operations, L.L.C.'s exception of prescription is hereby affirmed.
AFFIRMED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2617595/ | 890 P.2d 37 (1995)
Ronald Leroy KENNEDY, Appellant (Defendant),
v.
The STATE of Wyoming, Appellee (Plaintiff).
No. 94-85.
Supreme Court of Wyoming.
February 15, 1995.
Ronald Leroy Kennedy, pro se.
Joseph B. Meyer, Atty. Gen., Sylvia Lee Hackl, Deputy Atty. Gen., D. Michael Pauling, and Paul S. Rehurek, Senior Asst. Attys. Gen., for appellee.
Before GOLDEN, C.J., and THOMAS, MACY, TAYLOR and LEHMAN, JJ.
LEHMAN, Justice.
Ronald Leroy Kennedy (Kennedy), acting pro se, brings this appeal challenging the district court's denial of his motion to correct an illegal sentence pursuant to W.R.Cr.P. 35.
We affirm.
Kennedy raises two issues for our consideration:
ISSUE I
Whether Appellant's constitutional rights were violated when the First Judicial District Court and Wyoming State Penitentiary officials lacked jurisdiction to disrupt or stop time on Appellant's first sentence which was in motion and place him on a second sentence with a new prison identification number # 11532.
ISSUE II
Whether Appellant should be credited with 217 days of time served to be credited against the minimum and maximum term of all phases of Appellant's sentence for time served in the county jail while waiting disposition of his case; whether Appellant should be credited with two-years-eleven months and eleven days to be credited against the minimum and maximum terms of all phases of his sentences for time spent on death row in the Wyoming State Penitentiary.
BACKGROUND
In 1974 Kennedy was convicted of first degree murder, forcible rape, and assault and battery with the intent to commit a felony (murder). He was sentenced to death on the *38 murder conviction, 35 years to life on the rape, and 13 to 14 years on the assault. The latter two were to run concurrently to the death sentence.
In 1977 this court vacated the death sentence after finding that the mandatory death penalty for first degree murder was unconstitutional. Kennedy v. State, 559 P.2d 1014 (Wyo.1977) (Kennedy I). On remand, Kennedy was sentenced to life for the first degree murder conviction which was then made to run consecutively to the other two convictions. This court affirmed that sentence in 1979. Kennedy v. State, 595 P.2d 577 (Wyo. 1979) (Kennedy II).
On July 23, 1993, Kennedy filed a motion to correct an illegal sentence pursuant to W.R.Cr.P. 35. The district court denied the motion without comment on the 18th of March, 1994. He now appeals.
DISCUSSION
Kennedy's complaint is that once he began serving his sentence for first degree murder (on death row), it was improper for the sentencing court, once the penalty was changed to life in prison, to make that sentence consecutive to the other two convictions. Kennedy insists that for the last twenty years he should have been serving his life sentence and not the sentences for assault and rape. The State counters that this issue was decided adversely to Kennedy in Kennedy II in 1979, barring him from raising the issue before us again.
We agree with the State; this issue was considered and decided by this court in Kennedy II:
Cases cited by the appellants to the effect that maximum sentences should commence with initial incarceration and to the effect that ambiguities in the system should be resolved so as to accommodate early consideration for parole have no application here. In Wyoming, there is no parole from a sentence for life. Possibilities of commutation are matters within the constitutional prerogative of the executive department and do not concern the court.
Kennedy II, 595 P.2d at 578 (citations and footnotes omitted). While the opinion is not as clear as one would like, the obvious import of the discussion is that this court considered this very argument in 1979 and rejected it. Therefore, Kennedy is barred by the law of the case from relitigating this issue. Montez v. State, 592 P.2d 1153, 1154 (Wyo.1979).
In any event, Kennedy's argument is without merit. The determination of whether sentences are to run consecutively or concurrently is completely within the discretion of the trial court. DeSpain v. State, 865 P.2d 584, 588 (Wyo.1993); Munden v. State, 698 P.2d 621, 626 (Wyo.1985). There is no contention by Kennedy that the sentences for his convictions are, in any way, beyond that which was allowed by statute. Therefore, the trial court did not abuse its discretion when it made the life sentence for first degree murder consecutive to the other two convictions.
Finally, Kennedy claims that he is entitled to credit for time served in the county jail and on death row. These issues were not presented to the district court in Kennedy's W.R.Cr.P. 35 motion. We will not consider issues which are raised for the first time on appeal. Iberlin v. TCI Cablevision of Wyoming, Inc., 855 P.2d 716, 726 (Wyo. 1993). We, therefore, decline to address these issues.
CONCLUSION
There was no abuse of discretion in Kennedy's sentencing; hence, the district court's order denying the motion to correct an illegal sentence under W.R.Cr.P. 35 is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1320065/ | 214 Ga. App. 29 (1994)
MITCHAM
v.
BLALOCK et al.
A94A0631.
Court of Appeals of Georgia.
Decided June 30, 1994.
Reconsideration Denied July 15, 1994.
Land, McKnight & Cohen, Robert H. McKnight, Jr., for appellant.
Bruce C. Bailey, Michael K. Wolensky, Kutak & Rock, Angela M. Gottsche, Tinkler & Groff, William P. Tinkler, Jr., for appellees.
McMURRAY, Presiding Judge.
Michael Mitcham (plaintiff) maintained accounts at Atlanta Securities & Investments, Inc. ("ASI") at a time when William J. Blalock, Charles Lee Bradley, Rollo Fredrick Ingram and John Ringo (defendants) were corporate officers and directors of ASI. However, the value of plaintiff's accounts dwindled under the supervision and control of ASI Investment Broker Fred H. Jones, Jr., and plaintiff filed for arbitration (in accordance with standards set by the National Association of Securities Dealers, Inc.) and alleged that his losses were caused by unlawful, fraudulent and deceitful acts of Jones and careless supervision, control and management of ASI by defendants. The arbitration petition was dismissed as to defendants because of lack of notice and proceeded against Jones and ASI, resulting in a $60,000 award for plaintiff on June 25, 1991. Plaintiff subsequently filed a multi-count action against defendants in the Superior Court of DeKalb County, Georgia, alleging in Count 7 of an amended complaint that defendants are responsible for his losses because they failed to properly control and supervise Jones as required by the Georgia Securities Act of 1973, OCGA § 10-5-14 (c). Plaintiff further *30 alleges that defendants are jointly and severally liable for plaintiff's losses under the doctrine of respondent superior (Counts 8 and 9) and that defendants breached fiduciary duties as corporate officers and directors of ASI (Count 10).
On September 29, 1992, the trial court granted defendant Ingram's motion to compel discovery and directed plaintiff's attorney to "pay $300 to counsel for Defendant Ingram . . . within thirty (30) days of the date of this Order, said sum representing the time spent by Defendant Ingram's counsel in Court on Monday, September 28, 1992." The trial court reserved "ruling on the amount of attorneys' fees and expenses to be awarded which were associated with obtaining this Order as requested by counsel for Ingram pursuant to [OCGA] § 9-11-37, pending submission of an affidavit by Defendant Ingram's counsel." The trial court then directed "counsel for Ingram [to] submit said affidavit to the Court by Monday, October 5, 1992, with a copy (via telecopy) to counsel for Plaintiff."
On January 20, 1993, the trial court granted summary judgment in favor of defendant Ingram as to plaintiff's claim under the Georgia Securities Act of 1973 (Count 7) and, on March 1, 1993, the trial court ordered plaintiff to pay "$1286.25 to counsel for Defendant Ingram . . . within ten (10) days of the date of this Order, said sum representing the award of the attorneys' fees expenses incurred in obtaining the Order of this Court compelling Plaintiff to submit full and separate answers to Defendant Ingram's First Interrogatories. . . ."
On March 29, 1993, defendant Ingram filed a motion to dismiss plaintiff's complaint or, in the alternative, to hold plaintiff in contempt for failing to pay $1,286.25 in attorney fees within ten days of the trial court's order of March 1, 1993. The trial court granted this motion, finding "that Plaintiff willfully failed to obey the Order of this Court . . . filed March 1, 1993, and after hearing argument of counsel and affording Plaintiff an opportunity to present evidence of poverty and no such evidence being presented, the Court hereby orders and decrees that the complaint against [defendant] Ingram be dismissed with prejudice."
On May 4, 1993, the trial court granted partial summary judgment in favor of defendants Blalock, Bradley and Ringo as to plaintiff's claim under the Georgia Securities Act of 1973 (Count 7). On September 15, 1993, the trial court granted summary judgment in favor of defendants Blalock, Bradley and Ringo as to Counts 8, 9 and 10 of the complaint. This appeal followed. Held:
1. Plaintiff contends the trial court erred in granting summary judgment in favor of defendants as to his claim under the Georgia Securities Act of 1973 (Count 7).
"With respect to the purchase, sale, or offer to purchase or sell a security, no person may sue under [OCGA § 10-5-14] more than two *31 years from the date of the contract for sale or sale, if there is no contract for sale." OCGA § 10-5-14 (d). It is undisputed that plaintiff filed the case sub judice on September 16, 1991, and that the last trade Jones executed on plaintiff's behalf was in "mid May of 1989." Further, plaintiff admits (in a brief filed in opposition to summary judgment) that he was aware of the alleged deceitful and fraudulent acts which form the basis of Count 7 of his complaint in "early 1989." It thus appears that plaintiff's claim against defendants under OCGA § 10-5-14 (c), is barred by the applicable two-year statute of limitation. Nonetheless, plaintiff contends that an arbitration claim he allegedly asserted against ASI, Jones and defendants in June 1990 tolled the statute of limitation until the arbitration concluded on June 25, 1991. This contention is without merit.
In Butler v. Glen Oak's Turf, 196 Ga. App. 98 (395 SE2d 277), this court held that the two-year statute of limitation in an employee's tort claim against her employer was tolled during the employee's pursuit of an unsuccessful workers' compensation claim. Id. at 101, supra. In Butler, this court adopted reasoning that the purpose of the statute of limitation was accomplished because the employer was placed on notice of the employee's alleged injuries within the applicable limitation period by virtue of the pending workers' compensation claim. Butler v. Glen Oak's Turf, 196 Ga. App. 98, 99, supra. The same reasoning does not apply in the case sub judice as plaintiff admits (in his complaint) that defendants were dismissed as parties to the arbitration because they were never served with notice of the time, date and location of the arbitration. Under these circumstances, we cannot say that the two-year statute of limitation with regard to plaintiff's claim under OCGA § 10-5-14 (c) was tolled during the arbitration against ASI and Jones. Consequently, the trial court did not err in granting summary judgment in favor of defendants as to Count 7 of plaintiff's complaint.
2. Next, plaintiff contends the amount of the attorney fees awarded by the trial court was not supported by sufficient evidence. We agree.
"`An award of attorney fees is unauthorized if [defendant Ingram] failed to prove the actual costs of the attorney and the reasonableness of those costs. (Cit.)' Fiat Auto U. S.A. v. Hollums, 185 Ga. App. 113, 116 (5) (363 SE2d 312) (1987)." Southern Cellular Telecom v. Banks, 209 Ga. App. 401, 402 (433 SE2d 606). In the case sub judice, defendant Ingram submitted billing sheets sent to him by his attorney with the affidavit of his attorney, Michael K. Wolensky, in support of his claim for attorney fees. Attorney Wolensky deposed that 13.5 hours of services provided by two attorneys and a paralegal were reasonably worth $1,286.25 and that these services were necessary to press a motion to compel on behalf of defendant Ingram. Attorney *32 Wolensky then deposed that he expended a quarter of an hour (at a rate of $205 per hour) reviewing the motion to compel and he enumerates in his affidavit billings allegedly entered by an "Associate" (11.25 hours at $100 per hour) and a "Paralegal" (2 hours at $55 per hour) in executing the motion to compel. However, differences seem to appear between certain notations explaining services rendered in the billing statements sent to defendant Ingram and explanations for billing what appears to be the same time in attorney Wolensky's affidavit. Further, it is apparent that the statements regarding the billings of the associate attorney and the paralegal were not based upon attorney Wolensky's personal knowledge, but were based upon information given to him by others. Such evidence is hearsay, and hearsay, even when admitted into evidence without objection, lacks probative value to establish any fact. Howell Mill/Collier Assoc. v. Pennypacker's, 194 Ga. App. 169, 171 (2) (390 SE2d 257). Moreover, the time entries in the billing statements in attorney Wolensky's affidavit and the billing statements attached to the affidavit include brief notations that a conference was held; that letters were received, reviewed and written; that telephone calls were conducted; that a conference was conducted between attorney Wolensky and an associate attorney; that research was performed; that a motion and brief were drafted, revised and reviewed; that time was spent in preparation for a hearing; that an order was drafted (apparently for the trial court); that time was spent waiting at the courthouse and traveling to the courthouse and that an associate attorney reviewed local rules of court. "Such broad statements fail to demonstrate the function or substance of the task with sufficient particularity to permit the court to distinguish between time and expenses attributable to the successful [motion to compel discovery] and time and expenses attributable to . . . other [aspects of defendant Ingram's defense]." Southern Cellular Telecom v. Banks, 209 Ga. App. 401, 402, supra. Additionally, there is no indication that attorney Wolensky, the associate attorney who purportedly billed out most of the hours relevant to defendant Ingram's motion to compel or the paralegal who was attributed with two hours of pertinent billings were made available for cross-examination.
"A determination of the amount of an award of attorney fees cannot be based on guesswork. See generally Wahnschaff Corp. v. O. E. Clark Paper Box Co., 166 Ga. App. 242, 244 (2) (304 SE2d 91) (1983)." Southern Cellular Telecom v. Banks, 209 Ga. App. 401, 402, supra. Such an award must be based on competent evidence, not inadmissible hearsay. See Short & Paulk Supply Co. v. Dykes, 120 Ga. App. 639, 643 (3), 646 (171 SE2d 782) (1969); Copelan v. Burrell, 174 Ga. App. 63, 64 (2), 65 (329 SE2d 174). A party opposing a claim for attorney fees has a basic right to confront and challenge testimony *33 as to the value and need for legal services. See Southern Cellular Telecom v. Banks, 209 Ga. App. 401, 402, supra. This is particularly true where, as in the case sub judice, it is alleged that extensive billings are necessary for pressing a relatively simple matter and where unexplained inconsistencies appear to exist between billing statements to a client and an affidavit filed in support of a claim for attorney fees. Consequently, since there was no admissible evidence supporting the trial court's award of attorney fees in the amount of $1,286.25 and since plaintiff was not provided opportunity to cross-examine the two attorneys and the paralegal who purportedly worked-up the motion to compel, the trial court's award of attorney fees in the amount of $1,268.25 was not authorized. This award must therefore be vacated and the case remanded for an evidentiary hearing to establish the amount of attorney fees attributable to defendant Ingram's motion to compel. See Southern Cellular Telecom v. Banks, 209 Ga. App. 401, 402, supra.
3. In his third enumeration, plaintiff contends the trial court erred in dismissing Counts 8, 9 and 10 of the complaint because he wilfully failed to obey the trial court's order to pay attorney fees in the amount of $1,286.25 within 10 days of March 1, 1993.
"`A voidable or erroneous order cannot be disregarded; it is valid and enforceable until set aside. 60 CJS Motions and Orders § 65 (d). Moreover, unlike a void order, a merely erroneous order will support rights, remedies and proceedings predicated thereon. See 60 CJS Motions and Orders § 65 (e).' Golden Key Restaurant & Lounge v. Key Management Corp., 137 Ga. App. 251, 253 (2) (223 SE2d 284)." Mathews v. City of Atlanta, 167 Ga. App. 168, 169 (306 SE2d 3). Consequently, the fact that the trial court's order awarding attorney fees in the amount of $1,286.25 was not supported by competent evidence (as held in Division 2 of the opinion) does not diminish plaintiff's duty to comply with the trial court's directive to pay the attorney fees within ten days of March 1, 1993. However, "a dismissal with prejudice is warranted only where a clear record of delay or contumacious conduct by the plaintiff exists and a lesser sanction would not better serve the interest of justice. Gonzalez v. Firestone Tire & Rubber Co., 610 F2d 241, 247 (6)." Mathews v. City of Atlanta, 167 Ga. App. 168, 169, supra. Applying this standard in the case sub judice, we do not find a clear record of contumacious conduct by plaintiff. Although plaintiff did not pay $1,286.25 to defendant Ingram's attorney within ten days of March 1, 1993, plaintiff paid defendant Ingram's attorney $1,286.25 before the hearing on defendant Ingram's motion to dismiss plaintiff's complaint or, in the alternative, to hold plaintiff in contempt for failing to pay the attorney fees within ten days of the trial court's order of March 1, 1993. Moreover, plaintiff did not ignore the trial court's order as in Mathews v. City of Atlanta, 167 Ga. App. 168, 169, supra. *34 On the contrary, plaintiff's attorney explained (in a letter to the trial court) that his client could not come up with $1,268.25 on such short notice. Under these circumstances and in light of our holding in Division 2 of this opinion, we find dismissal of plaintiff's complaint pursuant to OCGA § 9-11-37 (b) (2) (C) too harsh a sanction. See Campbell v. Gormley, 185 Ga. 65, 66 (2) (194 SE 177). Consequently, the trial court erred in dismissing plaintiff's complaint because plaintiff failed to obey the trial court's order to pay attorney fees in the amount of $1,286.25 within ten days of March 1, 1993. See Serwitz v. Gen. Elec. Credit Corp., 184 Ga. App. 632, 633 (362 SE2d 439).
4. Plaintiff contends the trial court erred in granting summary judgment in favor of defendants Blalock, Bradley and Ringo as to Counts 8, 9 and 10 of his complaint.
"`An inherent purpose of incorporation is insulation from liability. A corporation possesses a legal existence separate and apart from that of its officers and share-holders so that the operation of a corporate business does not render officers and shareholders personally liable for corporate acts. (Cit.)' Derbyshire v. United Bldrs. Supplies, 194 Ga. App. 840, 844 (392 SE2d 37)." Commonwealth Financial Corp. v. Sherrill, 197 Ga. App. 403 (1) (398 SE2d 438). Further, the Georgia Supreme Court has "said that the cardinal rule of corporate law is that the corporation possesses a legal existence separate and apart from that of its officers, employees, shareholders, and directors. 6 EGL Corporations, § 6 (1978 Rev.). A suit against the corporation cannot proceed against its members in their personal capacities unless some persuasive reason is presented for piercing the corporate veil. See, e.g., Farmers Whse. of Pelham v. Collins, 220 Ga. 141, 150 (137 SE2d 619) (1964); Lincoln Land Co. v. Palfery, 130 Ga. App. 407, 411 (203 SE2d 597) (1973); Hamilton Bank &c. Co. v. Holliday, 469 FSupp. 1229, 1241 (N.D. Ga. 1979)." Kilsheimer v. State, 250 Ga. 549, 550 (299 SE2d 733).
"`The concept of piercing the corporate veil is applied in Georgia to remedy injustices which arise where a party has over extended his privilege in the use of a corporate entity in order to defeat justice, perpetrate fraud, or evade contractual or tort responsibility.' (Punctuation and citation omitted.) Cheney v. Moore, 193 Ga. App. 312-313 (387 SE2d 575)." Commonwealth Financial Corp. v. Sherrill, 197 Ga. App. 403 (1), 404, supra. In the case sub judice, plaintiff presented affidavits from two experts in the field of securities management supporting his claim that defendants' management of ASI was far below industry standards. However, plaintiff presented no evidence that defendants disregarded separation of the corporate entity by commingling assets or abuses of the corporate form. Nonetheless, plaintiff argues that evidence of defendants' substandard management of ASI and the $60,000 arbitration award against ASI and Jones authorized a *35 finding that defendants are personally liable for his losses. This argument is without merit.
"`"(A)n officer of a corporation who takes part in the commission of a tort by the corporation is personally liable therefor, but an officer of a corporation who takes no part in the commission of a tort committed by the corporation is not personally liable unless he specifically directed the particular act to be done or participated or co-operated therein." (Cit.)' Lincoln Land Co. v. Palfery, 130 Ga. App. 407, 411 (1a) (203 SE2d 597) (1973)." Smith v. Hawks, 182 Ga. App. 379, 384 (4), 385 (355 SE2d 669). In the case sub judice, plaintiff presented no evidence that defendants misappropriated plaintiff's accounts or duped plaintiff into believing that his investments were fruitful and sound. On the contrary, it is undisputed that plaintiff had no direct contact with defendants regarding management of his accounts. Consequently, there is no basis for holding defendants jointly and severally liable under the doctrine of respondeat superior or under plaintiff's claim that defendants breached fiduciary duties by negligently carrying out responsibilities as officers and directors of ASI. Kilsheimer v. State, 250 Ga. 549, supra. Commonwealth Financial Corp. v. Sherrill, 197 Ga. App. 403 (1), supra.
The trial court did not err in granting summary judgment in favor of defendants Blalock, Bradley and Ringo as to Counts 8, 9 and 10 of plaintiff's amended complaint.
5. In his final enumeration, plaintiff contends the trial court erred in denying his motion for reconsideration, arguing that defendants are precluded from disputing their alleged reckless conduct in managing ASI pursuant to the doctrine of estoppel by judgment. In support of this contention, plaintiff points out that a $60,000 arbitration award was entered against ASI and Jones. This contention is without merit as it is undisputed that defendants were not parties to the arbitration. See Blackwell v. Ga. Real Estate Comm., 205 Ga. App. 233 (421 SE2d 716).
Judgment affirmed in part and reversed in part and case remanded. Pope, C. J., and Smith, J., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1212169/ | 151 Cal. App. 2d 791 (1957)
312 P.2d 59
MARTIN J. MULLIGAN et al., Appellants,
v.
WEST COAST FAST FREIGHT, INC. (a Corporation) et al., Respondents.
Docket No. 17288.
Court of Appeals of California, First District, Division Two.
June 19, 1957.
*792 Leslie C. Gillen and Herbert Chamberlin for Appellants.
Bledsoe, Smith, Cathcart, Johnson & Phelps and R.S. Cathcart for Respondents.
KAUFMAN, P.J.
The complaint herein seeks damages for personal injuries to plaintiffs, Martin J. Mulligan and Luke Morley, passenger and driver, respectively, of a California state highway patrol car which was involved in an accident on the lower deck of the San Francisco-Oakland Bay Bridge on October 26, 1950. A trial before a jury resulted in a verdict against both plaintiffs, in favor of the defendant, West Coast Fast Freight, Inc., and its truck driver, the defendant, Charles Leon Murrell. Plaintiffs appeal from the judgment entered on the verdict on the grounds that the evidence established as a matter of law that the defendants' negligence was the sole proximate cause of the accident and various alleged errors in the lower court's instructions to the jury.
The facts as disclosed by the record are as follows: The afternoon on which the accident occurred was a rather stormy one, with hard rain and a whipping south wind. There was no fog, however, and visibility was good, for about one mile. Shortly before the accident two barges had broken loose from their moorings south of the bay bridge, drifted to the north and had become lodged against one of the piers of the bridge, about 1 mile west of the toll plaza. Two bridge officials, Murphy and Marsh, in two separate state owned vehicles had driven west from the toll plaza on the lower deck of the bridge, to investigate the barge incident. Their vehicles were parked in the westbound lane, one behind the other, with the Murphy vehicle just west of the Marsh vehicle, blocking westbound traffic for about 40 feet. Both of these vehicles were displaying red flashing lights in their rear windows. The defendant, Murrell, a truck driver and employee of the defendant, West Coast Fast Freight, Inc., was driving west on the lower deck of the bridge on the afternoon of the accident. The westbound lower deck highway is one big wide lane where it *793 comes off the main road and divides into two lanes just east of the scene of the accident, where the white lines demark three lanes, each about 11 feet wide; one on the north side of the bridge for westbound traffic, one on the south side of the bridge for eastbound traffic, and one in the center for passing. The highway from the toll plaza area to the portion of the bridge which is over water jogs to the left before going west into a slight down-hill straightway about two-thirds of a mile in length, so that the straightway is not visible from the section immediately west of the toll plaza. Murrell was traveling at about 20-25 miles per hour when he left the toll plaza; just as the highway squared around into the straightway, he noticed the Marsh vehicle parked 200-300 feet in front of him in the westbound lane. When he was about 75 feet to the rear of the Marsh vehicle, Murrell slowed to 15 to 18 miles an hour, and without first stopping swung into the center lane for the purpose of passing. At this time he noticed the Murphy vehicle parked immediately in front of the Marsh vehicle. Immediately after he had pulled into the center lane, Murrell observed a flashing red light mounted on a California state highway patrol car, which was headed east in the center lane about 200-300 feet away. Murrell testified that he did not hear a siren at this or any other time. However, immediately after the accident he told the investigating officer that just as he was changing into the center lane he noticed the patrol car coming with the red light on and siren going. Traffic in the eastbound lane was exceedingly heavy consisting of a long line of trucks closely following one another. Murrell first increased his speed by a mile or two an hour in order to get past the parked cars, but then he noticed the patrol car skidding and immediately brought his truck to a stop. The Highway Patrol Officer who subsequently made the accident report testified that the truck was stopped two feet to the east of the rear bumper of the Murphy vehicle. The truck driven by Murrell was 20 feet long and carrying a medium heavy load; the headlights were on and the windshield wipers operating. Murrell testified that a passing maneuver required about 40 feet. The day of the accident was appellant Mulligan's first day on duty after the completion of his highway patrol training course. Appellant Morley was the senior officer assigned to instruct him on that day. The two officers were in the vicinity of Eighth and Townsend Streets in San Francisco in the patrol car driven by Morley, when they received a radio message to investigate an accident of unknown nature in which some high *794 voltage wires were down at the foot of University Avenue in Berkeley. The code message ordered them to "expedite" which meant to get there as fast as possible without delay and permitted the use of the siren and red lights on the way. However, they first drove east on the upper deck of the bridge with the red light but without sounding the siren. Because of the heavy traffic conditions on the upper deck they turned off at Treasure Island after the tunnel and swung around onto the lower deck. Both of the appellants testified that at this time the siren was going and the lights flashing. The eastbound lane was full of trucks, so the patrol car entered the passing lane, but was forced back into the eastbound lane by a westbound Key System bus. At this time the patrol car was traveling at a speed of 40 to 45 miles and continued at that speed until the accident. After the bus had passed, Morley again moved into the center passing lane and immediately observed Murrell's truck at a distance of about 300 feet just as it was pulling into the passing lane. Morley testified that at that time he could not estimate the speed of the truck, or determine whether or not the two state vehicles in the westbound lane were moving. When he was about 250 feet west of the truck Morley applied his brakes lightly. At 200 feet he applied the brakes hard, which caused the patrol car to skid sideways for 169 feet before colliding broadside with the Murphy vehicle. Appellant Mulligan was thrown from the patrol car and remained unconscious. After the accident the patrol car was facing north at an angle across the center and westbound lane. The rear of the patrol car was about 8 feet from the respondent truck, and the front of the patrol car about 6 feet from the front of the Murphy vehicle. Although none of the eyewitnesses saw the actual impact between the truck and the patrol car, it was assumed from the position of the various vehicles after the accident.
Appellants' main contentions on appeal are that the evidence established as a matter of law that the negligence of the respondents was the sole and proximate cause of the accident, and that the jury was improperly instructed as to the operation of the emergency vehicle statute, so as to impose upon the driver of the patrol car the duty of sounding the siren at all times and in a certain manner.
It is not disputed that the patrol car was an emergency vehicle responding to an emergency call and displaying the required red and blue lamp, or that Murrell was operating a truck belonging to West Coast Fast Freight within the scope *795 of his agency. The issues all bear upon the question of whether or not the police car was being operated in such a manner as to accord to its driver and passenger, the appellants herein, the emergency vehicle privileges of Vehicle Code, section 454, and to impose upon the respondent's truck driver the duties defined in Vehicle Code, section 554. Among the duties imposed on a driver apart from Vehicle Code, section 554, and included in the matters from which emergency vehicles may be exempted under Vehicle Code, section 454, are the provisions of Vehicle Code, section 526 which prescribes rules for passing on three lane roadways. In 1950, sections 454 and 554, so far as relevant, of the Vehicle Code read as follows:
"454. Exemptions to Authorized Emergency Vehicles. The driver of an authorized emergency vehicle shall be exempt from those provisions of this code herein set forth under the following conditions:
"(a) Said exemptions shall apply wherever any said vehicle is being driven in response to an emergency call or when used in the immediate pursuit of an actual or suspected violator of the law, or when responding to but not upon returning from a fire alarm.
"(b) Said exemptions shall apply only when the driver of said vehicle sounds a siren as may be reasonably necessary and the vehicle displays a lighted red lamp visible from the front as a warning to others. Under the circumstances hereinabove stated, any said driver shall not be required to observe those regulations contained in Chapter 3 or in Chapters 6 to and including Chapter 13 of Division 9 of this code, but said exemptions shall not relieve the driver of any said vehicle from the duty to drive with due regard for the safety of all persons using the highway, nor shall the provisions of this section protect any such driver from the consequences of an arbitrary exercise of the privileges declared in this section."
"554. Conduct of Drivers, Motormen and Pedestrians on Approach of Authorized Emergency Vehicles. Upon the immediate approach of an authorized emergency vehicle giving audible signal by siren and having at least one lighted lamp exhibiting red light visible under normal atmospheric conditions from a distance of 500 feet to the front of such vehicle:
"(1) The driver of every other vehicle shall yield the right of way and shall immediately drive to a position parallel to, and as close as possible to, the right-hand edge or curb of the highway clear of any intersection and thereupon stop and remain in such position until such authorized emergency vehicle *796 has passed, except when otherwise directed by a police or traffic officer.
"(2) ..."
As pointed out by this court in Washington v. City & County of San Francisco, 111 Cal. App. 2d 368, at pages 371 and 372 [244 P.2d 774]:
"We conclude that sections 454 and 554, read together, mean that (to enjoy exemption from the speed and traffic law requirements) the driver of an emergency vehicle (in addition to displaying the red light) must give audible signal by siren, as a warning to others using the highway, when under all the circumstances it is reasonably necessary to do so, and in such a case he must sound the siren in such a manner, with such audibility, as will afford the others a reasonable opportunity to yield the right of way. `Others,' of course, means persons of reasonably good hearing who are giving attention to their surroundings in observance of their duties as users of the public highways.
"This requirement presents in each case these questions of fact: (1) Was it reasonably necessary, under all the circumstances, to give audible signal by siren, as a warning to others? (2) If so, did this driver give signal by siren? (3) If so, did he give audible signal by siren?"
The instruction on the dual obligation of shining the light and blowing the siren was one requested by the appellants. A similar instruction has been approved by this court in Davidson v. County of Marin, 147 Cal. App. 2d 54 [304 P.2d 743]. The appellants and the two eyewitnesses testified that they heard the siren; the siren button was on after the accident. The respondent, however, in contradiction to his statement made immediately after the accident, testified that he did not hear the siren at any time. It is not clear how soon before the impact the siren was heard by the eyewitnesses; there is also evidence that the weather and traffic conditions were such that Murrell could not hear the siren at all or until too late. Appellants point out that the law does not require the continuous sounding of the siren, but only a fair reasonable warning, and that the light alone could suffice as such warning. We agree with the appellants, but as indicated above these are questions of fact for the jury to consider under proper instruction. We do not think the instruction complained of here was erroneous or prejudicial. The jury was also instructed that where there is evidence that a person did not see or hear that which was in plain sight or clearly audible, there is either *797 a conflict in the evidence or negligent inattention. Appellants rely on Reed v. Simpson, 32 Cal. 2d 444 [196 P.2d 895]. However, in that case, the verdict for the defendants was reversed as the lower court had erroneously instructed the jury that the officer was not entitled to the exemption of section 454 as a matter of law. The court pointed out that the issue was for the jury to determine.
Appellants base their argument on their contention that in the instant case, the evidence as a matter of law established that the negligence of the respondents was the sole and proximate cause of the accident. They cite Gray v. Brinkerhoff, 41 Cal. 2d 180 [258 P.2d 834], in which it was held that the defendant who violated a pedestrian's right of way was guilty of negligence as a matter of law in the absence of reasonable explanation for his conduct. The very portion of Gray v. Brinkerhoff quoted in the appellants' brief defeats their argument as the court points out that negligence is a matter of law only if "reasonable men following the law can draw but one conclusion from the evidence presented." The instant case is not one in which only one conclusion can be so drawn. Here, the jury could well have believed that the respondent was not negligent as there is evidence that he did not see the patrol car until he was in the center lane, that he was driving at a safe speed and it is admitted that he brought the truck to a stop before the point of impact. While other witnesses testified that they heard the siren, the respondent denied hearing the siren. There is evidence that the weather and traffic conditions might have made it difficult for Murrell to hear the siren. [1] Whether or not the driver of an emergency vehicle is entitled to the exemptions provided by section 454 is a question of fact for the jury. (Washington v. City & County of San Francisco, 111 Cal. App. 2d 368 [244 P.2d 774]; Davidson v. County of Marin, supra; Reed v. Simpson, supra; Pagels v. City & County of San Francisco, 135 Cal. App. 2d 152 [286 P.2d 877].) One of the eyewitnesses to the accident, the driver of a truck in the eastbound lane, testified that because of the weather conditions he was traveling at a speed of 20 miles an hour; the respondent was traveling at this speed; the officer who investigated the accident testified that in his opinion a safe and proper speed under the circumstances was 30 to 35 miles per hour; both of the appellants testified that the patrol car was traveling at a speed of 40 to 45 miles an hour. [2] The jury might have concluded from the evidence that the patrol car was not entitled to the exemption of *798 Vehicle Code, section 454, because the speed maintained under the circumstances constituted an arbitrary exercise of the privileges extended by the section, or that it was not being driven with due regard for the safety of all persons using the highway, as the respondent had not been given the opportunity to yield the right of way. (Lucas v. City of Los Angeles, 10 Cal. 2d 476 [75 P.2d 599]; Goldstein v. Rogers, 93 Cal. App. 2d 201 [208 P.2d 719]; Washington v. City & County of San Francisco, supra; Duff v. Shaefer Ambulance Service, Inc., 132 Cal. App. 2d 655 [283 P.2d 91].) Even assuming that the appellants were properly operating the siren so as to be entitled under Vehicle Code, section 454, to travel at a speed of 40-45 miles and to disregard the provisions of Vehicle Code, section 526, and that respondent violated his duties under Vehicle Code, sections 526 and 554, it is still for the jury to determine whether the violation of the statute proximately contributed to the cause of the accident and whether such violation was justifiable under the circumstances. (Satterlee v. Orange Glenn School Dist., 29 Cal. 2d 581 [177 P.2d 279]; Ornales v. Wigger, 35 Cal. 2d 474 [218 P.2d 531].) The jury could also have concluded that Murrell was not negligent and did the only reasonably possible thing by bringing the truck to a stop. From the evidence, the jury could also have concluded that the accident was proximately caused by the presence of the two parked cars on the bridge; or that the accident occurred without fault on the part of any person. The matter of negligence here, therefore, was properly left to the jury.
[3] Appellants, relying on Carlson v. Shewalter, 110 Cal. App. 2d 655 [243 P.2d 549], further contend that the trial court committed prejudicial error in its instruction that a person exercising ordinary care has a right to assume that others will obey the law, by not adding the qualification that one may not continue to assume that the law is being observed after knowing or having an opportunity by use of reasonable care to ascertain that the law is not being observed. In the Carlson case, the court pointed out that the failure to so qualify a similar instruction was, under the facts of that case, prejudicial error; the jury had also been instructed that the law had been violated. Whether or not instructions are proper must be decided on the facts of each case. In the instant case, appellants have proceeded on the theory that they were obeying the law. Here, the qualification could apply only if the appellants were not obeying the law and Murrell knew or should have known that they were not obeying the law. Therefore, *799 we agree with respondents that the instant case falls under the rule of Vernon v. Owl Truck & Const. Co., 137 Cal. App. 2d 437 [290 P.2d 603], as there was not sufficient evidence to make the qualification applicable.
[4] Appellants also contend that it was prejudicial error to submit the issue of contributory negligence as to appellant Morley to the jury. We think that under the facts the issue was properly left to the jury. (Lowell v. Harris, 24 Cal. App. 2d 70 [74 P.2d 551]; Pinello v. Taylor, 128 Cal. App. 508 [17 P.2d 1039].) The jury was also correctly instructed that any negligence on the part of Morley could not be imputed to Mulligan. As the jury also denied relief to Mulligan, it would appear that the jury found no negligence on the part of Murrell and did not even reach the issue of contributory negligence.
[5] Respondents in their brief suggest that the court dismiss this appeal on its own motion for unreasonable delay, as the opening brief was not filed until three years after the filing of notice of appeal and the completion of the transcript, and as no explanation has been offered by the appellants. However, as respondents have not seen fit to file a motion to dismiss, and chose instead to file a reply brief on the merits, this is not a proper case for this court to exercise its inherent power.
We conclude that this cause was fully and fairly tried and that no prejudicial error appears in the record before us.
Judgment affirmed.
Appellants' petition for a hearing by the Supreme Court was denied August 13, 1957. Carter, J., and Traynor, J., were of the opinion that the petition should be granted.
Dooling, J., and Draper, J., concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1212162/ | 48 Cal. 2d 766 (1957)
THE PEOPLE, Respondent,
v.
PAUL J. DURONCELAY, Appellant.
Crim. No. 6008.
Supreme Court of California. In Bank.
June 21, 1957.
Donald R. Fretz, Public Defender (Merced), for Appellant.
Edmund G. Brown, Attorney General, Doris H. Maier and James M. Sanderson, Deputy Attorneys General, for Respondent.
GIBSON, C.J.
Defendant was convicted by a jury of violating section 501 of the Vehicle Code which provides that one who drives an automobile while under the influence of intoxicating liquor and causes personal injury is guilty of a felony.
The accident happened at about 10 p.m. as defendant was driving his automobile in a westerly direction on Yosemite Avenue in Merced County. A boulevard stop sign for westbound traffic was located at the intersection where Yosemite Avenue terminated, and, directly across the intersection, there was a "reflectorized" warning sign on the bank of an irrigation ditch. Defendant's automobile went through the intersection and collided with the bank of the ditch, knocking down the warning sign. An eyewitness testified that the automobile was "going pretty fast" and that there was no illumination from its brake lights to indicate that the brakes had been applied. There was also evidence that there were no skid marks on the road.
Kenneth Riggs, who owned an ambulance and held the position of coroner, drove his vehicle to the scene of the accident and found that defendant was unconscious and that one of two men riding with defendant was injured. The three men were sitting in the front seat of the automobile, and the passenger farthest to the right had a wine bottle in one hand and a can of beer in the other. There were beer cans on the floor of the automobile, and each of the men had an odor of alcohol on his breath. A highway patrolman who arrived at the scene before the ambulance departed and who conducted an investigation noticed that there was an odor of alcohol in the car.
Defendant was taken to a hospital, and, after he regained consciousness, he vomited matter which had a strong smell of alcohol. Riggs, the ambulance driver, had been requested by the highway patrol officer to obtain a sample of blood from defendant to be used for an alcohol test, and he asked defendant whether he consented to having the sample taken, informing him that it would be used for such a test. According *769 to Riggs, defendant, who was "quite sick at the time and throwing up," did not give a negative answer, and, to the best of his knowledge, Riggs received an answer to take the sample, although he could not recall "the exact words, or that it actually was a yes." When a nurse approached with a needle, defendant withdrew his arm, and Riggs held the arm while she extracted the blood. On cross-examination Riggs was questioned on the subject of defendant's consent and testified as follows:
Q. ... I believe you said that you did not get a negative answer and you therefore assumed that you got an affirmative answer, is that right?
A. Yes, I think I did say it just about like that. I can't recall. He was not in any condition to come out and say, "Yes, go ahead and take a blood alcohol." He couldn't say that much because he didn't say that many words all the time he was in the hospital. ...
Q. ... would you assume therefore that he could answer yes or no?
A. Yes, with a little prodding he could, because it took about 30 minutes to get who he was and where he was from. ...
Q. And I think that it is your testimony therefore that he did not say yes, is that right?
A. No, I would say that he did not say no.
Q. Well, could you say that he did say yes?
A. I took it, and so I would say that he said yes, or I wouldn't have taken it. ...
Q. ... you did not get an affirmative answer, is that right?
A. I still won't say that he said--if he said, "No," the blood alcohol wouldn't have been taken.
Q. Well, I understand that it is your position that he didn't say no. Did he say yes?
A. Well, I tell you, between the holding of the pan and the bottle and his heaving, I can't tell that he said yes, but I would say that he didn't say no.
The nurse who extracted the blood testified that, when defendant was asked for his consent, he gave no answer.
The blood sample taken from defendant had an alcohol content of .22 per cent. A criminologist testified that everyone is under the influence of alcohol when the alcohol content in his blood reaches .15 per cent and that, in his opinion, the person from whom the sample was taken was no longer *770 capable of operating a motor vehicle with his normal degree of skill and judgment.
[1] We are of the opinion that the only reasonable conclusion permitted by the testimony of Riggs and the nurse who assisted him in taking the blood sample is that, when asked for his permission, defendant made no verbal response to indicate whether he consented or refused. Because of defendant's condition, it would have been extremely difficult for him to give an answer, but, when the nurse approached him with the needle, he reacted by withdrawing his arm. [fn. *] Under the circumstances, a finding that defendant consented is unwarranted, and we must therefore determine whether the results of the blood test were admissible in the absence of defendant's consent to the taking of the sample.
[2] It is settled by our decision in People v. Haeussler, 41 Cal. 2d 252, 257 [260 P.2d 8], that the admission of the evidence did not violate defendant's privilege against self-incrimination because the privilege relates only to testimonial compulsion and not to real evidence. [3a] We also held in the Haeussler case that the taking of the defendant's blood for an alcohol test in a medically approved manner did not constitute brutality or shock the conscience and that, therefore, the defendant had not been denied due process of law under the rule applied in Rochin v. California, 342 U.S. 165 [72 S. Ct. 205, 96 L. Ed. 183, 25 A.L.R. 2d 1396]. This holding is in accord with the recent decision of the United States Supreme Court in Breithaupt v. Abram, 352 U.S. 432 [77 S. Ct. 408, 1 L. Ed. 2d 448], where blood for an alcohol test was taken by a doctor while the defendant was unconscious. The court pointed out that blood tests had become routine in everyday life and concluded that "a blood test taken by a skilled technician is not such 'conduct that shocks the conscience,' Rochin, supra (342 U.S. at 172), nor such a method of obtaining evidence that it offends a 'sense of justice,' Brown v. Mississippi, 297 U.S. 278, 285, 286 [56 S. Ct. 461, 80 L. Ed. 682]." There is no claim in the present case that the blood sample was not withdrawn in a medically approved manner. The blood was extracted by a registered nurse, and her testimony shows that she sterilized defendant's arm and used sterilized instruments. *771
The question remains as to whether the taking of defendant's blood constituted an unreasonable search and seizure in violation of his constitutional rights. We did not decide that question in People v. Haeussler, 41 Cal. 2d 252 [260 P.2d 8], because its determination was not necessary in view of the rule then followed in this state that illegally obtained evidence was admissible. Nor was it decided in Breithaupt v. Abram, 352 U.S. 432 [77 S. Ct. 408, 1 L. Ed. 2d 448], for the reason that New Mexico, where the judgment under review had been entered, permitted introduction of such evidence. The question is now squarely before us, however, since, subsequent to our decision in the Haeussler case, we adopted the exclusionary rule in People v. Cahan, 44 Cal. 2d 434, 445 [282 P.2d 905].
[4] It is obvious from the evidence that, before the blood sample was taken at the request of the highway patrolman, there was reasonable cause to believe that defendant had committed the felony of which he was convicted, and he could have been lawfully arrested at that time. (Pen. Code, 836.) [5] There is no claim that defendant was not arrested within a reasonable time or that the arrest was not made on the basis of the facts known to the officer who investigated the accident, and we must presume that there was a lawful arrest, in the absence of any showing to the contrary. (People v. Farrara, 46 Cal. 2d 265, 268- 269 [294 P.2d 21]; People v. Beard, 46 Cal. 2d 278, 280 [294 P.2d 29]; see Code Civ. Proc., 1963, subds. 15, 33.) [6] Where there are reasonable grounds for an arrest, a reasonable search of a person and the area under his control to obtain evidence against him is justified as an incident to arrest, and the search is not unlawful merely because it precedes, rather than follows, the arrest. (People v. Simon, 45 Cal. 2d 645, 648-649 [290 P.2d 531]; People v. Boyles, 45 Cal. 2d 652, 655 [290 P.2d 535]; People v. Martin, 45 Cal. 2d 755, 762 [290 P.2d 855].) Under the circumstances, a search, for example, of defendant's pockets or his automobile to obtain additional evidence of the offense would have been proper, regardless of whether he consented thereto. The question to be determined here is whether the taking of a sample of his blood for an alcohol test was a matter of such a different character that it must be regarded as an unreasonable search and seizure.
[3b] As we have seen, the extraction of defendant's blood was accomplished with medical precautions by a registered nurse, and it is settled that such conduct is not brutal or *772 shocking. Defendant does not challenge the accuracy of the alcohol test, and it merits emphasis that, while the accounts of eyewitnesses are often uncertain and conflicting on the issue of intoxication, blood alcohol tests are so subject to reliable scientific analysis that 23 states have enacted statutes sanctioning the use of such tests. (See Breithaupt v. Abram, 352 U.S. 432 [77 S. Ct. 408, 1 L. Ed. 2d 448, 451-452, fn. 3].) [7] Nor should it be ignored that a test of this kind may serve to exonerate, as well as to convict.
The incidence of death and serious injury on the highways has undeniably assumed tragic dimensions and has been due in a significant degree to the effects of alcohol upon drivers. (See National Safety Council Accident Facts--1955, pp. 43-71.) So long as the measures adopted do not amount to a substantial invasion of individual rights, society must not be prevented from seeking to combat this hazard to the safety of the public. [8] The extraction of blood for testing purposes is, of course, an experience which, every day, many undergo without hardship or ill effects. When this fact, together with the scientific reliability of blood alcohol tests in establishing guilt or innocence, is considered in the light of the imperative public interest involved, the taking of a sample for such a test without consent cannot be regarded as an unreasonable search and seizure where, as here, the extraction is made in a medically approved manner and is incident to the lawful arrest of one who is reasonably believed to have violated section 501 of the Vehicle Code.
We conclude that there was no violation of defendant's rights and that the results of the alcohol test were properly admitted in evidence.
The judgment and the order denying a new trial are affirmed.
Shenk, J., Traynor, J., Schauer, J., Spence, J., and McComb, J., concurred.
CARTER J.
I dissent.
I am of the opinion that the taking of the blood sample for a blood alcohol test in the absence of consent by defendant constituted an unreasonable search and seizure in violation of his constitutional rights. I feel that the taking of blood from defendant is a far different thing from the search of his car at the time of the accident. The available evidence leads to the inference that rather than consenting, *773 defendant tried to refuse to permit the blood sample to be taken.
In People v. Haeussler, 41 Cal. 2d 252 [260 P.2d 8], in which I dissented, the question of unreasonable search and seizure was not decided. I was of the opinion there, as I am here, that the taking of such a blood sample for the purpose of obtaining evidence to be used against the nonconsenting person is both a deprivation of due process and an unreasonable search and seizure in violation of both the federal and state Constitutions. The only justification for taking blood from a person who does not consent thereto is that it is deemed necessary by competent medical personnel in order to save the person's life. Taking of a blood specimen from a nonconsenting person to obtain evidence which may be used against him is also a denial of the privilege against self-incrimination.
In Breithaupt v. Abram, 352 U.S. 432 [77 S. Ct. 408, 1 L. Ed. 2d 448], on which the majority relies here, Mr. Chief Justice Warren dissented with Mr. Justice Black and Mr. Justice Douglas concurring. Mr. Chief Justice Warren said:
"The judgment in this case should be reversed if Rochin v. California, 342 U.S. 165 [72 S. Ct. 205, 96 L. Ed. 183, 25 A.L.R. 2d 1396], [fn. *] is to retain its vitality and stand as more than an instance of personal revulsion against particular police methods. I cannot agree with the Court when it says, 'we see nothing comparable here to the facts in Rochin.' It seems to me the essential elements of the cases are the same and the same result should follow."
"There is much in the Court's opinion concerning the hazards on our nation's highways, the efforts of the State to enforce the traffic laws and the necessity for the use of modern scientific methods in the detection of crime. Everybody can agree with these sentiments, and yet they do not help us particularly in determining whether this case can be distinguished from Rochin. That case grew out of police efforts to curb the narcotics traffic, in which there is surely a state interest of at least as great magnitude as the interest in highway law enforcement. Nor does the fact that many *774 States sanction the use of blood test evidence differentiate the cases. At the time Rochin was decided illegally obtained evidence was admissible in the vast majority of States. In both Rochin and this case the officers had probable cause to suspect the defendant of the offense of which they sought evidence. In Rochin the defendant was known as a narcotics law violator, was arrested under suspicious circumstances and was seen by the officers to swallow narcotics. In neither case, of course, are we concerned with the defendant's guilt or innocence. The sole problem is whether the proceeding was tainted by a violation of the defendant's constitutional rights."
"In reaching its conclusion that in this case, unlike Rochin, there is nothing 'brutal' or 'offensive' the Court has not kept separate the component parts of the problem. Essentially there are two: the character of the invasion of the body and the expression of the victim's will; the latter may be manifested by physical resistance. Of course, one may consent to having his blood extracted or his stomach pumped and thereby waive any due process objection. In that limited sense the expression of the will is significant. But where there is no affirmative consent, I cannot see that it should make any difference whether one states unequivocally that he objects or resorts to physical violence in protest or is in such condition that he is unable to protest. The Court, however, states that 'the absence of conscious consent, without more, does not necessarily render the taking a violation of a constitutional right.' This implies that a different result might follow if petitioner has been conscious and had voiced his objection. I reject the distinction."
"Since there clearly was no consent to the blood test, it is the nature of the invasion of the body that should be determinative of the due process question here presented. The Court's opinion suggests that an invasion is 'brutal' or 'offensive' only if the police use force to overcome a suspect's resistance. By its recital of the facts in Rochin--the references to a 'considerable struggle' and the fact that the stomach pump was 'forcibly used' [fn. *]--the Court finds Rochin distinguishable from this case. I cannot accept an analysis that would make physical resistance by a prisoner a prerequisite to the existence of his constitutional rights."
"Apart from the irrelevant factor of physical resistance, *775 the techniques used in this case and in Rochin are comparable. In each the operation was performed by a doctor in a hospital. In each there was an extraction of body fluids. Neither operation normally causes any lasting ill effects. The Court denominates a blood test as a scientific method for detecting crime and cites the frequency of such tests in our everyday life. The stomach pump too is a common and accepted way of making tests and relieving distress. But it does not follow from the fact that a technique is a product of science or is in common, consensual use for other purposes that it can be used to extract evidence from a criminal defendant without his consent. Would the taking of spinal fluid from an unconscious person be condoned because such tests are commonly made and might be used as a scientific aid to law enforcement?"
"Only personal reaction to the stomach pump and the blood test can distinguish them. To base the restriction which the Due Process Clause imposes on state criminal procedures upon such reactions is to build on shifting sands. We should, in my opinion, hold that due process means at least that law-enforcement officers in their efforts to obtain evidence from persons suspected of crime must stop short of bruising the body, breaking skin, puncturing tissue or extracting body fluids, whether they contemplate doing it by force or by stealth."
Mr. Justice Douglas, with whom Mr. Justice Black joined, wrote, in addition, a separate dissenting opinion in which he said:
"The Court seems to sanction in the name of law enforcement the assault made by the police on this unconscious man. If law enforcement were the chief value in our constitutional scheme, then due process would shrivel and become of little value in protecting the rights of the citizen. But those who fashioned the Constitution put certain rights out of the reach of the police and preferred other rights over law enforcement."
"One source of protection of the citizen against state action is the Due Process Clause of the Fourteenth Amendment. Our decisions hold that the police violate due process when they use brutal methods to obtain evidence against a man and use it to convict him. Rochin v. California, 342 U.S. 165 [72 S. Ct. 205, 96 L. Ed. 183, 25 A.L.R. 2d 1396]; Chambers v. Florida, 309 U.S 227 [60 S. Ct. 472, 84 L. Ed. 716]. But the conception of due process is not limited to a prohibition of the use of force and violence against an accused. In *776 Leyra v. Denno, 347 U.S. 556 [74 S. Ct. 716, 98 L. Ed. 948], we set aside a conviction where subtle, nonviolent methods had been used to exact a confession from a prisoner. For it was obvious that coercion might be the product of subtlety as well as of violence. We should take the same libertarian approach here."
"As I understand today's decision there would be a violation of due process if the blood had been withdrawn from the accused after a struggle with the police. But the sanctity of the person is equally violated and his body assaulted where the prisoner is incapable of offering resistance as it would be if force were used to overcome his resistance. In both cases evidence is used to convict a man which has been obtained from him on an involuntary basis. I would not draw a line between the use of force on the one hand and trickery, subterfuge, or any police technique which takes advantage of the inability of the prisoner to resist on the other. Nor would I draw a line between involuntary extraction of words from his lips, the involuntary extraction of the contents of his stomach, and the involuntary extraction of fluids of his body when the evidence obtained is used to convict him. Under our system of government, police cannot compel people to furnish the evidence necessary to send them to prison. Yet there is compulsion here, following the violation by the police of the sanctity of the body of an unconscious man."
"And if the decencies of a civilized state are the test, it is repulsive to me for the police to insert needles into an unconscious person in order to get the evidence necessary to convict him, whether they find the person unconscious, give him a pill which puts him to sleep, or use force to subdue him. The indignity to the individual is the same in one case as in the other, for in each is his body invaded and assaulted by the police who are supposed to be the citizen's protector."
The views expressed by Mr. Chief Justice Warren and Mr. Justice Douglas are particularly applicable to the case at bar. Here we do not have an unconscious person but one who, with the only strength he had, tried to refuse to have the blood test taken. A majority of this court is of the opinion, however, that since the blood sample was taken with all medical precautions the conduct of the law enforcement officers was neither brutal nor shocking and, as in the Breithaupt case, because blood tests are everyday occurrences which are undergone by persons consenting thereto for one reason or another, there is nothing wrong with a blood test *777 taken from one who either does not consent or is incapable of making his wishes known. I do not agree and the time will come when this court will be forced by the Supreme Court of the United States to revamp its theories on this subject as it has been forced to do in the past in other instances. (Rochin v. California, 342 U.S. 165 [72 S. Ct. 205, 96 L. Ed. 183, 25 A.L.R. 2d 1396].)
It appears to me that this case illustrates the whittling-down process which a majority of this court has engaged in since the Cahan case was decided. (People v. Cahan, 44 Cal. 2d 434, 445 [282 P.2d 905].) Prior to the Cahan case I had long advocated the inadmissibility of evidence illegally obtained, and finally a majority of this court saw fit to adopt the view that evidence so obtained was not admissible. However, by its holding here that evidence obtained by force from a nonconsenting person was not unlawfully obtained, the salutary rule of the Cahan case is evaded.
As I said in my dissenting opinion in People v. Haeussler, 41 Cal. 2d 252, 263, 265 [260 P.2d 8], "Because I believe in the dignity and security of the individual and agree with the framers of the Bill of Rights that 'the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures,' should 'not be violated,' (emphasis added). I cannot sanction the conduct of the prosecution officers in this case, and would, therefore, reverse the judgment."
For the foregoing reasons I would reverse the judgment. *778
NOTES
[fn. *] *. It is clear from the record that the trial court did not admit the results of the alcohol test on the basis of a finding that defendant had consented to the blood test but on the theory that, even if there was no consent, the evidence was admissible under our decision in People v. Haeussler, 41 Cal. 2d 252 [260 P.2d 8].
[fn. *] *. This case originated in California. A majority of this court held that Rochin's constitutional rights had not been invaded. Mr. Justice Schauer and I dissented from the denial of a petition for hearing (People v. Rochin, 101 Cal. App. 2d 140, 143, 149 [225 P.2d 1, 913]). The United States Supreme Court reversed the District Court of Appeal (Rochin v. California, 342 U.S. 165 [72 S. Ct. 205, 96 L. Ed. 183, 25 A.L.R. 2d 1396]).
[fn. *] *. Actually, the struggle in Rochin occurred in the defendant's home after the officers had broken in. He was arrested and taken to a hospital, and there was no evidence that he struggled there. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1300792/ | 209 Ga. App. 199 (1993)
433 S.E.2d 121
YOUNG et al.
v.
WAL-MART STORES, INC.
A93A0510.
Court of Appeals of Georgia.
Decided June 24, 1993.
Greer, Klosik & Daugherty, John F. Daugherty, William L. Swank II, Joseph G. Stewart, Jr., for appellants.
Brinson, Askew, Berry, Seigler, Richardson & Davis, Joseph B. Atkins, McLain & Merritt, Howard M. Lessinger, for appellee.
BLACKBURN, Judge.
This is an appeal from the trial court's order granting appellee/defendant, Wal-Mart Stores, Inc.'s (Wal-Mart) motion for summary judgment in a suit for damages arising from the fall of an eight-year-old child in Wal-Mart. Appellants, Bob Fred Young, individually and as next friend of Kelly Leanne Young (hereinafter referred to collectively as the Youngs), brought the instant action, sounding in negligence, against Wal-Mart.
The undisputed facts indicate that on August 22, 1989, Kelly Young accompanied her parents on a shopping trip to Wal-Mart. While her parents were looking at exercise equipment, Kelly wandered over to a treadmill which had been set up for demonstration and display. Kelly stated that when she stepped on the treadmill, the tread rolled back and she fell down, seriously injuring her knee. It is uncontroverted that the treadmill was turned off. It is also uncontroverted that Kelly's father could not make the tread roll when he tested the treadmill several days after his daughter's injury. Furthermore, the evidence is clear that Wal-Mart had no knowledge of any other complaints, claims, or alleged injuries involving the treadmill.
On appeal, the Youngs assert 11 enumerations of error. However, their "argument division contains no separate paragraphs relating to each enumeration as required by our rules. See Rule 15 (c) (1). Accordingly, we shall consider the enumerations en masse, as treated by [the Youngs]. Any enumeration not so treated in this opinion is deemed abandoned by [the Youngs]. [Cit.]" McMullan v. Ga. Girl Fashions, 180 Ga. App. 228, 229 (348 SE2d 748) (1986). Essentially, the Youngs contend that the trial court erred in granting Wal-Mart's motion for summary judgment, in that several issues of disputed fact required a determination by the jury.
The Youngs' basis for liability is set out in OCGA § 51-3-1 which provides that "[w]here an owner or occupier of land, by express or implied invitation, induces or leads others to come upon his premises for any lawful purpose, he is liable in damages to such persons for injuries caused by his failure to exercise ordinary care in keeping the premises and approaches safe." However, "[a] storekeeper is not liable as an insurer of the safety of persons whom he has invited to enter his premises. He owes them a duty of ordinary care, to have his premises in a reasonably safe condition, not to lead them into a dangerous *200 trap, or to expose them to unreasonable risk, but to give them adequate and timely notice and warning of latent or concealed perils. . . . What the law requires is not warranty of the safety of everybody from everything, but such diligence toward making the store safe as a good business man is in such matters accustomed to use." (Citations and punctuation omitted.) Madaris v. Piggly Wiggly Southern, 205 Ga. App. 405, 406 (422 SE2d 273) (1992).
"The law is clear that the basis for an owner's liability for injury occurring to another while on the owner's property is the owner's superior knowledge of the danger or defect which was the proximate cause of the injury. The true ground of liability is the proprietor's superior knowledge of the perilous instrumentality and the danger therefrom to persons going upon the property. . . . We recognize that even in premises liability cases the age of the injured person is relevant. Because a child may be unable to appreciate a danger, and therefore, to have knowledge of the hazard equal to that of the owner/occupier, an owner/occupier may be held to a higher standard of care toward a child than toward an adult." (Citations and punctuation omitted.) Hobson v. Kroger Co., 204 Ga. App. 417, 419-420 (419 SE2d 492) (1992).
In the present case, the record contains no evidence that the treadmill was a perilous instrumentality or that it exposed Kelly to an unreasonable risk of harm. The evidence showed that Kelly cut her knee on one of the angle irons, located on each side of the tread. Bob Young testified that "the angle iron was 90 degrees, flat on top, vertical on the sides." He deposed that "[t]his was not a honed edge (e.g., not like a sharpened knife), but it was a gauge of thin enough metal to where an abrupt impact with the metal would cut." In their brief filed with this court, the Youngs assert that the edges of the angle iron were "unfinished, rough, [and] jagged"; however, these descriptions are not supported in the record.
If the description of the angle irons as found in the Youngs' briefs was supported by the evidence, the question of whether Wal-Mart breached its duty to Kelly Young would be properly submitted to the jury. Since, however, there is no such evidence and it is clear that Wal-Mart had no actual knowledge of any danger associated with the treadmill, no jury question exists. Furthermore, Wal-Mart had no constructive knowledge that the treadmill could be considered a "perilous instrumentality." The evidence is clear that tread on the treadmill would not move, when the machine was turned off, on every occasion except when Kelly stepped on it. Furthermore, because the angle irons were not jagged or uneven, one could not tell by mere observation that an injury, such as occurred, could happen.
"In Augusta Amusements v. Powell, 93 Ga. App. 752, 754 (92 SE2d 720), we held: `Code § 105-204 (currently OCGA § 51-1-5 with *201 minor modifications) provides as follows: "Due care in a child of tender years is such care as its capacity, mental and physical, fits it for exercising in the actual circumstances of the occasion and situation under investigation." As applied to this case, this Code section would relate to that degree of care which the child should be required to exercise for his own safety, and, as to a child of [eight] years, the question would be one for the jury to decide. (Cit.) As to the duties of adults toward children, the rule of law is that children of tender years are entitled to a degree of care proportioned to their ability to foresee and avoid perils which may be encountered (cit.); that by reason of this "due care" or "ordinary care" to avoid injury to another may involve a greater duty owed to small children lawfully upon premises than to older persons (cit.); and accordingly the degree of care may vary with the capacity of the invitee. But, regardless of the age or capacity of the injured person, if there is no breach of any legal duty on the part of the defendant toward such person, there can be no legal liability.'" Hobson, supra at 419.
In the present case, considering the relevant facts, including, but not limited to, Kelly Young's age and the condition of the treadmill, the trial court was correct in finding that Wal-Mart did not breach its legal duty to not expose the Youngs to an unreasonable risk of harm while on its premises and approaches.
Judgment affirmed. Johnson and Smith, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1335410/ | 514 S.E.2d 195 (1999)
270 Ga. 770
CITY OF DOUGLASVILLE
v.
QUEEN et al.
No. S98G1208.
Supreme Court of Georgia.
March 8, 1999.
Reconsideration Denied April 2, 1999.
*197 Charles R. Beans, Hawkins & Parnell, Atlanta, for City of Douglasville et al.
Johnny R. Pannell, Johnny R. Pannell, P.C., Hawkinsville, William L. Lundy, Jr., Parker & Lundy, Cedartown, for Ronnie H. Queen et al.
Walter Edwin Sumner, Susan Moore Pruett, Georgia Municipal Association, Atlanta, for amicus curiae.
*196 HUNSTEIN, Justice.
Twelve-year-old Rebecca Ann Queen was injured and ten-year-old Lisa Michelle Queen was killed when they were hit by a Norfolk Southern Railroad train. The girls were walking on the railroad tracks while traveling from their family's car back to their parents, who were positioned on railroad property adjacent to Highway 78 in downtown City of Douglasville awaiting the City's annual Fourth of July parade. Ronnie Queen, as parent and next friend of the girls and as administrator of Lisa Michelle's estate, brought suit against the City and the railroad.[1] Insofar as the City is concerned,[2] Queen's complaint as amended alleged negligence based on numerous instances of the City's failure to act,[3] nuisance, premises liability and mantrap. The trial court granted the City's motion for summary judgment and the Court of Appeals affirmed the trial court's rulings on the mantrap and premises liability claims but reversed the grant of summary judgment on the negligence and nuisance claims. Queen v. City of Douglasville, 232 Ga.App. 68, 500 S.E.2d 918 (1998). We granted the City's petition for writ of certiorari to consider whether, as a matter of law, a city in conducting a discretionary exercise owes its citizens a duty to protect them from harm caused by third persons. Finding no such affirmative duty exists, we reverse the Court of Appeals and affirm the grant of summary judgment to the City on Queen's negligence and nuisance causes of action.[4]
1. To state a cause of action for negligence in Georgia, we held in Bradley Center v. Wessner, 250 Ga. 199, 200, 296 S.E.2d 693 (1982) that there must be (1) a legal duty to conform to a standard of conduct raised by the law for the protection of others against unreasonable risks of harm; (2) a breach of this standard; (3) a legally attributable causal connection between the conduct and the resulting injury; and (4) some loss or damage flowing to the plaintiff's legally protected interest as a result of the alleged breach of the legal duty.
"`Before negligence can be predicated upon a given act, some duty to the individual complaining must be sought and found, the observance of which duty would have averted or avoided the injury or damage....' [Cit.]" Porch v. Wright, 116 Ga. App. 138(1), 156 S.E.2d 532 (1967). "`No matter how innocent the plaintiff may be, he is not entitled to recover unless the defendant did something that [it] should *198 not have done, or failed to do something that [it] should have done pursuant to the duty owed the plaintiff.' [Cit.]" Veterans Organization of Fort Oglethorpe v. Potter, 111 Ga.App. 201, 205(2), 141 S.E.2d 230 (1965).
Cechman v. Travis, 202 Ga.App. 255, 257(2), 414 S.E.2d 282 (1991). Hence, the grant of summary judgment to the City was proper if the record establishes that Queen cannot prove the City had a duty to the Queen girls which it breached, either in regard to actions it affirmatively undertook or in regard to actions it failed to undertake. Accord Young v. Wal-Mart Stores, 209 Ga.App. 199, 433 S.E.2d 121 (1993) (regardless of age or capacity of the injured person, if there is no breach of any legal duty on part of defendant toward such person, there can be no legal liability).
2. Queen's complaint is cast exclusively in terms of the City's failure to act, i.e., acts of nonfeasance. The City is under no statutory obligation to perform any of the acts alleged in the complaint. Therefore, as a matter of law, Queen cannot establish any breach of duty in regard to the alleged nonfeasance, since OCGA § 36-33-2 expressly provides that "[w]here municipal corporations are not required by statute to perform an act, they may not be held liable for exercising their discretion in failing to perform the act." Accord Tamas v. City of Columbus, 244 Ga. 200, 202, 259 S.E.2d 457 (1979).
3. To the extent that Queen's allegations may be read as including acts of misfeasance, they likewise fail as a matter of law. The Court of Appeals reversed the grant of summary judgment to the City on Queen's negligence claim on the basis that fact questions remain whether the City committed an act of misfeasance when it held the Fourth of July parade in the vicinity of the railroad tracks. In regard to the affirmative act of planning and executing a parade, the City owed parade spectators a duty to exercise ordinary care for their protection. See generally Bradley Center, supra. The evidence, however, is uncontroverted that this duty was not breached by the City. The evidence establishes, inter alia, that the Queen girls were not injured by any participant in or spectator to the parade; they were not injured while on City property due to any defect the City knew or should have known to exist; they were not injured on private property by a dangerous condition created or maintained by the City; the City did not own, possess or exercise any degree of control over the railroad tracks where the Queen girls were injured; and the routing of the parade did not require spectators to sit on railroad property since there was a City sidewalk located directly across the street. Further, there is no evidence that the Queen girls were forced by any obstruction on City property to detour onto the railroad property, compare Zettler v. City of Atlanta, 66 Ga. 195, 196-197 (1880), or that the railroad tracks so closely adjoined the street that use of the street was thereby rendered unsafe and dangerous. Compare Harrell v. Mayor &c. of Macon, 1 Ga.App. 413, 415, 58 S.E. 124 (1907).
The record in this case reveals that there are no allegations asserted and no inferences adduced from the evidence that would create a question for the factfinder regarding the breach of any duty the City owed the Queen girls. Legal liability cannot be established by the bare fact that the girls were injured while awaiting the City's parade: "one who legally uses city streets for parade purposes is not an insurer of the safety of the spectators." Armburst v. Cox Broadcasting Corp., 117 Ga.App. 381, 383, 160 S.E.2d 609 (1968). Individuals attending a municipal parade may reasonably be expected to walk on train tracks adjacent to the parade route, just as they may reasonably be expected to park in commercial parking lots within walking distance of the parade or to traverse private property to reach the best locations for watching the parade; in doing so, they may also reasonably be expected to encounter hazards not created or maintained by the municipality. We decline to hold that the foreseeability of such situations places an affirmative duty upon a municipality to protect individuals from all privately-created and privately-maintained hazards they might encounter on the properties of third parties while approaching, viewing, and departing the parade. "[A] person is under no duty to *199 rescue another from a situation of peril which the former has not caused. [Cits.]" Alexander v. Harnick, 142 Ga.App. 816, 817(3), 237 S.E.2d 221 (1977).
4. The Court of Appeals also reversed the grant of summary judgment to the City on Queen's nuisance claim. "A nuisance is anything that causes hurt, inconvenience, or damage to another and the fact that the act done may otherwise be lawful shall not keep it from being a nuisance." OCGA § 41-1-1. "That which the law authorizes to be done, if done as the law authorizes, cannot be a nuisance. [Cits.] ... Thus, where the act is lawful in itself, it becomes a nuisance only when conducted in an illegal manner to the hurt, inconvenience or damage of another. [Cits.]" Mayor &c. of Savannah v. Palmerio, 242 Ga. 419, 425(3)(b), (c), 249 S.E.2d 224 (1978).
It is not unlawful for a railroad company to operate trains on its property. OCGA § 46-8-100. It is not unlawful for streets within a city to be adjacent to railroad tracks. OCGA §§ 32-4-92; 46-8-120 et seq. It is not unlawful for the City of Douglasville to sponsor a parade through its streets. Ga. L.1972, § 1.03(s), pp. 2119, 2126. Thus, it was not unlawful for the City to route the parade in issue onto those streets that passed next to railroad property. Accordingly, we reject as a matter of law the position that the City's holding of its parade in the vicinity of railroad property which contained no danger created or maintained by the City constituted a nuisance.[5] To hold otherwise would be to label as a nuisance any properly-conducted activity held by a public entity on any of its property that is adjacent to and does not improperly encroach upon railroad tracks.
Finally, even accepting, arguendo, the position that the City's act in holding the parade can qualify as a nuisance, "[a] public nuisance is one which damages all persons who come within the sphere of its operation, though it may vary in its effects on individuals." OCGA § 41-1-2.
This language is not used in the sense that every person in the area must have been actually hurt or injured in order to show a public nuisance. It is sufficient if it injures those of the public who may actually come in contact with it. A public nuisance exists if the act complained of affects rights which are common to all within a particular area.
(Punctuation, citations and footnote omitted.) Moreland v. Cheney, 267 Ga. 469-470, 479 S.E.2d 745 (1997).
The undisputed evidence showed that during the 30 or more years prior to the injuries incurred by the Queen girls, no other parade spectator had ever been injured by a train on the railroad tracks. "Inasmuch as a public nuisance must injure all members of the public who come into contact with it, (the evidence) to the contrary effectively erased [Queen's] public nuisance cause of action." (Citations and punctuation omitted.) Kitchen v. CSX Transp., 265 Ga. 206, 210(3), 453 S.E.2d 712 (1995). See also United Refrigerated Svcs. v. Emmer, 218 Ga.App. 865(2), 463 S.E.2d 535 (1995).
Judgment reversed.
All the Justices concur except SEARS, J., who concurs in the judgment only as to Division 4 and HINES, J., who dissents.
HINES, Justice, dissenting.
I respectfully dissent, as I believe the issues the majority has decided must be presented to a jury.
1. An action for negligence is properly set forth in this case. Although the majority states Queen's complaint asserts exclusively acts of nonfeasance, Queen's complaint asserts that the City's decision to hold the *200 parade in the vicinity of the railroad tracks, with its attendant dangers, was a positive act of misfeasance. In this case, the City has chosen to act, and has acted; its actions are not simply nonfeasance, taking the matter out of the ambit of OCGA § 36-33-2. City of Columbus v. Myszka, 246 Ga. 571, 571-572(1), 272 S.E.2d 302 (1980).
In planning the parade, the City owed the parade spectators a duty "not to subject them to an unreasonable risk of harm." Bradley Center v. Wessner, 250 Ga. 199, 201, 296 S.E.2d 693 (1982). Although the majority recognizes this concept, it finds that the duty was not breached. However, evidence was presented that congestion of parade spectators adjacent to the railroad tracks was a problem during previous parades and that the City was aware of this. It is for a jury to determine whether again planning the parade route as in the past despite knowledge of the crowd congestion and its foreseeable consequences, was a breach of the City's duty.
The majority also finds that the Queen girls were not injured by any parade participant, were not on City property, and were not injured by any instrumentality over which the City exercised control. Although the majority concedes that injuries such as those that befell the Queen girls may be foreseeable when a municipality plans an event such as a parade, it holds that despite that foreseeability, a municipality will not be liable for such an injury because, as a matter of law, the municipality's act will be deemed not to be the cause of the injury. However, whether any City action was the proximate cause of the Queen girls' injuries is properly decided by a trier of fact, not by an appellate court. Atlanta Ob. & Gyn. Group, P.A. v. Coleman, 260 Ga. 569, 570, 398 S.E.2d 16 (1990). A jury should decide whether the City was responsible for the "situation of peril" in which the Queen girls found themselves. See Alexander v. Harnick, 142 Ga. App. 816, 817(3), 237 S.E.2d 221 (1977).
2. The majority also improperly finds that, as a matter of law, the City's actions could not constitute a nuisance. It cites OCGA § 41-1-1's definition that "[a] nuisance is anything that causes hurt, inconvenience, or damage to another and the fact that the act done may otherwise be lawful shall not keep it from being a nuisance," but ignores the statute's inclusion of a lawful act. The majority focuses on the statement in Mayor &c. of Savannah v. Palmerio, 242 Ga. 419, 425(3)(c), 249 S.E.2d 224 (1978), that to be a nuisance an act must be done in an "illegal manner," but equates "illegal" with "not authorized by law," and the majority concludes that because the acts were in the City's legal power they were not "illegal." The statute specifically recognizes that a nuisance may be a lawful act, and it is irrelevant that the City is empowered to conduct a parade and empowered to site its streets adjacent to railroad tracks. The issue is not whether the municipality's act is within the government's authority, but whether it is "illegal" as that term is used in the context of nuisances. Mayor &c. of Savannah uses the term only in the context of a lawful act; the act is "illegal," though otherwise lawful, when done in violation of some right, here the right to attend the parade without being subjected to an unreasonable risk of harm. The law has long been that "[a]n action may be brought against a municipality for the creation or maintenance of a nuisance where the municipality is negligent in carrying out a lawful act which it was authorized to do." See Town of Fort Oglethorpe v. Phillips, 224 Ga. 834, 838, 165 S.E.2d 141 (1968). The salient inquiry is whether the City "committed an act which created the dangerous condition." Mayor &c. of Savannah, supra at 427(4), 249 S.E.2d 224.
The effect of the majority's decision is that whenever a municipality is acting within its powers in conducting an event, that event cannot be a nuisance, regardless of how dangerous a condition the municipality may create. That is not the law of Georgia, and this Court should not declare it to be the law. Whether the City created a dangerous condition in this case is a question which should properly be presented to a jury.
Nor is summary judgment appropriate on the basis that the parade and its attendant congestion cannot be considered a nuisance because no one else had been injured by a train in the more than 30 years in which the *201 parade had been held. It is not necessary that there be a prior injury for there to be a public nuisance; a public nuisance exists if the act complained of affects rights which are common to all those in a particular area. Moreland v. Cheney, 267 Ga. 469, 469-470, 479 S.E.2d 745 (1997). All those who attended the parade had the right not to be subjected to an unreasonable risk of harm, and the creation of such a risk to a body of spectators can be considered a public nuisance; it is sufficient if the circumstances surrounding an act pose a threat to those of the public who come into contact with it. Id.
Neither the lower court nor this Court should act as the jury in this case. Accordingly, the judgment of the Court of Appeals should be affirmed.
NOTES
[1] The complaint against the railroad was dismissed with prejudice.
[2] It is uncontroverted that the City's sovereign immunity was waived by the purchase of insurance. OCGA § 36-33-1.
[3] The acts of nonfeasance Queen attributed to the City included: failure to notify the railroad company that the parade was taking place and to request that the trains reduce their speed; failure to warn parade spectators of the danger created by the tracks; failure to deter spectators from walking on the tracks; failure to maintain the safety of the premises for the spectators as invitees; and a failure to use ordinary reason, judgment, care and prudence in planning, organizing and conducting the parade, and its attendant visual and noise distractions, along the tracks without providing proper safeguards, safe parking, proper crowd control, and without anticipating or guarding against injuries.
[4] The remaining causes of action not addressed by this opinion are controlled by the Court of Appeals' affirmance of the grant of summary judgment.
[5] We note that this is not a situation where a dangerous condition existing on adjacent property injured someone on the City's property so as to create a jury question as to municipal liability. Compare Parker v. Mayor &c. of Macon, 39 Ga. 725 (1869). Armburst v. Cox Broadcasting Corp., supra, 117 Ga.App. at 381, 160 S.E.2d 609, relied upon by the Court of Appeals, is thus distinguishable in that it involved privately-owned scaffolding adjacent to city sidewalks. Nor is this an instance where the municipality built a park on either side of railroad tracks, thereby necessitating passage over the tracks to move from one side of the park to the other. Compare Grier v. City of Atlanta, 200 Ga.App. 575, 408 S.E.2d 794 (1991). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1373359/ | 131 Ga. App. 840 (1974)
207 S.E.2d 241
CRANKSHAW
v.
STANLEY HOMES, INC.
49082.
Court of Appeals of Georgia.
Argued February 7, 1974.
Decided May 20, 1974.
*844 Charley G. Morris, for appellant.
Gambrell & Mobley, Robert D. Feagin, Henry G. Ciocca, for appellee.
EBERHARDT, Presiding Judge.
Charles H. Crankshaw, d/b/a C. H. Crankshaw Drywall Company, brought suit against Stanley Homes Inc. of Georgia on a contract under which Crankshaw, for the contract price of $52,300, agreed to perform the drywall work for defendant at its Mount Zion Village apartment complex. There was evidence that Crankshaw had completed virtually all of the work except for a portion of Building 10 before defendant terminated the *841 contract. Defendant moved for a directed verdict on the grounds that Crankshaw's damages had not been sufficiently proven, which was granted, and Crankshaw appeals. Held:
1. Where a contractor or a sub-contractor has been prevented by the owner from completing his contract in the construction of a building, generally the measure of damages which he may claim for the wrongful breach is stated in Campbell & Co. v. Mion Bros., 6 Ga. App. 134 (3) (64 S.E. 571): "Where one employs another to furnish the labor and material to do the work necessary to the improvement of real estate, but renounces the contract prior to the time when the contractor has incurred any expense toward the performance of it, the recovery for the breach of the contract is limited to the difference between the contract price and what it would have cost the contractor in labor and materials to have performed it."
But there is a further rule, as stated in that case, which applies when the contractor has expended money in the purchase of materials which he may have to dispose of at a loss, in which event the rule is: "But if the contract is not broken until after the contractor has gone to expense toward its performance, the net loss incurred by him on account of the amount so expended should be added to the difference between the contract price and what it would have cost him to perform the contract." It is perhaps not a general experience that the contractor has purchased materials which have not been worked into the building and which he must dispose of at a loss, for these are generally returnable to suppliers for full credit. But it may well happen that some item has been specially ordered for use on the particular job which would not be usable on most others, in which event the contractor may have to dispose of it at a loss.
This is fully illustrated in Campbell & Co. v. Mion Bros., supra, where the contractor had purchased $166.46 worth of tile for use on the job and because of the owner's breach of the contract, had to dispose of it for $95. Recovery was allowed for loss of profit plus his loss of $71.46 on the tile.
These rules are also found in 5 Corbin on Contracts, *842 § 1094, pp. 510-514. Basically where the contract is wrongfully breached by the owner the contractor is entitled to recover damages measured by his actual expenditure to the date of breach, less the value of the materials he has left on hand, plus the profit he would have realized in the event of complete performance, but in no event to exceed the contract price. If progress payments have been made by the owner, he is entitled to credit therefor.
Where the contract is to be performed for a fixed sum or price, it is immaterial to the owner whether the contractor's expenditures have been prudently made or not, provided full performance would not have resulted in a net loss. If it appears that full performance would have resulted in a net loss, the amount of the loss must be deducted from his recovery.
Some confusion has arisen relative to the correct measure of damages which the contractor may recover against an owner who has wrongfully terminated the contract before completion because of a statement of the measure in Herrman v. Conway, 83 Ga. App. 888, 891 (2) (65 SE2d 41), where there was a misinterpretation of the rule which Judge Powell had stated in Campbell & Co. v. Mion Bros., 6 Ga. App. 134 (3), supra. The confusion appears again in Robertson v. Gore, 115 Ga. App. 537, 538 (154 SE2d 748) and in Redman Development Corp. v. West, 127 Ga. App. 265, 266 (193 SE2d 213) where there were misstatements of the correct measure of damages, as is pointed out in 25 Mer. L. Rev. 97, 108, though the correct result was reached. Insofar as the statement of the measure of damages in these cases (Herrman, Robertson and Redman) as being the difference in the contract price and the cost to complete the work, plus sums expended by the contractor up to the time of the alleged breach, conflicts with the measure which we here declare as a correct one, it is expressly overruled and will not be followed.
2. In the instant case the evidence shows that the contract price was $52,300, and that defendant has paid Crankshaw $37,113.25 on the contract. The measure of damages is not in dispute, but it is defendant's contention that Crankshaw's testimony as to the amount it would *843 have cost him to complete the job was so uncertain that the amount of damages could not be determined with reasonable certainty.
We disagree. Mr. Crankshaw testified: "Q. Mr. Crankshaw, could you tell the court and jury how much it would have cost you in labor and material to have completed this job? A. Approximately $4,200. Q. All right. How do you arrive at this figure, Mr. Crankshaw? A. I pay so much a unit and so much for material. That's based on other buildings [in the project], Buildings 1 and 2, which were identical buildings and nine; Buildings 1, 2 and 9, which were identical buildings to 10. Q. In other words, for $4,200 you could have completed the whole job? A. I could have completed the whole job, I believe, for $4,200."
We do not view this testimony as so uncertain as to warrant the direction of a verdict in defendant's favor. Though there should not be reliance upon speculation and conjecture and the proof should be made with all possible specificity, it has been held in countless cases that reasonable certainty is all that is required. Compare Bennett v. Associated Food Stores, Inc., 118 Ga. App. 711 (165 SE2d 581); Atlantic & B. R. Co. v. Howard Supply Co., 125 Ga. 478 (54 S.E. 530); Contractors Equipment Co. v. Essex Crane Rental Corp., 121 Ga. App. 184 (173 SE2d 270).
Of course the verdict or judgment may not be based upon speculation or conjecture, and thus the evidence must be such as to afford a fair basis for calculating the damages. National Refrigerator &c. Co. v. Parmalee, 9 Ga. App. 725 (1) (72 S.E. 191); Studebaker Corp. v. Nail, 82 Ga. App. 779 (62 SE2d 198). As was pointed out in these cases, however, it is not required that exact figures be afforded for the calculation. We find the proof as a whole here to measure up to the required standard and the matter should have been submitted to the jury.
Judgment reversed. Bell, C. J., Pannell, P. J., Quillian, Clark, Stolz and Webb, JJ., concur. Evans, J., concurs specially. Deen, J., dissents.
EVANS, Judge., concurring specially.
The trial court directed a verdict for the defendant. I concur with the majority opinion in holding such to be reversible error. The case should have been submitted to the jury.
It is contended that the evidence did not show recoverable damages, or did not fit within the framework of the measure of damages authorized by law in cases of this kind. I disagree.
What is the measure of damages where a building contractor begins performance of the work, and the owner, without lawful excuse, stops him and prevents his completion of the job? Much legal jargon, and mystifying and mysterious language has been used in certain prior decisions of this court, which can only confuse this issue.
When it is boiled down to simplicity, the measure of damages is the profit the builder would have made if he had been allowed to complete the job. Or, as has been held time and again, in slightly more complex language, but meaning the same thing: In Southern &c. Corp. v. Davis &c. Engineers, 109 Ga. App. 191, 197 (135 SE2d 454): "The measure alleged here is the difference between the total cost of the work under the contract and what the cost of performance would have been to plaintiff. Under the Georgia cases, this is the proper measure. Wallace v. Tumlin, 42 Ga. 462 (4); Jones v. Ely, 95 Ga. App. 4 (3) (96 SE2d 536); Luckie v. Max Wright, Inc., 90 Ga. App. 243 (3), supra; Curtis v. Burney, 55 Ga. App. 552, supra; Pittman Construction Co. v. Ellis, 39 Ga. App. 490 (147 S.E. 420)." Again, in Turner v. Houser, 110 Ga. App. 379, 381 (138 SE2d 619): "Damages flowing from the breach do not consist of the out of pocket costs, rather it is the difference in the total amount to be paid under the contract and the cost of performance by the plaintiff. Darlington Corp. v. Evans, 88 Ga. App. 84, 89 (76 SE2d 72)." And in the Darlington case, above cited, at page 89, it is held: "`Where a party seeks damages for the violation *845 of a contract by the other party, the measure of his damages is not what he has suffered by performing his part, but what he has suffered by failure of the other party.' Pope v. Graniteville Mfg. Co., 1 Ga. App. 176 (2) (57 S.E. 949) ... and the measure of such damages is the profit, if legally ascertainable, which would have accrued had the contract been complied with. Jester v. Bainbridge State Bank, 4 Ga. App. 469 (4) (61 S.E. 926)." (Emphasis supplied.)
In the case sub judice, there is ample evidence in the record to show the owner agreed to pay the contractor $52,300 for the complete job. The builder has paid to the contractor the sum of $37,113.25, which leaves $15,186.75 due by the builder for performance by the contractor of his entire contract. But the owner stopped the performance at this point, which prevented the builder from completing the contract. The contractor did not go upon this job for the purpose of performing a job for which he would be paid less than the entire $52,300, and if the owner had suggested a partial building job for which he would be paid $37,113.25, the contractor would have had the right to refuse, and likely would have done so. So he says to the owner: You obligated yourself to pay me $52,300 if I completed this job satisfactorily. I have kept my contract, but you have not kept yours; you have stopped me as I was nearing completion of the contract, and at a time when you had paid only a part of what you promised to pay for the complete job. I want the $15,186.75 that you have not yet paid (as a part of the $52,300), and I am ready to go forward and complete the job so as to earn that balance. But it would cost me $4,200 to perform until completion, so I will deduct that amount, and the balance that you owe me is $10,986.75.
If the jury believed the evidence of plaintiff, it would have been authorized to return a verdict in his favor for $10,986.75.
Any prior decision by this court which conflicts with the measure of damages in this kind of situation, as set forth herein, should be overruled or disregarded.
DEEN, Judge, dissenting in part.
I would eliminate everything in Division 1 following *846 the end of the first paragraph on page 842 of the majority opinion. The true rule is stated correctly on page 841 and in quoting Corbin on pages 841 and 842. I would then add merely that anything to the contrary in Herrman v. Conway, 83 Ga. App. 888, 891 (65 SE2d 41), Robertson v. Gore, 115 Ga. App. 537, 538 (154 SE2d 748), and Redman Development Corp. v. West, 127 Ga. App. 265, 266 (193 SE2d 213), is disapproved. There are two basic reasons why I disagree with the remainder of Headnote 1:
1. The key question this court must decide is what is the correct measure of damages when the contract is not broken until after the contractor has gone to expense towards its performance? Judge Arthur Powell clearly answered this question in Campbell & Co. v. Mion Bros., 6 Ga. App. 134 (3) (64 S.E. 571), "... the net loss incurred by him on account of the amount so expended should be added to the difference between the contract price and what it would have cost him to perform the contract." (Emphasis supplied.) However, the majority opinion overrules in Herrman, supra: "As being the difference in the contract price and the cost to complete the work, plus sums expended by the contractor up to the time of the alleged breach." The only misinterpretation in Herrman is in the four words "to complete the work" instead of using the correct four words of "to perform the contract" the former implies only the cost to complete the work from the time of the breach while the latter clearly includes all the cost to perform the contract from the beginning to end. Other than these four words the remainder of the rule in Herrman followed in Robertson and Redman, supra, is eminently correct and the same as Campbell, supra, and similar to the rule set out in 5 Corbin on Contracts, § 1094, pp. 510-514. I believe it is important to pinpoint the exact misinterpretation in Herrman, supra, rather than a broad overruling without explanation. The error in Herrman permits a double recovery by the contractor which is wrong. With the majority opinion's indication that "plus sums expended by the contractor up to the time of the breach" is incorrect and should be overruled, to me perpetuates error and is contrary to Campbell and Corbin. Once Herrman is read *847 using the correct four words then the observation pointed out in 25 Mer. L. Rev. 97, 108, is no longer valid.
To summarize, the correct formula or measure of damages when the breach of a contract occurs after the contractor has gone to expense towards its performance, is as follows: The contractor is always entitled to his profit, that is, the difference in the total contract price and the total cost of performing it from its inception, plus the net loss of sums expended (sums expended up to the time of the breach). Provided, however, if progress payments have been made by the owner he is entitled to this credit and likewise if it is shown the contractor had bid the contract showing a loss the owner is entitled to this credit.
2. The majority opinion is clear that a contractor is entitled to expenses as to materials used up until the time of the breach, less any salvage value, which net loss is to be added to the profit. However, the majority opinion is silent as to labor and other expenses that the contractor might incur. The correct measure allows for all net expenses up to the time of the breach. Herrman includes the factual situation of labor and materials. Campbell does not limit expenses to materials only. While we are going back to the right measure of damages let us make certain that the contractor is entitled to his profit plus all expenses of every kind up until the time of the breach. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1904992/ | 8 F.Supp. 259 (1934)
HOLLAND et al.
v.
C. & A. IMPORT CORPORATION et al.
District Court, S. D. New York.
June 20, 1934.
*260 Briesen & Schrenk, of New York City (Fred A. Klein and Edward T. Kelly, both of New York City, of counsel), for plaintiffs.
Fritz Ziegler, of New York City, for defendants.
PATTERSON, District Judge.
The plaintiffs attempted to import into this country a shipment of Italian wine bearing the label "It Is It Is It Is." The shipment was detained by the collector of the port, at the instance of the defendant C. & A. Import Corporation, on the ground that the label was merely a translation of the latter's registered trade-mark "Est Est Est" and infringed it. The plaintiffs then brought this suit to restrain the collector from interference and to cancel the registered trade-mark as invalid. In the suit the plaintiffs moved for preliminary relief, asking that both defendants, the collector, and the proprietor of the trade-mark be restrained pendente lite from refusing entry to the plaintiffs' goods. The defendant C. & A. Import Corporation filed a counterclaim, charging infringement of its trade-mark "Est Est Est," and it also moved for a preliminary injunction to protect its trade-mark. The two motions, one by the plaintiffs and one by the corporate defendant, were heard at the same time.
It is shown by the plaintiffs' papers that Est Est Est is a name for wine made from grapes grown in the vicinity of Montefiascone, Italy, and that for at least a century the wine made in this locality has been known in Italy as Est Est Est. The name has its origin in a legend said to date from the twelfth century. The story runs that a German bishop traveling to Rome sent his servant ahead to mark the places on the route where the wine was good. The mark to be made was Est. The servant found the wine of Montefiascone so good that he marked on the houses Est Est Est. The bishop on his arrival agreed with the servant and drank such a quantity of the wine that he died. His monument is said to be in the cathedral there, with the inscription written by the servant:
"`Est est est.' Propter nimium `est,'
Dominus meus mortuus `est.'"
There is a description of the wine of Montefiascone, "also called `Est Est,'" in a book entitled A History and Description of Modern Wines, by Cyrus Redding, published in London in 1836, and also in a later edition of the same book published in 1860. In Wine, The Vine and The Cellar, by Thomas George Shaw, published in London in 1864, it is said (page 418): "In the northern portions of the Roman States the richest and most esteemed wine is the famous Est, grown in the vicinity of Montefiascone". Both of these books mention the legend.
That the wine of Montefiascone is also called "Est Est Est" is shown by more modern works. The Encyclopedia Americana (1932), under the title Montefiascone, Meyers "Konversations Lexikon" (1904), in volume 6, page 128. Various pamphlets put out quite recently under the auspices of the Italian government carry Est Est Est as the descriptive word for a kind of wine, comparable to Chianti and other well-known wines. There can be no doubt then that, in Italy at least, the name "Est Est Est" is applied generically to wine made from grapes grown in the Montefiascone region.
The plaintiffs are a firm in the business of importing wines. They purchased a quantity of wine from a producer in the Montefiascone district, translated Est Est Est into It Is It Is It Is, and brought to the United States a shipment of wine with this label. A later shipment, that involved in this suit, was detained by the collector at the instance of the defendant C. & A. Import Corporation.
The C. & A. Import Corporation is a New York corporation. It and its predecessors have been in the business of importing and selling Italian wines since 1900. In 1908 it adopted the trade-mark "Est Est Est" for wines sold by it, and has used the mark indiscriminately on white Italian wines sold by it. This mark was registered in the Patent Office on June 21, 1910. It is claimed that upwards of 1,000,000 bottles so marked were sold prior to prohibition. The volume of business now being done is not stated. The defendant's affidavits tend to show that so far as the United States is concerned, the words Est Est Est on wine do not denote wine from any particular locality or of any particular kind.
*261 The defendant also calls attention to a booklet fastened to the bottles which the plaintiffs are seeking to import. The booklet sets forth the legend of the bishop and Est Est Est, and then states: "To perpetuate the name of this wine our company adopted it for its firm name. Italian law forbids the use of the Latin word `Est' so we have patented, the world over, the words `It Is It Is It Is.'"
In detaining the plaintiffs' goods, the collector acted under section 526 of the Tariff Act of 1930 (19 USCA § 1526), to the effect that goods of foreign manufacture which infringe a trade-mark registered and owned by a citizen or corporation here shall not be imported into the United States without consent of the owner of the trade-mark. This statute is presumptively a sufficient warrant for the detention. But, if an importer takes the position that the domestic trade-mark is not entitled to registration, he may have that issue tried in the manner here resorted to by suit against the owner of the registered trade-mark and the collector to have the goods admitted. Le Blume Import Co. v. Coty (C. C. A. 2) 293 F. 344, at page 347. Congress did not intend to make the mere registration of trade-mark final and conclusive against the importer, or to relegate him to a proceeding in the Patent Office to cancel the registration as his only relief.
It is also clear that the two marks, the Latin "Est Est Est" and the English translation "It Is It Is It Is," are similar enough to cause confusion, and that the defendant's mark would be infringed by the sale of wine bearing the plaintiffs' mark. It is an issue then whether the defendant's trade-mark "Est Est Est" is valid and entitled to registration.
2. By the weight of authority, a word commonly used in other countries to identify a kind of product and there in the public domain as a descriptive or generic name may not be appropriated here as a trade-mark on that product, even though the person claiming the word was the one who introduced the product here and the word then had no significance to our people generally. The rule is a just one. Why should the first comer be given a monopoly of the word when he knew all along that he had no better right to it than any one else? If others who may bring the same product here later cannot sell it under its real name, fair competition would be greatly impeded.
In Dadirrian v. Yacubian, 98 F. 872 (C. C. A. 1), the plaintiff was denied the right to use Matzoon as a trade-mark for fermented milk; it being shown that the article was a well-known Armenian beverage and that Matzoon was the regular Armenian word for it. The fact that the plaintiff had brought the beverage here at a time when neither it nor the name was known in these parts was deemed immaterial.
The same result was reached by the Chancery Division in Davis v. Stribolt, 59 L. T. N. S. 854. The Norwegian word "Bokol," meaning bock beer and first used in England by the plaintiffs, was held not to be a valid trade-mark. In discussing the contention in favor of the validity of the mark, Chitty, J., said (page 855): "If the argument were well founded the importer into this country of any foreign article, not previously known in this country, could restrain anyone else from using the name by which it was called in the country where it was produced. * * * It is plain no such proposition could be maintained."
The same view was taken in Burke v. Cassin, 45 Cal. 467, 13 Am. Rep. 204, where it was held that Schnapps, a Dutch gin, could not be taken as a trade-mark in this country; the word being a generic one. See, also, Italian Swiss Colony v. Italian Vinyard Co., 158 Cal. 252, 110 P. 913, 32 L. R. A. (N. S.) 439; DeBevoise Co. v. H. & W. Co., 69 N. J. Eq. 114, 60 A. 407; Godillot v. Hazard, 49 How. Pr. (N. Y.) 5; Roncoroni v. Gross, 92 App. Div. 221, 86 N. Y. S. 1112; Selchow v. Chaffee & Selchow Co., 132 F. 996 (C. C. N. Y.); Nims on Unfair Competition and Trade-marks, § 208.
The proof here is convincing that in Italy or in part of Italy the words "Est Est Est" are in common use to signify the wine made in Montefiascone. The name is descriptive of that type of wine, and was commonly applied to it long before the defendant took the name as a mark to identify wines sold by it here. If it be the fact that in this country only connoisseurs were familiar with Est Est Est as a type of Italian wine, the defendant's position is no better.
The defendant presses Le Blume Import Co. v. Coty, supra, as an authority in its favor. It is true that there are certain similarities in the facts of the two cases. But in the Coty Case the word "L'Origan" on perfumes was held suggestive rather than descriptive. I am therefore persuaded that the defendant has no right to monopolize the words "Est Est Est" on bottles of wine and that its trade-mark is not a valid one.
3. But the plaintiffs, for reasons peculiar to themselves, are not in condition to get the *262 relief they seek. They are representing on their bottles that they have "patented" (meaning trade-marked) the words "It Is It Is It Is" the world over. In the first place, this is not the truth. They have not "patented" the mark or secured a trade-mark on it in this country. In the second place, they are representing that the mark is their exclusive property, not to be taken by any other concern, whereas their contention in this case is and necessarily must be that the words belong to no particular proprietor. They cannot take the defendant to task for having done the same thing that they are doing claiming a trade-mark in a name that is common property. See Ubeda v. Zialcita, 226 U. S. 452, 33 S. Ct. 165, 57 L. Ed. 296; Straus v. Notaseme Co., 240 U. S. 179, 181, 36 S. Ct. 288, 60 L. Ed. 590; Diamond Crystal Salt Co. v. Worcester Salt Co., 221 F. 66 (C. C. A. 2).
The case then is one of those where each party takes advantage of his rival's weakness rather than of his own strength. The plaintiffs' motion will be denied because of their representations of an exclusive trade-mark. The defendant's motion will be denied because of the invalidity of its trade-mark. The order may be settled on two days' notice. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3348787/ | [EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.] MEMORANDUM OF DECISION
October 11, 2001, by way of a letter to the commission, the Wiznias filed an application on requesting a special permit to create lot 20, a rear lot in a proposed twenty-five lot subdivision named Walnut Grove Estates. (Return of Record [ROR], Item Q.) The proposed subdivision application was filed separately on May 3, 2001. (ROR, Item A.) The commission received the special permit application on November 5, 2001 (ROR, Item FF); and a public hearing was held on November 19, 2001. (ROR, Item V.) At a December 17, 2001 meeting, the commission voted, by majority, to deny the application. (ROR, Item AA, p. 3.) The Wiznias timely commenced this appeal on January 8, 2002, challenging the commission's decision.
JURISDICTION
General Statutes § 8-8 (b) provides in pertinent part that "any person aggrieved by any decision of a board . . . may take an appeal to the superior court for the judicial district in which the municipality is located." "A statutory right to appeal may be taken advantage of only by strict compliance with the statutory provisions by which it is created." (Internal quotation marks omitted.) Bridgeport Bowl-O-Rama, Inc. v.Zoning Board of Appeals, 195 Conn. 276, 283, 487 A.2d 559 (1985).
Aggrievement
"[P]leading and proof of aggrievement are prerequisites to a trial court's jurisdiction over the subject matter of an administrative appeal." (Internal quotation marks omitted.) Harris v. Zoning Commission,259 Conn. 402, 409, 788 A.2d 1239 (2002). Aggrievement is a factual issue, "and credibility is for the trier of the facts." (Internal quotation marks omitted.) Quarry Knoll II Corp. v. Planning ZoningCommission, 256 Conn. 674, 703, 780 A.2d 1 (2001). An owner of property that is the subject of an application is aggrieved for the purpose of CT Page 3919 bringing an appeal and a plaintiff may prove aggrievement at the time of trial; Winchester Woods Associates v. Planning Zoning Commission,219 Conn. 303, 308, 592 A.2d 953 (1991); or "by the production of the original documents or certified copies from the record." (Internal quotation marks omitted.) Quarry Knoll II Cog. v. Planning ZoningCommission, supra, 703.
In the present appeal, the Wiznias allege aggrievement as the owners of the property affected by the commission's decision. (Appeal, ¶¶ 1, 2.) At trial, Robert Wiznia testified that he and his wife have owned, and continue to own, the property affected by the commission's decision. The Court finds the Wiznias have sufficiently alleged and proven aggrievement.
Timeliness and Service of Process
General Statutes § 8-8 (b) provides in relevant part that an "appeal shall be commenced by service of process in accordance with subsections (f) and (g) of this section within fifteen days from the date that notice of the decision was published as required by the general statutes." Subsection (f) provides that service "shall be made by leaving a true and attested copy of the process with, or at the usual place of abode of, the chairman or clerk of the board, and by leaving a true and attested copy with the clerk of the municipality."
At trial, the parties stipulated to the fact that the commission's decision was published in the New Haven Register on December 27, 2001. This appeal was commenced by service of process on the town clerk, Stephanie Ciarleglio, and the Woodbridge Planning and Zoning Commission clerk, Kristine Sullivan, on January 8, 2002. The Court finds the appeal was commenced in a timely fashion by service of process on the proper parties.
SCOPE OF REVIEW
"The Superior Court's scope of review is limited to determining only whether the board's actions were unreasonable, arbitrary or illegal."RR Pool Patio v. Zoning Board of Appeals,257 Conn. 456, 470, 778 A.2d 61 (2001). "The [commission's] decision must be sustained if an examination of the record discloses evidence that supports any one of the reasons given . . . The evidence . . . to support any such reason [however] must be substantial." (Internal quotation marks omitted.) Heithaus v. Planning Zoning Commission, 258 Conn. 205, 221, 779 A.2d 750
(2001). "The credibility of witnesses and the determination CT Page 3920 of issues of fact are matters solely within the province of the [administrative] agency." (Internal quotation marks omitted.) DeBeradinisv. Zoning Commission, 228 Conn. 187, 198, 635 A.2d 1220 (1994).
"[E]vidence is sufficient to sustain an agency finding if it affords a substantial basis of fact from which the fact in issue can be reasonably inferred." (Internal quotation marks omitted.) Heithaus v. Planning Zoning Commission, supra, 258 Conn. 221. "[T]he possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency's finding from being supported by substantial evidence." (Internal quotation marks omitted.) DeBeradinis v. ZoningCommission, supra, 228 Conn. 200. "Courts are not to substitute their judgment for that of the board . . . and decisions of local boards will not be disturbed so long as honest judgment has been reasonably and fairly exercised after a full hearing . . . Upon appeal, the trial court reviews the record before the board to determine whether it has acted fairly or with proper motives or upon valid reasons." (Internal quotation marks omitted.) Bloom v. Zoning Board of Appeals, 233 Conn. 198, 206,658 A.2d 559 (1995). "The burden of proof to demonstrate that the board acted improperly is upon the party seeking to overturn the board's decision." (Internal quotation marks omitted.) Francini v. Zoning Boardof Appeals, 228 Conn. 785, 791, 639 A.2d 519 (1994).
"When a zoning agency has stated its reasons for its actions, a court should not reach beyond those stated purposes to search the record for other reasons supporting the commission's decision . . . Rather, the court should determine only whether the assigned grounds are reasonably supported by the record and whether they are pertinent to the considerations which the authority was required to apply under the zoning regulations." (Citation omitted; internal quotation marks omitted.)Harris v. Zoning Commission, supra, 259 Conn. 420. "The [decision] must be sustained if even one of the stated reasons is sufficient to support it . . . [This] applies where the agency has rendered a formal, official, collective statement of reasons for its action." (Internal quotation marks omitted.) Bloom v. Zoning Board of Appeals, supra,233 Conn. 208. "[C]ases in which we have held that the agency rendered a formal, official, collective statement involve circumstances wherein the agency couples its communication of its ultimate decision with express reasons behind that decision." Harris v. Zoning Commission, supra, 420-21.
A letter of notification of decision addressed to the Wiznias from the commission reveals that the reason for the majority vote denying the special permit application was that the "proposed use of rear Lot #20 was not made necessary by any unusual features peculiar to the land in CT Page 3921 question as set forth in Section 3.43(b)" of the Woodbridge zoning regulations. (ROR, Item FF.) The Court finds the commission issued a "formal collective statement of reason for its actions." Bloom v. ZoningBoard of Appeals, supra, 233 Conn. 208.
DISCUSSION
As set forth above, the commission denied the Wiznias' special permit application to "allow Lot 20, as identified and shown on the [proposed] subdivision application, as a rear lot." (ROR, Item Q.) The proffered reason for the denial was that the "proposed use of rear Lot #20 was not made necessary by any unusual features peculiar to the land in question as set forth in Section 3.43(b)" of the Woodbridge zoning regulations. (ROR, Item FF.)
The Wiznias appeal on the basis that the commission acted illegally, arbitrarily, and in abuse of its discretion in that the application conformed with the subdivision and zoning regulations and should, therefore, have been approved; and the commission's denial was inconsistent with prior approvals of rear lots in other subdivisions.1
(Appeal, ¶ 7.)
Lot 20 is part of Walnut Grove Estates, a proposed twenty-five lot subdivision of an approximately seventy-three acre parcel (ROR, Item U3C); which is located off of Northrop, Ansonia and Racebrook Roads in the town of Woodbridge. (ROR, Item A.) The property is located within a zone A district (ROR, Item J1F, p. 2); which permits single-family residential buildings. (ROR, Item GG, p. 15.)
I
The Wiznias first argue that the commission acted arbitrarily, illegally, and in abuse of its discretion by failing to approve the application because it "met the criteria established by [Woodbridge zoning regulation] Section 3.43." (Wiznias' Brief, p. 11.) The Wiznias contend that their special permit application required automatic approval as it was directly related to their subdivision application, and met the requirements of the applicable regulations because the use of lot 20 as a rear lot was necessary due to its unusual features. (Wiznias' Brief, pp. 6-8.) In their reply brief, the Wiznias additionally argue that the phrase "the land in question" contained in § 3.43(b) refers to the unusual features of the proposed rear lot that render its creation necessary, not the unusual features of the entire subdivision. (Wiznias' Reply Brief, p. 3.) CT Page 3922
In opposition, the commission argues that its decision to deny the special permit application was within its discretion (Commission's Brief, p. 14); and is reasonably supported by the record. (Commission's Brief, p. 12.) It further argues that Woodbridge zoning regulations § 3.43(b) refers to "a parcel to be subdivided and not a rear lot that has arbitrarily been mapped by an engineer as part of a subdivision plan." (Emphasis in original.) (Commission's Brief, p. 16). The commission contends, therefore, that "[t]he `use' of a rear lot here was obviously not necessary to subdivide the parcels at issue and to approve [rear lot 20] by special permit would have violated Section 3.43." Id. The commission additionally contends that pursuant to General Statutes §8-3c (b), it gave due consideration to the inland wetlands agency's denial of the Wiznias' subdivision application in reaching its decision.2 (Commission's Brief, p. 17.)
Our Supreme Court has "recognized that the special permit process is, in fact, discretionary." Irwin v. Planning Zoning Commission,244 Conn. 619, 626, 711 A.2d 675 (1998). "Connecticut courts have never held that a zoning commission lacks the ability to exercise discretion to determine whether the general standards in the regulations have been met in the special permit process . . . If the special permit process were purely ministerial there would be no need to mandate a public hearing." (Emphasis in original; internal quotation marks omitted.) Id., 627.
"The basic rationale for the special permit [is] . . . that while certain [specially permitted] land uses may be generally compatible with the uses permitted as of right in particular zoning districts, their nature is such that their precise location and mode of operation must be regulated because of the topography, traffic problems, neighboring uses, etc., of the site." (Internal quotation marks omitted.) Barberino Realty Development v. Planning Zoning Commission, 222 Conn. 607,612, 610 A.2d 1205 (1992). "A special permit allows a property owner to use his property in a manner expressly permitted by the local zoning regulations . . . The proposed use, however, must satisfy standards set forth in the zoning regulations themselves as well as the conditions necessary to protect the public health, safety, convenience and property values." (Internal quotation marks omitted.) Heithaus v. Planning Zoning Commission, supra, 258 Conn. 215-16. "[B]efore the zoning commission can determine whether the specially permitted use is compatible with the uses permitted as of right in the particular zoning district, it is required to judge whether any concerns . . . would adversely impact the surrounding neighborhood." (Internal quotation marks omitted.) Irwin v. Planning Zoning Commission, supra, 244 Conn. 627.
"When ruling upon an application for a special permit, a planning and CT Page 3923 zoning board acts in an administrative capacity . . . [I]t is the function of a zoning board or commission to decide within prescribed limits and consistent with the exercise of [its] legal discretion, whether a particular section of the zoning regulations applies to a given situation and the manner in which it does apply." (Citations omitted; internal quotation marks omitted.) Irwin v. Planning ZoningCommission, supra, 244 Conn. 627.
"A local board or commission is in the most advantageous position to interpret its own regulations and apply them to the situations before it. (Internal quotation marks omitted.) Doyen v. Zoning Board ofAppeals, 67 Conn. App. 597, 603, 789 A.2d 478; cert. denied, 260 Conn. 901,793 A.2d 1088 (2002). On appeal, the court must "decide whether the board correctly interpreted the section [of the regulations] and applied it with reasonable discretion to the facts . . ." Irwin v. Planning Zoning Commission, supra, 244 Conn. 627-28. "If, during the exercise of its discretion, the zoning commission decides that all of the standards enumerated in the special permit regulations are met, then it can no longer deny the application." Id., 628.
"Although the position of the municipal land use agency is entitled to some deference . . . the interpretation of provisions in the ordinance is nevertheless a question of law for the court." (Internal quotation marks omitted.) Doyen v. Zoning Board of Appeals, supra, 67 Conn. App. 603. "When more than one construction is possible, we adopt the one that renders the enactment effective and workable and reject any that might lead to unreasonable or bizarre results." Planning ZoningCommission v. Gilbert, 208 Conn. 696, 706, 546 A.2d 823 (1988). "In applying the law to the facts of a particular case, the board is endowed with a liberal discretion, and its action is subject to review by the courts only to determine whether it was unreasonable, arbitrary or illegal." (Internal quotation marks omitted.) Irwin v. Planning Zoning Commission, supra, 244 Conn. 628.
Woodbridge zoning regulations § 3.43 governs the creation of rear lots and provides: "The Commission may authorize the issuance of a special permit, with or without conditions, to allow on a rear lot any use otherwise permitted in the Zone if it finds that such lot provides for the best development of the land and that the public health and welfare are not adversely affected. The approval of a rear lot shall be considered only in the following instances: (a) In the case of an existing rear lot: if the Commission determines that the lot has been unintentionally landlocked or unintentionally deprived of minimum lot frontage on an accepted street; (b) In the case of a parcel to be divided into two or more lots: if the Commission determines that the use of a CT Page 3924 rear lot is made necessary by unusual features peculiar to the land in question, such as difficult drainage, difficult configuration, temporary flooding, steep topography, public utility lines or easements." (ROR, Item GG, p. 29.) Section 3.43(b) further provides that "[i]t is not the intent of these Regulations to increase the density of land development by further division of existing house lots nor, in the case of a new subdivision, to encourage the creation of rear lots." Id.
In the present appeal, the Wiznias submitted an application for a special permit to create a rear lot, not to seek approval for a use on an existing rear lot. Thus, only subsection (b) of § 3.43 is applicable.
The minutes of the commission's working session, dated December 17, 2001, indicate that the commission considered a number of factors in reaching its conclusion, including the intent of the regulations disfavoring rear lots and the inland wetlands agency denial of the Wiznias' subdivision application, which the commission considered with regard to the application's effects on health and safety. (ROR, Item AA, p. 2.)
The minutes of the meeting during which the commission deliberated on the special permit application reveal that commissioner King referred to paragraph A of Chapter 1 of the Woodbridge subdivision regulations3
and noted the second page of the inland wetlands denial letter, "which indicates that the agency feels there would be an effect on health and safety. Mr. Fineberg [agreed] to taking that into consideration when making a decision . . ." (ROR, Item AA, p. 2.)
The record also reveals the following. Alan Shepard, an engineer hired by the Wiznias for the subdivision project, appeared at the public hearing in support of the special permit application to create rear lot 20, and testified that there exists a drop of approximately thirty feet from the existing road to lot 20, which would result in an increased disturbance to the land if a road was placed in that area. (ROR, Item V, p. 4.) Shepard further testified that lot 20 is surrounded on the north, east and south by wetlands or waterways; id.; but admitted that feasible alternatives to creating rear lots exist. (ROR, Item V, p. 8.) Shepard observed: "[W]e do [have] some feasibilities as far as layouts with no rear lots . . ." (ROR, Item V, p. 10.) Additionally, counsel for the Wiznias contended that all the requirements of § 3.43 were met. (ROR, Item V. p. 7.) Shepard, however, acknowledged that the commission is the party that interprets [the] regulations"; id.; "[a]nd the rear lot regulations [allow] the Board in [its] discretion to allow the developer to use . . . the rear lots so we don't have to force the road down to CT Page 3925 areas, steep grades, wetlands, watercourses, natural features to get to those lots." (ROR, Item V, p. 8.)
As stated earlier, it is within the commission's discretion to determine whether and in what manner a particular zoning regulation section applies to a particular situation. Irwin v. Planning ZoningCommission, supra, 244 Conn. 627. This was acknowledged by the Wiznias' own expert. (ROR, Item V, p. 7.) The commission determined that the Wiznias' application did not meet the requirements of § 3.43 because the rear lot was not shown to be "necessary by any unusual features peculiar to the land in question." (ROR, Item FF.) The Wiznias urge the court to adopt their view that a special permit application for the creation of a rear lot pursuant to § 3.43 should be approved if the proposed rear lot itself has unusual features.
Thus, an issue central to the determination of this appeal is whether the phrase "unusual features peculiar to the land in question" in § 3.43 of the Woodbridge zoning regulations contemplates that the unusual features are peculiar to the proposed rear lot or to the undivided parcel as a whole. In a case factually similar to the present appeal, the court, Downey, J., determined that the term "necessary" as used in Woodbridge zoning regulations § 3.43 means "necessary to allow the plaintiff to divide his property into two building lots, conforming in size and all bulk requirements." Sirowich v. Town Planning ZoningCommission, Superior Court, judicial district of New Haven, Docket No. CV 99 0423591 (August 1, 2000, Downey, J.). In Sirowich, a landowner sought to divide his lot into two lots, keeping his existing house on the proposed rear lot. The parcel contained wetlands on the front of the parcel, and the plaintiff asserted that without the presence of those wetlands he would not need a special permit to subdivide. In Sirowich the Woodbridge planning and zoning commission denied the plaintiff's application on the grounds that "the application did not meet the requirements of Section 3.43 . . ." (Internal quotation marks omitted.)Id. The court sustained the plaintiff's appeal, determining, in part, that the "existence and location of the wetlands" on the front of the parcel were unusual features peculiar to that parcel and a creation of a rear lot in these circumstances was necessary for the plaintiff to subdivide, thereby meeting the criteria of Woodbridge zoning regulations § 3.43(b). See id.
In Sirowich, the court found that substantial record evidence demonstrated that a rear lot was necessary to subdivide the plaintiff's property. In the present case, record evidence demonstrates that feasible alternatives exist to subdivide without the creation of a rear lot. In the present appeal, the commission, like the court in Sirowich, CT Page 3926 determined that the term "unusual features peculiar to the land in question" pertained to the whole undivided parcel. Unlike the plaintiff in Sirowich however, the Wiznias admitted that the parcel did not need to create a rear lot for the parcel to be subdivided.
Although the Wiznias produced evidence that the proposed rear lot would comply with the technical requirements of § 3.43 relating to size and access, the record reveals no evidence demonstrating that the rear lot complies with the general requirement of § 3.43(b) that the creation of the lot is necessary to the subdivision of the parcel due to the parcel's unusual features. To the contrary, the Wiznias themselves, through their engineering expert, admit that the parcel could be subdivided without the use of a rear lot. (ROR, Item V, p. 10.) Accordingly, the commission was acting within its discretion when it interpreted its zoning regulations and determined that in the Wiznias' situation the rear lot was not necessary due to unusual features as mandated by § 3.43.
The Court finds the interpretation espoused by the Wiznias, that a special permit application for the creation of a rear lot pursuant to § 3.43 should be approved if the proposed rear lot itself has unusual features, would lead to "unreasonable or bizarre results" that would effectively abrogate § 3.43 by requiring rear lot approval whenever a lot with wetlands, steep topography, or some other unusual feature can be carved out of the whole parcel. Planning Zoning Commission v.Gilbert, supra, 208 Conn. 706. Section 3.43(b) permits approval of rear lots only in specific circumstances, one of which is the necessity of a rear lot in order to subdivide a parcel. See Sirowich v. Town Planning Zoning Commission, supra, Superior Court, Docket No. CV 99 0423591.
The Court finds the record contains substantial evidence to support the commission's denial of the Wiznias' special permit application on the ground that the "proposed use of rear Lot #20 was not made necessary by any unusual features peculiar to the land in question as set forth in Section 3.43(b)." (ROR, Item FF.) Accordingly, the commission's decision was not unreasonable, arbitrary or illegal.
II
The Wiznias next argue that the commission violated their constitutional equal protection rights by engaging in selective treatment when it denied their application for a special permit to create rear lot 20. The Wiznias contend that "the Commission required [them] to submit a separate application for their special permit to create a rear lot, CT Page 3927 instead of considering that request as part of the subdivision application" (Wiznias' Brief, pp. 12-13); and to attend separate hearings for the special permit and subdivision applications when the commission had not required other applicants to do the same. (Wiznias' Brief, p. 13.) The Wiznias argue further that the commission acted in bad faith by denying their special permit application with "no reasonable basis for doing so." Id.
The commission responds that the Wiznias were applicants seeking a permit to conduct a regulated activity. (Commission's Brief. p. 19.) The commission argues that the Wiznias have not provided any evidence to support their argument of selective treatment except for a self-serving letter from their attorney to the commission. (Commission's Brief, p. 20.) Additionally, the commission contends that the process of the Wiznias' application was not hindered in any way as a result of the requirement that they submit a special permit application as the commission held a public hearing and deliberated on the special permit application on the same day as, and prior to, its deliberations on the subdivision application pursuant to the Wiznias' specific request. (Commission's Brief, pp. 20-21.)
"The Equal Protection Clause of theFourteenth Amendment to the United States Constitution is essentially a direction that all persons similarly situated should be treated alike . . . A violation of equal protection by selective [treatment] arises if: (1) the person, compared with others similarly situated, was selectively treated; and (2). . . such selective treatment was based on impermissible considerations such as race, religion, intent to inhibit or punish the exercise of constitutional rights, or malicious or bad faith intent to injure a person . . ." (Citations omitted; internal quotation marks omitted.) CadlerockProperties Joint Venture, L.P. v. Commissioner, 253 Conn. 661, 670-71,757 A.2d 1, cert. denied 531 U.S. 1148, 121 S.Ct. 1089, 143 L.Ed.2d 963
(2000). "[T]he requirement imposed upon [p]laintiffs claiming an equal protection violation [is that they] identify and relate specific instances where persons situated similarly in all relevant aspects were treated differently." (Emphasis in original; internal quotation marks omitted.)Id., 672. Moreover, if a plaintiff "does not allege selective treatment based upon his race, religion, or any intentional effort by [the] defendants to punish him for exercising his constitutional right, [the plaintiff] must demonstrate that [the] defendants maliciously singled [him] out . . . with the intent to injure him." (Internal quotation marks omitted.) Thomas v. West Haven, 249 Conn. 385, 393, 734 A.2d 535, cert. denied, 528 U.S. 1187, 120 S.Ct. 1239, 146 L.Ed.2d 99 (1999) (violation of the plaintiff's equal protection rights found where evidence revealed commissioners' intentional treatment of plaintiff was selective and CT Page 3928 malicious compared to similarly situated applicants for zone changes). "Mere laxity in the administration of the law, no matter how long continued is not and cannot be held to be a denial of the equal protection of the law. To establish arbitrary discrimination inimical to constitutional equality there must be something more, something which in effect amounts to an intentional violation of the essential principle of practical uniformity." Bianco v. Darien, 157 Conn. 548, 559-60, 254 A.2d 898
(1969); Kroll v. Steere, 60 Conn. App. 376, 385, 759 A.2d 541, cert. denied, 255 Conn. 909, 763 A.2d 1036 (2000).
Our Supreme Court has determined that in a situation that involved alleged selective treatment by public officials having broad discretion to make decisions that relate to zone change applications, "the factors that render applicants similarly situated for comparison purposes necessarily are based upon the procedural requirements imposed on those seeking to obtain zone changes." Thomas v. West Haven, supra, 249 Conn. 403. The court further determined that "[t]he appropriate group for comparison to the plaintiffs . . . [included] all applicants who were before the commission requesting a zone change during the same general time period as the plaintiffs, and who thus, theoretically, were subject to the same rules and requirements." Id. The appropriate group for comparison to the Wiznias includes all applicants who appeared before the commission requesting a special permit to create rear lots in subdivisions during the same general time period that the Wiznias' application was submitted and determined. See id.
A review of the record reveals the following. At an October 1, 2001 meeting, the commission held a public hearing on the proposed subdivision, in which lot 20 was sought to be created. (ROR, Item K.) The commission received additional exhibits, and no member of the public spoke in support of the application. Attorney Dufour, representing adjacent property owners, opposed the Wiznias' application, stating that Woodbridge zoning regulations § 3.43 was not followed because the Wiznias did not submit an application for a special permit, notice that the application was submitted was not given and a public hearing on the application was not held. (ROR, Item K pp. 75-76.) After asking whether any other member of the public was present to speak in support or opposition of the application, and receiving no response, the commission continued the hearing to the next meeting. (ROR, Item K, p. 78.)
On October 9, 2001, counsel for the Wiznias sent a letter to the commission to apply for a special permit to create rear lot 20. In this letter, counsel stated that "[a]t the public hearing on the . . . subdivision application on October 1, a comment was presented to theCommission that the applicant had not submitted an application for a CT Page 3929 special permit for rear lots pursuant to Section 3.43 of the zoning regulations." (Emphasis added.) (ROR, Item O, p. 1.) Counsel further stated: "As I understand the situation, historically the Commission has not required a separate application for . . . a special permit [for rear lots pursuant to § 3.43], and has taken the position that where rear lots are part of a proposed subdivision that approval for rear lots will be considered as part of the subdivision application. This has been the case in at least two recent subdivision applications, namely Racebrook Estates and Woodbridge Estates." Id.
The minutes of the commission's December 17, 2001 work session meeting, during which the commission deliberated on the special permit application for rear lot 20, reveal that the commission considered several issues regarding rear lots. Specifically, commissioners Fineberg and Smith stated that "the regulations do not favor rear lots." (ROR, Item, AA, p. 2.) The commission also took "into account the consideration afforded to other applicants when decisions were made." Id. "Discussion involved other subdivisions . . . [and commission chairman] Celotto stated that he was not sure that previous approval of rear lots might have had the same impact on neighbors." Id. Commissioner Luciani referred to "the precedent set by former rear lot approval [while commissioner] Palmeri . . . [stated] that due to changes in the town conditions, the precedent does not have to stand." Id.
A review of the record thus indicates that at the time the special permit application was submitted the Wiznias did not claim that the commission required the submission of a special permit application to create a rear lot. Rather, the Wiznias voluntarily submitted their special permit application for the creation of the rear lot in response to the neighbors' comments presented in opposition at the public hearing. In response to the submission of the application, the commission held a public hearing. (ROR, Item V.) During its deliberation on the special permit application, the commission considered other subdivisions with rear lots and prior rear lot approvals and indicated that conditions particular to the Wiznias' application may not have been present in the prior approvals. Neither the minutes, nor the transcript of the October 1, 2001 meeting demonstrate that the commission requested or required the Wiznias to apply for a special permit. (ROR, Item K; Item L.) Moreover, while the Wiznias' letter to the commission requesting a special permit for the creation of rear lot 20 mentioned two recent subdivision applications, Racebrook Estates and Woodbridge Estates, there is no evidence showing when those applications were submitted, if they were similar in all relevant aspects, when they were determined, or in what manner they were determined. Nor is there record evidence of any other applications before the commission that were subject to the rules and CT Page 3930 regulations governing rear lots and subdivisions during the same time period as the Wiznias' application. In addition, there is no evidence showing malicious or bad faith intent by the commission in determining the Wiznias' application. Moreover, as discussed in part I, there is substantial record evidence to support the commission's basis for denying the Wiznias' application.
Accordingly, the Court finds the Wiznias have not met their burden of showing that they were treated differently from similarly situated applicants or that the commission determined their application with malicious or bad faith intent.
For the foregoing reasons, the Wiznias' appeal is dismissed.
Brunetti, J. | 01-03-2023 | 07-05-2016 |
https://www.courtlistener.com/api/rest/v3/opinions/1941697/ | 482 So.2d 239 (1986)
Donny BARRETT
v.
STATE of Mississippi.
No. 55252.
Supreme Court of Mississippi.
January 22, 1986.
Lee B. Agnew, Jackson, for appellant.
Edwin L. Pittman, Atty. Gen. by Robert D. Findley and DeWitt Allred, Sp. Asst. Attys. Gen., Jackson, for appellee.
Before WALKER, P.J., and ROBERTSON and SULLIVAN, JJ.
WALKER, Presiding Justice, for the Court.
Donny Barrett was convicted by the Circuit Court of Scott County of sale and delivery of a Schedule I controlled substance, namely marijuana in an amount less than one ounce. Barrett was sentenced to serve a term of three (3) years in the custody of the Mississippi Department of Corrections and to pay a fine in the amount of $2,000.00.
On December 7, 1982, Shirlene Anderson, an undercover agent for the Mississippi Bureau of Narcotics, and an unidentified female informant went to appellant's apartment. The two women asked him about purchasing some marijuana. He said he did not have any but took them to another apartment in the same apartment complex where Barrett obtained two small plastic bags of marijuana from the occupant of the apartment, a black female named "Pat," and gave them to Anderson and the informant. Anderson gave Barrett $20.00 on *240 the way to the apartment to pay for the marijuana.
On appeal, the appellant assigns the following as error:
THE TRIAL COURT ERRED IN OVERRULING THE FOLLOWING MOTION OF THE DEFENDANT:
The defense moves respectfully to require the prosecution to furnish the name of the confidential informer and her address, as well as require the prosecution to secure the appearance of said confidential informer upon the trial of this cause for the reason that the confidential informant took part in the alleged activity of the law enforcement officers and thereby became a witness to the facts constituting the alleged crime.
The day before the trial was scheduled to begin, appellant filed a motion to require disclosure of the identity and location of the female informant-participant. The district attorney conceded that the appellant was entitled to this information but presented testimony from the law enforcement personnel involved in the investigation that the identity and whereabouts of the informant was unknown.
The question on appeal is whether the State made a good faith effort to disclose the informant's identity and whereabouts. We think not.
Appellant argues that the trial court erred in overruling the motion for disclosure and not granting a continuance.
In Copeland v. State, 423 So.2d 1333 (Miss. 1982) we held the burden is on the State in a proper case to make a good faith effort to disclose the identity and location of the informer. Both parties to this appeal cite Copeland, which states:
This Court has recognized that the state in certain cases is required to disclose a confidential informant's identity, e.g., Hemphill v. State, 313 So.2d 25 (Miss. 1975), but there are no Mississippi cases which precisely address the extent and nature of the state's duty with respect to its efforts to produce a confidential informant. At a minimum, if the circumstances dictate disclosure of the identity of an informant, the state must, in good faith, disclose all information in its possession, including that of location. It would indeed be serious misconduct on the state's part to withhold or falsify such information. United States v. Williams, 496 F.2d 378 (1st Cir.1974). Moreover, in the proper circumstances, the state may acquire a duty to affirmatively show, on timely demand, its good faith. Those circumstances are not easily stated and should be developed on a case-by-case basis. See United States v. Diaz, 535 F.2d 130 (1st Cir.1976); Williams, supra. However, the duty cannot be extended to the point that it becomes incumbent on the state to guarantee the informant's presence at trial.
In the present case there is no intimation of bad faith on the state's part. The appellant did not seek to show that the state had deliberately withheld information or acted in bad faith in its compliance with the court order to furnish any available information. Absent such a showing we cannot say that the appellant's rights were violated. (Emphasis added)
423 So.2d at 1335-1336
In our opinion, the evidence of the State the testimony of Shirlene Anderson and Steve Campbell from the Mississippi Bureau of Narcotics that they did not know the confidential informant's whereabouts and did not have a file on her as is the customary procedure; and, the testimony of Sheriff Glenn Warren of Scott County that he did not know who she was or her whereabouts although he had written her name on a piece of paper but could not find it does not constitute a good faith effort to produce this information to the appellant. It was therefore error for the trial court to overrule appellant's motion for a continuance and error not to direct the State to conduct a more thorough investigation as to the confidential informant's identity and whereabouts.
*241 For the above reason the cause is reversed and remanded to the lower court for a new trial.
REVERSED AND REMANDED.
PATTERSON, C.J., ROY NOBLE LEE, P.J., and HAWKINS, DAN M. LEE, PRATHER, ROBERTSON, SULLIVAN and ANDERSON, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2237198/ | 592 N.E.2d 213 (1992)
227 Ill. App.3d 616
169 Ill.Dec. 726
Bernard HEWITT and Ruberta Karasik, Ex'r of the Estate of Sidney Z. Karasik, deceased, Plaintiffs-Appellants and Cross-Appellees,
v.
Mildred HURWITZ, Ex'r of the Estate of Paul Hurwitz, deceased, Defendant-Appellee and Cross-Appellant
LaSalle National Bank, as Trustee under trust agreement dated August 15, 1976, known as trust no. 34351, Defendant.
No. 1-90-2301.
Appellate Court of Illinois, First District, Fifth Division.
March 20, 1992.
Rehearing Denied April 27, 1992.
Donald L. Bertelle, Chicago, for plaintiffs-appellants and cross-appellees.
Herbert N. Sirott, Chicago, for defendant-appellee and cross-appellant.
Justice LORENZ delivered the opinion of the court:
Plaintiffs, Bernard Hewitt and Ruberta Karasik, executor of the estate of Sidney Z. Karasik, appeal from judgment entered after a bench trial finding that a partnership existed to purchase and develop certain property and that the property in question had a fair market value of $660,000. Defendant, Mildred Hurwitz, executor of the estate of Paul Hurwitz, cross-appeals from the same judgment. We consider whether the trial judge's finding as to the value of the partnership's property was against the *214 manifest weight of the evidence. For the following reasons, we reverse and remand for new trial.
Plaintiffs filed a three-count complaint against defendant as the executor of Paul Hurwitz' estate. The complaint alleged that Hewitt, Karasik, and Hurwitz, who was Hewitt's brother, orally agreed to form a joint venture to purchase and develop certain property. Hewitt had a 50% share of the profits and losses of the joint venture and Karasik and Hurwitz each had a 25% share. They purchased the property in 1978 and placed it in trust for their benefit with defendant, LaSalle National Bank. On July 17, 1986, Hurwitz died. In count I of the complaint, plaintiffs sought a declaratory judgment that the joint venture dissolved with the death of Hurwitz. Count II was disposed of by an agreed order and is not relevant on appeal. In count III, plaintiffs requested an accounting of the joint venture and a determination of the value of Hurwitz' interest.
Defendant answered the complaint denying its material allegations and filed a counterclaim, alleging breach of fiduciary duty, which is not at issue on appeal.
In a bench trial, Hewitt testified on plaintiffs' behalf that he, Karasik, and Hurwitz orally agreed to purchase four acres of land in unincorporated Cook County and develop it as a multi-unit residential complex. In 1978, they obtained a mortgage for $165,000 and purchased the property for $175,000. The property was subsequently annexed to the Village of Mount Prospect which passed an ordinance in 1978 granting plaintiffs a special use permit to build 88 units. Due to economic conditions, the property was not developed by the time of Hurwitz' death on July 17, 1986. Hewitt testified that at that time, there was some dispute as to whether the village would restrict construction to only 64 units as allowed under its building code. In the end of 1986, the issue was resolved and the village allowed plaintiffs to build 88 units. In 1987, Hewitt entered into an agreement with Albert Katz under which Katz would pay the $165,000 mortgage on the property in exchange for 22 rented apartments in the completed project. After the mortgage was paid, Hewitt owned 25% of the joint venture.
Norman Shapiro, an accountant who prepared the joint venture's tax returns, testified that on October 1, 1987, Katz paid the $165,000 mortgage on the property and obtained half of Hewitt's interest which was 25% of the joint venture, Katz' capital account with the venture was credited $165,000. A tax return for 1987 showed that Katz acquired a 25% interest in the venture.
Plaintiffs also called Neil King, an expert in the area of real estate appraisals, who appraised the property on three different occasions. In 1982, he determined that the value of the property was $2000 per unit or $128,000. At that time, King was not aware that plaintiffs and Hurwitz purchased the property in 1978 for $175,000, although he admitted purchase price is a factor to consider in an appraisal. In December of 1985, he found its value decreased to $1500 per unit or $96,000 because negative factors affecting the value intensified, such as increased truck traffic.
Subsequently, King appraised the property a third time and determined that its value on July 17, 1986, the date of Hurwitz' death, was $2000 per unit or $128,000. King determined that the property was zoned for 16 units per acre for a total of 64 units. King based the appraisal on several factors. The property was an unusual shape because it was long and narrow with only 164 feet of frontage. Also, although there were apartment buildings near the property, King considered the uses of other nearby properties as negative factors affecting the appraisal. Immediately to the south of the property was a bus storage facility and immediately to the west were electricity power lines. In the immediate vicinity of the property was a disposal company and a large oil tank farm.
King also based the appraisal on sales of similar properties. However, there were no recent sales of property zoned for multi-unit use in the immediate area and as a result, he relied on the sales of four undeveloped properties located in Wood Dale, *215 Arlington Heights, Palatine, and Buffalo Grove. The sales of those properties ranged from $4444 to $6500 per unit on lots ranging from 16 acres to 55 acres with zoning ordinances allowing for 10 to 14.75 units per acre. King testified that these properties were more valuable than the property in question because they were in better locations and the applicable zoning ordinances allowed fewer units per acre.
On defendant's behalf, Theodore R. Kowalski testified as an expert real estate appraiser. In his opinion, the property had a fair market value of $750,000 on July 18, 1986, the day after Hurwitz died. He based his opinion on the characteristics of the property, an ordinance allowing for the construction of 88 units, the uses of adjoining properties, and the general trend of real estate in the area. Kowalski testified that a 25% interest in the property was sold in October of 1987 for $165,000 and that a minority interest would generally be sold at a discounted price of 10 to 25%. As a result, the sale corroborated his opinion that the value of the entire property was $750,000. Kowalski also testified that the property appreciated between 10% to 15% annually. Additionally, an apartment complex with 300 units immediately to the north of the property sold for $12,100,000 in August of 1988. That sale, although involving improved property, indicated there was a demand for property in the area.
Plaintiffs called King as a rebuttal witness. King testified that the sale of the adjacent property for $12,100,000 did not indicate the value of the property in question because it was improved with 11 buildings containing 300 units, a swimming pool, and tennis courts.
After closing arguments, the trial judge found that plaintiffs and Hurwitz were either joint venturers or partners. He rejected both expert witnesses' opinions on the value of the property finding they did not have reasonable bases for their opinions. He also believed that the sales of other properties presented by plaintiffs and defendant were not comparable to the property in question. The judge found that the value of the property at the time of Hurwitz' death on July 17, 1986, was $660,000 based on the evidence that Katz purchased a 25% share of the joint venture for $165,000 in October of 1987. An order was entered stating that the parties were partners in the acquisition and development of the property and that the fair market value of the property at the time of Hurwitz' death was $660,000.
Plaintiffs' post-trial motion was denied and they now appeal. Defendant cross-appeals.
OPINION
Plaintiffs challenge the trial judge's finding that the fair market value of the property on July 17, 1986, was $660,000. The judge based his finding on the sale of a 25% interest in the partnership for $165,000 to Katz in October of 1987. Plaintiffs argue that the judge improperly rejected the testimony of their expert and that the finding as to the value of the property was not based on the evidence because the sale to Katz was not for the property but for an interest in the partnership.
Defendant responds that the judge properly rejected the testimony of plaintiffs' expert. Also, defendant contends that the judge's finding as to the value of the property was supported by the evidence because the property was the partnership's only asset and, therefore, the sale to Katz of a 25% interest in the partnership was the equivalent of a 25% interest in the property.
In a bench trial, the judge must determine the credibility of an expert witness and the weight of his testimony but the judge is not bound to accept the expert's opinion. (Rybak v. Provenzale (1989), 181 Ill.App.3d 884, 130 Ill.Dec. 852, 537 N.E.2d 1321.) The trial judge's findings, especially those involving credibility determinations, are entitled to deference. (Zaderaka v. Illinois Human Rights Comm'n (1989), 131 Ill.2d 172, 137 Ill.Dec. 31, 545 N.E.2d 684.) A reviewing court cannot reverse the decision of a trial court after a bench trial merely because it would have reached a different conclusion, however, the decision should be reversed if it *216 was against the manifest weight of the evidence. (In re Application of County Treasurer (1989), 131 Ill.2d 541, 137 Ill. Dec. 561, 546 N.E.2d 506.) A judgment is against the manifest weight of the evidence when the opposite conclusion is clearly evident. Fleisher v. Lettvin (1990), 199 Ill. App.3d 504, 145 Ill.Dec. 613, 557 N.E.2d 383.
In this case, the trial judge rejected the testimony of both experts whose opinions differed greatly as to the fair market value of the property. From a review of their testimony, the judge's finding was not erroneous.
Plaintiff's expert, King, testified that the property was worth $128,000 and focused on the negative aspects of the property, such as its unusual shape and its proximity to a bus storage facility and power lines. King acknowledged, but apparently did not consider it significant, that there were several other apartment buildings on the same street in the immediate vicinity of the property. Also, King initially appraised the property in 1982 at $128,000, appraised it again in December of 1985 at $96,000, and then reappraised it at $128,000 in July of 1986. When he first appraised the property in 1982, he did not consider its purchase price in 1978, although purchase price is a factor to consider in an appraisal. Further, when he appraised the property for a second time in December of 1985, he found its value decreased to $96,000 because negative factors affecting the appraisal intensified. However, six months later, King found the property's value increased to $128,000, although he conceded that the negative factors were still present. This testimony as to the fluctuating value of the property within a six-month period, without a solid explanation for it, affected King's credibility even though he increased value benefited defendant slightly. Additionally, each time King appraised the property it was less than the price the partnership paid for it in 1978. King also relied on sales of comparable property in nearby towns ranging from $4444 to $6500 per unit but appraised plaintiffs' property at $2000 per unit. The trial judge may not have accepted King's explanation that the other properties were more desirable to justify valuing plaintiffs' property at less than half the per unit price of those sales.
In contrast to King's testimony, defendant's expert, Kowalski, testified that the property was worth $750,000. Kowalski relied on the sale of an interest to Katz as if it were a partial sale of the property, however, Katz did not purchase an interest in the property but an interest in the partnership. Also, Kowalski relied on the sale of an adjacent apartment complex but that property was not comparable because it was improved and had 300 units.
For these reasons, it was well within the province of the trial judge to reject the experts' testimony.
Instead of relying on the experts' opinions, the judge relied on the sale of a 25% interest in the partnership to Katz for $165,000 in October of 1987 to establish the property's fair market value in July of 1986.
The fair market value of property is the amount of money that a purchaser, willing but not obligated to buy the property, would pay an owner, willing but not obligated to sell the property, without taking into account the values or necessities peculiar to either party. (Reynolds v. Coleman (1988), 173 Ill.App.3d 585, 123 Ill.Dec. 259, 527 N.E.2d 897.) Generally, the price paid for the property at a recent sale is the best evidence of value. In re Application of Busse (1984), 124 Ill.App.3d 433, 79 Ill.Dec. 747, 464 N.E.2d 651.
Evidence of the purchase price of property may be relevant to determine its value but in this case the transaction the judge relied on was not a conveyance of the property. The transaction was a sale for an interest in the partnership. Although the property was the only asset of the partnership, the sale of an interest in the partnership did not necessarily establish the fair market value of the property. The sale of an interest in the partnership may have been worth more or less than the sale of its only asset, the property, depending on the potential profit or loss from the development of the property and other considerations. *217 As a result, the trial judge's reliance on the sale of an interest in the partnership to determine the value of the property was erroneous. For these reasons, the judge's finding that the fair market value of the property was $660,000 on the date of Hurwitz' death was against the manifest weight of the evidence. This decision should not be interpreted as an indication that the property was worth more or less than $660,000 but only that the trial judge's finding was not supported by the evidence.
In her cross-appeal, defendant requests this court to enter judgment against plaintiffs directing them to pay defendant Hurwitz' share of the partnership. Based on our decision that the valuation of the property was against the manifest weight of the evidence, defendant's request must be denied.
Reversed and remanded for new trial.
McNULTY, P.J., and MURRAY, J., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1900821/ | 474 So. 2d 1044 (1985)
Mrs. Mary SMITH
v.
Daniel J. FALKE, et al.
No. 54848.
Supreme Court of Mississippi.
July 24, 1985.
Rehearing Denied September 11, 1985.
Thomas E. Vaughn, Hopkins, Logan, Vaughn & Anderson, Gulfport, for appellant.
Harry R. Allen, Billy W. Hood, Bryan, Nelson, Allen, Schroeder & Cobb, Gulfport, for appellees.
Before WALKER, P.J., and PRATHER and SULLIVAN, JJ.
PRATHER, Justice, for the Court
A general release of one joint tort-feasor gives rise to a parol evidence question in this personal injury action in the Harrison County Circuit Court. Mary Smith, plaintiff, charged Daniel J. Falke and Guy Gunter, minor drivers of the two vehicles following her car, with negligent driving. Mary Smith executed a release to Guy Gunter and his parents which contained language releasing "all others whatsoever" from liability in the accident. The trial court sustained the defendant Falke's motion to dismiss and overruled the plaintiff's motion for voluntary non-suit after taking the dismissal motion under advisement. From this adverse ruling, Smith appeals.
The appellant Smith assigns as error the trial court's ruling:
(1) In sustaining the motion to dismiss:
*1045 (a) In not permitting parol evidence to establish the intent of appellant in executing the release; and
(b) In holding the Gunter release also released Falke;
(c) In not holding the release was a mutual mistake from which the appellant is entitled to a reformation, or relief, as all parties considered it a covenant not to sue or a restricted release.
(2) In not granting the plaintiff a voluntary non-suit.
I.
On December 7, 1978 while appellant Mary Smith's vehicle was stopped in traffic, it was struck from behind. Immediately following her vehicle was a car driven by appellee Daniel J. Falke and following the Falke vehicle was a third car driven by Guy Gunter.
Smith filed suit on April 22, 1980 against both drivers, Gunter and Falke, and their parents, but agreed to release Guy Gunter and parents upon payment of their maximum liability insurance coverage of $10,000. A check in the amount of $10,000 from Gunter was received by Smith's attorney and negotiated on about March 16, 1982.
Although the record reflects that all parties thought that a release was executed by Smith at the time the check was negotiated, the original release was not found. The insurance company sent a new release to Smith's attorney's office for execution. On September 21, 1982, an associate attorney, employed in Smith's attorney's office witnessed Mrs. Mary Smith's signature, assuming that the release was a duplicate releasing only Guy R. Gunter.
Using the September 21, 1982 release as a bar to recovery against them, the defendant Daniel Falke and his parents filed a motion to dismiss in the present lawsuit. The undisputed proof was that Smith and the insurance company only intended release of Guy Gunter and his parents. However, the trial court's order recited that it found the release of September 21, 1985 to be clear and unambiguous, not subject to parol evidence and would not consider evidence other than the release itself.
After hearing argument on the above motion to dismiss, and taking the matter under advisement overnight, the plaintiff Smith moved for a voluntary non-suit before the court announced its decision. However, the trial court denied the motion for non-suit as being untimely made.
II.
A.
The principle question assigned here is whether the trial court erred in dismissing the appellant's suit against one tort-feasor upon the general release of a joint tort-feasor "and all other persons." The controlling statute on this question is Miss. Code Ann. § 85-5-1, which in pertinent part states:
In all cases of joint or joint and several indebtedness, the creditor may settle or compromise with and release any one or more of such debtors; and the settlement or release shall not affect the right or remedy of the creditor against the other debtors for the amount remaining due and unpaid, and shall not operate to release any of the others of the said debtors;
The majority of jurisdictions permit the release of one tort-feasor without the release of others when that is the intention of the parties. Mississippi jurisprudence follows the majority rule that for a release of one joint tort-feasor to release other joint tort-feasors, the satisfaction received by injured party must be intended to be and must be accepted as full and total compensation for damages sustained. Medley v. Webb, 288 So. 2d 846 (Miss. 1974); Employers Mutual Casualty Co. v. Meggs, 229 So. 2d 823 (Miss. 1969); Burt v. Duckworth, 206 So. 2d 850 (Miss. 1968); Lee v. Wiley Buntin Adjuster, Inc., 204 So. 2d 479 (Miss. 1967); Weldon v. Lehmann, 224 Miss. 600, 84 So. 2d 796 (1956); See 66 Am.Jur.2d Release, § 37. A recognized treatise *1046 of Professor William L. Prosser, sets forth the rationale of both rules above in stating:
The only desirable rule would seem to be that a plaintiff should never be compelled to surrender his cause of action against any wrongdoer unless he has intentionally done so, or unless he has received such full compensation that he is no longer entitled to maintain it... . The requirement that an express reservation of rights against other tortfeasors be asserted in the release itself seems unfortunate, when releases frequently are signed by plaintiffs ignorant of the law and without legal advice. If it is clear that the satisfaction received was understood to be only partial, it should not discharge the claim against the second tortfeasor. .. .
Prosser, Law of Torts, § 301 (4th.Ed. 1971). (Emphasis added).
In the instant case presumably two releases were executed. The first release, if executed when the check was negotiated, was lost. Upon request of the insurance company, a second release was executed some six months later. It was presumed to be identical to the first. However, the second release discharged Guy R. Gunter "and all others whatsoever" from liability of the accident of December 7, 1978. Mrs. Smith denied that she intended to release Falke or that she had full satisfaction of her damage.
B.
To show her intent and partial satisfaction, Mrs. Smith offered parol evidence. However, the court did not consider it.
The Mississippi parol evidence rule provides that when the language of a contract is clear and unambiguous, parol testimony is inadmissible to contradict the written language. See, Valley Mills Division of Merchants Co. v. Southeastern Hatcheries of Mississippi, Inc., 245 Miss. 71, 145 So. 2d 698 (1962).
In Byrd v. Rees, 251 Miss. 876, 171 So. 2d 864 (1965), this Court set forth the same rule above but allowed extrinsic evidence to clear up an ambiguity and explain the language: "the plan of the operation heretofore in effect." There the Court stated:
The parol evidence rule does not preclude the reception of parol evidence with reference to a matter evidenced by the writing, where such evidence relates to a matter in pais, or is of such a character that it does not tend to vary or contradict the written instrument.
Id. 171 So.2d at 867.
In the case sub judice, appellant argues that Daniel J. Falke, a stranger to the release contract between Gunter and Smith, should not benefit from its terms. Thus the issue before this Court is whether the Court should compel a construction of the settlement instrument that was not intended by any of the parties to the instrument to benefit a wrongdoer who was a stranger to the instrument and paid no consideration for it.
This Court has adopted the general rule that the parol evidence rule applies only to controversies between parties to the agreement. National Cash Register Co. v. Webb, 194 Miss. 626, 11 So. 2d 205 (1942). And while National Cash Register dealt with a contract in general and not a release instrument, the effect would be the same, and Mississippi would appear to have adopted the majority rule stated by A.L.R. Annot., 13 A.L.R. 3rd 313 (1967) at § 2(b), which states:
The rule that the parol evidence rule does not apply to a stranger to a contract and that parol evidence is admissible in favor of or against a stranger to a contract has been applied in numerous cases to a stranger to a release. The principle commonly relied on in holding extrinsic evidence admissible has been that the parol evidence rule applies only to parties to the instrument or their privies. Following this principle, the courts have admitted parol evidence to show the intent of the parties as to various matters, such as persons covered or bound by the release, the subject matter of the release, the extent of the loss or injury, *1047 and whether the instrument was intended to be a release or a covenant not to sue.
Id. at § 2(b). (Emphasis added).
Among the jurisdictions that have also followed this rationale is the United States Supreme Court in applying the federal common law. Zenith Radio Corp. v. Hazeltine Research, 401 U.S. 321, 91 S. Ct. 795, 28 L. Ed. 2d 77 (1971), reh. denied 401 U.S. 1015, 91 S. Ct. 1247, 28 L. Ed. 2d 552. In Zenith, the Court held: "... The straight-forward rule is that a party releases only those parties whom he intends to release... ." Id. 401 U.S. at 347, 91 S. Ct. at 810, 28 L.Ed.2d at 97. Further, in a footnote, the Supreme Court acknowledged and adopted the rule that the parol evidence rule is only operative as to parties to the document and not to a stranger to the release. Id. 401 U.S. at 347, 91 S. Ct. at 810, 28 L.Ed.2d at 97 n. 12.
This Court in analyzing the National Cash Register Co. case, noted that the third party seeking to invoke the benefit was not in privity to the contract and reasoned:
The rule excluding parol evidence to vary or contradict a written instrument applies only in controversies between the parties to the instrument and those claiming under them.
Id. at 205.
It is upon this latter phrase "and those claiming under them" that appellee claims standing.
The appellee Falke here contends that he is a third party beneficiary of the release between Smith and Gunter and since the release did not reserve the right to proceed against other tort-feasors, Falke is a member of a specified class discharged under the general release of "all others whatsoever." Falke relies on Burns v. Washington, 251 Miss. 789, 171 So. 2d 322 (1965) wherein this Court stated:
[A] third party may in his own right and name, enforce a promise made for his benefit even though he is a stranger both to the contract and to the consideration. (Emphasis added) Burns, supra, at 324; 17 Am.Jur.2d, Contracts, section 302, p. 722 (1964); 17A C.J.S., Contracts, section 519(3) (1963).
The distinction between the Burns case and the case sub judice is in the analysis of the facts. The Burns Court found, under the terms of the contract, the parties intended to include the third party as a beneficiary, and this accordingly, afforded a third party beneficiary rights to enforce a claim under the contract. Here the undisputed testimony of the attorney, Mrs. Smith, and the insurance adjuster indicates an intent to release Gunter only. And it was this undisputed parol testimony that the trial court did not consider in arriving at his decision to dismiss.
This Court holds that as a matter of law that error was committed by the trial judge in this conclusion. This Court holds that the rule excluding parol evidence to vary or contradict a written instrument applies only to controversies between the parties to the instrument and those claiming under them. National Cash Register Co. v. Webb, supra.
Further, this Court holds that in a release contract a party releases only those parties whom he intends to release. Zenith, supra. In the case sub judice, the undisputed parol facts entitled to be considered by the Court are that Falke was not intended by the parties to be a third party beneficiary. That intent is further evidenced by the existing lawsuit against the Falkes. Therefore, the granting of a dismissal against Daniel J. Falke and his parents was error, which ruling this Court reverses and renders. The other assignment of error does not need to be addressed.
The case is remanded for jury trial on the merits.
REMANDED.
PATTERSON, C.J., WALKER and ROY NOBLE LEE, P.JJ., and HAWKINS, DAN M. LEE, ROBERTSON, SULLIVAN and ANDERSON, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2301450/ | 625 F. Supp. 762 (1986)
Paul F. McDONALD, Plaintiff,
v.
PIEDMONT AVIATION, INC., Defendant.
No. 84 Civ. 8262 CLB.
United States District Court, S.D. New York.
January 6, 1986.
*763 John G. McDonald, Rhinebeck, N.Y., for plaintiff.
Charles C. Read, Diane Patrick, O'Melveny & Myers, New York City, for defendant.
MEMORANDUM AND ORDER
BRIEANT, District Judge.
In this action for damages and injunctive relief brought under 28 U.S.C. §§ 1331 and 1332, plaintiff Paul F. McDonald alleges that the defendant Piedmont Aviation, Inc. violated § 43 of the Airline Deregulation Act of 1978, 49 U.S.C. § 1552, by refusing to give hiring preference to the plaintiff as the statute purportedly would require. Defendant has moved to dismiss or, alternatively, to stay this action pending resolution of an unrelated case pending in the District Court of the District of Columbia, discussed below.
Section 43, entitled "Employee Protection Plan," comprises two related but discrete *764 provisions: the first provides for monthly support payments by the Government to eligible airline workers who had been dislocated by airline deregulation, while the second imposes a duty upon the airline industry to give preferential hiring consideration to those dislocated employees in order to obviate the need for the Government assistance. It is under this second provision that plaintiff claims his private right of action arises.
In pertinent part, this subsection reads as follows:
"(d)(1) Each person who is a protected employee of an air carrier which is subject to regulation by the Civil Aeronautics Board who is furloughed or otherwise terminated by such an air carrier (other than for cause) prior to the last day of the 10-year period beginning on October 24, 1978 shall have first right of hire, regardless of age, in his occupational speciality, by any other air carrier hiring additional employees which held a certificate issued under section 1371 of this title prior to October 24, 1978. Each such air carrier hiring additional employees shall have a duty to hire such a person before they hire any other person, except that such air carrier may recall any of its own furloughed employees before hiring such a person." 49 U.S.C. § 1552(d)(1).
McDonald's claim arises out of Piedmont's decision in 1981 to hire airline personnel, specifically pilots, who allegedly did not qualify as "protected employees" to whom preferential hiring treatment was due under § 43. A protected employee, as defined by the statute, is a person other than a corporate director or officer who had been employed by a certified air carrier for at least four years prior to October 24, 1978. 49 U.S.C. § 1552(h)(1).
In November 1981, following the cessation of Air New England where he had been employed as a pilot for at least seven years, McDonald applied to Piedmont for employment as a pilot. He identified himself as a protected employee. One month later, in December 1981, Piedmont hired a class of pilots consisting entirely of persons who, McDonald alleges, were not protected employees. Finally refused employment in May 1982, McDonald brings this action in an effort to enforce a "first right of hire" contained in § 43 that he contends Piedmont is statutorily obligated to honor.
The defendant moves to dismiss this action on two grounds. Piedmont first argues that § 43 does not create a private right in the plaintiff as a rejected applicant to enforce the statute by injunctive or monetary relief, and that consequently his complaint fails to state a claim upon which relief can be granted. Piedmont also argues that whatever rights § 43 conferred had not ripened at the time McDonald filed his complaint in November 1984 because the Department of Labor regulations intended to implement the statute have not yet been put into effect.
It is clear that this statute contains no express authorization of a private right of action by a person injured by a violation of § 43. Nevertheless, there remains for consideration whether a private remedy should be inferred from the language of the statute and Congressional intent.
Our inquiry begins with analysis of the statutory language itself, see Touche Ross & Co. v. Redington, 442 U.S. 560, 568, 99 S. Ct. 2479, 2485, 61 L. Ed. 2d 82 (1979), applying the criteria set forth in Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975). If this language fairly implies a right to specific and limited relief in federal court, no additional investigation into Congressional intent would be required. See Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 18, 100 S. Ct. 242, 246, 62 L. Ed. 2d 146 (1979) (construing § 215 of the Investment Advisors Act).
In our analysis of the statutory language to ascertain Congressional intent, we must consider three factors: (1) whether the statute was enacted for the especial benefit of the class seeking private enforcement, see Daily Income Fund, Inc. v. Fox, 464 U.S. 523, 104 S. Ct. 831, 837, 78 L. Ed. 2d 645 (1984); Cannon v. University of Chicago, *765 441 U.S. 677, 690, 99 S. Ct. 1946, 1954, 60 L. Ed. 2d 560 (1979); Cort v. Ash, 422 U.S. at 78, 95 S. Ct. at 2087; (2) whether the language relied upon creates a right or imposes a duty, or instead merely proscribes or directs certain conduct, see Universities Research Association, Inc. v. Coutu, 450 U.S. 754, 771, 101 S. Ct. 1451, 1461, 67 L. Ed. 2d 662 (1981); Touche Ross, supra 442 U.S. at 569-71, 99 S. Ct. at 2485-86; and (3) whether the statute sets forth adequate mechanisms for enforcement and relief so as to obviate any need for private enforcement, see Daily Income Fund, supra 104 S.Ct. at 837; Middlesex County Sewerage Authority v. National Sea Clammers Association, 453 U.S. 1, 13, 101 S. Ct. 2615, 2622, 69 L. Ed. 2d 435 (1981).
The first and second factors are usually examined together and are given great weight. As the Supreme Court observed in Cannon when it held that Title IX created a private remedy:
"With the exception of one case, in which the relevant statute reflected a special policy against judicial interference, this Court has never refused to imply a cause of action where the language of the statute explicitly conferred a right directly on a class of persons that included the plaintiff in the case." Cannon, supra, 441 U.S. at 690, n. 13, 99 S. Ct. at 1954 n. 13 (citations omitted); see Universities Research Association, supra 450 U.S. at 773, n. 23, 101 S. Ct. at 1462 n. 23.
By its terms, § 43 establishes a "first right of hire" and identifies the persons upon whom the right is conferred. See 49 U.S.C. § 1552(d)(1). Without a remedy there is no right. Under Cannon, therefore, a private right of action may fairly be inferred from the statute absent other language that specifies particular, exclusive mechanisms for enforcing those rights. See Daily Income Fund, supra 104 S.Ct. at 837; Middlesex Sewerage Authority, supra 453 U.S. at 13, 101 S. Ct. at 2622.
Scrutiny of the "Employee Protection Plan," codified at 49 U.S.C. § 1552, reveals no legislative scheme of enforcement that would either refute the implication of the right-giving language quoted above or obviate the need for it by furnishing an alternative remedy that would serve adequately the legislative purpose. See Daily Income Fund, supra 104 S.Ct. at 837. Although Congress authorized the Department of Labor to "issue, amend, and repeal such rules and regulations as may be necessary for the administration of this section," 49 U.S.C. § 1552(f)(1), this language cannot be construed to provide the "express statutory remedies" that the Supreme Court would require in order to deny this plaintiff private enforcement of his conferred right. See Daily Income Fund, supra at 837. Where, as here, it is apparent that Congress granted a class of persons certain specific rights and is silent on the question of whether those rights should be enforced by private action, a private remedy may be implied by the courts unless the legislative history shows an explicit purpose to deny such enforcement. See Cannon, 441 U.S. at 694, 99 S. Ct. at 1956, quoting Cort v. Ash, 422 U.S. 66, 67, 82, 95 S. Ct. 2080, 2082, 2089, 45 L. Ed. 2d 26 (1975); Neilan v. Value Vacations, Inc., 603 F. Supp. 1227, 1235 (S.D.N.Y.1985). The legislative history underlying § 43 contains nothing that negates implication of a private right of action. It focuses primarily upon the monthly payment assistance program designed to assist dislocated airline workers in their transition to new employment. See S.Rep. No. 631, 95th Cong., 2d Sess. 113-17 (1978). Discussion of the preference hiring requirement was confined to two sentences that reiterated the carrier's duty to hire. Id. at 116. Although Congress did not discuss the mechanics of enforcement, its purpose in enacting § 43 is clear, and a private remedy would be necessary to effectuate that purpose. To the extent that a private remedy is "at least helpful to the accomplishment of the statutory purpose," the courts have been decidedly receptive to its implication under the statute. See Cannon, 441 U.S. at 703, 99 S. Ct. at 1961 (citations omitted). Accordingly, this Court concludes that the language of § 43 will support a private *766 right of action, and as a result, the complaint does state a claim upon which relief can be granted.
The Court now turns to Piedmont's second contention supporting its motion to dismiss. Piedmont argues that the existence of an enforceable right under § 43 depends entirely on the promulgation by the Department of Labor of rules and regulations designed to implement the program, as contemplated by § 1552(f). It argues that the statute, without more, is inadequate to permit the subject air carriers to satisfy their preferential hiring obligations under the Act and that accordingly it may be inferred that Congress intended to make the private enforcement of statutory rights contingent upon the issuance of elaborative regulations. Although this statute goes back to 1978, there are still no regulations. Proposed final regulations implementing § 43 were published in the Federal Register on November 22, 1983, 48 Fed.Reg. 52,854, 52,861 (1983), and again on December 27, 1985, 50 Fed.Reg. 53,094, 53,101 (1985) (to be codified at 29 C.F.R. § 220.01, et seq.), these have not been put into effect, although whenever bureaucrats are given an opportunity to make rules, they usually do so. Piedmont argues that because there are as yet no rules in effect, McDonald's rights under the statute, if any, have not yet matured.
This argument has no merit. The argument assumes that bureaucrats in the Executive Branch, by their mere inaction in failing to adopt regulations or by involving themselves in an interminable tug-of-war over minutiae to be contained therein, could put off indefinitely (seven years in this case) the effectiveness of a scheme or remedy adopted by Congress that the President did not veto. Such an assumption may not be made lightly. In any event, the adoption of regulations is hardly necessary to the enforcement of § 43 of the Act. As noted earlier, the statute delineates unambiguously the rights and duties of the parties and identifies specifically to whom they should apply. See 49 U.S.C. § 1552(d)(1), (h)(1). The instruction by Congress to the Department of Labor to propose interpretive regulations for the entire Act does not diminish the right-giving force of the statutory language itself; nor could any such regulation dilute or repeal such rights, central as they are to the statutory scheme. Indeed, the rules published in December 1985, but not yet adopted, offer little guidance. See 50 Fed.Reg. at 53,101 to 53,105 (to be codified at 29 C.F.R. §§ 220.01-.51). The proposed 1985 regulations are silent as to the mechanism for enforcing the right of hire. They do provide a limited administrative appeal for ascertaining eligibility in the event of a dispute by an employee who "disagrees with the carrier's final determination under § 280.25 that he or she is not a protected employee" 50 Fed.Reg. 53,103-53,104 (to be codified at 29 C.F.R. § 220.26). Without the regulations, the language of § 43 is sufficiently clear to alert those air carriers who survived deregulation of their responsibilities, without the necessity of further action pursuant to the rule making power of the Department of Labor. The proposed 1985 regulations themselves support this conclusion, by expressly providing that "nothing in these regulations shall preclude the exercise of statutory rights and duties between October 24, 1978 and the effective date of these regulations." 50 Fed.Reg. 53,102 [to be codified at 29 C.F.R. § 220.01(g)]. The Department, referring explicitly to this Act, later uses substantially the same language in making the same point. See id. at 53,105 [to be codified at 29 C.F.R. § 220.50(c)].
Piedmont relies on other language in the proposed 1983 regulations to support its position, specifically where the Department, in defining scope, announced that "only those employees who are expressly granted a hiring preference under the Act and these regulations have any rights under the Rehire Program." Id. at 53,102 [to be codified at 29 C.F.R. § 220.03(a)]. Even if we assume for the argument that the class of eligible protected employees may be smaller if these regulations or similar ones are adopted than it was before, McDonald will still be within the class, and this Court declines to infer from language *767 in regulations not yet adopted that no rights exist at all until adoption. Indeed, the Department's reaffirmation of the employees' statutory rights as recited above forbids such a conclusion.
Accordingly, Piedmont's motion to dismiss this action on this additional ground is denied.
Having concluded that this action is properly before the court, and that the complaint states a claim, we now consider defendant's motion to stay this action pending resolution of Alaska Airlines Inc., et al. v. Donovan, 594 F. Supp. 92 (D.C.Dist. Col.1984).
In exercising its discretion to stay an action before it in favor of a case in another court, a court must be motivated by considerations of judicial economy, fundamental fairness and the orderly administration of justice. Ordinarily, a court would not be justified in holding in abeyance a later-filed action such as this one unless the parties and issues of the concurrent actions are substantially identical. See Kistler Instrumente A.G. v. PCB Piezotronics, 419 F. Supp. 120, 123 (W.D.N.Y. 1976). Defendant here contends that the New York and District of Columbia cases are substantially identical in all matters except the parties. Further, it avers that the plaintiff will not be prejudiced by deferring to the District of Columbia action because the issues of concern to McDonald will be adjudicated fully and his interests protected in the other case; moreover, the threat of duplicative litigation will be averted.
The identity of these actions is not particularly significant and would not justify staying this action as defendant requests. Plaintiffs in Alaska Airlines allege that the first right of hire provision of § 43 violates due process. While this allegation invites judicial construction of the entire statute, the significant portion of the complaint there is directed against the regulations to be promulgated under the statute. Thus, the Alaska Airlines case differs substantially from this action by McDonald, who grounds his claims firmly and solely on the specific language of the statute itself, independent of any interpretative regulations that may or may not ever be promulgated. Since the Alaska Airlines action is so closely tied to the regulations and their status, and the regulations are not yet in effect, there is really nothing to litigate at this time.
To submit McDonald's claim to the delays of an action that does not mirror substantially his own is patently unfair.
McDonald's efforts to define and, he hopes, to vindicate his statutory rights should not be held hostage to the trial tactics and delays attendant to another action over which he has no control. Moreover, interests of judicial economy would not necessarily be served by a stay. A decision and judgment in the District of Columbia action likely would have no claim preclusion or collateral estoppel effect against either party to this action under the rules set forth in Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 329, 91 S. Ct. 1434, 1443, 28 L. Ed. 2d 788 (1971) and Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 330, 331, 99 S. Ct. 645, 651, 652, 58 L. Ed. 2d 552 (1979); nor would this district court even be required to reach a consistent result on the due process issue since the rule of stare decisis is not implicated. See Newsweek, Inc. v. U.S. Postal Service, 663 F.2d 1186, 1196 (2d Cir.1981), cert. denied sub nom. Council of Public Utility Mailers v. U.S. Postal Service, 457 U.S. 1133, 102 S. Ct. 2959, 73 L. Ed. 2d 1350 (1982); City Stores Company v. Lerner Shops of District of Columbia, 410 F.2d 1010, 1014 (D.C.Cir.1969); EEOC v. Pan American World Airways, 576 F. Supp. 1530, 1535 (S.D.N.Y.1984).
This Court upholds plaintiff's right to chart the course of his own litigation and to prosecute his claims in the manner of his choice. See Bell v. Hood, 327 U.S. 678, 66 S. Ct. 773, 90 L. Ed. 939 (1946). The uncertain risks of inconsistent results or duplicative litigation are not persuasive under the facts presently before this Court. Accordingly, *768 defendant's motion to stay this action pending decision in the District of Columbia action is denied.
Counsel for the parties shall confer with regard to any necessary pre-trial proceedings. A Rule 16 conference will be held February 13, 1986 at 9:00 A.M. in Courtroom 31, United States Courthouse, 101 East Post Road, White Plains, New York 10601.
So Ordered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2370877/ | 382 S.W.2d 326 (1964)
R. L. LANE et al., Appellants,
v.
SECURITY TITLE & TRUST COMPANY et al., Appellees.
No. 16338.
Court of Civil Appeals of Texas, Dallas.
July 24, 1964.
Rehearing Denied September 25, 1964.
*327 Wynne, Jaffe & Tinsley, Yandell Rogers, Jr., Daugherty, Bruner, Kelsoe & Lastelick, G. H. Kelsoe, Jr., Dallas, for appellants.
Biggers, Baker, Lloyd & Carver, Ralph D. Baker, and Clifford S. Dillard, Dallas, for appellees.
BATEMAN, Justice.
Our former opinions are withdrawn and the following substituted therefor.
This suit was filed by R. L. Lane, S. E. Case and Morris I. Jaffe against W. B. Post, doing business as Security Title Company, and Security Title & Trust Company of San Antonio, Texas, a corporation, for actual damages alleged to have been suffered because two outstanding liens were not shown on certain Mortgagee's Title Policy Binders, and for exemplary damages because the representations made in said Binders, as well as in certain telephone conversations, as to the absence of the two outstanding liens, were made willfully and with knowledge of their falsity. After jury verdict on special issues the court rendered judgment for the plaintiffs against the defendants, jointly and severally, for actual damages of $14,938.65, the amount of the two outstanding liens, and against Post for exemplary damages of $5,000. The jury had awarded $25,000 in exemplary damages against Security Title & Trust Company, but the court disregarded this finding in rendering judgment. All parties have appealed and to avoid confusion will be herein called by their proper names, except that the corporate defendant Security Title & Trust Company will be called Security. Lane, Case and Jaffe expressly limit the scope of their appeal to that portion of the judgment which decreed that they take nothing on their prayer for exemplary damages against Security.
Facts
George C. Rorie, Jr., owner of certain lots in the City of Dallas, entered into a contract with Perry Greenspan, Jr. by which *328 the latter agreed to construct certain apartment buildings thereon. Lane, Case and Jaffe undertook to arrange for the interim financing through the First National Bank in Dallas. Jaffe ordered from Post, the local representative of Security, a Mortgagee's Title Policy Binder on Interim Construction Loan. Jaffe is shown thereon as lender or mortgagee, and the instrument recites: "For the purpose of issuance of the Mortgagee's Title Policy herein referred to the Company certifies that a good and indefeasible title to the land described in Schedule A hereof, was on the 9th day of April, A.D., 1959 at 9:00 o'clock A.M., vested in George C. Rorie, Jr. SUBJECT ONLY to the defects, objections, liens and encumbrances shown in Schedule B hereof, and the lien described in Item 1, Schedule A, hereof." The lien described in Item 1 of Schedule A is a mechanic's lien note in the sum of $285,000 executed by Rorie payable to the order of Greenspan dated April 8, 1959, recited to have been transferred to Jaffe by assignment dated April 8, 1959. No other liens were shown in Schedule B or elsewhere in the instrument.
The binder also provides that upon certain contingencies and payment of the applicable premium therefor, the company will issue its Mortgagee's Policy of Title Insurance in the face amount ($285,000) covering the lien described in Schedule A, "showing under Schedule B thereof only such exceptions as appear in Section Two of Schedule B hereof, * * *." It was further provided: "This Binder is preliminary to the issuance of the Mortgagee's Policy of Title Insurance referred to above and in no event shall it be effective after one year from the aforesaid date. * * *"
Later Jaffe informed Post that the First National Bank in Dallas insisted that the binder be issued in its name. At Jaffe's request Post, as issuing agent of Security, issued another such binder, similar in all respects to the one described above except that (1) it was addressed to First National Bank in Dallas instead of Jaffe; (2) the effective date was July 17, 1959; (3) the space for the owner's name was left blank; and (4) the lien described in Schedule A was a deed of trust dated July 10, 1959 executed by George C. Rorie, Jr. to John Kipp, Trustee, to secure a $285,000 note executed by Rorie and payable to the order of Jaffe as trustee, recited to have been transferred to the First National Bank in Dallas.
At the time these binders were issued Post and one Frederick were partners doing business as Security Title Company and were issuing agents for Security. The printed forms for these binders as well as for policies of title insurance were furnished by Security to Post and Frederick, who were authorized to issue them in any amount. They were not shown to be authorized to perform any other act on behalf of Security. Frederick issued the first binder and Post issued the second one. Jaffe testified that he talked to Post on the telephone shortly before each binder was issued, and on each occasion he told Post that he wanted to make certain that the land was free and clear of any debts because otherwise he could not get the interim financing at the bank. In the second conversation he told Post that he, Lane and Case would endorse the paper to the bank, that they could not get the financing otherwise and could not afford to arrange for interim financing unless they knew that there was not another lien on the property. He and his associates relied on Post's representations over telephone, as well as those contained in the two binders, as to the absence of other liens on the land. Post denied he had told Jaffe over telephone that there were no liens on the property. Frederick and Post dissolved their partnership in the spring of 1960, Frederick leaving the country and Post continuing to operate the business alone.
Notwithstanding Post's assurances to the contrary, there were two liens on a substantial portion of the property. One secured a note payable to D. B. Blaine dated *329 March 3, 1959, in the sum of $5,000. Post was the trustee named in the deed of trust. The other lien secured a note for $9,300 dated April 8, 1959 (the day before the issuance of the first binder), held by the South Oak Cliff Bank. Both of these notes and deeds of trust were signed by Rorie after having been prepared by either Frederick or Post. Post testified that he did not know of the Blaine $5,000 lien at the time the first binder was issued, or even of the issuance of the first binder at that time, but that he did know about it and the existence of both liens when he issued the second binder.
Greenspan did not complete his contract, and Jaffe, Lane and Case were compelled to complete it. Jaffe learned of the two outstanding liens in January 1960, and in May 1960 the insurance company making the permanent loan insisted upon the note being signed by Jaffe, Lane and Case and that they be at least part owners of the property, after which Rorie deeded an undivided one-fourth interest each to Jaffe, Lane and Case, reserving an undivided one-fourth interest to himself. Jaffe called upon Post and Security to discharge the two outstanding liens and obtain releases thereof, which demand was refused; and Jaffe testified that it then became necessary for these two liens to be paid out of the proceeds of the permanent loan. They later sold the property at a loss.
The closing of the permanent loan and the sale of the property were handled through another title company at the insistence of the insurance company making the permanent loan. In the meantime Post had purchased the $9,300 note from the South Oak Cliff Bank and obtained control of the Blaine note. His reason for doing so, he said was to enable him to subordinate those two liens to the lien of the First National Bank in Dallas and thus protect that bank. He didn't tell Security about the problem until February of 1960 because he thought Rorie and Greenspan would pay them. When he learned that the permanent loan was being closed through another title company, he notified that company of the two liens and insisted upon and received payment thereof.
The jury found, in answer to special issues, that Post represented to Jaffe that the property was free and clear of all liens, that this representation was false, that Jaffe and his associates relied upon the representation, and that they paid off the two existing liens. The jury also found that the representation was made willfully, and awarded exemplary damages of $5,000 against Post and $25,000 exemplary damages as against Security.
Opinion as to Liability of W. B. Post
By his first and second points of error, Post contends that the court erred in overruling his motion for instructed verdict since his only obligation under the title binder was to issue a mortgagee's title policy according to the terms of the binder, and there was no evidence that he had refused to do so. These points are without merit and are overruled. The plaintiffs did not sue on either of the binders as a contract but in tort on the theory that the false representations contained in the binders, as well as in a telephone conversation, constituted a fraud which resulted in damage to them. The record before us indicates clearly that Jaffe made the position of himself and his associates abundantly clear to Post, and that Post, with full knowledge of that position, issued the second binder (his partner having previously issued the first) containing the false statement concerning liens. Under the peculiar facts and circumstances of this case, we hold that Jaffe, Lane and Case alleged and proved a cause of action against Post for their actual damages. Chicago, R. I. & G. Ry. Co. v. Duncan, Tex.Civ.App., 273 S.W. 908, err. ref.
By his third and fourth points of error Post contends that Jaffe, Lane and Case, having paid the outstanding liens, thus precluding Post from pursuing his remedies against Rorie, are estopped to recover *330 such sums in this case and have waived their right to do so. These points must likewise be overruled. The liens having been paid at the insistence of Post, he is in no position to say now that he was thereby deprived of the right and opportunity to collect these debts from the man who really owed them. Jaffe, Lane and Case are not estopped from claiming their damages because, to protect their equity, they paid debts which Post was demanding be paid. Also, no special issues were requested on these defenses of estoppel and waiver, and they were therefore waived. Rule 279, Vernon's Texas Rules of Civil Procedure; Newton v. Town of Highland Park, Tex.Civ.App., 282 S.W.2d 266, 276, err. ref. n. r. e.
By his fifth point of error Post complains of the overruling of his motion for judgment non obstante veredicto because no issue of damages was submitted to the jury. Issues were submitted as to whether Jaffe, Lane and Case paid the debts secured by the two outstanding liens, and both were answered "Yes". This established the damages alleged and concerning which evidence was introduced. Chicago, R. I. & G. Ry. Co. v. Duncan, Tex.Civ.App., 273 S.W. 908, err. ref.; Fordtran v. Cunningham, Tex. Civ.App., 177 S.W. 212, err. ref. The fifth point is overruled.
Post's sixth and seventh points of error complain of the judgment against him for exemplary damages; first, because the definition of the term "exemplary damages" in the charge was erroneous, and second, because "the evidence did not support such issues or judgment." These points are without merit and are overruled. The definition was:
"EXEMPLARY DAMAGES * * means an amount which you may in your discretion award in addition to actual damages as a matter of punishment and as an example to others, and although such exemplary damages should not include any amount otherwise found by you as actual damages, same may include reasonable compensation for inconvenience."
Post's objection thereto was that it did not include the instruction that the acts complained of must be unlawful and partake of a wanton and malicious nature. This objection was properly overruled because the plaintiffs were under no such burden. Special Issue 9, inquiring as to exemplary damages against Post, was conditioned upon an affirmative answer to No. 8, which inquired as to whether the false representation was made "willfully," which term was defined as "the intentional and purposeful disregard of the known rights of another." There was no objection to this definition. The affirmative answer to Special Issue 8 was equivalent to a finding of such evil intent as to make the representation wanton or malicious. Connor v. Sewell, 90 Tex. 275, 38 S.W. 35; 17 Tex.Jur.2d, Damages, p. 245, § 178.
Post admitted that he knew of the outstanding liens when he issued the second binder certifying that there were no such liens. There was evidence that he had been told that Jaffe, Lane and Case were having to obligate themselves personally to the bank and that they could not afford to do so if other liens were on the property. The jury had a right to believe from the evidence that Post's action was in "intentional and purposeful disregard of the known rights" of Jaffe, Lane and Case. This is another way of saying that the evidence was sufficient to support the finding of willfulness and the award of exemplary damages.
Post also complains that he was precluded from showing his reasons for doing what he did by the court's statement from the bench that certain proffered testimony was immaterial and inadmissible because it would bear only on exemplary damages and the court did not consider that the issue of exemplary damages was in the case. However, Post made no effort to complete his *331 bill of exceptions, leaving us to wonder what the testimony would have been. Rules 372, 418(c), T.R.C.P. Moreover, the record indicates that Post made no effort to reopen the testimony when the court decided to submit issues on exemplary damages. Therefore, whatever rights he may have had in this respect were waived.
Finding no error requiring reversal of the judgment against Post, we affirm the same.
Opinion as to Liability of Security
We have concluded that the trial court was correct in rendering judgment against Security for the actual damages and in refusing to render judgment against it for exemplary damages.
It appearing from undisputed evidence that Post was a local agent of Security and that his complained of acts were done within the scope of his employment and authority as such agent, Security is bound thereby and liable for the actual damages proximately resulting therefrom. Restatement of the Law of Agency, §§ 257, 258; 3 Am.Jur.2d, Agency, p. 628, § 264; Amarillo Nat. Life Ins. Co. v. Brown, Tex. Civ.App., 166 S.W. 658, 663, err. ref.; Mutual Reserve Life Ins. Co. v. Seidel, 52 Tex. Civ.App. 278, 113 S.W. 945, no wr. hist. Couch on Insurance 2d, §§ 26:437, 26:438.
Security contends, by its first, second, third, sixth, seventh, eighth, tenth and eleventh points of error, that its rights, duties and obligations are to be measured by the provisions of the title binders in question; that the second title binder, which replaced the first, was a contract between it and First National Bank in Dallas, to which contract the plaintiffs were not parties; that the binders by their terms ceased to be effective when the transaction was not closed within the time specified; that since it in no way breached its contract its motions for instructed verdict, for judgment on the verdict and for judgment n. o. v. should have been granted; and that it was error to permit plaintiffs to show by parol evidence that the second binder was issued for their benefit. All of these points are based upon the erroneous premise that this was a suit on the binder as a contract, whereas it clearly appears from the record that the suit is in tort for damages for fraudulent misrepresentations. See Chicago, R. I. & G. Ry. Co. v. Duncan, Tex.Civ.App., 273 S.W. 908, err. ref. Under the peculiar facts of this case, we hold that Lane, Case and Jaffe alleged and proved a cause of action ex delicto against both Post and Security for their actual damages, and the said points of error are overruled.
Security's fourth point of error, that the court erred in overruling its objection to the court's charge, on the ground that Post was prevented from issuing the title policy by acts of the plaintiffs, is also based upon the theory that this is a suit on contract. Moreover, we do not find in the record that any such objection was actually made. For both reasons the point is overruled.
Security's fifth point complains of the overruling of its exception to a certain paragraph of the petition because the petition ignored the fact that the plaintiffs, who were conducting a joint enterprise with Rorie, had full opportunity to collect from Rorie the damages sustained. This point, not being briefed, is waived. Rule 418(c), T.R.C.P.; Gass v. Baggerly, Tex.Civ.App., 332 S.W.2d 426, no wr. hist. Moreover, the special exception was properly overruled. The facts alleged to have been "ignored" were not a part of the cause of action being pleaded and were at most an affirmative defense. A plaintiff is not required to take cognizance of and negative every defense which the defendant may or may not see fit to raise.
By its ninth point Security complains of the court's order overruling its motion to disregard jury findings that the plaintiffs relied on the misrepresentations in paying the two liens on the property. It is obvious, we think, from what we have said *332 above that these findings, being material and supported by plaintiffs' pleadings and by the evidence, could not properly have been disregarded. The point is accordingly overruled.
Security also moved to disregard the jury finding of $25,000 exemplary damages against it. As this motion was sustained, we turn now to the limited scope appeal of Lane, Case and Jaffe. Relying on King v. McGuff, 149 Tex. 432, 234 S.W.2d 403, they contend under their first point of error that since Post was acting in a managerial capacity for Security in making the fraudulent misrepresentations, Security is liable for the exemplary damages found by the jury.
We do not agree with the premise that Post was acting in a managerial capacity for Security. He and Frederick operated their own business as partners under an assumed name. They were employed only as issuing agents by Security, with authority only to issue title policies and binders on printed forms furnished to them by Security and bearing the signatures of its president and secretary and its corporate seal. If they had been managers of Security's offices in Dallas, instead of their own, they doubtless would have had authority to obligate Security for overhead expenses, such as the wages of clerical employees, rent, utilities, etc., but no such authority was shown. In fact, Post and his partner were not shown to have authority to do anything for Security except to countersign and deliver the binders and policies. There is no pleading, proof or finding that Post or his partnership constituted a department or division of Security, or that Security specifically authorized or ratified the actions complained of herein.
We hold that under these circumstances there is no liability on Security for exemplary damages and that the trial court properly disregarded the jury award of punitive damages as against it. King v. McGuff, 149 Tex. 432, 234 S.W.2d 403; 17 Tex.Jur. 2d, Damages, pp. 250-1, § 183; Mutual Life Ins. Co. v. Hargus, Tex.Civ.App., 99 S.W. 580, no wr. hist. Accordingly the first point asserted by Lane, Case and Jaffe is overruled.
Their second point, urged alternatively, is that the court erred in refusing to submit to the jury the question of whether Post acted as agent and manager for Security without supervision and control. In our opinion there is no evidence in the record to support such an issue. Moreover, as worded, it was an immaterial issue. The second point is also overruled.
Finding no error sufficient to require reversal, we affirm the judgment.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2317792/ | 430 F. Supp. 2d 431 (2006)
Ruggero D'ONOFRIO, Plaintiff,
v.
IL MATTINO, et al., Defendants.
Civil Action No. 03-CV-6705.
United States District Court, E.D. Pennsylvania.
April 27, 2006.
*432 *433 *434 Rudolph J. Di Massa, Di Massa and Associates, Ltd., Philadelphia, PA, for Plaintiff.
Joseph M. Donley, Kittredge, Donley, Elson, Fullem & Embick, LLP, Philadelphia, PA, for Defendants.
MEMORANDUM AND ORDER
ANITA B. BRODY, District Judge.
I. INTRODUCTION
Plaintiff Ruggero D'Onofrio ("D'Onofrio") filed this suit on December 12, 2003 against twenty-two Italian newspapers and radio and television stations. He alleges that from December 2, 1995 through December 12, 2001, the Defendants "jointly and severally engaged in a dastardly inquisition more offensive to honor and liberty than any other in recent history" and seeks damages of over $26 million. (Compl. ¶ 3-8.) D'Onofrio's counseled complaint, generously read, included claims for defamation, false arrest ("via the Carabinieri"), false imprisonment ("by the Italian authorities"), fraud, and violations of the Fourth, Fifth, Eighth, and Fourteenth Amendments to the United States Constitution. (Compl. ¶ 21-33.)
Currently before me is Plaintiffs Motion for Judgment by Default against Defendants Il Mattino, Il Sannio, and Messaggero Veneto. For the reasons set forth below, I will deny Plaintiffs motion for default judgment. Instead, I will dismiss Plaintiffs claims against Defendants *435 Il Mattino and Il Sannio for lack of personal jurisdiction. Finally, I will dismiss Plaintiff's claims against Defendants Roma and Unita for lack of prosecution.
II. FACTS AND PROCEDURAL HISTORY
In his complaint, D'Onofrio alleges that while he was on a CIA mission to Italy, all twenty-two named defendants defamed him by accusing him, inter alia, of having Mafia connections, laundering money through the Vatican bank, running gold, drugs and guns, selling nuclear weapons to enemies of the United States, ordering the murder of an Italian intelligence agent, poisoning Pope John Paul I, and assassinating Israeli Prime Minister Yitzhak Rabin. alleges that this defamation led to his arrest and imprisonment by Italian authorities. D'Onofrio alleges that the Defendants' acts occurred between December 2, 1995 and December 12, 2001, but he does not identify any particular acts of defamation attributable to the Defendants.
On October 18, 2004, I granted the motion of Defendants Il Corriere della Sera, La Stampa, Il Messaggero, Il Foglio, and La Repubblica to dismiss for lack of personal jurisdiction. Subsequently, Defendants RAI-1 Television Newscast and Special Services, RAI-2 Television Newscast-Compania, RAI-3 National and Regional Television Newscast and Special Services, and RAI-1 Radio Transmissions (collectively, "the RAI Defendants"), as well as Defendants Channel 4-Television Newcasts, Channel 5-Television Newscasts, and Italia 1-Television Newscasts (collectively, "the RTI Defendants") filed motions to dismiss based on lack of personal jurisdiction, forum non conveniens, insufficient service of process, and failure to state a claim due to expiration of the statute of limitations.
On June 17, 2005, I granted the motions to dismiss of the RAI and RTI Defendants. In granting these motions, I first dismissed D'Onofrio's claims under the U.S. Constitution for failure to allege state action, and his fraud claim for failure to plead with particularity as required by Federal Rule of Civil Procedure 9(b). I noted that the remaining claims could be dismissed on any number of grounds and ultimately dismissed on two grounds in the alternative: (1) forum non conveniens and (2) the fact that Plaintiff's complaint on its face showed that it was brought after the expiration of the statute of limitations. (Order of 6/17/05 at 3.)
After my October 18, 2004 and June 17, 2005 Orders of dismissal, only seven defendants remained in the case: Il Mattino, Giornale, Il Sannio, Roma, Unita, Messaggero Veneto, and Panorama. Prior to Plaintiff's motion for default judgment, these defendants had all failed to respond to the Complaint, despite having nearly two years in which to do so.[1]
Of these seven remaining defendants, Plaintiff has sought default judgment against four: Il Mattino, Il Sannio, Messagero Veneto, and Panorama. However, Plaintiff never applied to the Clerk of Court for entry of default pursuant to *436 Federal Rule of Civil Procedure 55(a).[2] On October 6, 2004, because several defendants had not yet responded to the Complaint and Plaintiff had taken no action against them, I advised Plaintiff by letter to timely request entry of default against these defendants with the Clerk of Court or face dismissal for lack of prosecution. Thereafter, on October 19, 2004, Plaintiff submitted filings requesting that the Clerk of Court enter default judgment in the amount of $26 million against Il Mattino, Il Sannio, Messaggero Veneto, Panorama, and several of the defendants that I later dismissed in my June 17, 2005 Order.[3] To date, Plaintiff has neither requested entry of default nor moved for default judgment against Il Giornale, Roma, or Unita.
The next point at which Plaintiff sought relief for the remaining defendants' failure to respond to the Complaint was on September 13, 2005, when Plaintiff filed a "Motion for Judgment of Default by the Court" against Il Mattino, Il Sannio, Messaggero Veneto, and Panorama. On September 26, 2005, I held a hearing on default, default judgment, and jurisdiction to enter default judgment.[4] At that hearing, Plaintiff's counsel agreed to voluntarily dismiss Defendants II Giornale and Panorama, leaving only five remaining Defendants in this caseIl Sannio, Il Mattino, Roma, Unita, and Messaggero Veneto.
At the September 26, 2005 default judgment hearing and in an order of October 6, 2005, I notified Plaintiff that before I could enter a default judgment, he was required to present evidence of: (1) this Court's basis of personal jurisdiction over defaulting defendants; (2) proper service of process upon defaulting defendants; (3) facts necessary to state a cause of action; and (4) the amount claimed in damages. I have reviewed Plaintiff's brief in support of default judgment. Because Plaintiff has failed to establish that this Court can exercise personal jurisdiction over the defaulting defendants consistent with the Due Process clause of the federal Constitution, I lack the power to enter a valid default judgment. When a court is asked to enter default judgment against defendants over whom it cannot exercise personal jurisdiction, the court has discretion to dismiss the action sua sponte. See In re Tuli, 172 F.3d 707, 712 (9th Cir.1999); see also System Pipe & Supply, Inc. v. MIV Viktor Kurnatovskiy, 242 F.3d 322, 324 (5th Cir. 2001); Dennis Garberg & Assocs., Inc. v. Pack-Tech Int'l, 115 F.3d 767, 771-72 (10th Cir.1997); 10 A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2682 (3d ed.2005) [hereinafter "Wright & Miller"]. Accordingly, I will dismiss Plaintiff's *437 claims against Defendants Il Sannio, Il Mattino, and Messaggero Veneto sua sponte for lack of personal jurisdiction.
Plaintiff has never requested either default or default judgment against Defendants Roma or Unita.[5] As noted above, I notified Plaintiff as early as October 2004 that his claims against certain defendants might be dismissed for lack of prosecution if he did not timely request entry of default against them. Because Plaintiff has delayed an unreasonable amount of time in taking action against Defendants Roma and Unita, I now dismiss all of Plaintiff's claims against these defendants with prejudice for lack of prosecution.
III. DISCUSSION
A. Entry of Default Judgment
Where, as here, a party seeks entry of a default judgment that is not within the limited powers of the Clerk of Court to enter under Rule 55(b)(1), "the party entitled to a judgment by default shall apply to the court therefor." Fed.R.Civ.P. 55(b)(2). Entry of default judgment is not a matter of right that flows automatically from a defendant's failure to respond to the complaint, Mwani v. bin Laden, 417 F.3d 1, 6 (D.C.Cir.2005), but rather a matter of the court's discretion. Hritz v. Woma Corp., 732 F.2d 1178, 1180 (3d Cir.1984); Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d Cir.2000) (district court's entry of default judgment is reviewed for abuse of discretion).
In determining whether to exercise its discretion to enter default judgment against a party, a court may consider a number of factors. See 10A Charles A. Wright, Arthur R. Miller & Mary Kay Kane § 2685. However, as a threshold matter, the court must first satisfy itself that it has personal jurisdiction over the party against whom default judgment is requested. Mwani, 417 F.3d at 6; see also System Pipe, 242 F.3d at 324; Tuli, 172 F.3d at 712; Garberg, 115 F.3d at 771-72. A default judgment entered without personal jurisdiction is void. System Pipe, 242 F.3d at 324; Tuli, 172 F.3d at 712. Because a court should not enter a judgment that will later have to be set aside as void, see 10A Charles A. Wright, Arthur R. Miller & Mary Kay Kane § 2685, if a court asked to enter default judgment against a defendant determines that it lacks personal jurisdiction, it may decline to enter default judgment and instead dismiss for lack of personal jurisdiction sua sponte. See Tuli, 172 F.3d at 712; System Pipe, 242 F.3d at 324; Garberg, 115 F.3d at 771-72.
Indeed, it has been observed that "when entry of a default judgment is sought against a party who has failed to plead or otherwise defend, the district court has an affirmative duty to look into its jurisdiction both over the subject matter and the parties." Williams v. Life Say. and Loan, 802 F.2d 1200, 1203 (10th Cir.1986); see also Mwani, 417 F.3d at 6 & n. 4; System Pipe, 242 F.3d at 324; Tuli, 172 F.3d at 707; Garberg, 115 F.3d at 771-72. While it is true that a party may waive lack of personal jurisdiction, when inquiring sua sponte into personal jurisdiction in the context of a default judgment, "the court does not assert a personal defense of the parties; rather, the court exercises its responsibility to determine that it has the power to enter the *438 default judgment." Williams, 802 F.2d at 1203.
When a court considers personal jurisdiction in the posture of a default judgment, "although the plaintiffs retain the burden of proving personal jurisdiction, they can satisfy that burden with a prima facie showing," and "may rest their argument on their pleadings, bolstered by such affidavits and other written materials as they can otherwise obtain." Mwani, 417 F.3d at 7 (citations omitted).
A court cannot obtain personal jurisdiction over a party without proper service of process. See Lampe v. Xouth, Inc., 952 F.2d 697, 700-01 (3d Cir.1991) ("A court obtains personal jurisdiction over the parties when the complaint and summons are properly served upon the defendant. Effective service of process is therefore a prerequisite to proceeding further in a case."). Thus, "[a] default judgment entered when there has been no proper service of the complaint is, a fortiori, void, and should be set aside." Gold Kist, Inc. v. Laurinburg Oil Co., Inc., 756 F.2d 14, 19 (3d Cir.1985). Therefore, as part of determining whether it has personal jurisdiction over a defaulting defendant, the court must inquire as to whether there was sufficient service of process.
B. Personal Jurisdiction Over Defendants Il Sannio, Il Mattino, and Messaggero Veneto
1. Messaggero Veneto
At the outset, I note that nowhere in the record is there any indication that Defendant Messaggero Veneto was properly served with the Complaint, as is necessary for this Court to exercise personal jurisdiction. Whereas the other two defendants that are the subject of Plaintiff's current motion for default judgment have at least had a summons returned executed with respect to them,[6] there is simply no proof of service, or waiver of service, anywhere in the record with respect to Defendant Messaggero Veneto. Accordingly, I can only conclude that proper service was never made upon this defendant.
Without proper service of process, any default judgment entered against a party is void for lack of personal jurisdiction.[7]Gold Kist, 756 F.2d at 19. When a court asked to enter default judgment against a party concludes that it lacks personal jurisdiction over the party, the appropriate procedure is to dismiss sua sponte for lack of personal jurisdiction. Tull, 172 F.3d at 712. Therefore, I will deny Plaintiff's motion for default judgment with respect to Defendant Messaggero Veneto, and dismiss Plaintiffs claims against this defendant with prejudice for lack of personal jurisdiction.
2. Defendants Il Sannio and Il Mattino
In contrast to Messaggero Veneto, summonses were returned executed as to Defendants II Sannio and Il Mattino on March 8, 2004 and October 26, 2004 respectively. Thus, for purposes of this *439 motion only, I assume that these defendants were properly served. However, proper service of process alone is not sufficient to confer personal jurisdiction upon a court. Personal jurisdiction over the particular party must also be shown to be consistent with the Due Process clause of the federal Constitution. Plaintiff submitted no proof of this Court's personal jurisdiction over defaulting defendants prior to the default judgment hearing on September 26, 2005, at which time I notified Plaintiff that such evidence would be required.[8] (Order of 9/29/05 at 1.) In his brief of October 21, 2005, Plaintiff offers the following assertion of the bases for this Court's jurisdiction, which is in essence a repetition of his allegations of personal jurisdiction in the Complaint:
[T]he Complaint further alleges that the Defendants entered the United States, including but not limited to the Eastern District of Pennsylvania, pursuant to their investigation of the Plaintiff; that the Defendants frequently consulted with (and obtained information from) a CIA informant in an attempt to elicit derogatory evidence against the Plaintiff; and that the Defendants `disseminated their news articles and transmitted their broadcasts throughout the United States including, but not limited to, this Federal Eastern District of Pennsylvania.' See Count II of the Complaint.
In addition thereto, Plaintiff engaged in certain investigations pertaining to the Defendant newspapers . . . and learned that they are daily publications syndicated with and disseminated by various wire, news, cable and electronic transmission/internet companies and that they caused dissemination of the defamatory and derogatory articles concerning the Plaintiff to members of the public in the United States and in Pennsylvania as a result of which Plaintiff suffered harm to his reputation and income.
(Pl.'s Br. Supp. Mot. Default J. at 2-3.)
Ordinarily, Plaintiff would not be allowed to rest on the bare allegations of his complaint in establishing personal jurisdiction. See Giusto v. Ashland Chemical Co., 994 F. Supp. 587, 591-92 (E.D.Pa. 1998). However, upon entry of default against a defendant, the "well-pleaded" facts alleged in the complaint (except those relating to damages) must be taken as true. Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir.1990). Thus, for purposes of Plaintiff's motion for default judgment, I must accept as true the jurisdictional allegations in the complaint. While on a motion for default judgment Plaintiff need only make a prima facie showing of personal jurisdiction, even taking as true all of Plaintiff's allegations, Plaintiff has not alleged sufficient facts to support personal jurisdiction over Defendants.
Under Federal Rules of Civil Procedure 4(e), a district court may assert personal jurisdiction over non-resident defendants to the extent permissible under the law of the state where the district court sits. Remick v. Manfredy, 238 F.3d 248, 255 (3d Cir.2001). Pennsylvania's longarm statute authorizes Pennsylvania courts to exercise personal jurisdiction over non-residents "to the fullest extent allowed under the Constitution of the United States." 42 Pa. Cons.Stat. Ann. § 5322(b). Thus, the question becomes whether personal jurisdiction over Defendants *440 comports with constitutional due process.
The due process limit to the exercise of personal jurisdiction is defined by a two-part test. Vetrotex Certainteed Corp. v. Consol. Fiber Glass Prod. Co., 75 F.3d 147, 150 (3d Cir.1996). First, the plaintiff must show that the defendant has constitutionally sufficient "minimum contacts" with the forum. Id. Second, the assertion of personal jurisdiction over the defendant must comport with "traditional notions of fair play and substantial justice." Id. at 150-51 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 90 L. Ed. 95 (1945)).
Personal jurisdiction may be exercised under two distinct theories: general jurisdiction and specific jurisdiction. General jurisdiction is based upon the defendant's "continuous and systematic" contacts with the forum and exists even if the plaintiff's cause of action arises from the defendant's non-forum related activities. Remick, 238 F.3d at 255. To justify the exercise of general jurisdiction over a nonresident, a plaintiff must establish that the defendant's contacts with the forum state are "so continuous and substantial" that the defendant should reasonably expect to be haled into court there on any cause of action. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-416, 104 S. Ct. 1868, 80 L. Ed. 2d 404. The plaintiff must adduce "extensive and persuasive" facts indicating that the defendant has maintained continuous and substantial forum affiliations. Metallic Ceramic Coatings, Inc. v. Precision Prods., Inc., 2001 WL 122227, at *2 (E.D.Pa. Feb.13, 2001) (citing Reliance Steel Prod. v. Watson, Ess, Marshall, & Enggas, 675 F.2d 587, 588-89 (3d Cir.1982)).
Plaintiffs have alleged no such "continuous and substantial" contacts between the Defendants (all Italian newspapers with places of business in Italy) and the commonwealth of Pennsylvania that would give rise to general jurisdiction. There is no allegation that the Defendants are registered to conduct business in Pennsylvania, maintain offices or employees in Pennsylvania, or own property in Pennsylvania. See Metallic Ceramic, 2001 WL 122227 at * 2. Therefore I will limit my inquiry to specific jurisdiction.
Specific jurisdiction is present only if the plaintiff's cause of action arises out of a defendant's forum-related activities, such that the defendant "should reasonably anticipate being haled into court" in that forum. Vetrotex, 75 F.3d at 151 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S. Ct. 559, 62 L. Ed. 2d 490 (1980)). There must be "some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Id. at 150 (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S. Ct. 1228, 2 L. Ed. 2d 1283 (1958)). Where, as here, the conduct of the defendant out of which specific jurisdiction allegedly arises is an intentional tort, the particular concerns of the Supreme Court's decision in Calder v. Jones, 465 U.S. 783, 104 S. Ct. 1482, 79 L. Ed. 2d 804 (1984), are implicated. See generally IMO Indus., Inc. v. Kiekert AG, 155 F.3d 254 (3d Cir.1998).
Calder involved a defamation suit brought in California by the entertainer Shirley Jones, a California resident, against the National Enquirer, a nationally-distributed publication whose largest circulation was in California. Id. at 785-86, 104 S. Ct. 1482. Although defendants were Florida residents and nearly all of the conduct leading to the defamatory article occurred in Florida, the Court found that personal jurisdiction in California was *441 proper under the circumstances. In so holding, the Court noted:
The allegedly libelous story concerned the California activities of a California resident. It impugned the professionalism of an entertainer whose television career was centered in California. The article was drawn from California sources, and the brunt of the harm, in terms both of respondent's emotional distress and the injury to her professional reputation, was suffered in California. In sum, California is the focal point both of the story and of the harm suffered. Jurisdiction over petitioners is therefore proper in California based on the "effects" of their Florida conduct in California.
Calder, 465 U.S. at 788-789, 104 S. Ct. 1482.
The Third Circuit has interpreted Calder to require three showings from a plaintiff alleging specific jurisdiction over a non-resident defendant arising out of an intentional tort: (1) the defendant committed an intentional tort; (2) the plaintiff felt the brunt of the harm in the forum such that the forum can be said to be the focal point of the harm suffered by the plaintiff as a result of that tort; and (3) the defendant expressly aimed his tortious conduct at the forum such that the forum can be said to be the focal point of the tortious activity. IMO, 155 F.3d at 265-66.
Because Plaintiff's complaint can be read as encompassing a claim for defamation, he has met the first factor of the IMO testan intentional tort. However, Plaintiff cannot meet either the second or third factor. As to the second factor, it is far from clear that the brunt of the harm was suffered in Pennsylvania. Plaintiff has stated that he is a Pennsylvania resident (Compl. ¶ 1), and he apparently resided in Pennsylvania at the time of filing suit. However, from the allegations in his complaint, which I must accept as true, it appears that Plaintiff was in fact in Italy during part, if not all of the time period relevant to this lawsuit. Most, if not all of the events giving rise to Plaintiff's cause of action appear to have taken place in Italy. As the basis for his causes of action against Defendants, Plaintiff states that in December 1995, he was arrested by Italian authorities "in his native town of Solopaca, Providence of Benevento, Italy" and subsequently imprisoned. (Compl. ¶ 15.) He was then the subject of an extensive investigation by "the tribunal of Torre Annunziata, Province of Naples" (Id. ¶ 16.), which was then transferred to the tribunal of Milan and ultimately dismissed in November or December 2001. (Id. ¶ 19.) The Complaint states that "[t]he dismissal gave rise to the instant cause of action against the named Defendants herein." (Id.) Specifically, Plaintiff alleges that from December 2, 1995 through December 12, 2001, the Defendants investigated, published, and circulated defamatory news articles about him that damaged his reputation. (Id. ¶ 20-22.)
In order for Plaintiff to have felt the brunt of the harm to his reputation in Pennsylvania, he needs to at least have had some connection to Pennsylvania, such as residence there, during the time when the brunt of harm was suffered. This was presumably from 1995 to 2001, when the defamatory articles were first circulated. Yet it is not clear how long Plaintiff has been a Pennsylvania resident or whether he even spent any time in Pennsylvania at all during the years 1995 to 2001. To the contrary, some of the events alleged in the Complaint, such as Plaintiff's arrest and incarceration in Italy, clearly required Plaintiff's presence outside Pennsylvania during this time period. Thus, it is impossible to determine whether Plaintiff suffered *442 the brunt of the harm from Defendants' conduct in Pennsylvania.
Even if I assumed that Plaintiff suffered the brunt of the harm in Pennsylvania, Plaintiff has not alleged sufficient facts to satisfy the third IMO factor. He has not alleged any facts tending to show that the Defendants "expressly aimed" their tortious conduct at Pennsylvania such that Pennsylvania was the focal point of the harm. See IMO, 155 F.3d at 265. Plaintiff has made essentially four allegations to support personal jurisdiction in Pennsylvania: (1) Plaintiff is a United States citizen and a Pennsylvania resident; (2) "Defendant's entered the United States, including but not limited to the Eastern District of Pennsylvania, pursuant to their investigation of the Plaintiff'; (3) "Defendants frequently consulted with (and obtained information from) a CIA informant in an attempt to elicit derogatory evidence against the Plaintiff'; and (4) "Defendants disseminated their news articles . . . throughout the United States including, but not limited to, this Federal Eastern District of Pennsylvania" with resulting harm to Plaintiffs reputation. (Pl.'s Br. Supp. Mot. Default J. at 2-3 & attached Statement.)
Third Circuit law is clear that the third factor of IMO is not met merely because Plaintiff is a Pennsylvania resident, even if he resided in Pennsylvania at the time of the tortious conduct. IMO, 155 F.3d at 265 ("Nor did Calder carve out a special intentional torts exception to the traditional specific jurisdiction analysis, so that a plaintiff could always sue in his or her home state."). Even if Defendants knew Plaintiff was a Pennsylvania resident and could thus anticipate that he would suffer the brunt of the harm there, this would not, in itself, make Pennsylvania the focal point of the tortious activity.[9]Id. ("Simply asserting that the defendant knew that the plaintiff's principal place of business was located in the forum would be insufficient in itself to meet this requirement."). Rather, "[t]he defendant must `manifest behavior intentionally targeted at and focused on' the forum for Calder to be satisfied." Id. (quoting ESAB Group, Inc., v. Centricut, Inc., 126 F.3d 617, 625 (4th Cir.1997)).
Nor can communications between Defendants and an American CIA informant support the exercise of personal jurisdiction over Defendants in Pennsylvania. There is no indication that this CIA informant is or was a resident of Pennsylvania, met or otherwise communicated with Defendants in Pennsylvania, or indeed, has any contact with Pennsylvania whatsoever. Even if this agent did have a connection to Pennsylvania, "some minimal correspondence alone will not satisfy minimum contacts." IMO, 155 F.3d at 259 n. 3 (quoting Carteret Savings Bank v. Shushan, 954 F.2d 141, 149 (3d Cir.1992)).
Thus, we are left with Plaintiff's statements that Defendants entered the United States, "including but not limited to" Pennsylvania, to investigate their defamatory articles about the Plaintiff, and that Defendants published these articles throughout the United States "including, but not limited to" Pennsylvania. By their very terms, these statements refute any notion that Defendants "expressly aimed" their tortious activities at Pennsylvania in particular, rather than at the United States as a whole.
Plaintiff states that Defendants published articles nationwide "including but not limited to" in Pennsylvania, and that as a result some articles were distributed in *443 Pennsylvania. Yet where a defamatory article is published nationwide, a defendant cannot be said to have "expressly aimed" it at a particular forum state unless there is "a unique relationship between the state and the plaintiff's industry or business." Bank Express Int'l v. Kang, 265 F. Supp. 2d 497, 506 (E.D.Pa.2003). Indeed, Calder itself involved a nationally distributed publication that was circulated in California. Calder, 465 U.S. at 785, 104 S. Ct. 1482. If personal jurisdiction for defamation claims could be premised on the mere circulation of a nationally-published defamatory article in the forum state, that would have been the end of the inquiry. Yet in finding personal jurisdiction,.the Supreme Court relied instead on the special relationship between the defamatory article, the plaintiff, the motion picture industry in which she worked, and the state of California. See Calder, 465 U.S. at 788-89, 104 S. Ct. 1482; see also Remick, 238 F.3d at 259 ("Significantly, Remick has not asserted that Pennsylvania has a unique relationship with the boxing industry, as distinguished from the relationship in Calder between California and the motion picture industry."); Bank Express, 265 F.Supp.2d at 497 ("Here, BEI has not asserted that there is a unique relationship between the ATM servicing industry and Pennsylvania . . ."). In this case, Plaintiff cannot show any special relationship between the defamatory articles, himself or his profession, and Pennsylvania. Without some such connection to Pennsylvania, the mere fact that Defendants published their articles nationwide and that some ended up in Pennsylvania is not sufficient to confer jurisdiction over Defendants under Calder and IMO. See Remick, 238 F.3d at 248 (defendant's allegedly tortious posting of plaintiff's photo on website accessible worldwide was not conduct expressly aimed at Pennsylvania so as to confer personal jurisdiction). Likewise, Plaintiff's statement that Defendants entered the United States "including but not limited to" Pennsylvania to investigate their defamatory articles does not indicate that Defendants in any way "expressly aimed" their conduct specifically at Pennsylvania.
Because none of the jurisdictional facts Plaintiff has set forth, or any combination thereof, show any particular targeting of Pennsylvania by Defendants, Plaintiff cannot satisfy the third factor of the IMO test. Thus, personal jurisdiction over Defendants in Pennsylvania would not comport with constitutional due process, and thus I cannot exercise personal jurisdiction over them.[10]
Because a court without personal jurisdiction over a defendant cannot enter a valid default judgment, I will deny Plaintiff's motion for default judgment and dismiss Defendants Il Sannio, Il Mattino, and Messaggero Veneto with prejudice for lack of personal jurisdiction.
*444 C. Lack of Prosecution against Defendants Roma and Unita
Under Federal Rule of Civil Procedure 41(b) as well as a court's inherent power, a court may dismiss an action with prejudice sua sponte for a plaintiff's failure to prosecute "so as to achieve the orderly and expeditious disposition of cases." Spain v. Gallegos, 26 F.3d 439, 454 (3d Cir.1994). The decision to dismiss for lack of prosecution lies within the discretion of the district court. Emerson v. Thiel College, 296 F.3d 184, 190 (3d Cir. 2002) (dismissal for failure to prosecute is reviewed for abuse of discretion). This discretion is informed by the six-factor test enunciated in Poulis v. State Farm Fire and Casualty Co., 747 F.2d 863 (3d Cir. 1984) for "sanction orders which deprive a party of the right to proceed with or defend against a claim." Comdyne, 908 F.2d at 1148. The Poulis factors are: (1) the extent of the party's personal responsibility; (2) the prejudice to the opponent; (3) any history of dilatoriness; (4) whether the conduct of the party or the attorney was willful or in bad faith; (5) whether effective alternative sanctions are available; and (6) the meritoriousness of the claim or the defense. Gallegos, 26 F.3d at 455 (citing Poulis, 747 F.2d at 868).
Neither Defendant Roma nor Defendant Unita has answered or otherwise responded to the Complaint. Summonses were returned executed as to these defendants on March 22, 2004 and February 25, 2004 respectively. Plaintiff has requested neither entry of default nor default judgment against these defendants, despite being notified in October of 2004 that I would dismiss the claims against them for lack of prosecution if default was not timely requested. Accordingly, I will now dismiss the claims against these defendants.
This result is proper under the six-factor test of Poulis. The Plaintiff has had ample opportunity to request entry of default against Roma and Unita and has failed to do so. Because the merits of Plaintiff's claims are questionable and Plaintiff has shown no interest in pursuing them against Roma or Unita, these defendants should be relieved of the prejudice of an ongoing threat of a default judgment. As no sanction other than dismissal with prejudice will accomplish this, I will dismiss the claims against Roma and Unita with prejudice for lack of prosecution.
IV. CONCLUSION
For the foregoing reasons, I will deny Plaintiffs motion for default judgment against Defendants Il Sannio, Il Mattino, and Messaggero Veneto. I will dismiss the claims against these defendants with prejudice for lack of personal jurisdiction. Finally, I will dismiss the claims against Defendants Roma and Unita with prejudice for lack of prosecution.
ORDER
AND NOW, this __25th__ day of April, 2006, upon consideration of Plaintiffs Motion for Judgment by Default against Defendants Il Sannio, Il Mattino, and Messaggero Veneto (Doc. # 57), it is ORDERED that:
(1) the motion is DENIED and the Complaint is DISMISSED WITH PREUDICE with respect to Defendants Il Sannio, Il Mattino, and Messaggero Veneto for lack of personal jurisdiction;
(2) with respect to Defendants Roma and Unita, the Complaint is DISMISSED WITH PREJUDICE for lack of prosecution; and
(3) Defendant Il Mattino's Motion to Dismiss (Doc. # 65) is DENIED AS MOOT.
NOTES
[1] On February 16, 2006, more than five months after Plaintiff moved for default judgment, Defendant Il Mattino responded to the complaint for the first time by way of a motion to dismiss. Compare Hudson v. North Carolina, 158 F.R.D. 78, 80 (E.D.N.C.1994) (defendants cured their default by filing motion to dismiss before plaintiff filed motion for default judgment). Plaintiff submitted a letter to the Court objecting to this filing as untimely. As discussed below, because I will deny Plaintiff's motion for default judgment and dismiss Defendant Il Mattino sua sponte for lack of personal jurisdiction, I need not address the recently filed motion to dismiss.
[2] "The Federal Rules of Civil Procedure contemplate two steps in the entry of a default judgment. First, the court clerk is expected to enter default pursuant to Rule 55(a). . . . Second, either the clerk or the court enters the default judgment pursuant to Rule 55(b)." In re Suprema Specialties, Inc., 330 B.R. 40, 47 (S.D.N.Y.2005). Rule 55(a) provides: "When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend as provided by these rules and that fact is made to appear by affidavit or otherwise, the clerk shall enter the party's default."
[3] In doing so, Plaintiff seems to have confused default with default judgment. The Clerk of Court can enter a party's default, but can only enter default judgment where the demand is "for a sum certain or for a sum which can by computation be made certain," Fed.R.Civ.P. 55(b)(1), neither of which is the case here.
[4] I treated Plaintiff's motion for default judgment as also encompassing a request for entry of default. See Mwani v. bin Laden, 417 F.3d 1, 6 n. 3 (D.C.Cir.2005); see also Systems Indus., Inc. v. Han, 105 F.R.D. 72, 74 (E.D.Pa.1985), vacated on other grounds, 1986 WL 10551 (E.D.Pa. Sept.15, 1986).
[5] Plaintiff's October 21, 2005 submission to the court is entitled "Brief in Support of Plaintiff's Motion for Default Against Defendants Il Mattino, Il Sannio, and Messaggero Veneto." His October 28, 2005 Amended Certification of Service of his brief in support of default judgment indicates service of the brief upon II Mattino, II Sannio, and Messaggero Veneto. Neither document makes any mention of defendants Roma or Unita.
[6] In its motion to dismiss filed after Plaintiff had already moved for default judgment, Defendant Il Mattino asserts, among other things, that it was never properly served. While I do not consider this recently filed motion to dismiss here, see supra note 1, I emphasize that I only assume for purposes of Plaintiff's default judgment motion that Il Sannio and Il Mattino were served, and take no position on whether or not they actually received service.
[7] Even if Messaggero Veneto had been properly served, as discussed below with respect to the other defendants, there is no basis for the exercise of personal jurisdiction over Messaggero Veneto that would be consistent with constitutional due process.
[8] "[T]he district court may not resolve the personal jurisdiction question and decline to enter a default judgment without first giving the plaintiff an adequate opportunity to assert facts establishing the court's jurisdiction over the defendant." 4 Wright & Miller § 1063 (citing Tuli, 172 F.3d at 712-13).
[9] Moreover, Plaintiff has not alleged that Defendants knew he was a Pennsylvania resident. See Harris v. Trans Union, LLC, 197 F. Supp. 2d 200, 206 (E.D.Pa.2002).
[10] Because Plaintiff has not demonstrated that Defendants possess constitutionally significant minimum contacts with Pennsylvania, I do not address whether the exercise of personal jurisdiction over Defendants would comport with "traditional notions of fair play and substantial justice." Vetrotex, 75 F.3d at 150. I note, however, that Defendants are Italian newspapers with their places of business in Italy, and the Supreme Court has noted that "[t]he unique burdens placed upon one who must defend oneself in a foreign legal system should have significant weight in assessing the reasonableness of stretching the long arm of personal jurisdiction over national borders." Asahi Metal Indus. Co. v. Superior Court of Cal., Solano County, 480 U.S. 102, 114, 107 S. Ct. 1026, 94 L. Ed. 2d 92 (1987); see also Northeastern Power Co. v. Balcke-Durr, Inc., 49 F. Supp. 2d 783, 789 (E.D.Pa. 1999) (finding that exercise of personal jurisdiction over German company under the circumstances would violate "fair play and substantial justice"). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1273070/ | 516 P.2d 558 (1973)
David J. KUYKENDALL, Appellant,
v.
John W. MALERNEE, Sr., Appellee.
No. 45847.
Court of Appeals of Oklahoma, Division No. 1.
October 23, 1973.
Released for Publication November 15, 1973.
Cubbage & Cubbage by Stephen B. Cubbage, Cushing, for appellant.
Fitzgerald, Houston & Worthington by Donald L. Worthington, Stillwater, for appellee.
Released for Publication by Order of the Court of Appeals, November 15, 1973.
*559 BOX, Judge:
This is an appeal by David J. Kuykendall, the plaintiff in the trial court, which presents a case of first impression in this *560 state as to the recovery of penalties under the Uniform Consumer Credit Code. The named defendant, John W. Malernee, Sr., is now deceased. Hazel Malernee, the widow of the deceased, was appointed administratrix of the estate of the deceased and is defending this appeal.
The record before this court consists solely of (1) the minutes of the trial court, (2) a transcript of the hearing on attorneys fees, and (3) the journal entry of judgment entered May 24, 1972. The journal entry states the facts and rulings of the trial court which gave rise to this appeal:
"1. This is a civil suit under the Uniform Consumer Credit Code by David J. Kuykendall vs. John W. Malernee, Sr., to have a consumer loan declared void, to negate the necessity of repaying either the principal or interest, and to collect damages by way of civil penalties for failure of the lender to disclose rates, charges and other required matters.
"2. The undisputed facts of the matter were that in September of 1971 Kuykendall went to Malernee to obtain $600.00. Malernee gave the $600.00 to Kuykendall. The only documentary evidence of the transaction is a check for $720.00 payable in six months signed by Kuykendall in favor of Malernee. A 1968 Buick of Kuykendall's was left in the possession of Malernee together with its Louisiana title in the name of a woman identified as Kuykendall's mother, which title had been assigned on the back to Kuykendall. A new title had not been made to Kuykendall, nor did Kuykendall make any assignment to Malernee. The understanding was that when $720.00 had been paid to Malernee, Kuykendall could have the car back.
"3. Kuykendall contends that the transaction was a supervised consumer loan, that Malernee was not a supervised lender and had no license to make such loans, that the finance charge was in excess of that allowed by law, and that the lender failed to make to him any of the disclosures required by law.
"Malernee contends that the transaction was a sale whereby Kuykendall sold him the car for $600.00 with the understanding that he could buy it back in six months for $720.00, or in the alternative, he contends that if the transaction was not a sale but a loan, then he was acting as a pawnbroker and was not subject to the provisions of the Uniform Consumer Credit Code (UCCC).
"4. The issues stated by the pleadings and developed during the trial were:
"(1) Whether the transaction was a loan or a sale.
"(2) Whether the UCCC applies to pawnbrokers, and if so, whether it makes a difference in the result of the case that the pawnbroker is licensed or unlicensed as a pawnbroker.
"(3) Whether, if the transaction is declared void under Sec. 5-202(2) of the UCCC, the lender can also be penalized in damages under Sec. 5-203 (civil liability for violation of disclosure provisions) and under 5-202(4) (penalty where borrower entitled to refund of excess charge).
"(4) Whether plaintiff is entitled to his reasonable attorney's fee, and if so, what is `reasonable.'
"(5) Whether borrower is entitled to the immediate return of his automobile.
"5. This matter came on for hearing before the court on May 5, 1972, the plaintiff appearing in person and with his attorney, Stephen B. Cubbage, and the defendant appearing in person and with his attorney, Sam Withiam. The parties put on their testimony and arguments, and the court found generally in favor of the plaintiff, but reserved a final ruling until the parties could present briefs as to whether more than one penalty section could apply to the one transaction.
*561 "And now on this 24th day of May, 1972, after having heard testimony on attorney fees and further argument the court makes the following findings of fact:
"(1) That the transaction was a loan and not a sale, and was in fact a consumer loan made primarily for a family or personal purpose, and was made by Malernee, a person regularly engaged in making loans.
"(2) That the rate of interest, depending upon the testimony, was in excess of 18% and ranged up to 40% per annum.
"(3) That Malernee was not a supervised lender in that he had never obtained a license from the Commissioner of Consumer Affairs to engage in such loan business, and therefore was not authorized to make a loan finance charge in excess of 10% per annum.
"(4) That such transaction was further a pawnbroking transaction requiring the pledge and possession of a 1968 Buick as security.
"(5) That Malernee was not a licensed pawnbroker with a license from a municipal corporation or the state.
"(6) That while the UCCC as written at this time excludes rates and charges and the disclosure of rates and charges of a licensed pawnbroker, a pawnbroker is otherwise subject to the regulations and provisions of the UCCC.
"(7) That whether the defendant Malernee is licensed or unlicensed as a pawnbroker is not material to this case for the reason he had no authority under Sec. 5-302 to make a supervised consumer loan (a regulated loan with a loan charge in excess of 10% per year), he not being a supervised lender.
"(8) That under the terms of Sec. 5-202(2) this loan is void and the debtor Kuykendall is not obligated to pay either the principal or the loan finance charge.
"(9) That since this loan is void from the beginning with its penalty under (8) above, no additional penalties under Sec. 5-203 are allowable for failure to disclose.
"(10) That the penalties under Sec. 5-202(4) for failure to refund excess charges are not allowable for the reason that plaintiff Kuykendall has never paid anything on principal or interest.
"(11) That Malernee in keeping such pledged Buick has been obligated to buy a title and license for it, and has expended monies for antifreeze and other expenses in safeguarding it totalling $94.20 and is entitled to reimbursement for same.
"(12) That Kuykendall is entitled to the return of the pledged 1968 Buick. That upon the payment to Malernee of the $94.20 the possession of said automobile shall be restored to him, and the parties are given until and through Wednesday, June 14, 1972, to make the payment and recover the possession as aforesaid.
"(13) That plaintiff is entitled to the costs of the action and his reasonable attorney fees in the amount of $600.00 which are taxed as part of the costs.
"IT IS THEREFORE THE ORDER OF THE COURT that the loan made by Malernee to Kuykendall is void and Kuykendall is not obligated to pay either principal or interest, that Kuykendall is entitled to the immediate possession of his 1968 Buick from Malernee upon the payment of $94.20 safeguarding costs to Malernee which is to be paid at any time before the close of business on June 7, 1972; that Malernee shall pay the costs of this action including $600.00 attorney fee for the benefit of Kuykendall's attorney, Stephen B. Cubbage."
The plaintiff asserts three errors on this appeal, in substance as follows:
1. The court erred in awarding $600.00 to plaintiff for attorney fees. This was not a reasonable attorney fee under the circumstance but was inadequate.
2. The court erred in requiring the plaintiff to refund the excise tax paid by the defendant.
*562 3. The court erred in not imposing the additional penalties under Section 5-203 for failure to disclose and under Section 5-202(4) for failure to refund excess charges.
We will treat these alleged errors in reverse order.
The Uniform Consumer Credit Code was enacted by the Oklahoma Legislature in 1968 and codified as 14A O.S., §§ 1-101 to 9-103. The full text of the provisions relevant in this case is as follows:
"§ 3-501. Definitions: `Supervised loan'; `Supervised lender'. (1) `Supervised loan' means a regulated loan in which the rate of the loan finance charge exceeds ten percent (10%) per year as determined according to the provisions on loan finance charge for consumer loans (Section 3-201).
"(2) `Supervised lender' means a person authorized to make or take assignments of supervised loans.
"§ 3-502. Authority to make supervised loans. Unless a person is a supervised financial organization or has first obtained a license from the Administrator authorizing him to make supervised loans, he shall not engage in the business of
"(1) making supervised loans; or
"(2) taking assignments and undertaking direct collection of payments from or enforcement of rights against debtors arising from supervised loans.
"§ 5-202. Effect of violations on rights of parties.
"(2) If a creditor has violated the provisions of this Act applying to authority to make supervised loans, (Section 3-502), the loan is void and the debtor is not obligated to pay either the principal or loan finance charge. If he has paid any part of the principal or of the loan finance charge, he has a right to recover the payment from the person violating this Act or from an assignee of that person's rights who undertakes direct collection of payments or enforcement of rights arising from the debt. With respect to violations arising from loans made pursuant to revolving loan accounts, no action pursuant to this subsection may be brought more than two (2) years after the violation occurred. With respect to violations arising from other loans, no action pursuant to this subsection may be brought more than one (1) year after the due date of the last scheduled payment of the agreement pursuant to which the charge was paid.
* * * * * *
"(4) If a debtor is entitled to a refund and a person liable to the debtor refuses to make a refund within a reasonable time after demand, the debtor may recover from that person a penalty in an amount determined by a court not exceeding the greater of either the amount of the credit service or loan finance charge or ten times the amount of the excess charge. If the creditor has made an excess charge in deliberate violation of or in reckless disregard for this Act, the penalty may be recovered even though the creditor has refunded the excess charge. No penalty pursuant to this subsection may be recovered if a court has ordered a similar penalty assessed against the same person in a civil action by the Administrator (Section 6-113). With respect to excess charges arising from sales made pursuant to revolving charge accounts or from loans made pursuant to revolving loan accounts, no action pursuant to this subsection may be brought more than two (2) years after the time the excess charge was made. With respect to excess charges arising from other consumer credit sales or consumer loans, no action pursuant to this subsection may be brought more than one (1) year after the due date of the last scheduled payment of the agreement pursuant to which the charge was made.
* * * * * *
"(7) If the creditor establishes by a preponderance of evidence that a violation is unintentional or the result of a bona fide error no liability is imposed under subsections (1), (2), and (4) and *563 the validity of the transaction is not affected.
"(8) In any case in which it is found that a creditor has violated this Act, the court may award reasonable attorney's fees incurred by the debtor.
"§ 5-203. Civil liability for violation of disclosure provisions. (1) Except as otherwise provided in this section, a creditor who, in violation of the provisions on disclosure (Part 3), other than the provisions on advertising (Sections 2-313 and 3-312), of the Article on Credit Sales (Article 2) and the Article on Loans (Article 3), fails to disclose information to a person entitled to the information under this Act is liable to that person in an amount equal to the sum of
"(a) Twice the amount of the credit service or loan finance charge in connection with the transaction, but the liability pursuant to this paragraph shall not be less than One Hundred Dollars ($100.00) nor more than One Thousand Dollars ($1,000.00); and
"(b) in the case of a successful action to enforce the liability under paragraph (a), the costs of the action together with reasonable attorney's fees as determined by the court.
* * * * * *
"(3) A creditor may not be held liable in any action brought under this section for a violation of this Act if the creditor 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 the error.
* * * * * *
"(6) In this section, creditor includes a person who in the ordinary course of business regularly extends or arranges for the extension of credit, or offers to arrange for the extension of credit."
Does the fact that this loan is void under Section 5-202(2) as an unauthorized supervised loan preclude the additional penalties under Section 5-202(4) and Section 5-203? Oklahoma has no case law on this problem and from a review of other materials and articles, this Court finds no case interpretation elsewhere. We must undertake a determination then of legislative intent from the statutory language and from secondary sources.
It is obvious that the legislative objective in these statutes is to attach disadvantageous consequences or penalties to acts or omissions of lenders during a loan transaction and thereby to discourage them. The Commissioners on Uniform Laws in proposing the Consumer Credit Code recognized that the borrower would not be afforded the greatest measure of protection unless the lender was deterred from overcharging him by sanctions that in effect imposed an automatic heavy fine for violating the law and the protection it sought to give the borrower. Under Section 5-202(2) both the principal and excessive finance charge are made uncollectible by terming any such unauthorized supervised loan void. Similar provisions have been construed against the creditor. Buford v. American Finance Co., 333 F. Supp. 1243 (N.D.Ga. 1971); Beneficial Finance Co. v. Administrator, 260 Md. 430, 272 A.2d 649 (Ct.App. 1971). Void as that term is used in this provision does not mean that the transaction is to be considered for other purposes as if it had never occurred. In the very same provision the borrower is allowed to recover any payments made. Subdivision (4) of this same section (5-202) allows the debtor to collect additional penalties for any excess charge not refunded, even following refund if the creditor's violation of the section is deliberate or in reckless disregard thereof. The trial court specifically found under (10) that
"... the penalties under Sec. 5-202(4) for failure to refund excess charges are not allowable for the reason that plaintiff Kuykendall has never paid anything on principal or interest."
Thus it is clear that the borrower having made no payments under subdivision (4) of Section 5-202, said subsection would not be applicable under the fact situation now under review.
*564 Under Section 5-203 penalties are attached to the failure of the creditor to disclose credit information. A transaction in violation of Section 5-202(2) certainly could not be considered void in the sense of nullifying prior omissions of the creditor to disclose rates and finance charges before the loan ever was made. We conclude that the trial judge was in error in treating this transaction as a complete nullity for all purposes as apparently he did merely because it constituted a violation of Section 5-202(2).
These statutory violations seem sufficiently distinct or separate to impose all of the various penalties on a lender if he has committed all these violations in the course of a single loan as occurred in the case at bar. Otherwise the legislative intent to discourage or proscribe the described acts or omissions of lenders is not fully effectuated. The Code Comments to Section 5-202 state in part:
"The Act provides for other remedies in addition to those set forth in this section. The debtor has a defense to the enforcement of a transaction which violates Section 5.107 on extortionate extensions of credit. Section 5.108 gives the debtor a remedy in certain cases of unconscionability. Section 5.203 sets forth the rights of the debtor with respect to transactions in which the creditor has violated the provisions on disclosure... ."
Why should a borrower not be allowed to seek every redress of the wrongs committed against him? Each section of the UCCC, Part 2, Article 5, sets forth certain remedies of the debtor in the event of violation of the Code by the creditor and it would appear to be unjust to allow the injured borrower to recover for only one violation. Voidness of the loan is the penalty arising because of an excessive rate and is completely separate from the penalty for violation of the disclosure requirements.
In Ratner v. Chemical Bank New York Trust Co., 329 F. Supp. 270, 276 (S.D.N.Y. 1971) the court said: "The thrust of the Act (The Federal Truth in Lending Act) and its fundamental weapon of compelled disclosure is `prospective.' Its purpose is to put the borrower in possession of the pertinent information before the plunge, so that he may know and intelligently compare his options." Thus both sections of the Consumer Credit Code providing for civil remedies for charging excessive interest and failure to disclose may be awarded the plaintiff. Prospective disclosure must be made before anything has happened and while everything about the transaction is unknown. Without this type of exchange of information pertinent to the terms of the transaction prior to consummation or execution, the borrower is unable to make an intelligent decision as to the obligation.
Draftsmen of the Credit Code, in evaluating methods of penalizing violating creditors, considered that the debtor should be compensated and provided with sufficient incentive to bring an action upon all alleged violations and at the same time that an acceptable penalty of practical effectiveness and of deterrent value should be imposed upon the erring lender.
Consumer protection penalties of a multiple nature were thus adopted in conjunction with the voidness penalty to accomplish the maximum deterrent effect, and to achieve the desired result of controlling small lenders in their exercise of monopolistic power over persons in need of consumer loans. Thus we hold that both sections are available to a debtor if the evidence substantiates same.
Defendant's second complaint deals with the court's requiring plaintiff to set off or refund certain excise tax expenses which defendant expended. In its pertinent part 68 O.S. 1971, § 2103 states:
"(a) There is hereby levied an excise tax of two (2%) percent of the value of each motor vehicle, automobile ..., upon the transfer of legal ownership of any such vehicle registered in this State and upon the use of any such vehicle registered in this State and upon the use of any such vehicle registered for the first time in this State, except as otherwise provided in this Article... .
*565 "(b) The provisions of this Section shall not apply to transfers made without consideration between husband and wife or parent and child."
The fact that defendant paid the tax and had the vehicle registered while it was in his control is of no consequence here. These acts were not a requirement of the loan transaction but were done by the defendant at his own peril and risk and the result of such actions should not be a burden plaintiff has to bear. Thus we hold that the court erred in requiring plaintiff to reimburse defendant for the excise tax paid.
Plaintiff also contends that the court erred in refusing to award reasonable attorney fees incurred by plaintiff. This court recognizes that the cost of living and day to day business has also affected attorneys. In the case now under consideration, the right to recover reasonable attorney fees is set by statute and no limit or base is fixed other than that they be reasonable. The trial court cannot disregard the direct evidence introduced regarding the amount and character of services rendered; the labor, time and trouble involved; the character and importance of the litigation; the amount of money that may possibly be involved; the professional skill and experience called for; and the benefits derived from the services. See Driver v. Tolstornog, 358 P.2d 1108 (Okl. 1960).
The amount awarded, considering the original amount being sought by the plaintiff, the nature and extent of the services rendered by the attorney, and the fact that a contested trial was involved and briefs were required to be submitted on the question of damages by the court, was palpably inadequate.
We further hold that the trial court's conclusion, expressed in paragraph (9) of its findings, that other penalties should not be allowed is hereby reversed, together with the $600.00 awarded as attorney's fees, and the case is remanded to the trial court to redetermine these matters as the evidence may warrant and for such further proceedings as may be required under the circumstances not inconsistent with the views herein set out.
Affirmed in part, reversed in part and remanded with instructions.
ROMANG, J., concurs. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3346442/ | [EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.] MEMORANDUM OF DECISION
The plaintiff Rovic, Inc. ("Rovic") employed the defendant Gary Hanson for approximately seventeen years. In June, 2000, Hanson left the employ of Rovic and went to work for a competitor, the defendant CC Janitorial CT Page 12088 Supplies, Inc. ("CC"). Rovic instituted the present action against Hanson, CC and Laura Tarantino,1 another former Rovic employee who left to work for CC. Rovic alleges that it has been damaged as a result of the defendants' use of its trade secrets and it seeks injunctive and declaratory relief The question of whether one or more temporary injunctions should be issued to enjoin the defendants from using certain claimed trade secrets and from contacting certain customers during the pendency of the action is currently before the court.
The following facts were developed over portions of two days of testimony. Gary Hanson was a sales person for Rovic. Rovic is in the business of selling cleaning supplies and ancillary equipment to commercial customers. Over the years Hanson successfully developed a number of accounts, and by all accounts was an accomplished salesman. Over the years he developed friendly relationships with various customers, and he of course knew the appropriate people to contact at the businesses. Hanson knew the sales practices and, to an extent, the pricing procedures, at Rovic, and he had access to computerized information which, inter alia, encapsulated the customers' buying history.
Toward the end of 1999, Rovic instituted changes in its compensation program, and Hanson felt that he was making less money as a result of the changes. He discussed the issues with managers at Rovic, and they were unable to resolve their differences. Hanson then wrote a letter of resignation, dated June 9, 2000, which purported to be effective June 23, 2000. He indicated in the letter that he was planning to work for CC Janitorial Supplies. On June 9, he had a discussion with management at Rovic, and he was asked to reconsider. Perhaps as a precaution, Hanson's access to voice mail and his computer password were terminated on June 9.
On June 14, 2000, Hanson met with Damon Pelletier, Rovic's general manager; for some of the time Executive Vice President Reichelt was present. At this meeting Hanson indicated that he had not changed his mind about leaving. June 14 was a Wednesday. On the preceding Monday and Tuesday, Hanson had called some of his customers and told them he was leaving. At the June 14 meeting, Hanson and Pelletier signed a handwritten document which listed the eight accounts which Hanson had contacted; the document further states that "the customers will decide who they will buy from and we will decide how to communicate to the customers what their best interests are." The memo also stated that Hanson had returned all computer files "pertinent to Rovic" and had "removed" them from his own computer, and that he had returned all software and sales information to Rovic. On June 14, Hanson left Rovic's employ and virtually simultaneously began employment with CC, which is a CT Page 12089 competitor of Rovic in regard to many, but not all, of the services offered by Rovic.
On the basis of these facts,2 Rovic seeks two temporary injunctions. First, it seeks an order prohibiting Hanson or CC from soliciting business from any of the customers named in the June 14 memorandum. Second, it seeks a more general injunction prohibiting the disclosure of confidential information, which requested injunction apparently would prevent Hanson and CC from soliciting any customers with whom Hanson dealt while at Rovic.
The standards for issuing a temporary injunction are well established. Factors to be considered include a balancing of the benefits and harms to the parties if a temporary injunction is imposed, the consideration of irreparable loss if an injunction is not issued, the effect on any public interest, and the relative likelihood of success on the merits. See, e.g., Griffin Hospital v. Commission on Hospitals and Health Care196 Conn. 451, 457-58 (1985).3 Where, as here,4 injunctive relief is a specific statutory remedy, the requirements for a permanent injunction are relaxed to the extent that showings of irreparable harm and no adequate remedy at law are not inflexibly required. ConservationCommission v. Price 193 Conn. 414, 429 (1984), and authority cited therein. It follows that the requirements for issuing a temporary injunction should similarly be relaxed, but equitable principles nonetheless govern the issue and trial courts are vested with discretion in the determination of whether a temporary injunction should issue. See, e.g., Conservation Commission v. Price, supra, 430. "Decisions of our trial courts have frequently referred to the burden of an applicant (for a temporary injunction) to show reasonable degree of probability of success before a temporary injunction to preserve the status quo may be granted." Environmental Products Corporation v. Lincoln1995 Ct. Sup. 5264 (Levi, J.) (1985).
The statutory framework governing the confidentiality of trade secrets is set forth in the Uniform Trade Secrets Act, §§ 35-50 of the General Statutes. A "trade secret", as the definition may be pertinent here, includes "information, including a . . . compilation, program, . . . cost data or customer list that: (1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Section 35-51 (d) of the General Statutes. As pertinent to the case at hand, "misappropriations" means ". . . disclosure or use of a trade secret of another . . . by a person who . . . (B) at the time of disclosure or use, knew or had reason to know that his knowledge of the CT Page 12090 trade secret was . . . (ii) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use . . . or (iii) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use . . ." Section 35-51 (b) of the General Statutes. Pursuant to § 35-52 (a) of the General Statutes, "[a]ctual or threatened misappropriation may be enjoined upon application to any court of competent jurisdiction."
Connecticut enacted the Uniform Trade Secrets Act in 1983. The common law had created a body of law which is largely consistent with the Act.Town Country House Homes Services v. Evans, 150 Conn. 314 (1963), for example, involved a factual context fairly similar to that presented in the present case. The defendant Evans had been employed by the plaintiff in the housecleaning business. Before he left the plaintiff's employ, he told a number of the customers for whom he provided service that he was planning to leave and he solicited business from them. The trial court had held that there had been no particular confidentiality in the relationship between the plaintiff and the defendant and that customer list was not secret; that court decided, then, that, in the absence of an agreement not to compete, the defendant was free to start his new business and to solicit customers from the plaintiff
The Supreme Court reversed. It stated that an employee has a duty to exercise good faith and loyalty to his employer during the term of employment, such that he has a duty not to compete with the employer during the term of the employment and may not solicit the employer's customers for another enterprise at that time. But in the absence of a covenant not to compete, he is entitled to plan a new business during the time of employment and to solicit his former employer's customers immediately after terminating employment.5 "Knowledge acquired by an employee during his employment cannot be used for his own advantage to the injury of the employer during employment." Town Country House Homes Service supra, 317. Because the defendant had solicited customers of his employer while he was still in the course of that employment, the employer was entitled to injunctive relief prohibiting him from performing any service for any customer who was solicited during the term of employment.
A second issue was whether the names of the customers were a trade secret of the employer. The court stated the common law definition of a trade secret, which is very similar to the statutory definition appearing in § 35-51 of the General Statutes. A trade secret "may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a . . . list of customers." Id., 318. Matters of public knowledge or of general CT Page 12091 knowledge are not trade secrets; a "substantial element of secrecy must exist" so that it would be difficult to obtain the secret except by improper means. Id., 319. Factors which may be considered in determining whether certain information is a trade secret include "(1) the extent to which the information is know outside the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the employer to guard the secrecy of the information; (4) the value of the information to the employer and to his competitors; (5) the amount of effort or money expended by the employer in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others." Id. The common law imports into every contract of employment an obligation not to use an employer's trade secrets to the detriment of the employer. A list of customers may be a trade secret; but if the identity of customers is readily ascertainable "through ordinary business channels or through classified business or trade directories, the courts refuse to accord to the list the protection of a trade secret. Id., 320.
The Supreme Court concluded that if the plaintiff's list of customers was a trade secret, then the defendant would properly be restrained from doing business with any of the customers on the list, regardless of whether he had solicited them for a competing business during the term of his employment. Because the facts of this case were not sufficiently developed to form a proper conclusion on this issue, the case was remanded for a new trial.
In Holiday Food Co. v. Munroe, 37 Conn. Sup. 546 (App. Sess. 1981), the Appellate Session used a similar analysis in an analogous factual pattern, though the result was considerably different. The first question was whether the employee had solicited customers during the term of the former employment. The facts in Holiday Food however, were that even though the former employee had developed significant relationships with various customers during the term of employment and had become personal friends with a number of them, he did not actually solicit their business for another enterprise during the course of employment. The court held that, in the absence of acts of actual solicitation for a competing business during the former employment, an employee is not barred after employment from soliciting customers of the employer, unless the knowledge of the customer is a trade secret. Id., 549-50.
Turning to the issue of whether knowledge of the customers was a trade secret, the court noted first that the question was one of fact and, although various factors could be used to help in the determination of whether particular information was a trade secret, there is no talismanic weighting or balancing of the various factors. Each case will be resolved on its own facts and circumstances. CT Page 12092
The facts in Holiday Food compelled a conclusion that the list was not a trade secret. Among the considerations were facts that (1) the defendant took the list with the knowledge of the employer; (2) there was no covenant not to compete; (3) the list was not hidden; (4) the list was not critical to the continued operation of the plaintiff's business; (5) customers who were solicited after termination of employment were friends of the defendant; (6) the identity of the customers could have been determined simply by watching the plaintiff's trucks making deliveries; (7) no detailed information regarding buying habits or preferences were involved; and (8) there was no especially confidential relationship between the plaintiff and the defendant during the term of the employment. Id., 553-54. The determination of the trial court that no misappropriation of a trade secret had occurred was upheld. Justice Shea concurred in the result; he stated that there was little need to undertake a detailed analysis of considerations regarding trade secrets because the employee had, essentially, taken only his memory from the employer, and in the absence of a noncompetition agreement, an employee ought to be able to think he could later solicit business from friends that he had made during the course of a former employment.
A Superior Court case, Transam, Inc. v. Zhawred, 1 Conn.L.Rep. 672 (1990), further examines some of the criteria in the consideration of whether a customer list is a trade secret. It noted that in Connecticut, under the Uniform Trade Secrets Act, the party sought to be enjoined does not have the burden of showing that he actually relied on "innocent" sources to discover the information in question, but only that the information be readily ascertainable by proper means. It stated that if the list in question could have been obtained by consulting the Yellow Pages or walking down the street, it would not be accorded the protection of a trade secret. "In perhaps an even more striking example, physical customer files which contained customer names in combination with other information such as financial and family date, insurance history, current insurance coverage, policy renewal dates, claims information, and correspondence were not given trade secret status in an action for a preliminary injunction." Id., 675.
I first apply the above considerations to the question of whether the defendant is to be enjoined from contacting or soliciting business from the specific customers whom he contacted just before leaving Rovic. The determination of this question does not directly require the resolution of the trade secret issue; rather, under authority such as Town CountryHomes the sole issue on the merits is whether Hanson solicited their business for CC before he left Rovic. Hanson called approximately eight customers in the two days before he left Rovic to tell them he was leaving. Hanson testified that he did not solicit their business, but CT Page 12093 only called them as a courtesy and told them that someone else from Rovic would be handling their account. Letters from three of the customers state that Hanson did not solicit their business. It is not entirely clear that Hanson told them where he was going. All or most of the people with whom Hanson spoke were people with whom he had become quite friendly over the years. In its brief Rovic argues that it strains credulity to think that there was no effort to solicit business, regardless of the explanations. It may well be that behind every courtesy there is a marketing effort, but, although it is a fairly close question, I do not find that success on the merits is probable, especially in light of the plaintiff's burden of proof
The other factors to consider in determinating whether to grant a temporary injunction do not tip the scales in favor of the plaintiff Although some harm may inure to the plaintiff if an injunction does not issue, some harm may inure to the defendant if it does. So far as the public interest is concerned, it is true that the fiduciary duty owed to employers is an important consideration. But the granting of a temporary injunction would also, to an extent, have a negative impact on the free marketplace, which would certainly seem to be a value of some weight. In sum, I do not find that the equities support the issuing of a temporary injunction.
The second issue is whether the customer list information constitutes a trade secret, such that solicitation of all customers ought to be enjoined. Several additional facts should be considered in this regard. First, the defendant signed at least three confidentiality agreements over his years of employment with the plaintiff and its predecessor entities. These agreements recognized that information regarding Rovic's customers was considered confidential, and the employee agreed not to disclose or use such information. The employee agreed to return all software and flies regarding customers and all other information of Rovic. The employee agreed not to use any of Rovic's materials or information gained from them to solicit any Rovic customer. (Exhibit 1). Further, the customer information in Rovic's computer system was protected by use of passwords. Without reciting all of the evidence on the efforts of Rovic to keep such information secret, I found that sufficient efforts were made to satisfy the requirements of §§ 35-51 (d)(2) and the corresponding element of the common law cause of action.
The difficulty is whether the evidence supports a finding of probable success on the merits regarding subsection (1) of § 35-51 (d): more specifically, whether the customer list is not readily ascertainable by proper means. The accounts were overwhelmingly commercial institutions whose identities would be available through common knowledge of the area, rides through town, reference to journals, directories and CT Page 12094 cybersources, some of which were entered into evidence by the defendant, and undoubtedly many other ways. In reference to the several factual situations chronicled in Zhawred, supra, the ease of ascertainment of customers through proper means in this case is apparent. Further, there was evidence that many of the contacts were personal friends of Hanson, and there is no requirement that an employee leave his memory with a former employer. In the spectrum of cases concerning customer lists, the facts of this case fall rather decidedly on the side of those not receiving the status of trade secret.
I find, then, that the probability of success on the merits is not a factor favoring a temporary injunction. Other factors also do not militate in favor of such an injunction. The harm to the plaintiff in not ordering an injunction is conjectural: we have no way of knowing whether customers will flee Rovic. We also, of course, have no way of knowing whether Hanson would be harmed by the imposition of an injunction, because we cannot predict that Hanson will attract any of the customers without an injunction.
Finally, the plaintiff has suggested that the information about various customers, including buying history and other pertinent material, should be protected as a trade secret. Even if such information is considered a trade secret — and much of it probably is protected — there has been no showing that Hanson would use such material6 and, in any event, its value is substantially ephemeral. Pricing information and costs to Rovic change over time, as do customer needs and preferences.
In light of all of the relevant considerations, the motion for temporary injunctions is denied.
Beach, J. | 01-03-2023 | 07-05-2016 |
https://www.courtlistener.com/api/rest/v3/opinions/2389955/ | 990 S.W.2d 732 (1998)
Dena Kristi READ, Petitioner,
v.
The SCOTT FETZER COMPANY d/b/a The Kirby Company, Respondent.
No. 97-0707.
Supreme Court of Texas.
Argued on March 5, 1998.
Decided December 31, 1998.
Rehearing Overruled June 10, 1999.
*733 Bob E. Shannon, Tommy Jacks, James L. Wright, Austin, Richard Warren Mithoff, Houston, David Drew Wright, Williams Powers, Jr., Austin, Richard P. Hogan, Houston, for Petitioner.
P. Clark Aspy, Austin, David A. Kutik, Cleveland, OH, Robert C. Decarli, Austin, for Respondent.
Justice GONZALEZ delivered the opinion of the Court, in which Chief Justice PHILLIPS, Justice ENOCH, Justice SPECTOR, Justice BAKER, and Justice HANKINSON joined.
A customer who was raped by a door-to-door vacuum cleaner salesman brought a negligence action against the manufacturer and the distributor, who operated as an independent contractor. Based on favorable jury findings, the trial court rendered judgment for the plaintiff for actual and punitive damages. The court of appeals affirmed the actual damages part of the judgment and reversed and rendered the punitive damages award. 945 S.W.2d 854. The question presented is whether a company that markets and sells its products through independent contractor distributors and exercises control by requiring inhome demonstration and sales, owes a duty to act reasonably in the exercise of that control. We hold that the company does owe such a duty. Accordingly, we affirm the court of appeals' judgment.
I Facts
The Scott Fetzer Company d/b/a The Kirby Company ("Kirby") manufactures vacuum cleaners and related products. These products are sold only to independent distributors who are governed by a uniform distributor agreement. Each distributor is required to establish a sales force by recruiting prospective door-to-door salespeople called "dealers" for the *734 exclusive in-home demonstration, installation, sale, and service of Kirby Systems. Specifically, regarding noncommercial sales to the general public, the Kirby "Distributor Agreement" provides:
3. Exclusively Consumer End-User Sales. ... [A]ll Kirby Systems purchased by Distributor hereunder are purchased solely and exclusively for resale by in person demonstration to consumer end-users pursuant to [Kirby's] marketing system, unless [Kirby] otherwise expressly authorizes in writing. Distributor further agrees to use his best efforts to conduct the in person demonstration in the home of the consumer end-user.
...
A violation of the "Exclusively Consumer End-User Sales" provision will likely result in [Kirby] terminating this Agreement... and/or taking any other action which it believes appropriate under the circumstances.
Further, regarding the in-home dealers, the "Kirby Independent Dealer Agreement" reads, in pertinent part, as follows:
3. Dealer fully understands that in order to protect and maintain The Kirby Company's trade name, reputation and competitiveness in the marketplace, Kirby Systems must be sold exclusively to consumer end-users by in-home demonstration.
4. Dealer certifies and agrees that any Kirby System consigned to Dealer will only be sold to consumer end-users after a personal demonstration which will be conducted in the home of the consumer end-user.
Additionally, Kirby enforces its contractual requirements through yearly reviews during which divisional supervisors verify that distributors are complying with the these requirements as well as others in the agreements.
In 1992, Leonard Sena, a Kirby distributor and owner of Sena Kirby Company of San Antonio (the "Sena Company"), recruited Mickey Carter to be one of his dealers. Carter's relationship with the Sena Company was that of an independent contractor subject to the "Kirby Independent Dealer Agreement," which required him, also, to sell Kirby systems to consumer end-users through in-home demonstrations.
In applying for employment, Carter listed three references and three prior places of employment. Had Sena checked, he would have found that women at Carter's previous places of employment had complained of Carter's sexually inappropriate behavior. Sena also would have found that Carter had been arrested and received deferred adjudication on a charge of indecency with a child, and that one of the previous employer's records indicated that Carter had been fired because of that incident. Further, Sena would have found that these records also contained witness statements, a confession, Carter's guilty plea, and the indictment charging him with the offense. Sena did not check.
Not long after being hired, Carter scheduled an appointment with Kristi Read for a demonstration. Before that scheduled appointment, Carter went to Read's home and met with her for several hours. He also brought doughnuts one morning, and then followed Read to a playground, where he spoke with her some more and played with her daughter. That afternoon, Carter returned to Read's home, where he sexually assaulted her.
Read and her husband sued Kirby, Sena, and Carter for negligence and gross negligence. The claims against Carter were nonsuited before trial. The trial court submitted the case to the jury with a broad form negligence question. The jury found the Sena Company and Read each ten percent negligent, and Kirby eighty percent negligent. The jury also found Kirby grossly negligent. The trial court rendered judgment against Kirby for $160,000 in actual damages and $800,000 in punitive damages.
*735 The court of appeals affirmed the actual damage award. The court held that Kirby had a duty to take reasonable precautions to prevent the assault on Read due to the peculiar risk involved when a person with a history of crime, violence, or sexual deviancy conducts in-home sales. 945 S.W.2d at 868. The court also held that because Kirby required in-home demonstrations, the company exercised sufficient control over the sale of its products to end-users to justify imposing a duty of reasonable care in selecting the persons who performed the demonstrations. Id. Finally, the court of appeals reversed the punitive damage award, holding that there was legally insufficient evidence to meet the Moriel standard. Id. at 870; (citing Transportation Ins. Co. v. Moriel, 879 S.W.2d 10 (Tex.1994)). We affirm the court of appeals' judgment.
II Duty: Right of Control
Read's pleadings allege that Kirby has a "duty to take reasonable precautions to minimize the risk to its customers from coming into contact with Kirby dealers who have criminal and/or psychiatric records." Kirby and some of the amici curiae characterize Read's pleadings and arguments as seeking to impose vicarious liability on a general contractor for the torts of an independent contractor or as seeking to establish a master-servant relationship between Kirby and Carter. However, we understand Read's position to be that Kirby was negligent through its own conduct of creating an in-home marketing system without adequate safeguards to eliminate dangerous salespersons from its sales force. The duty is not based on a notion of vicarious liability, but upon the premise that Kirby is responsible for its own actions.
In Redinger v. Living, Inc., 689 S.W.2d 415 (Tex.1985), we held that a general contractor, like Kirby, has a duty to exercise reasonably the control it retains over the independent contractor's work. Here, by requiring its distributors to sell vacuum cleaners only through in-home demonstration, Kirby has retained control of that portion of the distributor's work. Kirby must therefore exercise this retained control reasonably.
In concluding that Kirby must act reasonably, we require no more and no less than is required of other general contractors in similar situations. See Redinger, 689 S.W.2d at 418. We recognized the direct liability of a general contractor for failure to reasonably exercise the control it retained over an independent contractor when we adopted Section 414 of the Restatement (2d) of Torts. Id. Through its contract with Sena, Kirby retains control of specific details of the work by requiring the "in-home" sales of its vacuum cleaners.
Kirby argues that it owes no duty because it has successfully divorced itself from the independent dealers. Kirby notes that it has no contract with the dealers, only with the distributors. Moreover, Kirby's contract with its distributors provides that: "[Kirby] shall exercise no control over the selection of Distributor's... Dealers.... The full cost and responsibility for recruiting, hiring, firing, terminating and compensating independent contractors and employees of Distributor shall be borne by Distributor."
Kirby also relies heavily on the fact that Read stipulated that Carter was an independent contractor. The stipulation provided that "[a]n independent contractor is a person who, in pursuit of an independent business, undertakes to do specific work for another person, using his own means and methods without submitting himself to the control of such other persons with respect to the details of the work, and who represents the will of such other person only as to the result of his work and not as to the means by which it is accomplished."
We do not question Carter's status as an independent contractor, but this status is not a defense to Read's claim. As previously noted, it is undisputed that Kirby directed its distributors that its Kirby vacuum *736 cleaners be marketed solely through in-home demonstration. It was Kirby's retention of control over this detail that gave rise to the duty to exercise that control reasonably. That Kirby's agreement with the distributors allowed the distributors to independently contract with dealers does not excuse Kirby from the duty to act reasonably with regard to the detailrequired in-home salesover which it did retain control. See Exxon Corp. v. Tidwell, 867 S.W.2d 19, 23 (Tex.1993) (noting that in determining whether duty exists in retained control case, focus is on whether retained control was specifically related to alleged injury).
Finally, Kirby (and various amici curiae) argues that if Kirby has a duty in this case, all companies or individuals that employ independent contractors will be subject to the same duty. As we noted earlier, Kirby misunderstands the claim Read is making. Read merely asserts that Kirby, having retained control over vacuum cleaner sales by requiring in-home demonstrations, has a duty to exercise its control reasonably. This is a well-established duty. See Clayton W. Williams, Jr., Inc. v. Olivo, 952 S.W.2d 523, 528 (Tex.1997); Exxon Corp., 867 S.W.2d at 23; Redinger, 689 S.W.2d at 418; RESTATEMENT (SECOND) of Torts § 414 (1965).[1] Because Kirby did in fact retain control by requiring in-home sales, Kirby had a duty to exercise that retained control reasonably.
It has also been suggested that two other cases support the position that Kirby owed no duty in this case. In Golden Spread Council, Inc. v. Akins, 926 S.W.2d 287, 290 (Tex.1996), we held that the Boy Scouts of America owed no duty to screen the criminal history of adult volunteers. In Greater Houston Transportation Co. v. Phillips, 801 S.W.2d 523, 527 (Tex.1990), we held that a cab company owed no special duty to admonish its cab drivers not to carry guns. These cases are inapposite. Neither involved any issue of retained control over specific aspects of the details of the work performed by an independent contractor. See Golden Spread Council, 926 S.W.2d at 290; Phillips, 801 S.W.2d at 526. Rather, we decided both cases solely on a straightforward common-law duty analysis, balancing the risk, forseeability, and likelihood of injury against the social utility of the actor's conduct, the magnitude of the burden of guarding against the injury, and the consequences of placing the burden on the defendant. See Golden Spread Council, 926 S.W.2d at 289-90; Phillips, 801 S.W.2d at 525. By contrast, today's holding is premised on the duty emanating from Kirby's retained control over the details of the work. This duty derives solely from the retained control, not from any balancing analysis. See Redinger, 689 S.W.2d at 418.
III Breach of Duty
In the court of appeals, Kirby argued only that it did not have a duty. It did not challenge the jury finding of breach of duty. 945 S.W.2d at 868 n. 14. That issue is not before us, thus we express no opinion about it.
IV Proximate Cause
Kirby, however, does argue that no evidence or factually insufficient evidence supports the jury's finding that Kirby's negligence proximately caused Read's injuries. We do not have jurisdiction to *737 conduct our own factual sufficiency review, but we may ensure that the courts of appeals adhere to the proper legal standard of review. See Jaffe Aircraft Corp. v. Carr, 867 S.W.2d 27, 29 (Tex.1993) (stating that although this Court has no jurisdiction to determine factual sufficiency of evidence, we may determine whether intermediate appellate courts properly follow applicable legal standards). Because the court of appeals relied on the proper standard for its factual sufficiency analysis, Kirby's factual sufficiency argument is without merit.
Regarding the legal sufficiency of the evidence, we must determine if more than a scintilla of evidence supports the jury's affirmative finding of proximate cause. See Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex.1996). Proximate cause consists of two elements: cause-in-fact and foreseeability. Id. at 118; Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d 472, 477 (Tex.1995). We therefore must examine the record to determine whether there is legally sufficient evidence to support an affirmative finding on each of these elements.
The cause-in-fact element of proximate cause is met when there is some evidence that the defendant's "`act or omission was a substantial factor in bringing about injury' without which the harm would not have occurred." Id. (quoting Prudential Ins. Co. v. Jefferson Assocs., Ltd., 896 S.W.2d 156, 161 (Tex.1995)). Here, Sena testified that although he had not done a background check on Carter, he would have if Kirby had directed him to. There was evidence that Sena would have learned about Carter's past problems if he had performed a background check. Sena testified that he would not have hired Carter as a Kirby dealer if he had learned about Carter's history. We conclude that there is legally sufficient evidence to support a cause-in-fact finding.
The other element of proximate cause is foreseeability. In the context of proximate cause, foreseeability requires that a person of ordinary intelligence should have anticipated the danger created by a negligent act or omission. Doe, 907 S.W.2d at 478. Foreseeability in the context of causation asks whether an injury might reasonably have been contemplated because of the defendant's conduct. Id. Foreseeability does not permit simply viewing the facts in retrospect and theorizing an extraordinary sequence of events by which the defendant's conduct caused the injury. Id. Rather, the question of forseeability "involves a practical inquiry based on `common experience applied to human conduct.'" Id. (quoting City of Gladewater v. Pike, 727 S.W.2d 514, 518 (Tex. 1987)); see also, e.g., Travis v. City of Mesquite, 830 S.W.2d 94, 98 (Tex.1992).
Sending a sexual predator into a home poses a foreseeable risk of harm to those in the home. Kirby dealers, required to do in-house demonstration, gain access to that home by virtue of the Kirby name. A person of ordinary intelligence should anticipate that an unsuitable dealer would pose a risk of harm. See Doe, 907 S.W.2d at 478. We hold that there is more than a scintilla of evidence that the risk of harm created by Kirby's in-home sales requirement was foreseeable.
V Punitive Damages
The court of appeals held that there was legally insufficient evidence to support the gross negligence finding. 945 S.W.2d at 870. For the reasons stated in the court of appeals' opinion, we agree.
* * * * *
For the above reasons, we affirm the court of appeals' judgment.
Justice HECHT filed a dissenting opinion, in which Justice OWEN joined.
Justice ABBOTT filed a dissenting opinion, in which Justice OWEN joined.
*738 Justice HECHT, joined by Justice OWEN, dissenting.
To achieve what it considers to be a just result in this casethat the Kirby Company pay for a sexual assault committed by its independent contractor's independent contractorthe Court faces three obstacles. First, Kirby must somehow be found to have controlled its distributors' operations in a way that led to the assault, even though it contracted with them that it would "exercise no control" over their selection of dealers. Second, it must have been foreseeable to Kirby that a distributor might not check a dealer applicant's background if not required to do so and might mistakenly hire a person with a history of sexual misconduct who might assault a customer. The problem here is that in over eighty years of doing business, Kirby has had only one other dealer who sexually assaulted a customer, even though currently some 12,000 Kirby dealers make 1.5 million in-home demonstrations annually. While a risk may be improbable and still be foreseeable, just eight years ago in Greater Houston Transportation Co. v. Phillips,[1] an opinion also authored by JUSTICE GONZALEZ, the Court held as a matter of law that a Houston taxicab company whose drivers had had about 1,000 accidents annually during the twenty years it had done business could not reasonably foresee that if it did not forbid its drivers from carrying guns, they would do so, illegally, and would shoot other drivers in altercations following accidents. Phillips poses this question to today's Court: why is the risk that a vacuum cleaner salesman will turn out to be a sexual predator more foreseeable than the risk of cab driver "road rage" when it is at least a thousand times more likely that a Yellow Cab driver will shoot someone in an accident in Houston than it is that a Kirby vacuum cleaner salesman will assault a customer anywhere in the world? Third, the result in this case must not seriously affect the wide range of direct sales and service businesses from Tupperware to television cable companies that employ independent contractors, something the Court has absolutely no desire to do.
The Court's solution is to limit its decision, as much as possible and well beyond what general principles will allow, to companies that require their products to be sold exclusively in customers' homes. A company that only allows its products to be sold in homes is unaffected, even if the risk to customers is the same. Today's "vacuum cleaner rule", carefully tailored and trimmed, is to apply in all cases exactly like this one, of which there appear to be none. In all other cases, the "taxicab rule" continues to apply, absent other sympathetic circumstances. Employing its chancery jurisdiction, the Court achieves a good result in this one case without adversely affecting the direct sales industry, the employment of independent contractors, or, it is hoped, anyone else at all. Today's decision is, to borrow Justice Roberts' metaphor, "a restricted railroad ticket, good for this day and train only."[2]
Both parties, on the other hand and to their credit, insist that this case is not unique and that it should be decided based on a neutral application of settled legal principles. I agree, and in my view, these principles require a different decision. Accordingly, I respectfully dissent.
I
Kristi Read suffered a terrible injury: she was sexually assaulted in the living room of her home by Mickey Carter, who was there ostensibly to demonstrate Kirby vacuum cleaners, which he sold. Carter was an independent contractor selected to be a Kirby "dealer" by Leonard Sena, a Kirby "distributor" who was himself an *739 independent contractor. The Kirby Company employed Sena. In addition to the criminal penalties already imposed on Carter, he is liable to Read under the civil law for her damages. But Read has sought compensation instead from Kirby.
It perhaps goes without saying that a determination whether Kirby is liable for Read's injury must be guided not by a goal of affording Read compensation, as desirable as that may be, but by generally applied principles of legal responsibility, basic among which is that individuals should be responsible for their own actions and should not be liable for others' independent misconduct. From this fundamental precept it follows that a person who employs an independent contractor must use reasonable care to select someone competent to do the work assigned[3] that decision is the employer'sbut is not ordinarily liable for the independent contractor's wrongful injury to another in the course of the assigned work.[4] If, however, the contractor is not truly independent, but rather the employer retains control over some aspect of the contractor's activities, then the employer may be liable in certain circumstances for its exercise of that controlits own conduct. We have adopted the statement of this "retained control" rule from the Restatement (Second) of Torts as follows:
One who entrusts work to an independent contractor, but who retains the control of any part of the work, is subject to liability for physical harm to others for whose safety the employer owes a duty to exercise reasonable care, which is caused by his failure to exercise his control with reasonable care.[5]
The basic notion of individual responsibility also dictates that "[a]s a rule, `a person has no legal duty to protect another from the criminal acts of a third person.'"[6] Nevertheless, a person should not foster criminal conduct and thus may be liable for negligently creating a situation that affords another an opportunity to commit a crime if at the time the person "`realized or should have realized the likelihood that such a situation might be created, and that a third person might avail himself of the opportunity to commit such a ... crime.'"[7] A person may be liable even if the situation he creates does not make criminal conduct probable, but the frequency of such conduct is a factor to be considered in determining whether it was foreseeable.[8]
No one questions that under these rules, Sena is liable to Read for failing to use reasonable care in selecting Carter as a competent dealer, as the jury found. Sena's application form required Carter to list employment references, which Carter did, and inquired whether the applicant *740 had ever been convicted of a crime, to which Carter truthfully answered no. Sena did not check Carter's references, an omission for which he may be faulted because had he done so, he probably would have learned that although Carter sometimes got high marks on job performance, he had repeatedly been accused of sexually harassing fellow employees and others, and had pleaded guilty to a charge of indecency with a child, for which he received deferred adjudication.
If Sena were incompetent to act as a distributor, Kirby would be liable to Read if its failure to exercise reasonable care in selecting Sena proximately caused her injury. But Sena was not incompetent. In more than twenty years as a distributor, recruiting and training dozens of dealers who altogether had made something like 100,000 in-home demonstrations, Sena had never before had a complaint of dealer misconduct. His mistake in selecting Carter does not prove Sena incompetent. Read does not claim, nor could she do so successfully, that Kirby is liable to her for selecting Sena as a distributor.
Rather, Read claims that Kirby was negligent in not requiring its distributors to investigate potential dealers' criminal backgrounds. Read and Kirby take polar positions on how the relevant legal principles already stated apply to this claim, but they agree on one very important matter of process: the decision should turn on the neutral application of general rules and not on particularized corollaries adapted to the facts of this one case. Kirby argues that no special duty should be imposed on it, and Read strenuously insists that none is needed. To fashion a rule for the particular circumstances of this case, Read argues, would be an illegitimate exercise of appellate jurisdiction: "A fact-specific conclusion that a defendant did not have a `duty' under the particular circumstances of an individual case would really just be a finding that, given the facts, the defendant acted reasonably"a decision for the fact finder, not an appellate court. Likewise, a fact-specific conclusion that a defendant did have a duty under the particular circumstances of an individual case would be no more than a finding that the defendant had acted unreasonably. In other words, a legal duty cannot legitimately be defined or applied to treat specific situations differently without a general, neutral reason for doing so. As Professor Wechsler once explained, "the main constituent of the judicial process is precisely that it must be genuinely principled, resting with respect to every step that is involved in reaching judgment on analysis and reasons quite transcending the immediate result that is achieved."[9]
Read and Kirby also agree that a decision for Read based on general principles will necessarily affect others in the direct sales industry as well as all who employ independent contractors. At oral argument Read's counsel acknowledged that, for example, the real estate sales industry would be impacted by this case, especially since realtors are often in people's homes. In amicus curiae briefs, newspapers who use independent contractors as distributors, apartment owners who use independent contractors as property managers, and others have warned of the potentially pervasive effects of a ruling in this case on many other activities. Products commonly sold in homes include cosmetics and personal articles (Avon and Mary Kay), home and kitchen wares (Amway and Tupperware), insurance, and encyclopedias.
To compensate Read without subjecting all these various enterprises to increased liabilityalthough Read argues that they are already subject to such liabilitythe Court concludes that Kirby is different from other employers of independent contractors because it does not merely allow its distributors to conduct in-home demonstrations, *741 it contractually requires them to do so. While Kirby's in-home demonstration requirement is some exercise of control over its distributors, it is not, as I will endeavor to explain, the kind of control over the details of its distributors' operations that should make Kirby liable for their dealer selections while leaving other employers of independent contractors free of responsibility for similar employment decisions. This is especially true when Read concedes, and the Court tacitly recognizes, that Kirby could not practically monitor or otherwise exercise any meaningful control over dealer selection. Furthermore, no evidence suggests that Kirby's in-home sales requirement has significantly increased the risk of sexual assaults on its customers, nor has the Court even attempted to explain why it is foreseeable, as a matter of law, that door-to-door salesmen will sexually assault their customers but unforeseeable, again as a matter of law, that armed cab drivers will assault other drivers in an accident. Without a principled basis for distinguishing Kirby's operation from others, the Court's decision amounts to no more than an order that Kirby pay Read for her damages.
II
To apply the "retained control" rule to the case before us, three questions must be answered: first, did Kirby retain control of Sena's work so as to be responsible for his dealers' torts? second, did Kirby owe Read a duty to exercise reasonable care to prevent her from being injured by Carter's criminal conduct? and third, was Read's injury caused by Kirby's failure to exercise its retained control with reasonable care? I address each in turn.
A
Kirby does not select dealers itself, and as a practical matter it could not do so without fundamentally altering the nature of its business. About 700 Kirby distributors employ some 12,000 dealers recruited from more than 50,000 annual applicants. Kirby's distributors, who are like Sena independent contractors, select the dealers. Kirby's contract with Sena plainly provided that Kirby "shall exercise no control over the selection of ... Dealers". Kirby had nothing to do with selecting Carter as a dealer. Practically and contractually, that was entirely Sena's responsibility.
Read argues, however, and the Court concludes that Kirby should have exercised some control over dealer selection because it required its products to be sold through in-home demonstrations. This requirement is too general to constitute a retention of control for liability purposes. For an employer to be liable for an independent contractor's actions, the employer must have retained not merely a "general right of control over operations" but control of "`the details of the work to be performed'".[10] An independent contractor ceases to be independent only when and to the extent that his employer assumes control for the details of the work.
The employer must control not merely the end sought to be accomplished, but also the means and details of its accomplishment as well. Examples of the type of control normally exercised by an employer include when and where to begin and stop work, the regularity of hours, the amount of time spent on particular aspects of the work, the tools and appliances used to perform the work, and the physical method or manner of accomplishing the end result.[11]
Kirby exercised no such control over its distributors. With respect to dealer selection, it contractually eschewed any right of such control. Kirby's contractual requirement that its products be sold through inhome demonstrations merely defined the *742 nature of the work assigned to its distributors. Kirby did not control how its distributors went about that work. Kirby was entitled to choose the basic distribution system for its products without thereby incurring liability for the manner in which its distributors carried out the details of the work.
An employer is not liable for an independent contractor's misconduct merely because the employer knows of risk inherent in the assigned work. In Golden Spread Council, Inc. v. Akins[12] this Court held that Boy Scouts of America had no duty to monitor its local councils' selection of troop leaders,[13] even though BSA and its councils well knew that troop leaders were placed in a position to abuse the boys in their charge and tried to minimize the risk by maintaining a list of persons believed to be undesirable for those positions. BSA did not, of course, contractually require its local councils to mandate that troop leaders actually interact with boy scouts, but it had no need to do so; one cannot do the job of a troop leader without meeting with the boys. BSA was not responsible for the selection of an abusive troop leader merely because it set up the organization that allowed that risk to exist.
I cannot discern a principled reason for excusing BSA from any responsibility for sexual assaults by persons selected by its independent volunteer councils and not excusing Kirby from the same responsibility for its independent contractors' independent contractors. Each created an organization in which the risk of misconduct inhered. The Court imposed no duty on BSA, and none should be imposed on Kirby.
B
As already noted, Kirby owed Read a duty of reasonable care to prevent a dealer from sexually assaulting her only if it realized or should have realized the likelihood that it had created a situation in which such a tragedy might occur.[14] The Court simply assumes that in-house sales create an increased risk of sexual assault.
In Greater Houston Transportation Co. v. Phillips[15] we rejected the argument that the Yellow Cab Company in Houston should have known that it was likely a cab driver might carry a handgun with him while driving, get into an altercation with another driver, and shoot him. We explained:
The record shows that Yellow Cab had been operating in the City of Houston for nearly twenty years and, in any given year, it is involved in approximately 1000 traffic accidents. During this period there was only one prior incident involving the use of a weapon and the driver in that case was exonerated of any wrongdoing.... We hold that as a matter of law, under these facts, that the cab company had no duty to warn its cab drivers not to carry guns.[16]
Kirby has conducted its business for over eighty years, more than four times as long as the Yellow Cab Company in Houston. Its 12,000 dealers make about 1.5 million in-home demonstrations annually, or 1,500 times the number of traffic accidents involving Yellow cabs in Houston. Kirby and the Yellow Cab Company in Houston have had the same number of incidents of criminal conduct: two. For Kirby, one was in North Dakota in 1983,[17] and the other in 1993 when Carter assaulted Read. I fail to see how, as a matter of law, it is unforeseeable that a cab driver will shoot another driver but foreseeable that a Kirby vacuum cleaner dealer will sexually assault a customer. I see no way to reconcile *743 the holding in this case with Phillips. The Court says that Phillips did not involve an issue of retained control, and that is perfectly true, but it did involve an issue of foreseeability, just as the present case does.
More generally, there is no evidence in this record that door-to-door salesmen are more likely to sexually assault their customers than any other salesmen. The Direct Selling Association, as amicus curiae, cites statistics showing that many customers are acquainted with their direct sellers, either personally or through referrals. Such statistics are not surprising, since one might well surmise that most customers would be far more reluctant to admit strangers into their homes than they would be to approach strangers in the sales department of a store. But we need not go outside the record. The point is that there is nothing at all in the evidence before us to show whether the risk of sexual assaults in home sales organizations is greater than in other sales contexts.
A third party's criminal conduct need not be probable before a person may have a duty to protect others from it, but the infrequency of such conduct is a factor that must be considered in determining whether it was foreseeable. Several months ago, in Timberwalk Apartments, Partners, Inc. v. Cain,[18] we held in a related context that "[i]n determining whether the occurrence of certain criminal conduct on a landowner's property should have been foreseen, courts should consider whether any criminal conduct previously occurred on or near the property, how recently it occurred, how often it occurred, how similar the conduct was to the conduct on the property, and what publicity was given the occurrences to indicate that the landowner knew or should have known about them."[19] Two sexual assaults is, of course, two tragedies too many. But the evidence in this record does not show that Kirby should have realized that if it did not require its distributors to check dealer applicants' backgrounds, a sexual assault was a foreseeable consequence.
C
The third question is whether Read's injury was caused by Kirby's failure to exercise its retained control with reasonable care. Read argues repeatedly that all Kirby should have done differently was contractually obligate its distributors to conduct criminal background checks of all potential dealers. Read does not even contend that Kirby should monitor or enforce the obligation. Read's counsel was quite clear on the subject at oral argument:
COURT: So the sole argument that is being made here is the only thing that Kirby should have done, that it did not do, was as a part of its agreement with its distributor, the distributors would do background checks?
COUNSEL: That's correct. That that be required by the distributor.
COURT: ... But you are not requiring that Kirby do any background checks on the salespeople?
COUNSEL: That's correct. That's correct. That would be too burdensome and that would be unreasonable....
* * *
COURT: And so all they [Kirby] needed to do was add one sentence to that contract?
COUNSEL: That's all they needed to do. They could xerox the copy and type it at the bottom.
* * *
COURT: ... Don't they [Kirby] have an obligation to follow up?
COUNSEL: There is no suggestion in either [the North Dakota Supreme *744 Court's opinion in McLean v. Kirby Co.[20] or the court of appeals' opinion in this case] that there was any continuing duty to monitor. And we would not so argue.
* * *
COURT: ... [W]ouldn't they [Kirby] have some obligation to monitor and follow up to insure that their dealers are doing background checks?
COUNSEL: I think their duty would be very narrow. I think they could write a contract that said, "As a part of our agreement, you, distributor, are required to conduct a background check. Failure to conduct that background check, like the failure to conduct the sales in the way we deem appropriate..."
COURT: But you would have to monitor to know that there was a failure. That's my question.
COUNSEL: I don't think there's a duty to monitor, is my answer....
* * *
COURT: ... You say the only duty was, put a requirement in the contract that the distributor had a duty to do a background check.
COUNSEL: To actually do the check. Yes, Your Honor.
COURT: And that it did notthat Kirby did nothave the duty to monitor that for enforcement, but to enforce it if knowledge of the breach came to its attention.
COUNSEL: That's correct.
If Kirby's only duty was to add one sentence to its distributor agreements requiring them to check the backgrounds of potential dealers, without conducting any checks itself or monitoring the distributors operations for compliance, I fail to see how the breach of so ineffectual a duty could possibly have resulted in Read's injury. Moreover, under settled law, Kirby's distributors already had a duty imposed by law to use reasonable care in selecting dealers.[21] A contractual requirement would add nothing.
Recognizing the plain flaws in Read's position, the Court does not endorse it, writing only that Kirby had a duty to "act reasonably"whatever that means.[22] But if the Court intended to impose a duty greater than Read argued for, surely it would say so. If Kirby has a duty not only to require its distributors to make background checks of dealer applicants but to monitor and enforce that requirement, then its suggestion that Kirby has met its legal obligations by putting warnings in its distributor training manuals[23] is grossly misleading.
III
Today's decision is, I believe, aberrational and therefore not of much concern. The Court tries as much as it can to prevent its decision from impacting the multitude of businesses similar to Kirby's. A decision aimed at a result may not be consequential, but result-directed decision-making is more serious. A Court that departs from settled principles in one case may do so in another. To return to Justice Roberts' analogy, no appellate court decision should turn out to be "a restricted railroad ticket, good for this day and train only"; certainly, no decision should be designed with such restrictions.
Under settled law, Read can obtain compensation for her injury from Carter and Sena only. Because the Court reaches a contrary result, I respectfully dissent.
Justice ABBOTT, joined by Justice OWEN, dissenting.
Kirby retained control over where the work was to be performed, not over who *745 was to perform that work. Failure to require background checks of potential dealers relates to who is a dealer, not where the dealer works. As a result, the requisite relation between the control retained and the alleged injury is missing. Because the Court holds to the contrary, I dissent.
I agree with the Court's analysis of Redinger v. Living, Inc., 689 S.W.2d 415, 418 (Tex.1985), that "a general contractor, like Kirby, has a duty to exercise reasonably the control it retains over the independent contractor's work." 990 S.W.2d at 735. I also agree with the Court's synopsis of Exxon Corp. v. Tidwell, 867 S.W.2d 19, 23 (Tex.1993), that in determining whether a duty exists in a retained-control case, the "focus is on whether [the] retained control was specifically related to [the] alleged injury." 990 S.W.2d at 736. I disagree with the Court's application of this law to the relevant facts of this case.
As noted, Kirby's Distributor Agreement and Independent Dealer Agreement collectively require dealers to sell vacuum cleaners in the homes of potential customers. Kirby's contract with its distributors also provides that Kirby "shall exercise no control over the selection of ... Dealers. The full cost and responsibility for recruiting, hiring, firing, terminating and compensating independent contractors and employees of Distributor shall be borne by Distributor."
Ms. Read claims that her injury is related to the selection of Carter as a dealer without a background check. This injury is specifically related to the control that Kirby abrogatedcontrol over the selection of dealers. In essence, the Court rewrites Kirby's Distributor Agreement and Independent Dealer Agreement to require Kirby to assume control over dealer selection. Because the injury is not related to the control retained by Kirby, the Tidwell test is not met and Kirby owed no duty to Ms. Read under the circumstances of this case.
NOTES
[1] As an aside, we note McLean v. Kirby Co., 490 N.W.2d 229 (N.D.1992). In McLean, Urie, a Kirby distributor, hired Molachek as a dealer. Id. at 232. Molachek had a history of violent crimes and was charged with sexual assault at the time he was hired. Id. Within a month of hire, Molachek raped Linda McLean. Id. Relying on the "peculiar risk" doctrine of Section 413 of the Restatement (2d) of Torts, the Supreme Court of North Dakota upheld the judgment against Kirby. Id. at 242. As a result, Kirby has put warnings in its training manuals of the need to do a "thorough criminal background check" on potential dealer candidates, had discourse with some distributors about the need to do reference checks, and instructed that if "red flags" come up in the process, the distributors should do further background checks.
[1] 801 S.W.2d 523, 526-527 (Tex.1990).
[2] Smith v. Allwright, 321 U.S. 649, 669, 64 S. Ct. 757, 88 L. Ed. 987 (1944) (Roberts, J., dissenting) (quoted in Dow Chem. Co. v. Alfaro, 786 S.W.2d 674, 709 (Tex.1990) (Phillips, C.J., dissenting)).
[3] Moore v. Roberts, 93 S.W.2d 236, 238-239 (Tex.Civ.App.Texarkana 1936, writ ref'd). See King v. Associates Commercial Corp., 744 S.W.2d 209, 213 (Tex.App.Texarkana 1987, writ denied) (citing Jones v. Southwestern Newspapers Corp., 694 S.W.2d 455, 458 (Tex. App.Amarillo 1985, no writ)); Ross v. Texas One Partnership, 796 S.W.2d 206, 216 (Tex. App.Dallas 1990), writ denied, 806 S.W.2d 222 (Tex.1991) (per curiam). See also RESTATEMENT (SECOND) of Torts § 411 (1965).
[4] Exxon Corp. v. Quinn, 726 S.W.2d 17, 19 (Tex.1987); Redinger v. Living, Inc., 689 S.W.2d 415, 418 (Tex.1985); Abalos v. Oil Dev. Co., 544 S.W.2d 627, 631 (Tex.1976); Woodard v. Southwest States, Inc., 384 S.W.2d 674, 675 (Tex.1964). See also RESTATEMENT (SECOND) of Torts § 409 (1965).
[5] Redinger v. Living, Inc., 689 S.W.2d 415, 418 (Tex.1985) (quoting RESTATEMENT (SECOND) of Torts § 414 (1965)).
[6] Timberwalk Apts., Partners, Inc. v. Cain, 972 S.W.2d 749, 756 (Tex.1998); Walker v. Harris, 924 S.W.2d 375, 377 (Tex.1996); Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995); Lefmark Management Co. v. Old, 946 S.W.2d 52, 53 (Tex.1997). See also RESTATEMENT (SECOND) of Torts § 315 (1965).
[7] Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 550 (Tex.1985) (quoting RESTATEMENT (SECOND) of Torts § 448 (1965)).
[8] See Timberwalk Apts., 972 S.W.2d at 757-758.
[9] Herbert Wechsler, Toward Neutral Principles of Constitutional Law, 73 HARV. L.REV. 1, 15 (1959).
[10] Exxon Corp. v. Tidwell, 867 S.W.2d 19, 23 (Tex.1993). See also Exxon Corp. v. Quinn, 726 S.W.2d 17, 20 (Tex.1987).
[11] Thompson v. Travelers Indem. Co., 789 S.W.2d 277 (Tex.1990) (citations omitted).
[12] 926 S.W.2d 287, 290 (Tex.1996).
[13] Id. at 290.
[14] See note 7, supra.
[15] 801 S.W.2d 523 (Tex.1990).
[16] Id. at 526-527.
[17] McLean v. Kirby Co., 490 N.W.2d 229 (N.D.1992).
[18] 972 S.W.2d 749 (Tex.1998).
[19] Id. at 757.
[20] 490 N.W.2d 229 (N.D.1992).
[21] See note 3, supra.
[22] Ante at 736.
[23] Ante at 736 n. 1. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2408437/ | 952 S.W.2d 503 (1997)
ST. LUKE'S EPISCOPAL HOSPITAL, Petitioner,
v.
Comfort and Kingsley AGBOR, Respondents.
No. 96-0085.
Supreme Court of Texas.
Argued October 2, 1996.
Decided June 20, 1997.
Rehearing Overruled October 30, 1997.
*504 Solace H. Kirkland, Michael O. Connelly, Houston, for Petitioner.
Phillip A. Pfeifer, Houston, for Respondents.
GONZALEZ, Justice, delivered the opinion of the Court, in which HECHT, ENOCH, OWEN and BAKER, Justices, join.
This is an appeal from a summary judgment. The sole issue in this case is whether the Texas Medical Practice Act ("the Texas Act") applies to a patient's cause of action against a hospital for its credentialing activities. We hold that it does, and reverse the judgment of the court of appeals.
I
Dr. Suzanne Rothchild delivered Dikeh Agbor at St. Luke's Episcopal Hospital in Houston. During birth, the baby suffered an injury that permanently disabled his left arm. The baby's parents, Comfort and Kingsley Agbor, sued Dr. Rothchild for medical malpractice, and St. Luke's for negligent and grossly negligent credentialing. The Agbors allege that the hospital should not have renewed Dr. Rothchild's staff privileges because she had been the subject of many medical malpractice cases, some involving St. Luke's, she was not a Texas resident, and was not properly insured for medical malpractice. St. Luke's moved for summary judgment asserting that the Texas Act, TEX. REV.CIV. STAT. ANN. art. 4495b, §§ 1.01-6.13, provides immunity for credentialing decisions by health care entities absent a showing of malice. The trial court granted the hospital's motion and severed this action against St. Luke's from the action against Dr. Rothchild. *505 The court of appeals, with one justice dissenting, reversed and held that the trial court incorrectly interpreted the Texas Act to require a showing of malice in credentialing actions brought by patients. 912 S.W.2d 354.
II
The Texas Act provides, in pertinent part, as follows:
(l) A cause of action does not accrue against the members, agents, or employees of a medical peer review committee or against the health-care entity from any act, statement, determination or recommendation made, or act reported, without malice, in the course of peer review as defined by this Act.
(m) A person, health-care entity, or medical peer review committee, that, without malice, participates in medical peer review activity or furnishes records, information, or assistance to a medical peer review committee or the board is immune from any civil liability arising from such an act.
TEX.REV.CIV. STAT. ANN. art. 4495b, § 5.06(l), (m) (emphasis added). "Medical peer review committee" means "a committee of a healthcare entity ... authorized to evaluate the quality of medical and health-care services or the competence of physicians." Id. § 1.03(a)(6). "Medical peer review" means "the evaluation of medical and health-care services, including evaluation of the qualifications of professional health-care practitioners and of patient care rendered by those practitioners." Id. § 1.03(a)(9). The definitions of "medical peer review committee" and "medical peer review" clearly contemplate, among other things, the process known as "credentialing"the granting or retention of a doctor's hospital privileges.
St. Luke's argues that the plain language of section 5.06(l) and (m) bars an action based on a hospital's credentialing decision made without malice, regardless of whether the plaintiff is a doctor who was the subject of the decision, or a patient who was injured by a doctor who allegedly should not have been credentialed. The Agbors argue that section 5.06 should be construed narrowly to protect peer review participants from suits by physicians and not from patients' negligent credentialing actions.
When a statute is clear and unambiguous, courts need not resort to rules of construction or extrinsic aids to construe it, but should give the statute its common meaning. Bridgestone/Firestone, Inc. v. Glyn-Jones, 878 S.W.2d 132, 133 (Tex.1994); One 1985 Chevrolet v. State, 852 S.W.2d 932, 935 (Tex.1993). The Legislature's intent is determined from the plain and common meaning of the words used. Monsanto Co. v. Cornerstones Mun. Util. Dist., 865 S.W.2d 937, 939 (Tex.1993); Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 352 (Tex.1990). This Court has reiterated these principles many times. In RepublicBank Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605, 607 (Tex. 1985), we stated:
Courts must take statutes as they find them. More than that, they should be willing to take them as they find them. They should search out carefully the intendment of a statute, giving full effect to all of its terms. But they must find its intent in its language and not elsewhere.... They are not responsible for omissions in legislation. They are responsible for a true and fair interpretation of the written law. It must be an interpretation which expresses only the will of the makers of the law, not forced nor strained, but simply such as the words of the law in their plain sense fairly sanction and will clearly sustain.
Id. (quoting Simmons v. Arnim, 110 Tex. 309, 220 S.W. 66, 70 (1920)). The court of appeals held that the Texas Act does not unambiguously state that a hospital is immune from liability in all cases for credentialing decisions absent a showing of malice. 912 S.W.2d at 357. We disagree.
The Texas Act expressly provides that "[a] cause of action does not accrue ... against the health-care entity from any ... determination or recommendation made ... without malice, in the course of peer review as defined by this Act"; and "[a] ... health-care entity ... that, without malice, participates in medical peer review activity ... is immune *506 from any civil liability arising from such an act." TEX.REV.CIV. STAT. ANN. art. 4495b, § 5.06(l), (m). The statute defines "medical peer review" to include "evaluation of the qualifications of professional health-care practitioners...." Id. § 1.03(a)(9). Thus, the plain meaning of the words used provides immunity from civil liability to a health-care entity for actions in the course of peer review, when such actions are done without malice.
The Agbors argue that because the statute only allows a lawsuit for acts committed with malice, the Legislature did not intend it to apply to patients' suits. They contend that malice requires proof of "spite, ill will, or intent to injure," which must be directed toward a known individual. The argument is that a plaintiff could never prove that a credentialing body acted with malice toward a specific patient. However, the Texas Act states that "[a]ny term, word, word of art, or phrase that is used in this Act and not otherwise defined in this Act has the meaning as is consistent with the common law." TEX.REV. CIV. STAT. ANN. art. 4495b, § 1.03(b). Under the common law, proof of malice does not necessarily require conduct directed toward a specific person. See Shannon v. Jones, 76 Tex. 141, 13 S.W. 477, 478 (1890) (defining malice as a reckless disregard for the rights of others).
In fact, the Legislature itself has recently defined "malice" for the purpose of recovery of exemplary damages, and that definition does not require an act directed toward a specific person. In the Civil Practice and Remedies Code, the Legislature defines "malice" as:
(A) a specific intent by the defendant to cause substantial injury to the claimant; or
(B) an act or omission:
(i) which when viewed objectively from the standpoint of the actor at the time of its occurrence involves an extreme degree of risk, considering the probability and magnitude of the potential harm to others; and
(ii) of which the actor has actual, subjective awareness of the risk involved, but nevertheless proceeds with conscious indifference to the rights, safety, or welfare of others.
TEX. CIV. PRAC. & REM.CODE § 41.001(7) (emphasis added). Considering the Legislature's pronouncement that "malice" need not be directed toward a specific individual in the context of exemplary damages, it does not follow that in the context of peer review, the committee must necessarily act with malice toward a specific patient for that patient to prove his or her case. Therefore, the fact that the Legislature chose to allow suits only for malicious conduct in no way dictates that the statute does not apply to patients' claims.
The Agbors further contend that the Texas Act does not compel the result we reach because when the Legislature enacted the Act, it incorporated the Health Care Quality Improvement Act of 1986 ("the Federal Act"), 42 U.S.C. §§ 11101-52, and such an interpretation would render the Acts inconsistent with each other. The Federal Act states as follows:
Nothing in this chapter shall be construed as affecting in any manner the rights and remedies afforded patients under any provision of Federal or State Law to seek redress for any harm or injury suffered as a result of negligent treatment or care by any physician, health care practitioner, or health care entity, or as limiting any defense or immunities available to any physician, health care practitioner, or health care entity.
Id. § 11115(d). The Agbors contend that because the Federal Act is incorporated into the Texas Act, section 11115(d) dictates that neither Act affects patients' suits, including suits for negligent credentialing. They argue such a suit is one for "negligent treatment or care by ... [a] health care entity," id., which the Federal Act expressly does not affect. Under the Agbors' view, if the Texas Act provides immunity absent malice in credentialing decisions, it will directly conflict with the Federal Act. This argument fails to persuade us.
First, it is debatable whether a hospital's alleged acts in credentialing physicians are themselves part of the "treatment and care" of patients. See Richard L. Griffith & Jordan *507 M. Parker, With Malice Toward None: The Metamorphosis of Statutory and Common Law Protection for Physicians and Hospitals in Negligent Credentialing Litigation, 22 TEX. TECH L.REV. 157, 183 n. 146 (1991) (stating that credentialing impacts, but is not an actual part of, "treatment and care"). We note that the court of appeals' interpretation of section 11115(d) is based on an improperly broad reading. The court stated that the Federal Act "provides that it does not affect the rights and remedies available to a patient for the negligence of a physician, health-care provider or health-care entity." 912 S.W.2d at 358. This reading ignores the limitation that the patients' suits unaffected by the Federal Act are those for "negligent treatment or care," not merely negligence in general, which undoubtedly would include negligent credentialing. 42 U.S.C. § 11115(d) (emphasis added).
Second, the Federal Act also provides:
Except as specifically provided in this subchapter, nothing in this subchapter shall be construed as changing the liabilities or immunities under law or as preempting or overriding any State law which provides incentives, immunities, or protection for those engaged in a professional review action that is in addition to or greater than that provided by this subchapter.
42 U.S.C. § 11115(a). Therefore, even if the Federal Act does not apply to negligent credentialing as the Agbors argue, this provision specifically allows states to implement their own initiatives to provide greater immunities in professional review actions than those the Federal Act provides. No provision of the Federal Act overrides or preempts a state's efforts in this area. Texas has clearly done what section 11115(a) allows and has provided extra "immunities, or protection for those engaged in a professional review action." Id. By these express terms, no conflict arises between the two acts; thus, the existence of the Federal Act does not compel a departure from the plain meaning of the Texas Act.
The Agbors also rely on this Court's decision in Bridgestone/Firestone, which stands for the principle that a statutory provision must be construed in the context of the entire statute of which it is a part. Bridgestone/Firestone, 878 S.W.2d at 133. The statutory provision in that case stated, "Use or nonuse of a safety belt is not admissible evidence in a civil trial." Tex.Rev.Civ. Stat. Ann. art. 6701d, § 107C(j), repealed by Acts 1995, 74th Leg., ch. 165, § 24(a), 1995 Tex. Gen. Laws 1870, 1871 (current version at Tex. Transp. Code § 545.413(g)). This provision was part of the Uniform Act Regulating Traffic on Highways. It was intended to clarify that the sole legal sanction for failure to wear a seat belt is the criminal penalty provided by the statute, and that such a failure could not be used against the injured person in a civil trial. Bridgestone/Firestone, 878 S.W.2d at 134. The defendants in the case argued that the provision should also be read to abolish crashworthiness actions against seat belt manufacturers. The Court disagreed, holding that the meaning of the provision became clear if read consistently with the context of the entire statute. The Court concluded that the Legislature simply could not have intended to create a wholesale exemption from suit in a subsection of a traffic regulation. Id.
The provisions creating peer review immunity are consistent with the rest of the statute in which they are found. In contrast to the traffic statute in Bridgestone/Firestone, which had no apparent application to a products liability suit for defective seat belts, the statute in the present case is part of the "Medical Practice Act," which deals broadly with "regulating the practice of medicine." TEX.REV.CIV. STAT. ANN. art. 4495b, §§ 1.01, 1.02(4). The Texas Act directly concerns immunity from suit for those participating in medical peer review activity. Id. § 5.06(l), (m). The context of the statute as a whole involves precisely the situation in this suit regulating the practice of medicine, including "evaluation of the qualifications of professional health-care practitioners." Id. § 1.03(a)(9). In such a case, we give the statute's words their common meaning, and the Agbors' reliance on Bridgestone/Firestone is misplaced.
III
In the court of appeals, the Agbors also complained that affording hospitals immunity *508 from negligent credentialing actions absent malice violates the Open Courts Provision of the Texas Constitution. See TEX. CONST. art. I, § 13. Because it disposed of the Agbors' claims solely on statutory construction, the court of appeals expressly reserved this issue. In this Court, both parties have briefed the issue, and for the sake of judicial economy, we consider the question instead of remanding it for the court of appeals' consideration. See First Baptist Church v. Bexar County Appraisal Review Bd., 833 S.W.2d 108, 111 (Tex.1992).
The Open Courts Provision of the Texas Constitution provides, in pertinent part: "All courts shall be open, and every person for an injury done him, in his lands, goods, person or reputation, shall have remedy by due course of law." TEX. CONST. art. I, § 13. To demonstrate that a statute violates this constitutional guarantee, a litigant must show 1) that the statute restricts a well-recognized common law cause of action, and 2) that the restriction is unreasonable or arbitrary when balanced against the purpose of the statute. Baptist Mem'l Hosp. Sys. v. Arredondo, 922 S.W.2d 120, 121 (Tex.1996); Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 355 (Tex.1990). This Court has consistently held that the Open Courts Provision protects only well-defined common law causes of action from legislative restriction. See Moreno, 787 S.W.2d at 356-57.
We have never dealt with the question of whether a common-law cause of action exists for negligent credentialing. In 1987, when the Legislature enacted the Texas Act's immunity provisions, only two Texas courts had considered the question, reaching opposite results. See Park North Gen. Hosp. v. Hickman, 703 S.W.2d 262, 264-66 (Tex.App.San Antonio 1985, writ ref'd n.r.e.); Jeffcoat v. Phillips, 534 S.W.2d 168, 172-74 (Tex.Civ. App.Houston [14th Dist.] 1976, writ ref'd n.r.e.). Park North upheld a cause of action for negligent credentialing and determined that a hospital has a duty to a patient to exercise reasonable care in the selection of its medical staff and in granting privileges to them. Park North, 703 S.W.2d at 266. On the other hand, Jeffcoat held that absent an employer-employee, principal-agent, partnership, or joint venture relationship between a hospital and physician, a hospital is not liable for its credentialing decisions where the patient chooses the physician. Jeffcoat, 534 S.W.2d at 173.
In short, when the Legislature enacted the Texas Act's immunity provisions, the lower courts were split on the existence of a cause of action for negligent credentialing, and we had not considered the question. Therefore, we cannot conclude that negligent credentialing was a well-recognized common law cause of action. Thus, the Agbors have failed to show an open courts violation. Because it is not necessary to our disposition of this case, we reserve for another day whether we recognize a common-law cause of action for negligent credentialing.
The dissenting Justices refer to a number of other jurisdictions that recognize in varying degrees a duty to exercise care in credentialing activities. However, their opinions do not indicate whether those negligent credentialing causes of action are based on the common law, or whether they involve restrictions identical, or even similar, to the statutory language that limits our decision. As Chief Justice Phillips acknowledges, at least one court has held that a similar statute enacted to encourage hospitals to actively engage in peer review barred a claim against a medical care facility under a corporate negligence theory for its credentialing decisions involving an independent contractor physician. See Lemuz v. Fieser, 261 Kan. 936, 933 P.2d 134, 140, 145 (1997); McVay v. Rich, 255 Kan. 371, 874 P.2d 641, 645 (1994). The Kansas statute provides:
There shall be no liability on the part of... any licensed medical care facility because of the rendering of or failure to render professional services within such medical care facility by a person licensed to practice medicine and surgery if such person is not an employee or agent of such medical care facility.
Kan. Stat. Ann. § 65-442(b) (1995). The Kansas Supreme Court concluded that regardless of the reasons favoring liability under a corporate negligence theory, it simply cannot reach the question because the clear, unambiguous language of the statute bars a *509 patient's claims against a hospital for credentialing or recredentialing activities. See McVay, 874 P.2d at 645. The same is true in our case. The Legislature is free to set a course for Texas jurisprudence different from other states'. Once the Legislature announces its decision on policy matters, we are bound to follow it within constitutional bounds.
Accordingly, we hold that the Texas Act's immunity provisions prescribe a threshold standard of malice to state a cause of action against a hospital for its credentialing activities.[1] Further, this standard does not violate the Open Courts Provision of the Texas Constitution.
For the above reasons, we reverse the judgment of the court of appeals and render judgment that the Agbors take nothing from St. Luke's Hospital.
ABBOTT, Justice, not sitting.
PHILLIPS, Chief Justice, delivered a dissenting opinion, joined by SPECTOR, Justice.
The issue before us is whether a patient has a cause of action against a hospital for negligent credentialing. Because I conclude that the common law of Texas recognizes such a cause of action and that nothing in the Texas Medical Practice Act ("TMPA") or any other statute takes it away, I respectfully dissent.
I
A hospital's duty to exercise care in the treatment of patients, including its credentialing activities, was first recognized in this state in Park North Gen. Hosp. v. Hickman, 703 S.W.2d 262 (Tex.App.San Antonio 1985, writ ref'd n.r.e.). This cause of action was also recognized in Lopez v. Central Plains Reg. Hosp., 859 S.W.2d 600 (Tex. App.Amarillo 1993, no writ) (holding that a material issue of fact about whether a hospital negligently credentialed a doctor precluded summary judgment). See also Smith v. Baptist Mem. Hosp. Sys., 720 S.W.2d 618, 626 n. 2 (Tex.App.San Antonio 1986, writ ref'd n.r.e.) (a hospital "clearly may have a duty to prevent a physician's malpractice at least to the extent that it establishes procedures for the granting of staff privileges and for the review of these privileges.").
The duty is separate from a hospital's vicarious or respondeat superior liability.[1]See generally Smith, 720 S.W.2d at 626. It includes the duty to exercise care in its recredentialing functions. See Park North, 703 S.W.2d at 266. Twenty-seven other jurisdictions have recognized the duty in varying degrees. See, e.g., Humana Med. Corp. v. Traffanstedt, 597 So. 2d 667 (Ala.1992) (recognizing duty but finding no liability under particular facts); Storrs v. Lutheran Hosps. & Homes Soc. of America, Inc., 661 P.2d 632 (Alaska 1983); Fridena v. Evans, 127 Ariz. 516, 622 P.2d 463 (1981); Elam v. College Park Hosp., 132 Cal. App. 3d 332, 183 Cal. Rptr. 156 (1982); Kitto v. Gilbert, 39 Colo. App. 374, 570 P.2d 544 (1977); Insinga v. LaBella, 543 So. 2d 209 (Fla.1989); Mitchell County Hosp. Auth. v. Joiner, 229 Ga. 140, 189 S.E.2d 412 (1972); Darling v. Charleston Community Mem. Hosp., 33 Ill. 2d 326, 211 N.E.2d 253 (1965); Leanhart v. Humana Inc., 933 S.W.2d 820 (Ky.1996) (allowing patient access to documents placed in doctor's peer review file for a corporate negligence cause of action); Ferguson v. Gonyaw, 64 Mich.App. 685, 236 N.W.2d 543 (1975); Gridley v. Johnson, 476 S.W.2d 475 *510 (Mo.1972); Hull v. North Valley Hosp., 159 Mont. 375, 498 P.2d 136 (1972); Rule v. Lutheran Hosps. & Homes Soc., 835 F.2d 1250 (8th Cir.1987) (applying Nebraska law); Oehler v. Humana Hosp., 105 Nev. 348, 775 P.2d 1271 (1989); Corleto v. Shore Mem. Hosp., 138 N.J.Super. 302, 350 A.2d 534 (Law Div.1975); Cooper v. Curry, 92 N.M. 417, 589 P.2d 201 (App.), cert. quashed, 92 N.M. 353, 588 P.2d 554 (1978); Raschel v. Rish, 110 A.D.2d 1067, 488 N.Y.S.2d 923 (N.Y.App.Div. 1985); Blanton v. Moses H. Cone Mem. Hosp., 319 N.C. 372, 354 S.E.2d 455 (1987); Benedict v. St. Luke's Hosp., 365 N.W.2d 499 (N.D.1985); Albain v. Flower Hosp., 50 Ohio St. 3d 251, 553 N.E.2d 1038 (1990) (noting requirements for recovery in negligent credentialing cause of action), overruled in part by Clark v. Southview Hosp. & Family Health Ctr., 68 Ohio St. 3d 435, 628 N.E.2d 46 (1994); Strubhart v. Perry Mem. Hosp., 903 P.2d 263 (Okla.1995); Huffaker v. Bailey, 273 Or. 273, 540 P.2d 1398 (1975); Thompson v. Nason, 527 Pa. 330, 591 A.2d 703 (1991); Rodrigues v. Miriam Hosp., 623 A.2d 456 (R.I.1993);Wheeler v. Central Vt. Med. Ctr., 155 Vt. 85, 582 A.2d 165 (1990); Pedroza v. Bryant, 101 Wash.2d 226, 677 P.2d 166 (1984); Utter v. United Hosp. Ctr., 160 W.Va. 703, 236 S.E.2d 213 (1977); Johnson v. Misericordia Community Hosp., 99 Wis. 2d 708, 301 N.W.2d 156 (1981); Sharsmith v. Hill, 764 P.2d 667 (Wy.1988).[2] I would follow Park North and Lopez and recognize such a duty under the common law of Texas.
On the summary judgment record before us, the Agbors have raised a fact issue that the Hospital breached this duty. The evidence most favorable to them under the summary judgment proof is that the Hospital violated its own rules by failing to suspend Dr. Rothchild's privileges when she moved her permanent residence from Texas to Massachusetts in April 1990, by renewing her privileges in the summer of 1990 without carrying out any recredentialing activities, and by not suspending her privileges when she failed to carry insurance between 1988 and 1990.
II
The Court does not reach the issue of whether such a cause of action exists. Instead, it holds that sections 5.06(l) and (m) of the TMPA, providing immunity for peer review activities against doctor and patient suits, bar any such claims that might exist. I disagree.
The provisions on which the Court relies state:
A cause of action does not accrue against the members, agents, or employees of a medical peer review committee or against the health-care entity from any act, statement, determination or recommendation made, or act reported, without malice, in the course of peer review as defined by this Act.
TEX.REV.CIV. STAT. article 4495b, § 5.06(l).
A person, health-care entity, or medical peer review committee, that, without malice, participates in medical peer review activity or furnishes records, information, or assistance to a medical peer review committee or the board is immune from any civil liability arising from such an act.
TEX.REV.CIV. STAT. article 4495b, § 5.06(m).
Read literally, these provisions do bar the Agbors' claims. To apply law properly, however, we must consider the entire act, its nature and object, and the consequences that would follow from a proposed construction. Sharp v. House of Lloyd, Inc., 815 S.W.2d 245, 249 (Tex.1991); Sayre v. Mullins, 681 S.W.2d 25, 27 (Tex.1984). The Legislature has declared that when construing a statute courts may consider the object sought to be attained, the circumstances under which the *511 statute was enacted, the legislative history, common law, and the consequences of a particular construction. TEX. GOV'T CODE § 311.023. As we recently noted:
Here ... we are not presented with the statute as a whole, but a mere provision of the statute. Words in a vacuum mean nothing. Only in the context of the remainder of the statute can the true meaning of a single provision be made clear.
Bridgestone/Firestone, Inc. v. Glyn-Jones, 878 S.W.2d 132, 133 (Tex.1994). Or as Justice Hecht put it: "[I]n some circumstances, words, no matter how plain, will not be construed to cause a result the Legislature almost certainly could not have intended." Bridgestone, 878 S.W.2d at 135 (Hecht, J. concurring).
The meaning of a word in a statute depends on its context, and an essential part of the context of every statute is its purpose. HART & SACKS, THE LEGAL PROCESS: BASIC PROBLEMS IN THE MAKING AND APPLICATION OF LAW 1124 (William Eskridge & Philip Frickey eds., 5th ed.1994). Once a court has ascertained that purpose, the court should enforce it, even if that application seems inconsistent with the statute's strict letter. See State v. Terrell, 588 S.W.2d 784, 786 (Tex.1979); see also 2A SINGER, SUTHERLAND STATUTORY CONSTRUCTION § 46.05 (5th ed.1992) ("[e]ach part or section should be construed in connection with every other part or section so as to produce a harmonious whole."). Thus, we have held that "when the intent and purpose of the Legislature is manifest from a consideration of a statute as a whole, words will be restricted or enlarged in order to give the statute the meaning which was intended by the lawmakers." Bridgestone, 878 S.W.2d at 134 (quoting Lunsford v. City of Bryan, 156 Tex. 520, 297 S.W.2d 115, 117 (1957)).
Applying these principles, I conclude that the Legislature did not intend to apply the heightened immunity provisions to patient suits against hospitals. The Legislature explained its purpose in section 1.02(1) of the TMPA:
[T]he practice of medicine is a privilege and not a natural right of individuals and as a matter of policy it is considered necessary to protect the public interest through the specific formulation of this Act to regulate the granting of that privilege and its subsequent use and control.
Legislative regulation of credentialing is thus to protect patients and the public, not to insulate those who suffered bodily injury through a medical entity's negligence from legal redress.
Almost all of the TMPA manifests this purpose by addressing physician/hospital relationships. Subchapter B deals with the Board of Medical Examiners; Subchapter C deals with licensing; Subchapter D addresses disciplinary action. Most of Subchapter E as well focuses on peer review and physician and hospital rights. Sections 5.06(b)-(d), for example, set out the peer review committee's reporting requirements. Section 5.06(g) describes a doctor's right to privileged information if he files either an antitrust or § 1983 claim. Section 5.06(i) provides that if a peer review committee decides to take action against a doctor, he is entitled to a written copy of the committee's decision and recommendation. Section 5.06(q) provides a cause of action for health care entity employees if the hospital discharges or discriminates against them for complying with Section 5.06's reporting requirements. None of these sections curtails a patient's right to sue for negligent treatment or care by a medical facility.
Because there are no provisions in the statute that regulate physician/patient or hospital/patient relationships or that discuss patient care liability, a reading consistent with the purpose of the statute would limit the malice requirement in sections (l) and (m) to physicians' suits.
III
Moreover, nothing in the legislative history suggests that the Legislature intended to provide heightened immunity from patients' suits. The legislative debate focused on the same objectives envisioned in the federal statuteproviding immunity for participants in peer review committees from retaliatory claims filed by disciplined doctors. During the discussion of the bill, Senator Chet *512 Brooks stated that the bill required reporting of improper actions of doctors and was accompanied by a liability shield for participants in peer review committees:
We want the health care facilities that take adverse action against a physician's privileges to practice at that facilityto report that action to the Board of Medical Examiners so that the Board of Medical Examiners will have at least an alert there that they need to check into this and see what the basis for the removal of those privileges would be, and whether or not there ought to be some board follow-up on it. We also mandate peer review committees to report their findings that have to do with questionable practices to the board. And we also mandate physicians to report what they consider to be a threat to the patients and to the practice of medicine. Now to get this mandatory reporting we have also accompanied it in an even-handed way, with a liability shieldthat as long as those reports are made in good faith and without malice or some illegal intent, that there would be no liability against them.
Debate on Tex. S.B. 171 on the Floor of the Senate, 70th Leg. (April 24, 1987) (tape available from Senate Staff Services Office).
Representative Mike McKinney explained that the House version of the bill strengthened the corresponding federal statute which itself was enacted to improve the quality of medical care by identifying incompetent physicians. The bill "provid[ed] some immunity for civil suits, for retaliatory suits, if you participate in peer review activities." Hearing on Tex. H.B. 283 before the House Public Health Comm., 70th Leg. (February 23, 1987) (tape available from the House Committee Coordinator's Office).
IV
The Court counters that its reading of the statute is not really unfair because such suits, if they are allowed in Texas, may prevail upon a showing of malice. I find it difficult to conceive that a hospital would credential its doctors with either the intent to harm patients or with such reckless disregard for their welfare as to establish malice. Even if such a case were to exist, however, a plaintiff would not be able to prove it because another part of the TMPA prevents discovery of the peer review committee's records. Article 4495b, section 5.06(s) provides that in civil suits:
(s)(1) Reports, information, or records received and maintained by the board [Texas State Board of Medical Examiners] pursuant to this section and Section 5.05 of this Act, including any material received or developed by the board during an investigation or hearing, are strictly confidential....
* * * * * *
(3) In no event may records and reports disclosed pursuant to this article by the board to others, or reports and records received, maintained, or developed by the board, by a medical peer review committee, or by a member of such a committee, or by a health-care entity be available for discovery or court subpoena or introduced into evidence in a medical professional liability suit arising out of the provision of or failure to provide medical or health-care services, or in any other action for damages.
Thus, such a claim, no matter how meritorious, would be virtually impossible to prove. I would not give a statute so drastic a reading unless the words are clear and unmistakable. These are not.
This is one of those very rare instances where the literal words of a statute seem clearly beyond its actual intent. Nothing in the purpose, the statutory scheme, or the legislative history indicates that health care entities should be immune absent malice for any causes of action other than physicians' retaliatory claims. Therefore, I would not read the Act to do so. Instead, I would affirm the judgment of the Court of Appeals.
CORNYN, Justice, dissenting, joined by SPECTOR, Justice.
It is as clear as such things get that by enacting the Texas Medical Practice Act (TMPA) the Legislature did not intend to lower then prevailing standards of patient care by insulating hospitals from their own *513 negligence in credentialing physicians. But the Court's irregular construction of the TMPA does exactly that. The legislative history of the Act makes plain that the Legislature's sole concern was to elevate standards of patient care by encouraging physicians to deny hospital privileges to incompetent physicians. And while I join Chief Justice Phillips' dissenting opinion, I write separately to emphasize my concern with the way the Court summarily dispatches the Agbors' claim. In so doing, the Court violates a fundamental axiom of Texas law that
if a statute ... deprives a person of a common law right, the statute will be strictly construed in the sense that it will not be extended beyond its plain meaning or applied to cases not clearly within its purview.
Smith v. Sewell, 858 S.W.2d 350, 354 (Tex. 1993); Dutcher v. Owens, 647 S.W.2d 948, 951 (Tex.1983); Satterfield v. Satterfield, 448 S.W.2d 456, 459 (Tex.1969).
In the 1960's, American jurisprudence began to acknowledge the hospital's emerging role as more than just a place where physicians treat patients. The modern hospital itself was becoming a direct and indirect provider of patient care. In the landmark case of Darling v. Charleston Community Memorial Hospital, 33 Ill. 2d 326, 211 N.E.2d 253, 256-57 (1965), cert. denied, 383 U.S. 946, 86 S. Ct. 1204, 16 L. Ed. 2d 209 (1966), the Supreme Court of Illinois held that a hospital owes a duty of ordinary care in the selection of its medical staff and in granting specialized privileges. Texas first embraced this duty in Park North General Hospital v. Hickman, 703 S.W.2d 262, 264-66 (Tex. App.San Antonio 1985, writ ref'd n.r.e.) (citing Darling, 33 Ill. 2d 326, 211 N.E.2d 253). Currently, as Chief Justice Phillips points out, twenty-seven jurisdictions have recognized this duty. Such a duty is but a particularized application of the more general duty articulated by RESTATEMENT (SECOND) OF TORTS § 323 (1965):
One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of the other's person or things, is subject to liability to the other for physical harm resulting from his failure to exercise reasonable care to perform his undertaking, if (a) his failure to exercise such care increases the risk of such harm, or (b) the harm is suffered because of the other's reliance upon the undertaking.
Thus a cause of action for negligent credentialing was available to patients at the time the Legislature amended section 5.06 of the TMPA in 1987 to incorporate the provisions of the Health Care Quality Improvement Act of 1986.[1] "It is now incontrovertible that hospitals owe a duty to their patients to properly investigate and evaluate physicians who apply for or who are permitted to provide professional medical services within the hospital." Torin A. Dorros & T. Howard Stone, Implications of Negligent Selection and Retention of Physicians in the Age of ERISA, 21 Am. J.L. & Med. 383, 408 (1995). This being the case, we are bound to apply the TMPA only to those cases that the Legislature clearly intended to cover. See Smith v. Sewell, 858 S.W.2d at 354.
Ignoring this rule of construction, the Court purports to rely on the "plain meaning" of the Act to justify its position that hospitals are not accountable for their negligence in selecting and retaining physicians. Used thus, as one commentator has expressed it, the plain-meaning rule at best states a tautology, and at worst severs language from its context. See David L. Shapiro, Continuity and Change in Statutory Interpretation, 67 NONPUBLIC. REV. 921, 932 (citing Reed Dickerson, THE INTERPRETATION AND APPLICATION OF STATUTES 229-233 (1975)). Such use of the plain-meaning rule also directly conflicts with the principle that a single provision of a statute must be read in the context of the remainder of the statute. See Bridgestone/Firestone, Inc. v. Glyn-Jones, 878 S.W.2d 132, 133 (Tex.1994). *514 Looking at the language of the statute, we are to consider not just the disputed parts, but the statute as a whole. See Taylor v. Firemen's & Policemen's Civil Serv. Comm'n, 616 S.W.2d 187, 190 (Tex.1981); State v. Terrell, 588 S.W.2d 784, 786 (Tex. 1979).
As the Chief Justice notes, the Legislature's focus in the TMPA is on the physician-hospital relationshipnot the patient-hospital relationship. The larger legislative landscape also bears this out.
Before Congress enacted the Health Care Quality Improvement Act of 1986 (HCQIA), incompetent physicians who had lost their privileges at one hospital were often able to move freely to another hospital. See Richard L. Griffith & Jordan M. Parker, With Malice Toward None: The Metamorphosis of Statutory and Common Law Protections for Physicians and Hospitals in Negligent Credentialing Litigation, 22 TEX. TECH. L. REV. 156, 180 n. 136 (1991) (citing H.R.REP. No. 99-903, at 2-3 (1986), reprinted in 1986 U.S.S.C.A.N. 6384, 6385). Fearing litigation, some hospitals would trade their silence about a physician's reasons for leaving for the physician's voluntary resignation, leaving the physician free to continue to practice medicine despite a record of incompetence. Id. at 180.
These fears were well-founded. In the period leading up to the passage of the HCQIA, physicians denied hospital privileges filed federal antitrust suits, exposing hospitals to the possibility of treble damages. See, e.g., Patrick v. Burget, 486 U.S. 94, 108 S. Ct. 1658, 100 L. Ed. 2d 83 (1988); Marrese v. Interqual, Inc., 748 F.2d 373 (7th Cir. 1984), cert. denied, 472 U.S. 1027, 105 S. Ct. 3501, 87 L. Ed. 2d 632 (1985); Posner v. Lankenau Hosp., 645 F. Supp. 1102 (E.D.Pa.1986); Quinn v. Kent Gen. Hosp., Inc., 617 F. Supp. 1226 (D.Del.1985). They also filed civil rights claims. See, e.g., Doe v. St. Joseph's Hosp., 788 F.2d 411 (7th Cir.1986); Quinn, 617 F. Supp. 1226. State courts saw their share of physician suits as well in the form of wrongful revocation of hospital privileges and defamation of character. See, e.g., Dworkin v. St. Francis Hosp., Inc., 517 A.2d 302 (Del.Super.Ct.1986) (wrongful suspension and termination); Holly v. Auld, 450 So. 2d 217 (Fla.1984) (defamation); Feldman v. Glucroft, 488 So. 2d 574 (Fla.Dist.Ct.App. 1986) (defamation), cert. denied, 503 U.S. 960, 112 S. Ct. 1560, 118 L. Ed. 2d 208 (1992); Atkins v. Walker, 3 Ohio App. 3d 427, 445 N.E.2d 1132 (1981) (defamation); Guntheroth v. Rodaway, 107 Wash.2d 170, 727 P.2d 982 (1986) (defamation).
In response, Congress passed the HCQIA. 42 U.S.C. §§ 11101 et seq. The purpose of the federal act was to "`improve the quality of medical care by encouraging physicians to identify and discipline other physicians who are incompetent or who engage in unprofessional behavior.'" Griffith & Parker, 22 TEX. TECH. L.REV. at 180 (quoting H.R. REP. No. 99-903 at 2 (1986), reprinted in 1986 U.S.C.C.A.N. 6384, 6384); see also 42 U.S.C. §§ 11101(1) & (3). To facilitate this result, Congress established the National Practitioner Data Bank, the national reporting system that tracks doctors' practice history and competency. To encourage physicians to report malpractice, the HCQIA confers both a privilege from discovery of the information provided in good faith in peer review activities and immunity from suits arising out of the peer review process. Griffith & Parker, 22 Tex. Tech. L.Rev. at 181-82.
Texas doctors participating in peer review faced similar retaliatory suits. See, e.g., Mayfield v. Gleichert, 484 S.W.2d 619 (Tex. Civ.App.Tyler 1972, no writ) (involving a libel suit brought by a doctor against the defendant-doctor for remarks made in a report the defendant-doctor prepared at the request of the hospital medical staff). Thus it is no surprise that Texas was quick to opt in to the HCQIA's coverage at an early effective date. See TEX.REV.CIV. STAT. art. 4495b § 5.06(a); Memorial Hosp.The Woodlands v. McCown, 927 S.W.2d 1, 4 (Tex. 1996). By enacting the TMPA, the Legislature was attempting to improve the quality of health care by establishing a system that encourages effective peer review. See TEX. REV.CIV. STAT. art. 4495b § 1.02(1). To protect against physician retaliatory suits, the TMPA followed the HCQIA by establishing immunity from suit, absent malice, and a privilege from discovery of all communications *515 made to a medical peer review committee.
Construing the TMPA to insulate health care providers from patient suits runs directly contrary to the Legislature's desire to improve the quality of health care. Patients do not have access to the same information that hospitals have through the National Practitioner Data Bank. Patients may only access the Data Bank after they have filed a medical malpractice suit and there is evidence that the hospital failed to query the Data Bank about a physician named in the suit. Elisabeth Ryzen, M.D., The National Practitioner Data Bank: Problems and Proposed Reforms, 13 J. Legal Med. 409, 419 (1992). Thus, for the most part, patients must rely on hospitals to verify the competency of physicians. To make hospitals virtually immune from patient suits does nothing to ensure that hospitals will diligently monitor physician competency. Instead, the Court's construction allows hospitals to negligently credential doctors and remain entirely immune from suit. This defeats the entire purpose of the Act.
For these reasons, I would hold that the malice standard set forth in article 4495b, sections 5.06(l) and (m) does not apply to patient claims for negligent credentialing. I would affirm the judgment of the court of appeals and remand this case for trial.
NOTES
[1] To the extent other decisions conflict with this opinion, they are disapproved. See Lopez v. Central Plains Reg'l Hosp., 859 S.W.2d 600, 602 n. 2 (Tex.App.Amarillo 1993, no writ); Smith v. Baptist Mem'l Hosp. Sys., 720 S.W.2d 618 (Tex. App.San Antonio 1986, writ ref'd n.r.e.); Park North Gen. Hosp. v. Hickman, 703 S.W.2d 262 (Tex.App.San Antonio 1985, writ ref'd n.r.e.).
[1] The Court relies on Jeffcoat v. Phillips, 534 S.W.2d 168 (Tex.Civ.App.Houston [14th Dist.] 1976, writ ref'd n.r.e.) to argue that the courts of appeals are split on the issue of whether a common law cause of action exists. However, Jeffcoat was a summary judgment case in which the plaintiff failed to show that the hospital was required by law or obligated by its own rules to screen physicians to whom it granted privileges or review their work. Jeffcoat held only that a hospital was not liable in respondeat superior for granting privileges to a independent contractor doctor. Jeffcoat distinguished its facts from the case where a hospital had a duty based on its bylaws and regulations. Id. at 172-173.
[2] Of the other jurisdictions that have addressed corporate negligence, three have held that the charitable immunity doctrine bars a patient's recovery. See Rhoda v. Aroostook Gen. Hosp., 226 A.2d 530 (Me.1967); Hill v. Leigh Mem. Hosp., 204 Va. 501, 132 S.E.2d 411 (1963); Grant v. Touro Infirmary, 254 La. 204, 223 So. 2d 148 (1969). One court held that a hospital was not liable for failing to withdraw a doctor's privileges in the absence of apparent authority. See Strickland v. Madden, 448 S.E.2d 581 (S.C.Ct.App. 1994). One court, as a matter of statutory interpretation has held that a hospital was not liable for an independent contractor physician's negligence. See Lemuz v. Fieser, 261 Kan. 936, 933 P.2d 134 (1997); McVay v. Rich, 255 Kan. 371, 874 P.2d 641 (1994).
[1] Ironically, the Court purports to leave for another day the question of whether it recognizes a commonlaw cause of action for negligent credentialing. See 952 S.W.2d at 508. Under the Court's interpretation of the Act, however, that day will never come. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2423236/ | 43 F. Supp. 2d 1156 (1999)
Jeannette PATRICE, Plaintiff,
v.
Patrick MURPHY, et al., Defendants.
No. C97-0068L.
United States District Court, W.D. Washington, at Seattle.
March 25, 1999.
*1157 Todd Maybrown, Allen, Hansen & Maybrown, P.S., Scott A.W. Johnson, Alexander Joseph Higgins, Stokes Lawrence, P.S., Seattle, WA, for Jeannette Patrice, plaintiff.
Stewart Andrew Estes, Keating, Bucklin & McCormack PS, Seattle, WA, Thom H. Graafstra, Grant K. Weed, Keithly, Weed & Graafstra, Snohomish, WA, David John Lenci, Snohomish County Prosecuting Attorney, Civil Division, Everett, WA, Tim Walter Dore, Bellevue, WA, for Patrick Murphy, Michael O. Lively, J. Bodmer, N. Preslar, William Harper, J Does, 1-10, City of Snohomish and Snohomish County, defendants.
Kitty-Ann VanDoorninck, Pierce County Prosecuting Attorney's Office, Civil Division, Tacoma, WA, for Pierce County, Interested Party.
ORDER GRANTING CITY DEFENDANTS' RENEWED AND SUPPLEMENTED MOTION FOR SUMMARY JUDGMENT
LASNIK, District Judge.
Jeannette Patrice, a deaf woman, "brought this lawsuit, seeking injunctive, declaratory and other relief under state and federal law, because Snohomish City police officers arrested her, without providing an American Sign Language ("ASL") interpreter, after she had been beaten by her husband." Plaintiff's Memorandum in Opposition at 1.
Plaintiff originally alleged eight causes of action: (1) violation of the Americans with Disabilities Act ("ADA"), 42 U.S.C. § 12132; (2) violation of RCW 2.42.120; (3) violation of the Washington Law Against Discrimination "WLAD", RCW 49.60.030; (4) deprivation of civil rights under 42 U.S.C. § 1983; (5) false arrest; (6) false imprisonment; (7) negligent infliction of emotional distress; and (8) negligent supervision and training of police officers. Defendants seek summary judgment on plaintiff's common law claim of negligent supervision and training and on her claims of ADA, WLAD, and § 1983 violations.[1]
FACTS
Viewing the facts in the light most favorable to plaintiff, it appears that on the morning of January 22, 1994, plaintiff returned from food shopping and placed her groceries in the kitchen. At some point, she placed a kitchen knife in her cookbook to mark her page and began unpacking the groceries. Her then-husband, James Roth (who is also deaf), entered the kitchen and began harassing plaintiff about her purchase of "reduced" beef and the fact that she was going to use the knife to kill him. Plaintiff lost her temper, and when Roth turned his back on her, she struck him on the shoulder with her fist to get his attention. Roth retaliated by twisting and squeezing plaintiff's hands, forcing her to the ground, and punching her in the back.
Hearing plaintiff's screams, her daughter, Katherine, came into the kitchen. Plaintiff, who had been released by Roth, signed that Katherine should call 911. Roth blocked the phone. Plaintiff signed *1158 that Katherine should go to the neighbors to make the call, which she did.
Defendants Bodmer and Preslar, police officers for the City of Snohomish, arrived at the scene to find plaintiff in the bathroom. Using written notes, Officer Bodmer interviewed Roth in the living room. Although the exact sequence of events is not clear from the evidence presented, at some point an ambulance arrived and plaintiff was seen by a medic, using Katherine as an interpreter. Officer Preslar then requested, through Katherine, that plaintiff return to the kitchen and fill out a "Voluntary Statement and Statement Continuation Form." Although plaintiff did not know what the officer expected of her, she completed the identification section of the form and wrote the following narrative:
Jim thought I use the knife to kill it was misunderstand as I use it to hold the page of cooking book. Jim put knife away I was enough made to hit him He hits me back continue fight. He took my hands squeeze bend fingers all way His leg hold my head and hit my back. My daughter Katherine was the witness. All this morning was hard Jim used bad verbal languages on my both daughters that influence my feelings mixed to carry until now I blow my temper. no weapon. just use my fist.[2]
Plaintiff was given privacy and time in which to fill out the form. At her deposition, she confirmed that the narrative was accurate. When the form was completed, Officer Preslar took it into the living room, presumably to show it to Officer Bodmer. Plaintiff assumes, and the officers confirm, that Roth had told Officer Bodmer that plaintiff threatened him with the knife, struck the first blow, and was the primary perpetrator of the domestic violence.
A few minutes later, Katherine ran into the kitchen to tell plaintiff that she had heard the officers say they were going to arrest plaintiff. Officer Preslar returned to the kitchen with a written version of the Miranda warnings and, using gestures, asked plaintiff to read and sign them. Plaintiff asserts that she was very distraught and didn't really pay attention to what she was reading. She did, however, complete the identification section at the top and sign in the three places Officer Preslar had marked with "X"s. Plaintiff was then taken via patrol car to the County jail. (Plaintiff has already settled her claims against the County.)
DISCUSSION
I. ADA Claim
42 U.S.C. § 12132 states, "Subject to the provisions of this subchapter, no qualified individual with a disability shall, by reason of such disability, be excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity, or be subjected to discrimination by any such entity."
Whether an arrest can ever be subject to the provisions of the ADA is contested by the parties. A number of cases suggest that the ADA is inapplicable because an arrest is not the type of service, program, or activity from which a disabled person could be excluded or otherwise denied the benefit. See Armstrong v. Wilson, 124 F.3d 1019 (9th Cir.1997) ("We agree with the Seventh Circuit's conclusion that although `[i]ncarceration itself is hardly a `program' or `activity' to which a disabled person might wish access, ... there is no doubt that an educational program is a program, and when it is provided by and in a state prison it is a program of a public entity.)'" (citing Crawford v. Indiana Dept. of Corrections, 115 F.3d 481, 483 (7th Cir.1997)), cert. denied, ___ U.S. ___, 118 S. Ct. 2340, 141 L. Ed. 2d 711 (1998); Rosen v. Montgomery County Maryland, 121 F.3d 154, 157 (4th Cir.1997) (where a deaf person was arrested for drunk driving, court held that "calling a drunk driving arrest a `program or activity' of the *1159 County, the `essential eligibility requirements' of which (in this case) are weaving in traffic and being intoxicated, strikes us as a stretch of the statutory language and of the underlying legislative intent.").
There is, however, support in both the legislative history and the case law for the proposition that, at least in some circumstances, an arrest may trigger the protections of the ADA. See H.R.Rep. No. 101-485, pt. III, 101st Cong., 2nd Sess. 50, reprinted in 1990 U.S.C.C.A.N. 473 (House Judiciary Committee stated: "In order to comply with the non-discrimination mandate, it is often necessary to provide training to public employees about disability. For example, persons who have epilepsy, and a variety of other disabilities, are frequently inappropriately arrested and jailed because police officers have not received proper training in the recognition of and aid of seizures. Such discriminatory treatment based on disability can be avoided by proper training."); Lewis v. Truitt, 960 F. Supp. 175, 178 (S.D.Ind.1997) (ADA claim exists where plaintiff shows that he is disabled, that the arresting officers knew or should have known of the disability, and the officers arrested plaintiff because of legal conduct related to his disability); Barber v. Guay, 910 F. Supp. 790 (D.Me.1995) (plaintiff's claim "that he was denied proper police protection and fair treatment [during investigation and arrest] due to his psychological and alcohol problems" states a valid cause of action under the ADA). In certain circumstances, therefore, courts have found that the ADA applies to an arrest situation, although neither the cases cited nor the legislative history explains how an arrest falls within the scope of the statutory language.
The Ninth Circuit has held that a successful plaintiff under the ADA must demonstrate "that he (1) is a handicapped person; (2) that he is otherwise qualified; and that the [defendants'] actions either (3) excluded his participation in or denied him the benefits of a service, program, or activity; or (4) otherwise subjected him to discrimination on the basis of his physical handicap." Duffy v. Riveland, 98 F.3d 447, 455 (9th Cir.1996). There are two distinct types of injury set forth in the statute, either one of which will give rise to a claim under the ADA if they arise from the fact that the plaintiff is disabled. First, a disabled person could be "excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity." Second, the potential plaintiff could be "subjected to discrimination by any such entity."[3]
Recognition of the either/or nature of § 12132 may explain the opposite conclusions reached in the above-cited cases. Where plaintiffs have argued that an arrest was a type of service, program or activity from which he has been excluded or denied the benefits, the courts have found that there is no ADA claim. As noted in Rosen, 121 F.3d at 157, casting the perpetration of a crime and any resulting arrest as a service or activity the benefit of which a disabled person has been denied strains the statutory language to, if not past, the breaking point.[4]
Where a plaintiff alleges that he was arrested because of his disability (and not because of the perpetration of some crime unrelated to his disability), the "subjected to discrimination" prong of § 12132 comes into play and both the legislative history and the few cases on point suggest that an ADA claim should lie. For example, in Lewis, 960 F. Supp. 175, the plaintiff was deaf. When the police came onto his property to remove his granddaughter in a child custody dispute, Mr. Lewis apparently *1160 failed to carry out instructions to the officers' satisfaction. The officers, who didn't believe that Mr. Lewis was deaf (despite being so informed by others in the house), thought he was being difficult and non-compliant, beat him, and arrested him. Mr. Lewis would not have come to the police's attention or been arrested had he been able to hear. In such contexts, a finding that Mr. Lewis was discriminated against because of his deafness, and the application of the ADA, was justified.
There are also numerous policy reasons why the ADA should apply to the context of an arrest only where the arrestee was subjected to discrimination because of his disability (i.e., where plaintiff was arrested because his disability caused behavior that the police mistakenly confused with illegal activity). Where underlying criminal activity has occurred, such as a bank robbery, drunken driving, or domestic violence, and the officers are engaged in an on-the-street response, investigation, and arrest, forestalling all police activity until an interpreter can be located to aid communication with the deaf protagonist would be impractical and could jeopardize the police's ability to act in time to stop a fleeing suspect, physically control the situation, or interview witnesses on the scene. The decisions we ask our officers to make under already stressful, and sometimes dangerous, circumstances should not be subjected to second guessing by comparing their in-the-field actions to the requirements of the ADA.[5]
The Court by no means intends to imply that the stresses of police activity justify the trampling of constitutional or clearly applicable statutory rights. The statutory interpretation for which plaintiff is arguing, however, is not apparent from the face of the statute itself, and the policy implications of the proffered interpretation should, in such circumstances, be considered when determining its reasonableness. In addition, there are other, already established avenues through which an arrestee's rights are protected in the criminal justice system. Had, for example, plaintiff been unable to communicate with the investigating officers, they may have been unable to acquire sufficient information to make a probable cause determination. If that were the case, the lack of probable cause would require the invalidation of plaintiff's arrest as violative of the Fourth Amendment. See, e.g., United States v. Delgadillo-Velasquez, 856 F.2d 1292 (9th Cir.1988). Similarly, had plaintiff been unable to comprehend the Miranda warnings she was given, suppression of her statement may have been appropriate. See, e.g., Medeiros v. Shimoda, 889 F.2d 819, 824 (9th Cir. 1989), cert. denied, 496 U.S. 938, 110 S. Ct. 3219, 110 L. Ed. 2d 666 (1990). None of these existing protections are implicated in this case, however, leaving plaintiff to argue that the ADA grants additional rights to arrestees. The Court declines to adopt that theory.
The Court finds that an arrest is not the type of service, program, or activity from which a disabled person could be excluded or denied the benefits, although an ADA claim may exist where the claimant asserts that he has been arrested because of his disability (i.e., he has been subjected to discrimination). In the case at hand, plaintiff's counsel expressly denied that plaintiff was asserting discrimination or disparate treatment. Rather, plaintiff's claim is that defendants failed to make reasonable accommodation to allow plaintiff to enjoy the benefits of police services. Plaintiff's claim fails to state a viable cause of action under § 12132 of the ADA.
*1161 Even if the Court were to assume that plaintiff's assertions fall within the scope of the ADA, plaintiff's claim fails for two reasons. First, plaintiff was arrested because probable cause existed, as discussed more fully below, not because she is disabled. Absent a causal link between plaintiff's disability and the injury of which she complains (her arrest), there can be no claim under § 12132.[6]
Second, the officers, through the use of written materials, provided all the accommodation required under the ADA. Plaintiff asserts that the only way to acceptably accommodate a deaf person is to obtain the services of a qualified interpreter. This is, at best, a very narrow view of a deaf person's abilities: there are many deaf people who can communicate with the hearing world through other means, such as lip reading, the use of various hearing devices, speech, and written English. Where plaintiff is able to communicate with the officers using printed forms and her written statements, with no apparent difficulty or loss of meaning (as was the case here), no additional accommodation is required.[7]
In an unpublished case relied upon by plaintiff, Brown v. King County Dept. of Adult Corrections, 1998 U.S. Dist. LEXIS 20152 (W.D.Wash., December 9, 1998) (M.J. Weinberg, acting on referral with consent of the parties), the plaintiff was a deaf prisoner who objected to being handcuffed during transit on the grounds that it prevented him from communicating with the guards. The court held that no accommodation was necessary under the ADA where the prisoner was capable of oral communication and could therefore communicate requests or questions to the guards while handcuffed. Under this analysis, plaintiff's specific abilities are taken into consideration to determine what accommodation is required. In our case, where plaintiff reads and writes well, accommodation via the use of the written word is, as a matter of law, sufficient.
II. WLAD Claim
Washington's Law Against Discrimination provides, in pertinent part:
(1) The right to be free from discrimination because of race, creed, color, national origin, sex, or the presence of any sensory, mental, or physical disability or the use of a trained dog guide or service animal by a disabled person is recognized as and declared to be a civil right. This right shall include, but not be limited to:
. . .
(b) The right to the full enjoyment of any of the accommodations, advantages, facilities, or privileges of any place of public resort, accommodation, assemblage, or amusement; ...
RCW 49.60.030. At oral argument, plaintiff's counsel argued that the provision of police services in plaintiff's house made the residence a "place of public ... accommodation ...."
The only case cited by either party on this issue is Fell v. Spokane Transit Auth., *1162 128 Wash.2d 618, 911 P.2d 1319 (1996), where the court determined that there was a genuine issue of material fact whether a disabled person's home was a "place" that had to be served by paratransit services. In that case, however, the parties agreed that public transportation was a "public accommodation," which is the issue here.
In the absence of any meaningful authority, the language of the statute guides the Court. The Court finds that the WLAD was not intended to equate "place of public accommodation" with a private person's home. First, whatever accommodations or facilities are offered by such a residence are peculiarly private, not public, removing them from the scope of the statute. Second, if the statute is interpreted as plaintiff wants it to be, the legislature would have, with one fell swoop, outlawed private discrimination, a step that not even the federal government has yet undertaken.
The use of the word "public" was clearly meant to outlaw discrimination by those who make money serving the masses. The statute does not intrude into the purely private sphere. Since plaintiff's house cannot be considered a place of public accommodation, RCW 49.60.030(1)(b) does not apply.
III. § 1983 Claim
Plaintiff alleges that defendants infringed her civil rights by violating her Fourth and Fifth Amendment rights and her rights under the ADA and the WLAD. This claim is legally insufficient for a number of reason, including, but not limited to, the following.
A. Fourth Amendment
Plaintiff asserts that her arrest was an unreasonable seizure under the Fourth Amendment because the officers lacked probable cause. The arresting officers made the determination that probable cause existed to arrest plaintiff for the crime of domestic violence based on the information they had obtained from the two protagonists, both of whom said (1) Roth thought plaintiff was going to use the knife to kill him and (2) plaintiff was the initial aggressor. See RCW 10.31.100(2)(b) (officers are required to arrest person involved in domestic dispute who has caused physical pain or threatened serious bodily injury to a family member and whom "the officer believes to be the primary physical aggressor"). The Court finds, as a matter of law, that probable cause existed for plaintiff's arrest.
Plaintiff argues that, with the help of an ASL interpreter, she could have talked her way out of the seemingly damning evidence and avoided arrest. Her claim appears to be that had an interpreter been present, the officers may have asked her to elaborate on her statement, she would have explained that Roth's belief that she was threatening him with a knife was bogus and that she was just trying to get Roth's attention when she hit him, and the officers would have chosen to arrest Roth instead of her.
The fact that the officers may not have exhaustively investigated the incident does not warrant a finding that there was no probable cause, however. See, e.g., United States v. Valencia, 24 F.3d 1106, 1108 (9th Cir.1994) (probable cause exists where "the facts and circumstances within the officer's knowledge are sufficient to warrant a prudent person to believe a suspect has committed, is committing, or is about to commit a crime."). Contrary to counsel's assertions that plaintiff was arrested without any attempt to obtain her version of the facts, plaintiff was given the opportunity to and did communicate her story to the officers, who then made a probable cause determination and arrest based on the information provided by all of the involved parties. Plaintiff's account was legible, comprehensible, and, at least in relevant part, supported Roth's assertions that plaintiff utilized a knife and was the initial aggressor. The fact that the officers did not ask any follow-up questions before making their determination does not make their investigation inadequate on the constitutional *1163 level where they had already obtained information from plaintiff which, on its face, established and/or confirmed the existence of probable cause.
Thus, there was no violation of the Fourth Amendment.
B. Fifth Amendment
Plaintiff argues that "the officer's failure to adequately communicate Ms. Patrice's constitutional rights to remain silent and her right to counsel is actionable under § 1983." Plaintiff's Memorandum in Opposition at 19. Even under plaintiff's version of the facts, however, her rights were presented to her in a form (written) which she was capable of comprehending. The fact that she may not have read the warnings as carefully as she now thinks she should have was the result of her involvement in a domestic violence dispute, not the inadequacy of the written warnings or her inability to comprehend.
Plaintiff may also be arguing that she was interrogated prior to being given her Miranda warnings, such that her completion of the Voluntary Statement constitutes a deprivation of her Fifth Amendment rights. It is not at all clear that the failure to provide Miranda warnings is, in and of itself, a Fifth Amendment violation. That point aside, plaintiff was not subjected to the type of custodial interrogation that would have triggered the need to provide the Miranda warnings. According to plaintiff, she was in her own home when she filled out the Voluntary Statement and she was under the impression that (1) the officers were there to protect her from further injury from Roth, (2) her own liberty was not restricted (she was free to move about the house and was left on her own at various times), and (3) it was Roth that was going to be arrested. Plaintiff was, in fact, shocked when Katherine told her the officers were planning to arrest her. The type of police-dominated, coercive atmosphere that made the courts concerned about the voluntariness of certain statements was totally absent in this case. In such circumstances, the Miranda warnings were not required prior to the officer's questioning of plaintiff.
There was, therefore, no violation of the Fifth Amendment.
C. ADA and WLAD
As discussed above, there was no violation of either the ADA or the WLAD that could support plaintiff's claims under those statutes. Thus, even if the Court assumes for purposes of this motion that violations of those statutes could support a claim under § 1983, no such violations have been shown and plaintiff's § 1983 claim must fall.
IV. Conclusion
Defendants' motion for summary judgment is GRANTED in its entirety.
NOTES
[1] On May 27, 1997, the false arrest and false imprisonment claims were dismissed as barred by the applicable statute of limitations. Plaintiff subsequently waived her claims for emotional distress, emotional pain and suffering, mental anguish, and humiliation, and on December 16, 1998, the state Supreme Court ruled on a certified question that RCW 2.42.120 was invalid. Granting defendants' requested relief, therefore, disposes of this case in its entirety.
[2] The "mixed to carry" language may not be an accurate reflection of plaintiff's writing. That particular phrase, however, does not impact the legal analysis that follows.
[3] The Court notes that the voluntariness of a disabled person's participation is not relevant to this analysis. See Armstrong, 124 F.3d at 1024. Contra Torcasio v. Murray, 57 F.3d 1340, 1347 (4th Cir.1995), cert. denied, 516 U.S. 1071, 116 S. Ct. 772, 133 L. Ed. 2d 724 (1996).
[4] Contrary to plaintiff's suggestion, this part of the Rosen analysis has not been discredited by or distinguished from any relevant Ninth Circuit or United States Supreme Court holdings.
[5] The application of the ADA to other forms of law enforcement activities, such as prison administration, is not inconsistent with this analysis. The programs, services, and activities provided to inmates in prison have been considered, planned, and instituted over time, allowing the prison systems to ensure that their actions satisfy the requirements of the ADA. In contrast, the police officer responding to a 911 call or witnessing a crime has very little time in which to think or plan the best way to apprehend, subdue, and question the participants.
[6] At oral argument, plaintiff's counsel argued that even if the presence of an ASL interpreter made no difference to the ultimate outcome of the officers' investigation, that fact would only affect the damage calculation and would not warrant dismissal of plaintiff's claim for injunctive relief under the ADA. The link between plaintiff's disability and her injury, however, is an element of the claim under § 12132, which applies only to those harms that arise "by reason of such disability." Absent the requisite causal connection, there is no claim under § 12132.
[7] Taking the facts in the light most favorable to plaintiff, there is no indication that the defendant officers knew or should have known that plaintiff was having trouble understanding the situation, could not comprehend the written forms, or was unable to adequately provide her narrative. Had plaintiff been having any such difficulties, her command of written English and her access to her hearing daughter were such that she could have so informed the officers. She did not, and should not now be heard to argue that defendants should have taken steps that they had no reason to know were needed or even preferred by the plaintiff. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2448510/ | 939 S.W.2d 656 (1996)
Ernest HOENIG and Union National Bank, Texas, Appellants,
v.
TEXAS COMMERCE BANK, N.A., Trustee for The Mamie M. Garcia Trust, Appellee.
No. 04-95-00407-CV.
Court of Appeals of Texas, San Antonio.
July 24, 1996.
Rehearing Overruled August 20, 1996.
*658 Harry J. Skeins, Jr., Skeins & Williamson, P.C., Jeffrey I. Kavy, Michael B. Clark, Clemens & Spencer, San Antonio, for Appellants.
David B. West, Toni D. Driver, Cox & Smith Incorporated, San Antonio, for Appellee.
Before CHAPA, HARDBERGER and GREEN, JJ.
OPINION
GREEN, Justice.
Union National Bank ("UNB"), as original trustee of the Mamie Garcia Trust ("Trust"), and Ernest Hoenig, former lessee of Trust property, appeal a judgment in favor of Texas Commerce Bank, N.A.[1] ("Trustee"), current trustee of the Mamie Garcia Trust. The trial court held that Hoenig wrongfully converted funds due the Trust and that UNB was "culpably negligent" in failing to discover and/or prevent the conversion of funds. We affirm.
In 1976, Hoenig rented a certain piece of downtown Laredo property at the corner of Iturbide and Salinas streets from Mamie Garcia. The lease provided a 5-year primary term and two five-year renewal terms. During 1977, Hoenig added improvements to the property, subletting the three existing retail stores which fronted on Iturbide Street (the Iturbide property) plus the three added rental spaces which faced Salinas Street (the Salinas property). In 1978, Garcia died; under the terms of her will, UNB was named trustee for a trust which encompassed various properties, including the property being leased by Hoenig at the intersection of Iturbide and Salinas streets. Hoenig exercised both of the option periods provided in the original lease.
In 1991, Trustee approached UNB soliciting trust management business. The parties agreed that Trustee would assume management of various trust portfolios, including the Mamie Garcia Trust. Trustee made inspections of the trust property before and after assuming responsibility for the Trust based on information provided to it by UNB. During the management of the Garcia Trust, *659 UNB was unaware that the Salinas property belonged to the Trust. Consequently, UNB did not inform Trustee about the existence of the Salinas stores. Trustee discovered that the Salinas stores belonged to the Trust several months after assuming its duties.
As the end of the second renewal period approached in 1991, Hoenig sought to negotiate a new lease with the UNB trust department. The bank declined, and notified Hoenig that the lease would expire according to its terms at the end of May 1991. UNB notified the Iturbide tenants to pay future rentals to the bank, but being unaware of the existence of the Salinas stores UNB failed to inform those tenants. The Iturbide tenants paid the bank as directed, but Hoenig continued to collect rent from the Salinas tenants.
The court signed an order replacing UNB with Texas Commerce Bank as trustee on December 31, 1991. Because of several missteps in transferring the trust portfolio, UNB continued to collect the Iturbide rents for the first three months of 1992. Texas Commerce Bank finally assumed its trustee duties in April 1992. Trustee first visited the property as trustee in June 1992 and discovered the Salinas stores in September. After ascertaining the status of the property, Trustee took action to prevent Hoenig from continuing to collect rent from the Salinas tenants. Hoenig collected rent from the Salinas tenant from May 31, 1991 when his lease expired until October 31, 1992 when Trustee forced him to stop doing so. Trustee sued Hoenig and UNB for recovery of the loss to the trust of the rentals collected from the Salinas properties after Hoenig's lease expired.
UNB's first two points of error complain that the trial court used an incorrect definition for culpable negligence, and erred in entering judgment against it because it was not culpably negligent. The term "culpable negligence" finds its way into this case from Mamie Garcia's testamentary trust documents, which purport to absolve the appointed trustee of any loss to the trust estate, "save culpable negligence or intentional misdeed."
The trial court defined "culpable negligence" as the "failure to use ordinary care, such as a prudent trustee, similarly situated, would have used in the same or similar circumstances"an ordinary negligence definition. UNB argues, however, that by use of the modifier "culpable" in conjunction with the term "negligence" in her testamentary trust instrument, Mamie Garcia intended that more than the mere failure to use ordinary care was required to expose her trustee to liability for its acts. UNB says, then, that culpable negligence must mean the same thing as gross negligence and the trial court should therefore have used the more difficult-to-prove gross negligence definition.
In support of its argument that a duty of care higher than ordinary care was intended, UNB cites James T. Taylor & Son, Inc. v. Arlington Indep. Sch. Dist., 160 Tex. 617, 335 S.W.2d 371 (1960). There, the court stated that if Taylor's actions were negligent, equity was available, but that if his conduct was culpably negligent, equity was not available. UNB argues that the court, without saying so directly, treated the terms differently, with culpable negligence being more blameworthy. But it should be noted that the court in Taylor did not, either directly or indirectly, purport to equate gross negligence with culpable negligence.
UNB also points to a number of decisions in other jurisdictions which hold that culpable negligence represents a higher duty of care than ordinary negligence. Ingram v. Pettit, 340 So. 2d 922 (Fla.1976); Hurter v. Larrabee, 224 Mass. 218, 112 N.E. 613 (1916); Warren v. New York Tel. Co., 70 Misc. 2d 794, 335 N.Y.S.2d 25 (1972); Bettencourt v. Pride Well Serv., Inc., 735 P.2d 722 (Wyo.1987); Thomas v. Milfelt, 222 S.W.2d 359 (Mo.App.1949); State v. Davis, 66 N.C.App. 334, 311 S.E.2d 311 (1984). Those jurisdictions appear to define "culpable negligence" to mean the rough equivalent of what we recognize in Texas as gross negligence.[2]
*660 Texas, however, has maintained a traditional attitude toward the meaning of negligence and gross negligence. And we are aware of no other terminology utilized in this State to describe what is otherwise familiar to lawyers as either ordinary negligence or gross negligence. Yet, UNB asks this court to hold that the term "culpable negligence", at least as used in this case, means the same thing as "gross negligence."
In response, the Trustee relies on two very old Texas cases for the premise that "culpable negligence" and "negligence" have but one and the same meaning. International & G.N.R. Co. v. Hester, 72 Tex. 40, 11 S.W. 1041, 1042 (1888) (equates negligence with "culpable fault"); Wynne v. Simmons Hardware Co., 67 Tex. 40, 1 S.W. 568, 570-71 (1886) (uses the term "culpable negligence" while applying the ordinary care standard). The fact that the Trustee has had to look back at more than 100 years of case law to find only two cases utilizing the term "culpable" in the context of negligence would appear to be some evidence of the reluctance of Texas courts to depart from what is traditionally understood as the ordinary meaning of negligence.
Prevailing definitions of "culpable" do not support UNB's argument that, when used with negligence, it implies a higher duty of care. "Culpable" has been defined variously as: "responsible for wrong or error; deserving censure; blameworthy," The American Heritage Dictionary of the English Language 321 (1969); "meriting condemnation or blame esp. as wrong or harmful" (as illustrated by "[culpable] negligence"), MERRIAM-WEBSTER'S COLLEGIATE DICTIONARY 282 (10th ed. 1993); and "blamable; censurable; criminal; involving the breach of a legal duty or the commission of a fault. That which is deserving of moral blame." BLACK'S LAW DICTIONARY 341 (5th ed. 1979). Moreover, the phrase "culpable negligence" has been defined as the "failure to exercise that degree of care rendered appropriate by the particular circumstances, and which a man of ordinary prudence in the same situation and with equal experience would not have omitted." BLACK'S LAW DICTIONARY 931 (5th ed. 1979).
The above authorities contra-indicate the conclusion that prefacing the term "negligence" with the word "culpable" adds anything of legal substance. The ordinary meaning of the term culpable does not implicate a higher, or gross negligence, standard of care. We conclude that "culpable negligence" means the same as "actionable negligence." See BLACK'S LAW DICTIONARY 28 (5th ed. 1979). Accordingly, we decline UNB's invitation to be the first court in this State to equate "culpable negligence" with gross negligence. UNB's first two points of error are overruled.
Alternatively, in its third point of error, UNB insists that even if it is held to the ordinary negligence standard of care, the lost rental revenue to the Trust was not proximately caused by UNB's failure to discover the Salinas stores but, rather, was as a result of Hoenig's intentional misconduct, thereby interjecting an intervening event into the chain of causation cutting off UNB's liability.
A party's conduct is the proximate cause of injury if the action of the party is a substantial factor in bringing about the injury and a person of ordinary intelligence could have anticipated the dangers created for others by his conduct, whether the precise type of danger can be foreseen or not. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 549-51 (Tex.1985). However, it is also true that the criminal or intentionally tortious conduct of a third party will be a superseding cause of harm unless the party realized at the time of his negligent conduct that such action by a third party was possible or likely. Berry Property Management v. Bliskey, 850 S.W.2d 644, 656 (Tex.App.-Corpus Christi 1993, writ dism'd by agr.). Determination of proximate cause is a question *661 for the trier of fact. Ramey v. Collagen Corp., 821 S.W.2d 208, 212 (Tex.App.-Houston [14th Dist.] 1991, writ denied).
When it assumed its trust duties, UNB was duty bound to inventory the property of the trust and to manage trust property in such a way as to maximize income and value appreciation. In doing so, once Hoenig's lease expired, UNB was obligated to give notice to the sub-tenants that further rental payments were to be made to UNB. There was evidence before the trial court that UNB failed to adequately inventory and supervise the property and failed to give proper and timely notice to the sub-tenants concerning future rental payments. Furthermore, a professional trustee/property manager such as UNB would realize that it is "possible or likely" that injury would occur if it did not exercise proper oversight of a managed property, or if it carelessly inventoried trust property. The evidence supports the finding that, under the circumstances, the consequent losses to the trust were proximately caused by UNB's omissions. And because Hoenig's misconduct was a foreseeable consequence of UNB's inattentiveness, UNB's liability is not superseded by his actions. Point of error three is overruled.
UNB's fourth point complains that the trial court erred in finding a breach of trust. UNB contends that the trust instrument controls over the Texas Trust Code in establishing the standard of care owed by a trustee, insisting that Garcia's will did, in fact, establish a different, higher threshold (i.e. "culpable negligence") under which the trustee will not have breached its trust to the beneficiaries, unless the trustee is accountable for more than ordinary negligence. Also, without explaining what, if any, difference it makes, UNB contends that holding it to the standard of a "prudent trustee, similarly situated" is erroneous and presumably harmful.
However, UNB argues the degree of negligence (i.e. ordinary versus gross negligence) and never addresses the central considerationwhether UNB as the trustee had a duty to perform certain functions on behalf of the Trust and failed to do so. According to the Trust Code, the trustee is responsible to the beneficiary for the trust property, including its management, supervision, and safeguarding. TEX.PROP.CODE ANN. §§ 113.056, 114.001 (Vernon 1995). The failure to discover the existence of trust property of the kind overlooked in this case, and to fail to include it in the trust inventory, to make the beneficiaries aware of it, or to collect rent for its use is a conspicuous breach of UNB's duty as trustee.
UNB further argues that the trial court erred by finding that "culpable negligence is the failure to use ordinary care such as a prudent trustee, similarly situated, would have used." UNB correctly argues that the proper standard against which a trustee is measured is that of an ordinary person in the conduct of his own affairs. TEX.PROP.CODE ANN. § 113.056 (Vernon 1995). Without the guidance of argument or authority from UNB to the contrary, it seems logical that a "reasonable trustee" would follow the statute and act as a reasonable person in the management of their own affairs. Moreover, UNB has not demonstrated how the error, if any, "was reasonably calculated to cause and probably did cause rendition of an improper judgment." TEX.R.APP.P. 81(b)(1).
The trial court did not err by finding that UNB committed a breach of trust. Nor do we believe the trial court applied the wrong standard. Therefore, UNB's fourth point of error is overruled.
UNB's fifth point of error complains the trial court erred in awarding attorney's fees against it. UNB argues further that the Trustee failed to segregate attorney's fees and costs between Hoenig and UNB. Moreover, UNB seems to assert that because the trust instrument superseded the statutory standard of care, the Trust Code does not control the award of attorney's fees unless there is a finding of breach of trust. In response, Trustee argues that the Texas Trust Code applies and the trial court rightfully awarded "equitable and just" fees under section 114.064. TEX.PROP.CODE ANN. § 114.064 (Vernon 1995).
We agree with Trustee. UNB's argument fails in several ways. First, we have *662 concluded that UNB did, in fact, commit a breach of trust. By UNB's own admission, this entitles Trustee to attorney's fees under the Code. Next, even if, as UNB theorizes, the Garcia trust instrument superseded the Trust Code as to the level of exculpation available to UNB, attorney's fees are still controlled by the Trust Code. Put simply, because the statutory standard of care is altered by the trust document, as supposed by UNB, it does not follow that UNB is not subject to the Code for other purposes. Last, the terms of the trust document do not override the Trust Code in this case. The trial court is empowered to award attorney's fees pursuant to section 114.064 and, therefore, it did not err by doing so.
Regarding segregation of attorney's fees, UNB argues that because Trustee did not isolate which fees and expenses were chargeable against which defendant, no attorney's fees should be awarded. Conversely, Trustee contends that fees and expenses were indeed segregated.
Trustee's attorney presented testimonial and demonstrative evidence reflecting charges against UNB, Hoenig, and against both. Trustee's attorney testified that he segregated the fees between the defendants to the best of his ability, and also presented testimony from an attorney, not otherwise involved in the case, to substantiate the reasonableness and necessity of the fees charged. In light of such evidence, the trial court is empowered to award "attorney's fees as may seem equitable and just." TEX.PROP. CODE ANN. § 114.064 (Vernon 1995). The trial court did not err in awarding attorney's fees against UNB. UNB's fifth point of error is overruled.
In its sixth point of error, UNB complains that the parties may not be held jointly and severally liable. UNB reasons that because the action against Hoenig was for intentional acts, and not for negligence, the trial court is precluded from making UNB and Hoenig jointly and severally liable. Interestingly, Trustee insists that conversion, the action for which Hoenig was found liable, is not an intentional tort and, therefore, UNB's argument is inapplicable. Trustee also refutes UNB's position that joint and several liability is only applicable to negligence.
Where the tortious conduct of two or more persons works together to create a single injury, which by its nature cannot be apportioned between the parties with any certainty, all of the tortfeasors will be jointly and severally liable. Landers v. East Texas Salt Water Disposal Co., 151 Tex. 251, 248 S.W.2d 731, 734 (1952); see J. EDGAR HADLEY & JAMES B. SALES, 1 TEXAS TORTS AND REMEDIES § 3.02[1], 3-5 to 3-6 (1995). UNB's sixth point of error is overruled.
By point of error seven, UNB asserts the trial court erred by failing to find Trustee comparatively "culpably negligent." UNB contends that despite various investigations, inspections, and appraisals of the trust property before and after taking over management of the Trust, Trustee also failed to discover the existence of the Salinas properties and, therefore, should be held comparatively culpably negligent. Without explicitly saying so, UNB is challenging the sufficiency of the evidence supporting the trial court's finding that Trustee was not negligent for failing to discover the Salinas street improvements because UNB failed to deliver a proper accounting of the trust property to Trustee.
A trial court's findings of fact are subject to legal and factual sufficiency challenges. Mercer v. Bludworth, 715 S.W.2d 693, 697 (Tex.App.-Houston [1st Dist.] 1986, writ ref'd n.r.e.), overruled on other grounds, Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 894 (Tex.1991). But a no negligence finding will be upheld if the court's conclusion is supported by any probative evidence. Southern States Transp., Inc. v. State, 774 S.W.2d 639, 640 (Tex.1989).
It is clear from the language of Property Code section 114.002 and the indemnification clause in the December 31, 1991 court order naming Trustee as successor to UNB, that Trustee has no liability for acts or omissions occurring prior to the time Trustee assumed its duties nor did it have a duty to question the accounting of UNB as the prior fiduciary. TEX.PROP.CODE ANN. § 114.002 (Vernon *663 1995). As to the time after Trustee actually assumed its role as successor trustee in April 1992, the evidence shows that Trustee accomplished in six months what UNB had not discovered in fourteen yearsthe Salinas street improvements.
Trustee received the trust files in April 1992. It made its first inspection of the property as trustee in June 1992, comparing the physical site against the documentation provided by UNB. Subsequently, Trustee appointed a manager to supervise the Iturbide property. The property manager then discovered the Salinas additions in late September or early October 1992. Trustee took immediate action to ascertain the status of the Salinas property, and by the end of October instituted legal proceedings to stop the improper payment of rents to Hoenig and to recover back rent. The foregoing is ample evidence to justify the trial court's conclusion that Trustee was not culpably negligent.
Point of error eight complains the trial court erred by entering judgment against UNB because doing so failed to give effect to the December 31, 1991 order of the 111th District Court in Laredo.
In its December 31, 1991 order permitting UNB to resign as trustee and appointing Texas Commerce as successor trustee, the district court issued an order relieving "Union National Bank of Texas ... of any further fiduciary responsibility under the Trust...." UNB contends that this language relieves UNB of liability after the date of the order.
We disagree. A reading of the plain language of the order shows that UNB was released from any further duties as trustee. However, there is no language releasing UNB from liability. UNB's eighth point of error is overruled.
Ernest Hoenig's Points of Error
Hoenig's first point of error complains the trial court erred by finding Hoenig was not a holdover tenant after the expiration of the lease term on May 31, 1991. Hoenig argues that, although he never occupied any part of the premises himself, he possessed the property through his sub-tenants. Further, because he was never given explicit notice to vacate the premises he could not have been anything but a holdover tenant and was, therefore, entitled to continue collecting rent until notified to vacate.
UNB sent Hoenig notice by certified mail informing him that the lease "will expire by its own terms May 31, 1991." The notice further informed Hoenig that UNB "decided not to renew your lease" concluding "that direct property management by our Trust Department would serve the best interest of the Beneficiaries."
UNB's notice to Hoenig did not expressly use the word "vacate," but, despite Hoenig's argument to the contrary, no notice to vacate is necessary under these facts. The cases cited by Hoenig for the proposition that notice is required prior to termination, Wendlandt v. Sommers Drug Co., 551 S.W.2d 488, 490 (Tex.Civ.App.-Austin 1977, no writ); Shepherd v. Sorrells, 182 S.W.2d 1009, 1012 (Tex.Civ.App.-Eastland 1944, no writ); Wutke v. Yolton, 71 S.W.2d 549, 551 (Tex.Civ.App.-Beaumont 1934, writ ref'd n.r.e.), are distinguishable from the case at hand. Those cases involve termination of leases for defaults, not expiration according to the lease terms. Moreover, even if notice to quit the property were necessary, the notice UNB sent to Hoenig would have been sufficient. UNB plainly stated that the lease relationship between Hoenig and the Garcia Trust would expire by its own terms on May 31, 1991, the date agreed to by the parties.
Most importantly, no notice to vacate was required because Hoenig was not in physical possession of the property, his former sub-lessees were. Collecting rent from sub-lessees does not constitute possession of the sublet property when the sub-lessor has no legal right to do so.
Even if Hoenig were deemed to have met all the other criteria as holdover, his argument still fails because, by his own admission, he did not pay rent for the seventeen months after the expiration of the lease on May 31, 1991. See Pratt v. Dallas County, 531 S.W.2d 904, 905 (Tex.Civ.App.-Waco 1975, writ ref'd n.r.e.) (occupancy and monthly payment of rent in accordance with lease *664 terms after expiration of the lease gives rise to presumption that lessee exercises its option to holdover absent an explicit agreement to the contrary). Without both elements possession and payment of rentthere can be no finding that Hoenig was a holdover tenant. Hoenig's first point of error is overruled.
Hoenig's second and third points of error complains the trial court erred by finding that Hoenig converted the rental income, arguing that rental income is not property sufficient to support conversion. Hoenig urges that if an indebtedness can be discharged by payment of money, an action for conversion is inappropriate. Also, Hoenig contends that absent a demand for return of the property, a conversion action will not stand.
However, in Allied Bank of Texas v. Plaza DeVille Assoc., 733 S.W.2d 566, 572 (Tex.App.-San Antonio 1987, writ ref'd n.r.e.), this Court affirmed a damage award for conversion of rental proceeds. As to the necessity of a demand as a predicate to recovery for conversion, when the possessor's acts manifest a clear repudiation of the plaintiff's rights, demand and refusal are not necessary. Whitaker v. Bank of El Paso, 850 S.W.2d 757, 760 (Tex.App.-El Paso 1993, no writ). Because Hoenig's collection of rents from the Salinas property was clearly contrary to the rights of the Trust, no demand was necessary for a conversion action to lie for his wrongful appropriation of those proceeds. Hoenig's second and third points of error are overruled.
Hoenig's fourth point of error asserts the trial court erred in awarding contribution from Hoenig to UNB after finding that UNB's culpable negligence and breach of trust were the proximate causes of damage to the Trust. Hoenig persists in his argument that he was a holdover tenant, and by virtue of that fact the most the Trust was entitled to was the amount of rent set by the lease agreement.
However, Hoenig does not explain why this is so, except to reiterate his contention that he is a holdover tenant. No where does Hoenig present authority defining the criteria necessary to be considered a holdover tenant, nor does he attempt to demonstrate how it applies to him. As previously stated, by definition, Hoenig was not a holdover because he did not possess the property nor did he pay rent, in any amount.
The issue of Hoenig's status as a holdover has been decided adversely to him; he was not entitled to continue collecting rent from the Salinas tenants. Thus, the trial court did not err by awarding contribution from Hoenig to UNB for the entire amount of the damages awarded. Hoenig's point of error number four is overruled.
Hoenig's fifth point of error assails the attorney's fees awarded against him to Texas Commerce Bank. Hoenig's claim is two-fold: (1) because he is a holdover he did nothing wrong, hence, Trustee is not entitled to attorney's fees, and (2) it is unfair to assess attorney's fees against him which were exacerbated by litigation of a dispute primarily between UNB and Texas Commerce.
Hoenig fails on both accounts. We have already concluded that Hoenig is not a holdover. The second argument also fails because Trustee segregated the litigation fees between UNB and Hoenig, and Hoenig was only assessed for the latter. Hoenig's fifth point of error is overruled.
The judgment of the trial court is affirmed.
NOTES
[1] At the time the events in question occurred what is now Texas Commerce Bank was called Ameritrust. Future reference will be to Texas Commerce Bank, N.A.
[2] Considering "culpable negligence," the Florida courts have stated:
The character of negligence necessary to sustain an award of punitive damages must be of a gross and flagrant character evidencing reckless disregard of human life or the safety of persons exposed to its dangerous effects, or there is that entire want of care which would raise the presumption of a conscious indifference to consequences, or which shows wantonness or recklessness, or a grossly careless disregard of the safety and welfare of the public, or that reckless indifference to the rights of others, which is equivalent to an intentional violation of them.
Ojus Industries v. Brannam, 351 So. 2d 1055, 1056-57 (Fla.Dist.Ct.App.1977). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2367798/ | 412 F. Supp. 8 (1976)
GENERAL TEAMSTERS, CHAUFFEURS AND HELPERS, LOCAL UNION NO. 249, Plaintiff,
v.
POTTER-McCUNE COMPANY, Defendant.
Civil A. No. 75-1415.
United States District Court, W. D. Pennsylvania.
May 7, 1976.
Ernest B. Orsatti, Jubelirer, McKay, Pass & Intrieri, Pittsburgh, Pa., for plaintiff.
Alexander Unkovic, William A. Meyer, Jr., Meyer, Unkovic & Scott, Pittsburgh, Pa., for defendant.
OPINION
TEITELBAUM, District Judge.
This is an action under Section 301 of the Labor Management Relations Act of 1947, 29 U.S.C. § 185, to vacate a labor arbitration award rendered in a grievance proceeding involving a hiring practice of the defendant company. The plaintiff union contends that the arbitrator's award should be set aside on grounds that it fails to "draw its essence" from the parties' collective bargaining agreement in accordance with the standard enunciated by the Supreme Court in United Steelworkers of America v. Enterprise Wheel and Car Corp., 363 U.S. 593, 80 S. Ct. 1358, 4 L. Ed. 2d 1424 (1960). The company has responded by way of a motion to dismiss the complaint on grounds that the decision of the arbitrator issued in resolution of an admittedly arbitrable dispute and "final and binding upon both parties" under Article 15 of the applicable labor *9 contract is not in manifest disregard of the collective bargaining agreement and the practices of the shop, and therefore must not be disturbed by this Court. I agree. Accordingly, for the reasons stated below, defendant's motion will be granted and the action dismissed.
FACTUAL BACKGROUND
Article 2 of the collective bargaining agreement between the parties to this case provides in pertinent part as follows:
"(d) Hiring Practice: The employer will call extra men from the extra list provided by Local 249. If 249 does not have men available, the employer may employ whomever it chooses. The employer can use extra drivers from the 249 extra list up to one (1) calendar week without a driver accruing any seniority. However, if the employer calls the extra list and asks for a driver by name, or calls the driver directly after the first week, then the driver will begin to accumulate seniority on the extra list and he will be considered a regular extra employee. Extra drivers will not go on the employer's regular driver seniority list until the extra driver has accrued sixty (60) consecutive working days.
"It is understood that the purpose of this clause is not to keep men from accumulating seniority on the extra list, but to give an opportunity to the employer to try out an employee for at least one (1) week of time. . . ." (emphasis supplied)
On the morning of January 31, 1975, after unsuccessful attempts to obtain extra drivers through the union hall extra list, representatives of the defendant company directly called the two grievants in this case William Stuck and Daniel Bill and asked them to report to work. Both men reported and worked as drivers for the company on that day. Prior to January 31, each grievant had worked for the company for at least one week in excess of 40 hours. The grievance was filed when defendant subsequently refused to classify Stuck and Bill as "regular extra employees" in accordance with the terms of Article 2, Section (d) of the collective bargaining contract.
Unable to arrive at a "mutually satisfactory adjustment" of the grievance, the union and company submitted the dispute to binding arbitration pursuant to Article 15 of their labor agreement. At arbitration, the union argued that the language contained in Article 2, Section (d) required that the grievants be granted regular extra employee status after they were called by the employer at their homes to report to work on January 31, 1975.
After a full hearing on the matter, the arbitrator rejected the union's position in an opinion and award which states the following at pages 19, 20 and 21:
"[W]hat we have present in this case is contract language that requires the employer to go first to the extra list to fill his needs for extra drivers. It permits the employer to use extra drivers from that list up to one full week but it severely restricts his asking for drivers by name from the extra list or calling a driver directly, after they have worked a full week. If that is done those employees should begin to accumulate seniority. The Article further emphasizes that the purpose of that clause is not to keep men from accumulating seniority but as a means for trying out an employee for a week.
"On the other hand, for ten years there has been a practice of the employer directly calling Local 249 men to serve as extras whenever the extra list was unable to supply the numbers needed. It is clearly a situation where the contract specifically requires one thing, while the practice that developed with the concurrence of the union was in contradiction to that language.
"In such a circumstance there is only one judgment that can be made. The parties have agreed to contract language that is clear and specific, and that language is not subject to amendment by an arbitrator. Therefore, it must stand. At *10 the same time the union has consistently condoned violation of that language. In so doing it gave to the company the right to believe that on January 31, 1975, when they called Mr. Stuck and Mr. Bill to report to work as extra drivers, it was only committing itself to its contractual obligation to an extra driver, and that it was not taking the two men on as regular extra drivers. If the union wishes to regain its rights under the contract, it is obliged to give the company advance notice of its intentions. This, it did not do prior to January 31, 1975, when the company acted on the basis of what it considered to be established procedures.
"As the Union Counsel stated in his brief, what caused this grievance to erupt was the hiring of an individual, who was never a member of the Local 249 bargaining unit, as a regular employee. It is fully understandable why the members of Local 249 would feel injured by this action. However, no matter how much this Arbitrator might sympathize with the feelings of the Grievants and Local 249 members, he has no authority to rule on that action by the Company. The issues before him in this case related to the meaning of the contract language contained in Article 2(d), the nature of the past practice that existed, and how that practice affected the grievance that was filed.
"It is therefore my award that with the requirements of the language contained in Article 2(d), the Company could have called directly Grievants Stuck and Bill on January 31, 1975, but it was only on the basis that they would have become a regular extra employee. However, on the basis of a long standing practice known to the Union and condoned by it, the Company was led to believe that its action on January 31, 1975, was a proper one and that it would not confer on the Grievants the status of regular extra employee. The Union is therefore estopped from applying the requirements of Article 2(d) retroactive to January 31, 1975 for this grievance.
It is the plaintiff union's contention that the above-quoted decision manifests a "total disregard" of the negotiated provisions of the parties' collective bargaining agreement and therefore should be set aside by this Court.
DISCUSSION
In United Steelworkers of America v. Enterprise Wheel and Car Corp., supra, the third in a series of landmark decisions commonly styled the "Steelworkers Trilogy," the Supreme Court outlined the role of the judiciary in reviewing an arbitrator's interpretation of a collective bargaining agreement as follows:
"[T]he question of interpretation of the collective bargaining agreement is a question for the arbitrator. It is the arbitrator's construction which was bargained for; and so far as the arbitrator's decision concerns construction of the contract, the courts have no business overruling him because their interpretation of the contract is different from his." Id. at 599, 80 S. Ct. at 1362, 4 L.Ed.2d at 1429.
* * * * * *
"Nevertheless, an arbitrator is confined to interpretation and application of the collective bargaining agreement; he does not sit to dispense his own brand of industrial justice. He may of course look for guidance from many sources, yet his award is legitimate only so long as it draws its essence from the collective bargaining agreement." Id. at 597, 80 S. Ct. at 1361, 4 L.Ed.2d at 1428.
The question before me is thus both quite narrow and somewhat ephemeral: does the instant arbitration decision meet the so-called "essence test" or does it manifest no more than the arbitrator's personal notion of justice, applied without regard for the contract of the parties. What complicates the inquiry is the elusive nature of the applicable standard. As the Court of Appeals for the Third Circuit has noted, the cases have not "exuded uniformity in translating the `essence' test into a pronouncement of the appropriate extent or limitation *11 of judicial review of the arbitrator's interpretation." Ludwig Honold Mfg. Co. v. Fletcher, 405 F.2d 1123, 1126 (1969) (citing cases). It is clear, however, that this Court's role is sharply limited in that the "essence test" neither mandates nor permits review of the merits of the arbitrator's decision his decision on the merits is final as to questions of both law and fact. United Steelworkers of America v. Enterprise Wheel and Car Corp., supra at 596, 80 S. Ct. at 1360, 4 L.Ed.2d at 1427; Torrington Co. v. Metal Products Workers Union Local 1645, 362 F.2d 677, 680 (2d Cir. 1966); H. K. Porter Co. v. United Saw, File and Steel Products Workers, 333 F.2d 596, 600 (3d Cir. 1964). Accordingly, the Court will refrain from expressing any view it might entertain as to the viability of the arbitrator's decision under orthodox contract analysis. My subjective opinion as to the proper construction or application of the instant labor contract is of no moment here. See, e. g., Ludwig Honold Mfg. Co. v. Fletcher, supra.
We turn, then, to matters within the scope of our inquiry and to a more precise delineation of its contours. In Ludwig Honold Mfg. Co. v. Fletcher, supra, the Third Circuit Court of Appeals, speaking through Judge Aldisert, further defined the "essence test" as follows:
"At the very least . . . [it] means that the interpretation of labor arbitrators must not be disturbed so long as they are not in `manifest disregard' of the law, and that `whether the arbitrators misconstrued a contract' does not open the award to judicial review.
"Accordingly, we hold that a labor arbitrator's award does `draw its essence from the collective bargaining agreement' if the interpretation can in any rational way be derived from the agreement, viewed in the light of its language, its context, and any other indicia of the parties' intention; only where there is a manifest disregard of the agreement, totally unsupported by the principles of contract construction and the law of the shop, may a reviewing court disturb the award." Id. at 1128 (citations omitted).
The Court also stated that: "[w]here the actions of labor and management suggest an interpretation that qualifies the written language of the basic document it is incumbent upon the arbitrator to give credence to such acts," Id. at 1132 n. 36, and noted that in H. K. Porter Co. v. United Saw, File and Steel Products Workers, supra, it upheld one portion of the arbitrator's award although it was contrary to the literal language of the labor agreement because there was a clear pattern of past practice which justified the deviation. Id. at 1126 n. 13. That result in H. K. Porter followed largely from an application of the Supreme Court's language in United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 581-582, 80 S. Ct. 1347, 1352, 4 L. Ed. 2d 1409, 1417 (1960), another member of the "Steelworkers Trilogy," to the effect that:
". . . [t]he labor arbitrator's source of law is not confined to the express provisions of the contract, as the industrial common law the practices of the industry and the shop is equally a part of the collective bargaining agreement although not expressed in it."
The lens provided by Ludwig Honold, H. K. Porter and Warrior & Gulf sharpens the focus on our view of the case sub judice. The union here attacks the arbitrator's award solely on grounds that it is contrary to the plain language of the pertinent labor agreement, and, given the arbitrator's finding that the language of Article 2, Section (d) is clear and unambiguous, the Court accepts as true the union's contention that there is present in this case a refusal to enforce the literal terms of the contract. Standing alone, however, that refusal is not fatal to the instant award, for the "essence test" call for an inquiry both less restrictive and less facile than the simple comparison of award and literal contract terms urged by the union. Indeed, a standard involving no more than that strict comparison would not only reduce the arbitrator to a mere cipher, approaching his task blinded to all save the express terms of the contract and stripped of the opportunity to utilize his *12 special knowledge of the shop and the industry, it would also obviate the need for anything like the "essence test" delineated above.
The arbitrator in this proceeding looked first to the terms of the collective bargaining agreement and then applied those terms in light of a long-standing practice of the parties in instances where drivers could not be obtained by recourse to the union hall extra list. His decision, rooted in an estoppel construct, manifests far more than a merely personal, extracontractual judgment made in total disregard of the labor agreement it demonstrates a clear attempt to reach an equitable result by means of filtering the literal language of the contract through the reality of tacitly-agreed practice in the shop. Whatever doubts may be raised as to the correctness of his construction of Article 2, Section (d), the arbitrator interpreted and applied the contract, and measured the effect of its express terms, in light of the "common law" of the plant. That is his proper function, and I am persuaded that his award passes the "essence test." It will not be disturbed by this Court.
Defendant's motion to dismiss will be granted. An appropriate Order will issue. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2367799/ | 628 S.W.2d 765 (1982)
PARKER COUNTY, et al., Petitioners,
v.
SPINDLETOP OIL AND GAS COMPANY, Respondent.
No. C-284.
Supreme Court of Texas.
March 3, 1982.
*766 Fred Baker, County Atty., Weatherford, Eskew, Muir & Bednar, Doren R. Eskew, Austin, for petitioners.
Kammerman, Yeakel & Overstreet, Adrian M. Overstreet and Mark T. Mitchell, Austin, for respondent.
CAMPBELL, Justice.
Spindletop Oil and Gas Company seeks to enjoin the Parker County taxing authorities[1] from certifying and implementing Parker County's ad valorem tax rolls for 1979. This class action suit was filed by Spindletop, for itself and on behalf of a class of plaintiffs owning, by dollar value, more oil and gas property than other kinds of property in Parker County.
Spindletop claims oil and gas properties were placed on the 1979 tax rolls at 100% market value while all other property was assessed at varying percentages having no basis in market value. The trial court temporarily enjoined the county from taking any further action to certify the tax rolls or implement a tax plan for 1979 for the plaintiff class.
Parker County counterclaimed against some class members for delinquent 1978 ad valorem taxes. The counterclaim was dismissed for failure to obtain service upon Spindletop or any other member of the class. The trial court found there was no waiver of service by Spindletop's appearing in the original claim. The dismissal of the counterclaim was without prejudice to the county's right to sue each delinquent taxpayer.
In a non-jury trial, the trial court found: (1) Parker County reappraises oil and gas properties every tax year; (2) oil and gas properties are placed on the 1979 tax rolls at 100% of fair market value; (3) the majority of other real property in Parker County has not been reappraised in 20 years; (4) real property, other than oil and gas property, is placed on the 1979 tax rolls at less than 50% of fair market value; (5) these unequal assessments are the result of a deliberate plan or scheme; (6) property owners owning more oil and gas property than other real property are liable for a disproportionate share of the 1979 tax burden resulting in substantial harm to them; and (7) Parker County's 1979 tax plan is fundamentally erroneous.
Judgment was rendered that class members pay the 1979 taxes as assessed. Each class member was given a credit against 1980 taxes in the amount of 50% of the member's 1979 taxes; 49% to be a reduction in each class member's 1980 taxes and 1% to be collected by the county to be remitted to Spindletop for payment of attorneys' fees. County officials were also ordered to reappraise all taxable property within the taxing area for the 1980 tax year and to place all property on the 1980 tax rolls at market value. The court of civil appeals affirmed. 612 S.W.2d 944. We affirm in part, and reverse and render in part.
This appeal presents three issues: (1) whether the injunctive relief is appropriate; (2) whether the trial court erred in awarding contribution from other class members for attorneys' fees in favor of Spindletop; and (3) whether the trial court erred in *767 dismissing Parker County's counterclaim for delinquent 1978 taxes.
INJUNCTIVE RELIEF
Tex.Const. art. VIII, § 1 states in part: "Taxation shall be equal and uniform. All real property and tangible personal property in this State ... shall be taxed in proportion to its value ...." This section requires that all assessed valuations be equal and be based upon reasonable cash market value. Whelan v. State, 155 Tex. 14, 282 S.W.2d 378, 380 (1955); City of Arlington v. Cannon, 153 Tex. 566, 271 S.W.2d 414, 416-17 (1954); State v. Whittenburg, 153 Tex. 205, 265 S.W.2d 569, 572 (1954).
Both Spindletop and Parker County contend the trial court erred in formulating the remedy it ordered. Spindletop seeks to have all property placed on the tax rolls at 100% market value. Spindletop contends: (1) the tax scheme used by Parker County results in a disproportionate share of the tax burden falling on owners of mineral interests and is, therefore, fundamentally erroneous; (2) the equitable adjustment by the trial court ignores the fact assessments are made against property, not persons; and (3) the 1979 assessment of mineral properties, if illegal, is itself tainted and cannot be remedied by a credit against 1980 taxes. An additional problem is that Spindletop and other class members have already paid their 1980 taxes. Parker County contends the trial court's order results in a tax scheme more discriminatory than the allegedly unequal 1979 tax plan and constitutes judicial exercise of an executive and legislative function.
In affirming the trial court's remedy, the court of civil appeals stated the trial judge followed the principles announced by this Court in Lively v. Missouri, K. & T. Ry., 102 Tex. 545, 120 S.W. 852 (1909), and affirmed in Electra Independent School Dist. v. W. T. Waggoner Estate, 140 Tex. 483, 168 S.W.2d 645 (1943). We disagree. Neither case is authority for the remedy fashioned by the trial court.
Lively was a suit to set aside acts of the Dallas County Board of Equalization and to enjoin collection of taxes. Dallas County had adopted a rule of assessment by which property was placed on the tax rolls at 662/3% of its market value. The intangible assets of the plaintiff, however, were placed on the rolls at 100% of their market value. While the assessment ratios varied, all assessments were made in regard to market value. The county had deliberately adopted an unequal scheme of assessment. The plan was held to be in violation of the standard of uniformity prescribed by Tex. Const. art. VIII, § 1. Rather than set aside the entire assessment, this Court ordered the county to levy taxes upon plaintiff's property at the same percentage662/3% of market valueas was adopted for the other property in the county. 120 S.W. at 856-58.
The present case is distinguishable because there is no general plan to assess all property at a uniform ratio of market value. The non-mineral property valuations are of widely varying percentages of market value. This variation is consistent with the trial court's finding of non-mineral property valuations of "less than 50% of market value." The effective reduction by the trial court of Spindletop's 1979 taxes by 50% is not consistent with any uniform scheme as in Lively. The trial court's order is a judicial reassessment which the courts are powerless to formulate. Assessing taxes is within the exclusive jurisdiction of the taxing authorities. Republic Ins. Co. v. Highland Park Independent School Dist., 141 Tex. 224, 171 S.W.2d 342, 344 (1943); Electra Independent School Dist. v. W. T. Waggoner Estate, 140 Tex. 483, 168 S.W.2d 645, 652 (1943).
The other case relied upon by the court of civil appeals, Electra, was a suit by a school district for foreclosure of tax liens. This Court remanded the cause to the trial court to determine the validity of the assessments. The trial court was ordered to deny recovery for taxes where the assessment was found invalid. This denial of recovery was without prejudice to the rights of the school district to reassess the property according *768 to the law. 168 S.W.2d at 652-53. In ordering equalization of the tax assessments, this Court recognized, as in Lively, the practicality of reducing overassessed property to the same proportion of market value as was placed upon the mass of property in the county, rather than increasing the assessment of all other property to its full market value. Id. at 652; See Lively v. Missouri, K. & T. Ry., 120 S.W. at 857-58. While resulting in a departure from the constitutional requirement of assessments at market value, the reduction of the assessment ratios for mineral property to equal the assessment ratios for other property in the county serves the ultimate purpose of art. VIII of the Texas Constitution of securing uniformity of taxation. Lively v. Missouri, K. & T. Ry., 120 S.W. at 857. The affirmance of Lively by this Court in Electra is not authority for the trial court's remedy here.
The taxing plan sought to be implemented by Parker County is fundamentally erroneous. The part of the trial court's judgment ordering the class to pay their 1979 taxes and granting a credit against their 1980 taxes is reversed. While the trial court does have authority under the pleadings and prayer for reliefboth specific and generalto fashion equitable relief, the appropriate remedy under the circumstances is to set aside the 1979 assessments upon the class members' property. This judgment is without prejudice to the right of Parker County to reassess the class members' property in accordance with the law. See Whelan v. State, 155 Tex. 14, 282 S.W.2d 378, 384 (1955); Republic Ins. Co. v. Highland Park Independent School Dist., 141 Tex. 224, 171 S.W.2d 342, 344 (1943); Electra Independent School Dist. v. W. T. Waggoner Estate, 168 S.W.2d at 652-53.
ATTORNEYS' FEES
The trial court's judgment provides that attorneys' fees be awarded Spindletop in the amount of 1% of the 1979 taxes of all class members. The fees are to be paid by contribution of the class through a pro rata deduction of the credit applied to each class member's 1980 taxes. The county is ordered to collect the contribution upon payment of the 1979 taxes by class members, then remit the collected fees to Spindletop.
We have held the trial court's order requiring payment of 1979 taxes as assessed and giving a credit against 1980 taxes is in an unauthorized judicial reassessment. The order is invalid. The award of attorneys' fees is calculated as a part of the invalid reassessment. Accordingly, the award of attorneys' fees is invalid. We also find no pleading to support such an award.
DISMISSAL OF COUNTERCLAIM
Parker County counterclaimed for 1978 taxes against the class members who were delinquent. It is undisputed that no service of citation was obtained on Spindletop or any other class member. The trial court dismissed the counterclaim without prejudice to bring delinquent tax actions against individual taxpayers. The only question is whether Spindletop, by appearing in court on the original claim, waived service on behalf of the class members who were delinquent. See TEX.RULES CIV. P. 124. We hold there was no waiver.
While counterclaims against named plaintiffs are authorized, class counterclaims are improper unless the counterclaim complies with TEX.RULES CIV. P. 42 criteria regarding suits against a defendant class. See Donson Stores, Inc. v. American Bakeries Co., 58 F.R.D. 485 (S.D.N.Y.1973); H. NEWBERG, NEWBERG ON CLASS ACTIONS § 4480, at 75-76 (1977). Spindletop is the only named plaintiff in the original claim, but is not a defendant in the counterclaim. Spindletop owes no 1978 taxes. Parker County should have obtained certification of the class of counter-defendants and demonstrated that the counterclaim met the prerequisites of a class action. See Smith v. Lewis, 578 S.W.2d 169, 172 (Tex.Civ.App.Houston [14th Dist.] 1979, writ ref'd n.r.e.). Parker County, as counter-plaintiff, had to comply with TEX. RULES CIV. P. 42(a) which states in part:
*769 "... One or more members of a class ... may be sued as representative parties on behalf of all only if... (3) the... defenses of the representative parties are typical of the... defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
Parker County failed to meet these requirements. Spindletop, which was not subject to the counterclaim, could not accept service nor waive service by appearing for the delinquent class, absent class representative certification. The question of class representation is within the discretion of the trial judge. Brittian v. General Tel. Co., 533 S.W.2d 886, 889 (Tex.Civ.App.Fort Worth 1976, writ dism'd); Group Hosp. Serv., Inc. v. Barrett, 426 S.W.2d 310, 315 (Tex.Civ.App.Houston [14th Dist.] 1968, writ ref'd n.r.e.). Parker County's right to bring individual delinquent tax actions has been preserved. The trial court did not abuse its discretion in dismissing the counterclaim.
The judgment of the trial court and the court of civil appeals ordering the payment of 1979 taxes as assessed and allowing the 50% credit against 1980 taxes is reversed. The 1979 tax assessment as to the plaintiff class is set aside. Judgment is rendered that Parker County and the Garner Independent School District place all property on the tax rolls at market value and uniformly assess all property for 1979. The judgment of the court of civil appeals is otherwise affirmed.
NOTES
[1] Parker County is also acting for the Garner Independent School District. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1660369/ | 881 S.W.2d 682 (1994)
Jack Wade CLARK, Appellant,
v.
The STATE of Texas, Appellee.
No. 71251.
Court of Criminal Appeals of Texas, En Banc.
March 9, 1994.
Rehearing Denied June 22, 1994.
*685 Travis S. Ware, Dist. Atty. & Michael West, Asst. Dist. Atty., Lubbock, Robert Huttash, State's Atty., Austin, for the State.
Gary A. Taylor, Austin, David R. Dow, Houston, David L. Botsford, Austin, Gerald H. Goldstein, San Antonio, Roderique S. Hobson, Jr., Lubbock, for appellant.
Amicus brief filed for appellant by Carlton McLarty, Ralph H. Brock, Joe A. Adamcik, Lubbock.
Before the court en banc.
OPINION
OVERSTREET, Judge.
In February of 1991, appellant was convicted, in the 364th District Court of Lubbock County, Texas, of capital murder pursuant to V.T.C.A. Penal Code § 19.03(a)(2), specifically murder during the course of committing and attempting to commit aggravated sexual assault. The indictment alleged that the offense occurred on or about the 16th day of October 1989. After the jury returned affirmative answers to the special issues submitted pursuant to Article 37.071 subd. 2(b)(1)(2), V.A.C.C.P., the trial court assessed punishment at death. On direct appeal, appellant raises sixty-two points of error.
I. SUMMARY OF PERTINENT FACTS
Appellant's written confession was admitted into evidence. It described how he had, during the early morning hours, observed the decedent at a pay phone, stabbed her in the shoulder, forced her into her own car and driven away, sexually assaulted her, and then stabbed her in the heart. The pathologist's testimony confirmed the two stab wounds and injuries indicating sexual assault.
II. JURY SELECTION
A. Duty to Follow Instructions and § 12.31(b) Oath
Points of error five through twenty-seven allege that the prosecutor misled veniremembers about their duties under the trial court's jury charge by telling them that they would violate TEX.PENAL CODE ANN. § 12.31(b) (Vernon 1974), if they gave false answers to the special issues to avoid the death penalty.[1] The relevant language in § 12.31(b) is that a juror state that the mandatory penalty of death or life imprisonment will not affect his deliberations. Appellant is *686 not complaining about veniremembers not complying with § 12.31(b) or being improperly excused because of such, but rather that the prosecutor's questioning contaminated the veniremembers as in Morrow v. State, 753 S.W.2d 372 (Tex.Cr.App.1988) (which involved an erroneous hypothetical attempting to explain the difference between "intentional" and "deliberate"), and hindered him in the exercise of his challenges. He suggests that the veniremembers were in effect told that it was improper for them to make an individualized determination of the appropriate punishment because the prosecutor told them that their oath prohibited any consideration of the sentence that appellant deserved.
We disagree. § 12.31(b) was not facially unconstitutional, but rather its broad application in excluding veniremembers from the jury because of feelings about the death penalty was held unconstitutional. Adams v. Texas, 448 U.S. 38, 100 S. Ct. 2521, 65 L. Ed. 2d 581 (1980); Penry v. State, 691 S.W.2d 636, 656 (Tex.Cr.App.1985), cert. denied, 474 U.S. 1073, 106 S. Ct. 834, 88 L. Ed. 2d 805 (1986); White v. State, 610 S.W.2d 504, 508 (Tex.Cr.App.1981). As noted above, appellant is not claiming any veniremembers were improperly excused because of § 12.31(b). § 12.31(b) simply directs that jurors deliberate on issues of fact without being affected by the mandatory penalty of death or life imprisonment. Deliberating issues of fact at punishment involve answering the special issues in light of the evidence. If all of the evidence can be fully considered and acted upon via the special issues, there is no unconstitutional imposition of a death sentence. Franklin v. Lynaugh, 487 U.S. 164, 108 S. Ct. 2320, 101 L. Ed. 2d 155 (1988). If there is mitigating evidence which is outside the scope of the special issues, then some additional method must be included to allow the jury to consider and give effect to that evidence also. Penry v. Lynaugh, 492 U.S. 302, 109 S. Ct. 2934, 106 L. Ed. 2d 256 (1989). Thus the prosecutor's questioning, in-and-of-itself, did not mislead or contaminate the veniremembers about their consideration and application of the evidence. The jury was still required to answer the special issues in light of the evidence, and if there was evidence outside the scope of the special issues, the trial court was required to provide a method for considering and applying that evidence.[2] The prosecutor's questioning did not abrogate the requirement for such consideration and application of the evidence. Accordingly, points five through twenty-seven are overruled.[3]
Points of error number twenty-eight through forty claim that by administering, over objection, the § 12.31(b) oath to each juror the trial court "erroneously misled the entire jury about its duty to follow the Penry instruction which required false answers to the special issues to avoid the death penalty[.]"[4] He insists that the oath minimizes the jury's duty to make an individualized determination of the appropriate punishment and precludes the jury from giving effect to mitigating evidence with relevance beyond its tendency to disprove the special issues. He adds that this resulted in a tribunal organized to return a verdict of death.
*687 As noted above, § 12.31(b) was not facially unconstitutional. As this Court discussed in Granviel v. State, 723 S.W.2d 141, 155 (Tex. Cr.App.1986), cert. denied, 484 U.S. 872, 108 S. Ct. 205, 98 L. Ed. 2d 156 (1987), "the oath does not prohibit jurors from considering all mitigating factors in arriving at answers to the special issues at the punishment phase." We also find no conflict between the oath and the so-called Penry instruction which the trial court included in the punishment jury charge.[5] The jury was not instructed to give "false" answers to the special issues, but rather to answer them "no" in response to mitigating evidence. The trial court did not err in administering the § 12.31(b) oath. Points twenty-eight through forty are therefore overruled.
B. Denying Questioning
Points number forty-one through fifty claim that appellant was denied the opportunity to question 10 veniremembers about the definition of "deliberately" that the trial court decided to include in the jury charge after it had ordered his attorney and the prosecutor to tell them that the term might not be defined. The trial court displayed some ambivalence about whether it was or was not intending to include a definition of "deliberately" in the punishment jury charge. However, it is very well-settled that there is no requirement that any such definition be included. Lewis v. State, 815 S.W.2d 560, 563 (Tex.Cr.App.1991), cert. denied, ___ U.S. ___, 112 S. Ct. 1296, 117 L. Ed. 2d 519 (1992). And in the instant cause, the trial court did indeed include such a definition.
The gist of appellant's complaint is that because he was not sure of the particulars of any definition that would be given, he was unable to properly question the ten veniremembers-in-question. However, there is no requirement that the trial court during jury selection voir dire formulate or specify definitions to be included in the jury charge. In fact, Articles 36.14, 36.15 and 36.16, V.A.C.C.P., contemplate development and submission of the jury charge after the close of evidence and before jury argument begins. Our review of the record does not reveal that appellant was denied the opportunity to question any of the ten veniremembers-in-question about the concept of "deliberately." We therefore overrule points forty-one through fifty.
C. Other Points Regarding Voir Dire
Point fifty-three claims that the trial court denied appellant the opportunity to make intelligent use of his challenges against 15 veniremembers who were accepted or struck by the defense after the trial court "ordered counsel to question them about an instruction about the burden of proving mitigating circumstances" where such instruction was materially different from the one included in the jury charge. The gist of appellant's complaint is that the trial court did not disclose to him the precise particulars of an instruction on mitigating evidence that would be included in the punishment jury charge. However, as noted above, there is no requirement that the trial court during jury selection voir dire formulate or specify an instruction to be included in the jury charge. Also, there is no showing that the trial court "ordered" appellant to question veniremembers in a particular manner about mitigating circumstances, but rather indicated that it tried to give both parties some guidelines on what it anticipated the charge would be; however, it refused "to get locked down" as there was no charge at that time. The trial court did say that there definitely would not be an extra special issue on mitigation. Point of error fifty-three is therefore overruled.
Point fifty-one avers error in the trial court granting a State's challenge to Veniremember Patrick on a ground that was not listed in Article 35.16, V.A.C.C.P. Point fifty-two claims that the trial court erred in denying appellant's motion for mistrial when Dr. Patrick was retroactively removed for cause after having been accepted as a juror.
Dr. Patrick was initially questioned and accepted as a juror by both parties. During questioning, she had expressed concerns about her job as a pediatrician treating indigent children at a local health clinic possibly being affected by her jury service. She *688 had indicated that the clinic's administrator would have the responsibility of finding a replacement for her, and that it would be difficult but probably manageable. Several days later, after several more veniremembers had been questioned and four had been accepted and sworn, Veniremember Patrick reappeared before the court. The trial court indicated that she had made several phone calls to the clerk's office. Dr. Patrick then explained that the nurse practitioner at the clinic had recently been hospitalized and would not be back to work for a month or perhaps several months, thus leaving Dr. Patrick as the sole provider for the indigent children that come to the clinic. She also stated that since her initial voir dire questioning, she had found out that the executive director would not be able to find someone to replace her at the clinic for the duration of a trial, thus the 250-300 children seen per week would probably end up in the county emergency room. Upon further questioning, Veniremember Patrick indicated that she felt that she would be incapable or unfit to serve as a juror because her attention would not be focused on the case and that her mind would probably wander and she would be distracted. She stated that she "would not be able to be fair because [she] would be distracted and worried about other things." She also indicated that she had three children at home, two-year old triplets. She later added that "[her] abilities would be impaired" when asked if her preoccupation to her job would substantially impair her duties as a juror. She also said that she "would not be able to keep th[e] oath because of being distracted and not being able to concentrate on the evidence that was being presented." The State's challenge for cause, over appellant's objection, was then sustained. Appellant's request for a mistrial was denied. The trial court did then grant appellant an additional peremptory challenge as requested. Appellant had previously objected to the whole procedure involving further questioning and to any challenges, peremptory or for cause, being made.
In Draughon v. State, 831 S.W.2d 331, 335 (Tex.Cr.App.1992), cert. denied, ___ U.S. ___, 113 S. Ct. 3045, 125 L. Ed. 2d 730 (1993), in a very similar situation we held that where the entire jury has not yet been selected and no evidence received, the trial court is permitted to allow further examination and to entertain additional challenges when it comes to its attention that a previously selected juror may be objectionable/excusable/disqualified from service. Likewise, in the instant cause, we find no error in the trial court's actions in allowing such further examination and challenge. Thus there was no error in overruling appellant's motion for mistrial based upon such procedures.[6] Point fifty-two is therefore overruled.
We note that while the trial court sustained the State's challenge for cause, there was no mention by anyone of Article 35.16; i.e. not by the State in making the challenge, appellant in objecting thereto, nor the trial court in sustaining it. In Butler v. State, 830 S.W.2d 125 (Tex.Cr.App.1992) we held that the trial court had the discretion, upon a reason sufficient to satisfy the court, to excuse a veniremember per Article 35.03, V.A.C.C.P., even after the period of questioning of the entire venire. Such was to provide the most efficient jury empanelment system possible so that the trial court would have the ability to render an excuse to rectify problems created by changed circumstances. Id. at 130. We stated that "the power to grant an excusal from jury service (pursuant to Article 35.03) inheres to the trial judge from the first assemblage of the array until the juror is, at last, seated." Id. at 131. In Kemp v. State, 846 S.W.2d 289, 295, n. 4 (Tex.Cr.App.1992), cert. denied, ___ U.S. ___, 113 S. Ct. 2361, 124 L. Ed. 2d 268 (1993), we noted that in a situation similar to the case-at-bar, the trial court did not err in excusing a juror after he had been sworn because the trial court has the authority to excuse, for a proper basis, a veniremember already sworn at any point up to the time *689 that the jury has been sworn as a whole and impaneled.
In Narvaiz v. State, 840 S.W.2d 415, 426 (Tex.Cr.App.1992), cert. denied, ___ U.S. ___, 113 S. Ct. 1422, 122 L. Ed. 2d 791 (1993), we concluded that since the trial court had authority to excuse a veniremember under Article 35.03, it was of no consequence if the trial court thought it was acting under the authority of Article 35.16, and that since its decision was reasonable under the circumstances, there was no abuse of discretion; thus there was no need to consider that defendant's claim that there was error in granting the State's challenge for cause to that veniremember under Article 35.16. As in Narvaiz, we conclude that under the circumstances in the instant cause there was no abuse of discretion in the trial court excusing Veniremember Patrick; thus, as in Narvaiz, we need not consider whether she was challengeable for cause under Article 35.16.[7] Point fifty-one is therefore overruled.
Point fifty-seven alleges that the trial court erroneously denied appellant's challenge for cause against Veniremember Williams after the prosecutor asked her to make a commitment about the psychiatric testimony that he intended to present at punishment. The record reflects that during questioning of Williams, she was informed that the State intended to present psychiatric or psychological expert testimony. The State informed her that that expert would base his opinion not on an examination but upon background and facts that the jury would have already heard. The prosecutor then illustrated using a hypothetical involving shooting the cash register operator during the robbery of a bar, and in which that defendant shot at animals and threatened people. Appellant did not immediately object to that questioning, but rather interrupted only after other questions had been asked. He eventually challenged her for cause based upon the prosecutor's questioning. In their discussions, appellant acknowledged that he had not objected to the questioning because it was too late. The State's brief asserts that the failure to so object to the questioning failed to preserve the claim of error. However, we find that appellant's claim goes to the denial of the challenge for cause rather than the propriety of the prosecutor's questioning, and therefore conclude appellant's claim that the trial court overruled his challenge for cause has been preserved.
The questioning does not indicate that the prosecutor was "ask[ing] [Veniremember Williams] to make a commitment about the psychiatric testimony that he intended to present" at punishment. The questioning appears to have been illustrative in seeking to determine if Williams generally could accept such expert testimony in answering the special issues. In fact, during this questioning, the prosecutor asked, "Now, do you see anything irritating or distasteful about a psychiatrist or a psychologist answering questions based on that hypothetical situation?" He further asked her if she would "listen to that kind of evidence and judge it like [she] would anything else?" During the course of the questioning, he never asked the veniremember what her vote on the special issues would be in the face of the hypothetical. In Cuevas v. State, 742 S.W.2d 331, 336, n. 6 (Tex.Cr.App.1987), cert. denied, 485 U.S. 1015, 108 S. Ct. 1488, 99 L. Ed. 2d 716 (1988), this Court said that "[i]t is proper to use hypothetical fact situations to explain the application of the law." [Emphasis in original.] As that is what it appears that the prosecutor was doing in the instant cause, we see no error in overruling *690 appellant's challenge for cause. Accordingly, point fifty-seven is overruled.
In point of error fifty-five, appellant complains about the trial court overruling his objection to the prosecutor telling Veniremember Williams "that the second special issue asked whether there was `sufficient evidence that society should not take another chance.'" The record reflects that the prosecutor asked Williams:
QUESTION: You get the picture? Just about anything could be violent again. It doesn't have to be just a murder or a capital murder. Are you clear?
ANSWER: Okay. Uh-huh.
QUESTION: That wouldCriminal acts of violence that would constitute a continuing threat to society. Well, what do we mean by society? Society is all of us, isn't it?
ANSWER: Yes.
QUESTION: Whether we are out as free people in society, out meaning out of the penitentiary, out of jail out, out of confinement, or we are behind bars as free peopleas people who are not free, we're all part of the same society, aren't we?
ANSWER: Yes.
QUESTION: And the people behind bars, would you agree that they are entitled to just as much protection from one amongst them who might threaten their life or cause them physical assault or injury as those of us who are entitled to out in the free world?
ANSWER: Yes.
QUESTION: Sure. And that's the way the law sees it, too. TheWhether there's a probability that the defendant would commit criminal acts of violence that would constitute a continuing threat to society meanssociety means wherever the defendant might ultimately end up, whether it's behind bars on a life sentence or some day out in free society. Do you follow me?
ANSWER: Yes.
QUESTION: Is society safe. The question ultimately is does the jury feel that there's sufficient evidence that society should not take another chance. Do you follow me?
ANSWER: Yes.
QUESTION: Okay.
Appellant then objected to the statement as being "not what the law is." The trial court overruled the objection. The prosecutor then went into other matters.
Appellant, citing language in Ellason v. State, 815 S.W.2d 656, 659 (Tex.Cr.App. 1991), notes that "[p]roof of more than a bare chance of future violence is required to support an affirmative finding to the second [special] issue." However, the questioning by the prosecutor was not in contravention of that principle. As noted above, the prosecutor was talking about "[c]riminal acts of violence that would constitute a continuing threat to society" which is the subject of the second special issue.[8] Whether "society should not take another chance" is an interpretation of the question asked by the second special issue which does not lessen the standard by which it is answered. We perceive no misstatement of the second special issue in the above-noted discussions, as the prosecutor was simply discussing a possible interpretation of the second special issue. Point of error number fifty-five is overruled.
Appellant claims, in point fifty-six, that the trial court erred in overruling his objection to the prosecutor telling a veniremember "that the victim would have testified that she was raped, if she was alive." The record reflects that the prosecutor asked that veniremember:
QUESTION: Then you've got to decide which witness you believe more. We've got psychiatrists saying this, and they've got a psychiatrist or a psychologist, maybe a PhD, saying the opposite. Who do you believe more? Who is the better qualified? Do you see what I mean?
ANSWER: Yes.
QUESTION: That's the same as any case. That's how cases are. They're swearing *691 matches to a point. Now, do you understand that if we have a capital murder case where a rape has occurred, typically we don't have witnesses, eyewitnesses? Did you know that?
ANSWER: Yes.
QUESTION: Sure. Common sense tells you that, but you don't do that in front of somebody else typically. Do you see what I mean?
ANSWER: Yes.
QUESTION: Now, we had a eyewitness once, but she's dead, [the decedent], if she were living, would testify about a rape. Do you follow me?
ANSWER: Yes.
QUESTION: But she can't because she's dead.
Appellant then "object[ed] to that as being jury argument and outside the proper scope of voir dire." The trial court overruled the objection. The prosecutor then talked about how he got to call witnesses to show various things.
The above-quoted colloquy indicates that the prosecutor, though perhaps somewhat unartfully, was seeking to elicit the views of the veniremember about deciding a case without eyewitness testimony. A veniremember may be subject to a challenge for cause based upon such views. White v. State, 779 S.W.2d 809, 820-822 (Tex.Cr.App. 1989), cert. denied, 495 U.S. 962, 110 S. Ct. 2575, 109 L. Ed. 2d 757 (1990). We see no error in overruling appellant's objection to that questioning. Accordingly, point fifty-six is overruled.
Points three and four claim that the prosecutor violated Article 37.071(g), V.A.C.C.P., when he informed two veniremembers, over objection, that a life sentence would be imposed if one juror answered a special issue "no." Article 37.071(g), the statute applicable at the time of trial whose language has since been moved to Article 37.071 § 2(a), provides that veniremembers not be informed "of the effect of failure of the jury to agree on an issue submitted under th[e] article."
The record reflects the following colloquy during the questioning of the veniremember who is the subject of point number three:
PROSECUTOR: If the jury answers affirmatively to both of these questionsYou know what affirmative means?
VENIREMEMBER: Yes.
PROSECUTOR: You just said it. Yes and yes, then it is the death sentence if all 12 jurors answer affirmatively.
VENIREMEMBER: Okay.
PROSECUTOR: The same is true if three questions appear.... Do you follow me?
VENIREMEMBER: Yes, sir.
PROSECUTOR: Again, remember, please, that it takes 12 jurors answering affirmatively to both questions for the death penalty to result, and that would be by order or the Court. The negative of that is that if one juror answers no, then the situation is that the life sentence results.
Appellant then objected to the prosecutor "telling the juror that last statement, that a no answer means a life sentence on the grounds that it violates the statute." When asked which statute, he responded, "The statute with regard to telling them the effect of their answers." The trial court overruled the objection.
The record reflects the following colloquy during the questioning of the veniremember who is the subject of point number four:
PROSECUTOR: If all 12 jurors answer yes to the first question and all 12 jurors answer yes to the second question, it's a death sentence by order of the Court. That's how it happens. Do you understand?
VENIREMEMBER: Yes.
PROSECUTOR: So you don't get to check the box, but it is extremely important to understand that your answers bear directly upon what the sentence will be. Okay.
VENIREMEMBER: Yes, sir.
PROSECUTOR: Even one no answer could result in a life sentence.
Appellant "renew[ed] [his] objection to the effect of informing the prospective juror of *692 one no answer to an issue." The trial court again overruled the objection.
Our reading of the above-quoted colloquies leads us to the inescapable conclusion that the prosecutor did indeed inform the two veniremembers that a "no" vote by a single juror would or could result in a life sentence. We conclude that such information, in the context of the additional questioning about all 12 jurors answering "yes," effectively informed them of the effect of the failure of the jury to agree to any of the special issues, i.e. if even one of the twelve jurors voted "no." Such was in contravention of Article 37.071(g). Thus the trial court erred in overruling appellant's objections at trial.[9] Finding error, we must address harm.
Tex.R.App.Pro. 81(b)(2) provides that "if the appellate record ... reveals error in the proceedings below, the appellate court shall reverse the judgment under review, unless the appellate court determines beyond a reasonable doubt that the error made no contribution to the conviction or to the punishment." As the error only involved information relevant to punishment, we easily conclude beyond a reasonable doubt that it did not contribute to the conviction.
In Sattiewhite v. State, 786 S.W.2d 271 (Tex.Cr.App.1989), cert. denied, 498 U.S. 881, 111 S. Ct. 226, 112 L. Ed. 2d 181 (1990), this Court likewise found error in violation of Article 37.071(g) and discussed the method of assessing harm pursuant to Rule 81(b)(2). It noted that after the entire venire panel was provided information in violation of Article 37.071(g), no further mention was made of such. Id. at 278. Also any misstatement was sufficiently attenuated by the trial court's jury charge at punishment, which included instructions informing the jury that if the vote was not unanimously for "yes" or at least 10 for "no" then there shall be no answer for that special issue. Id. This Court additionally noted that the jury did not exhibit any confusion in reaching a unanimous verdict, nor was there any correspondence between the jury and the trial court during punishment deliberations. Id. at 279.
In the instant cause, the punishment jury charge contained instructions similar to those in Sattiewhite, supra, including explanations: that before any special issue may be answered "yes" all jurors must be convinced and the jury must unanimously determine that the State has proven the issue beyond a reasonable doubt; that if any juror had a reasonable doubt as to the propriety of a "yes" answer to the special issues, then that juror should vote "no," that if 10 or more jurors voted "no" as to any special issue, then the answer of the jury shall be "no;" and that if the answer to any special issue is not unanimously "yes" or at least "10" in favor of "no," then there shall be no answer for that special issue. As in Sattiewhite, supra at 278, we must assume that the jury conducted itself as directed by the trial court. The record reflects that the sole note from the jury at punishment was a request for a copy of appellant's confession. As in Sattiewhite, supra at 279, the jury did not exhibit any confusion in reaching a unanimous verdict. Additionally, our review of the entire voir dire questioning of both of the veniremembers-in-question does not reveal any other mention of the consequences of even a single juror voting "no" to any of the special issues.
In light of Sattiewhite and the above discussed observations based upon the record, we conclude beyond a reasonable doubt that the error did not contribute to the punishment. Id. at 279. Accordingly, points three and four are overruled.
III. PUNISHMENT
A. Expert Testimony
i. Challenges to Dr. Grigson
Point of error number one states, "The court erroneously refused to allow counsel to confront Dr. Grigson with a prosecutor's report in his own files about six capital murderers *693 who became model prisoners after he testified that they would kill again." The record reflects that appellant questioned the witness, Dr. James Grigson, outside the presence of the jury about a letter and accompanying report purportedly from the first assistant district attorney of Dallas County. The State agreed that the report and letter were "written to Dr. Jim Grigson from [the named first assistant] of the Dallas District Attorneys office...." The letter and report indicate that the eleven named individuals had had death sentences which had been commuted or reduced. The letter stated that the report had been made by a special investigator. Dr. Grigson indicated that the named investigator worked in the Dallas County District Attorney's Office. The report included a very short description of each of the individual's purported behavior while in prison and one who was on parole. Dr. Grigson admitted that in several of those individual's cases he had testified that they would be a threat wherever they were, including the prison environment, and would kill again.
On appeal, appellant's brief indicates that he sought to impeach Dr. Grigson with the letter and report to show that some of his prior future dangerousness predictions had turned out to be incorrect. He insists that "[t]he evidence of [Dr.] Grigson's past mistakes was clearly relevant to the accuracy of his prediction of future dangerousness in this case." He adds that the report "was much more probative of [Dr.] Grigson's inability to predict future dangerousness than any other evidence that counsel could have used to establish that fact." However, the record reveals that it appears to have been somewhat ambiguous as to whether at trial appellant was seeking to impeach him in this way or in a different manner.
At trial appellant indicated that he wanted to use transcripts from Dallas County trials to impeach statements that Dr. Grigson had made in Lubbock County, i.e. that he "intend[ed] to use these transcripts to impeach statements that he's made in Lubbock County based upon some information we discovered pursuant to [the trial court] allowing us to go through his files." The State objected to such as impeachment on a collateral matter and going into collateral matters pertaining to other cases. It also objected that such would open up "cans of worms" with respect to the factual issues in those previous trials. One of appellant's attorneys then responded that it was his understanding that Dr. Grigson had consistently testified that the only study that he was aware of that was conducted on his predictions was by a Judge Zimmerman of Dallas County, and that he had perjured himself because he was aware of other studies where his prediction of future dangerousness had not come true. He noted that they had received information of the other study from Dr. Grigson's files. Upon further questioning from the trial court, the attorney indicated that they were entitled to go into such evidence because he was testifying as an expert and they were "entitled to go into what he bases his expertise on." He also said:
We're entitled to go intohe testifies from his vast experience is how he's able to make these predictions. We're entitled to go into that vast experience and challenge it, you know. He indicates in his prior testimony, and leaves the impression with the jury, that there are no studies [sic] have ever shown that he was wrong, that he's been right every time. I think we're entitled to show that we do have a study to show that he's been wrong, that he's made mistakes, and that goes to his qualifications as an expert, and it goes to his credibility as an expert.
There was then some discussion about questioning Dr. Grigson about the study rather than using a transcript. The attorney then indicated that the transcripts, where Dr. Grigson indicated that there were no other studies other than the Zimmerman Study, were after the date of the letter and report. The trial court then indicated that it was conducting an examination out of the presence of the jury pursuant to Tex.R.Crim. Evid. 705 regarding the disclosure of facts or data underlying an expert's opinion.
During the voir dire examination, Dr. Grigson admitted that he had testified in a specified Lubbock County trial that the only study that he was aware of that was conducted on his predictions was by Judge Zimmerman of *694 Dallas County, and that it had shown him to be 100% accurate in the only two cases that he had predicted in Judge Zimmerman's court. When confronted with the previously-described letter and report from the Dallas County District Attorney's Office, Dr. Grigson indicated that it was not a study, but rather was simply a follow-up on where some of the defendants were. He indicated that he had been aware of the letter and report when he had testified in the Lubbock County trial, but that he had not considered it a study, and that his testimony that the Zimmerman Study was the only study that he was aware of had been correct.
After the voir dire questioning, the trial court indicated that there had apparently been some misunderstanding about the purpose of the hearing with respect to the Rule 705 examination. One of appellant's attorneys then stated, "I'm not going to question Dr. Grigson's ability to render an opinion." When asked by the trial court what his position was, he said:
Well, I don't think at this point in time since he's admitted under oath receiving this letter, and, you know, he differs that it was a study or upon how it was obtained. But I mean, the earlier reason that we were not ready was that we wanted time to findto get the transcripts in case he had a different story on the stand. Since he's admitted it, I suppose we're prepared to go forward. We are planning on using this in an attempt to impeach him, though.
After overruling the State's objection that the letter and report was stolen from Dr. Grigson's office, the trial court sustained the State's "object[ion] to him going into any type of impeachment on collateral matters." After indicating that he wanted to finish, and the trial court expressed some confusion as to "[w]hat [he] [was] trying to finish[,]" appellant stated, "Well, that's all [and] [w]e're ready, Your Honor." Before the jury was returned, appellant indicated that the letter and report was their offer of proof which he would have gone into in front of the jury, but that the trial court had granted the State's objection to such.
As the above discussion indicates, it appears that the primary purpose of questioning Dr. Grigson about the letter and report was to show that he had testified falsely in a previous Lubbock County trial when he had stated that the Zimmerman Study was the only study that he was aware of regarding the accuracy of his predictions. While some questioning and discussion indicate that the letter and report could have been proffered intending to show the inaccuracy of Dr. Grigson's predictions, i.e. "to show that he's been wrong, that he's made mistakes," appellant did not clearly articulate such desire. As stated above, clearly the focus was upon Dr. Grigson's previous testimony regarding his awareness of studies as to the accuracy of his predictions.
In light of the of above-detailed proffer and discussions, we conclude that appellant did not sufficiently present to the trial court the claim that he now makes on appeal, i.e. that he wanted to impeach Dr. Grigson with the letter and report to show that some of his prior future dangerousness predictions had turned out to be incorrect. Thus, the trial court was only called upon to rule on the proposed impeachment as to Dr. Grigson's previous testimony regarding his awareness of studies as to the accuracy of his predictions, and therefore never had the opportunity to rule upon appellant's appellate rationale that he wanted to impeach Dr. Grigson with the letter and report to show that some of his prior future dangerousness predictions had turned out to be incorrect. As appellant did not sufficiently clearly expressly offer the evidence for the purpose which he now claims on appeal, such is not a basis for complaint on appeal. Tex.R.Crim.Evid. 105(b). Accordingly, point of error number one is overruled.[10]
*695 Point two avers error in the trial court's refusal to allow appellant "to confront Dr. Grigson with six false sworn prior inconsistent statements that he made about the number of capital murderers he had examined who were not dangerous in his opinion." He insists that "the trial court erroneously shielded Dr. Grigson from cross-examination about a series of false sworn prior inconsistent statements."
On direct examination by the State, Dr. Grigson testified that he had "examined over 12,000 individuals that had criminal charges against them during the past 25 years." He indicated that those involved capital and non-capital cases. On cross-examination, he testified that he believed that he had examined 388 defendants in capital murder cases. Of those he said that "[t]here was 178 that [he] said was [sic] not dangerous." He then indicated that he had testified in 136 capital cases, four or five of which he was called by the defense.
Outside the presence of the jury, appellant questioned Dr. Grigson about his testimony in previous capital murder trials. Appellant pointed to discrepancies in that prior testimony as to the number of capital murder defendants whom he had examined. When it was observed that he had previously testified that the number was 391, Dr. Grigson then said that the total must now be close to 400 rather than the 388 that he had testified to earlier in the instant cause. He agreed that there was a conflict, but regarding the earlier testimony, he said, "It was just the number 388 came to my mind[,]" and "That number came to my mind, 388." On another case, when it was pointed out that he had testified that he had examined about one-hundred seventy-odd individuals charged with capital murder, Dr. Grigson admitted that such was in error, in that the number would have been over 300. In another case, Dr. Grigson admitted that his testimony there that he had examined 156 capital murder defendants was incorrect, but rather had to have been in the three-hundreds. In three other cases, Dr. Grigson admitted that his testimony regarding the number of capital murder defendants whom he had examined had been too low. He also agreed that his testimony as to the number of those defendants whom he had found not to be a continuing threat/future danger had likewise been too low. He indicated that he could not go back and change what he had said, and had given "the best answer that [he] could at that time, but [he] thought it would be correct."
Appellant offered such evidence to be presented before the jury. He suggested that "these numbers are all over the board," and that "the jury ought to be able to see these numbers and hear his explanation for it" because "[i]t goes right to his credibility." He offered them as prior inconsistent statements. The trial court denied appellant's request.
As discussed above, outside the presence of the jury Dr. Grigson admitted that his prior testimony in previous capital murder trials regarding the number of examinations which he had conducted was incorrect and inconsistent with his testimony in the instant cause. Tex.R.Crim.Evid. 612(a) provides for examination of a witness concerning a prior inconsistent statement, whether oral or written. Also, as Dr. Grigson's prior admittedly inconsistent testimony had been made under oath in previous judicial proceedings, pursuant to Tex.R.Crim. Evid. 801(e)(1)(A) such were not excludable as hearsay. Rule 612(a) contains provisions for further cross-examination concerning and extrinsic evidence of such a prior inconsistent statement; however, the trial court in the instant cause prohibited in the first instance any questioning or cross-examination thereon.[11] In light of Rule 612(a), appellant was entitled to cross-examine Dr. Grigson regarding the prior inconsistent statements.[12]*696 Thus, the trial court erred in denying such cross-examination. In light of such error, we must conduct a harm analysis pursuant to Delaware v. Van Arsdall, 475 U.S. 673, 106 S. Ct. 1431, 89 L. Ed. 2d 674 (1986).[13]Shelby v. State, 819 S.W.2d 544 (Tex.Cr.App.1991).
We must, after assuming that the damaging potential of the cross-examination was fully realized, determine whether the error of denying the cross-examination was harmless beyond a reasonable doubt. Delaware v. Van Arsdall, 475 U.S. at 684, 106 S.Ct. at 1438, 89 L.Ed.2d at 686. Whether such an error is harmless depends upon the following factors:
1) The importance of the witness's testimony in the prosecution's case;
2) Whether the testimony was cumulative;
3) The presence or absence of evidence corroborating or contradicting the testimony of the witness on material points;
4) The extent of cross-examination otherwise permitted; and,
5) The overall strength of the prosecution's case.
Id.; Shelby v. State, 819 S.W.2d at 547. We shall make such a determination considering the above-detailed factors.
1) The testimony of Dr. Grigson was of some importance to the prosecution's case, in that it dealt directly with the jury's answer to Special Issue Number Two regarding the probability of appellant committing criminal acts of violence that would constitute a continuing threat to society. However, the State presented numerous other witnesses whose testimony also went to that issue. Also, the State only twice made mention of Dr. Grigson during its jury arguments, and that was in favorably comparing one of Appellant's experts with the State's experts.
2) Dr. Grigson's testimony was to a certain extent cumulative. As noted above, the State presented numerous other witnesses whose testimony went to Special Issue Number Two. Among those other witnesses was another psychiatrist, who testified immediately prior to Dr. Grigson. That other psychiatrist's testimony included, in response to a rather lengthy hypothetical question, the opinion that appellant "will continue to commit acts of violence in the community[,]" i.e. "anywhere he is." He indicated that somebody who would commit a capital murder was going to be a threat to society in the future. He also indicated that sexual offenders are recidivist oriented. He added that "[s]ociety would never be safe from this individual [in the hypothetical]." Dr. Grigson likewise, in response to a similar hypothetical question, opined that appellant absolutely most certainly represented a continuing threat to society. Dr. Grigson also likewise opined that sex offenders are the most recidivist oriented criminals. Thus, Dr. Grigson's testimony was for the most part quite cumulative.
The State also later presented testimony in rebuttal from another psychiatrist. That psychiatrist testified that one could make predictions based upon a person's history and patterns in life. He also thought that it was ethical for a psychiatrist to render an opinion on such a prediction. However, he *697 did indicate that it "would be a very unusual case where you would be absolutely certain." He indicated that he generally did not reach a level of absolute certainty and was not aware of the degree of certainty which Dr. Grigson testified to.
3) As noted above, the State presented another psychiatrist who corroborated the testimony of Dr. Grigson regarding the material issue, i.e. Special Issue Number Two. Appellant presented testimony from a psychiatrist and two psychologists. One of those psychologists questioned the accuracy and reliability of predictions about future propensity for violence and dangerous behavior and the ability to offer a professional opinion with any scientific certainty whether someone is likely to commit violent acts in the future. He testified that studies indicate that long-term predictions of violent behavior are inaccurate and "wrong two out of three times on the average[,]" thus in predicting dangerousness in any situation, it "would be more accurate if you flipped a coin." He specifically opined that Dr. Grigson's testimony via hypothetical question was not based on any scientific approach. He added that in his view, such was unethical behavior when a professional offers an opinion about something that the data just does not stand behind.
The other psychologist, who had formerly been the chief psychologist for the Texas Department of Corrections, indicated that the prediction by a psychiatrist/psychologist on a hypothetical question that somebody is going to be dangerous was not accurate. He indicated that statistical predictions could be done, i.e. that certain groups were more likely to behave violently, but that such was not done on an individual because nobody could tell who within the group would actually do it. He also stated that "[t]wo-thirds of the time clinical predictions do not prove to be true."
The psychiatrist also questioned the ability to predict future dangerousness. He stated that violence tends to be over-predicted in that there was a tendency to say that people are going to be dangerous when there is not a great deal of data to say that such is true. He cited a particular study which showed that only about one out of three of the predictions about a person being dangerous in the future were correct, but that about 90% of the predictions of nondangerousness were correct.
Thus appellant presented evidence contradicting Dr. Grigson's expert opinion. As noted above, the State presented additional expert testimony corroborating Dr. Grigson's testimony.
4) The record reflects that appellant was otherwise permitted to fully cross-examine Dr. Grigson. In particular, appellant was allowed to question regarding the number of capital murder defendants he had examined, how many he had said were dangerous/not dangerous, and how many capital cases he had testified in. However, when asked whether he had ever made a misdiagnosis, the State's objection thereto was sustained.
5) The prosecution's case with respect to the second special issue, which was the primary subject of Dr. Grigson's testimony, must be regarded as fairly strong. As noted previously, the State presented additional expert testimony and numerous lay witnesses. Those lay witnesses detailed a number of appellant's violent confrontations with various people, including several occurring in jail after being arrested for the instant offense, an incident in which he choked and attempted to sexually assault his approximately 22-year-old first cousin, and an incident in which he grabbed a 64-year-old co-worker by the throat.
We conclude, after analyzing the above five factors, that the error in denying the particular cross-examination of Dr. Grigson was harmless beyond a reasonable doubt. Accordingly, point number two is hereby overruled.
ii. Challenge to Dr. Griffith
Point fifty-eight avers error in allowing Dr. Griffith, a psychiatrist, to testify over objection as an expert in predicting future dangerousness. Appellant insists the record is inadequate to show that Dr. Griffith had any specialized knowledge of the subject of future dangerousness, and that his experience in examining persons accused of crimes "could *698 have covered anything from backaches to common colds." He avers that even if those examinations were psychiatric, such "only meant that he had specialized knowledge of the mental illnesses and disorders that afflict person[s] charged with crimes" but "did not equip him to predict whether convicted criminals will continually commit violent crimes." Appellant cites Holloway v. State, 613 S.W.2d 497 (Tex.Cr.App.1981) for the proposition that Dr. Griffith's qualifications were inadequately shown.
As we reaffirmed in Joiner v. State, 825 S.W.2d 701, 708 (Tex.Cr.App.1992), cert. denied, ___ U.S. ___, 113 S. Ct. 3044, 125 L. Ed. 2d 729 (1993), psychiatric testimony during the punishment phase of a capital case is admissible, and the burden lies with the proponent of such testimony to show that it will assist the fact-finder and that the witness possesses the requisite expertise required by Tex.R.Crim.Evid. 702. The admission of such testimony is within the trial court's discretion and its decision regarding such will not be set aside absent an abuse of that discretion. Id. The special knowledge which qualifies a witness to give an expert opinion may be derived from the study of technical works, specialized education, practical experience, or a combination thereof; and such should indicate to the trial court that the witness possesses knowledge which will assist the jury in making inferences regarding fact issues more effectively than the jury could do so unaided by such opinion. Holloway v. State, 613 S.W.2d at 501.
As noted above, appellant attacks Dr. Griffith's qualifications as an expert.[14] The record reflects Dr. Griffith's educational background, including the subspecialty of forensic psychiatry, teaching experience, and long-term private practice. This included examining over 8,000 people charged with criminal offenses and testifying in approximately 97 capital murder trials in Texas and other states. In light of such background, we hold that the record does not reveal any abuse of discretion in allowing the expert testimony. See, e.g., Joiner, supra, Nethery v. State, 692 S.W.2d 686, 709 (Tex.Cr.App.1985), cert. denied, 474 U.S. 1110, 106 S. Ct. 897, 88 L. Ed. 2d 931 (1986). Point of error number fifty-eight is therefore overruled.
B. Special Issues
Point fifty-nine claims that the second special issue was unconstitutional as applied in this case because the jury charge "did not define the vague term of art `continuing threat to society.'" Point sixty makes the same claim because the jury charge likewise did not define "probability." However, it is well-settled that the trial court need not define these terms in the jury charge, and the failure to do so poses no constitutional problems. Cantu v. State, 842 S.W.2d 667, 691 (Tex.Cr.App.1992), cert. denied, ___ U.S. ___, 113 S. Ct. 3046, 125 L. Ed. 2d 731 (1993); Caldwell v. State, 818 S.W.2d 790, 797-798 (Tex.Cr.App.1991), cert. denied, ___ U.S. ___, 112 S. Ct. 1684, 118 L. Ed. 2d 399 (1992). Points fifty-nine and sixty are therefore overruled.
C. Sealed Evidence
In point number sixty-two, appellant claims that his "absolute right to a complete record for his appeal was violated when this Court refused to unseal his bill of exception about the evidence of the victim's immoral character that he wanted to present to rebut her mother's testimony about her good character." Appellant refers to cases involving omissions from the record. However, he notes that this record does indeed include a transcription of his bill of exception and that he was allowed to make such bill. His complaint goes to the trial court sealing that transcription.
The record reflects that at guilt/innocence, appellant sought to cross-examine a witness about the decedent's behavior and character. He asserted that the State's presentation of *699 testimony from her mother about her good moral character, support in the family, how far she had gone to school, employment, etc... had opened the door. The State objected, and the trial court conducted an in camera hearing on the issue. At that hearing, a transcription of which is included in this appellate record, appellant was allowed to examine four witnesses to show what he intended to proffer before the jury. At the conclusion of the in camera hearing, the trial court ruled that the proffered evidence was not admissible and that the State had not opened the door to that type of evidence. The trial court also stated, "The record of this in camera hearing is ordered sealed for purposes of appeal should there be an appeal." The record does not reflect any objection or comment thereafter by appellant.
Though this proffered evidence was excluded at guilt/innocence, appellant claims that such would have been beneficial at punishment because "jurors could have found that [he] posed a greater threat to society, if they believed that he murdered a particularly valuable member of the community[.]" He adds that "[t]he jury might have placed less value on the victim's life" had it known of the excluded character/behavior evidence. He acknowledges that "[s]ome may be offended by this logic[.]" We have reviewed the transcription of the hearing; and suffice it to say that we disagree with such so-called "logic" in suggesting that the decedent's behavior indicated that she was not a particularly valuable member of the community and that her life might have had more value had she been of a different character.
Appellant's point of error does not challenge the trial court's ruling on the merits regarding the admissibility of the evidence, but rather simply complains about the trial court's decision to seal it in the record. As noted above, appellant did not make an objection to that sealing. Without a timely specific contemporaneous objection, he has waived error, if any, in such sealing. Tex. R.App.Pro. 52(a). Point sixty-two is therefore overruled.
D. Penry Claims
Point sixty-one avers error in allowing the State to cross-examine a defense expert and label mitigating evidence of child abuse against appellant as an aggravating circumstance. Appellant insists that allowing the prosecutor through cross-examination of a defense expert to suggest that child abuse is probative of future dangerousness "violated the Eighth Amendment because it converted the most important mitigating circumstance that appellant proffered as a basis for mercy into an aggravating factor."
The record reflects that the witness-in-question, the second psychologist whom appellant presented, testified about Intermittent Explosive Disorder and that the most dangerous inmates were those with chronic anger. On cross-examination, the State elicited, over objection, that a childhood environment involving beatings and alcoholism in the family had to be factored in as part of the roots/foundation cornerstones/building blocks of Chronic Anger Syndrome. Appellant had previously presented testimony from his mother and an older sister describing his upbringing and homelife as violent, receiving verbal abuse and beatings from his alcoholic father who was also violent and abusive toward his mother and siblings.
Appellant, citing Penry v. Lynaugh, 492 U.S. 302, 109 S. Ct. 2934, 106 L. Ed. 2d 256 (1989), claims, "Evidence of child abuse is mitigating as a matter of law." Because such evidence was definitely mitigating, he insists that the trial court reversibly erred in allowing the State to portray it as aggravating.
Based upon our understanding of Penry and the United States Supreme Court's capital punishment jurisprudence, we cannot conclude that appellant's evidence was mandatorily "mitigating." Rather than mandating that certain evidence be considered mitigating, the sentencer must simply be allowed to fully consider and give effect to the evidence.[15]Penry v. Lynaugh, 492 U.S. at *700 328, 109 S.Ct. at 2951, 106 L.Ed.2d at 284; Hitchcock v. Dugger, 481 U.S. 393, 107 S. Ct. 1821, 95 L. Ed. 2d 347 (1987); Eddings v. Oklahoma, 455 U.S. 104, 102 S. Ct. 869, 71 L. Ed. 2d 1 (1982). Since appellant in this point of error makes no claim that the jury was not allowed to do so, point sixty-one is hereby overruled.
Point fifty-four does claim that the trial court refused to provide an adequate vehicle for the jury to give effect to the mitigating evidence per the requisites of Penry. Appellant claims that the jury was unable to consider and give mitigating effect to his evidence "of severe physical and psychological abuse that he suffered at the hands of his alcoholic father when he was a young boy." As noted above appellant presented testimony from his mother and an older sister describing his upbringing and homelife as violent, receiving verbal abuse and beatings from his alcoholic father who was also violent and abusive toward his mother and siblings. This testimony indicated that the physical "abuse" against appellant primarily involved whippings with an open hand and belt, and making appellant duck-walk as punishment.
At trial, appellant made several objections to the jury charge, including that it deprived him of an individualized determination of the appropriate penalty and failed to properly include an adequate vehicle by which the jury could express the presence of adequate mitigating circumstances sufficient to justify the imposition of a life sentence.
The trial court did include, in addition to the special issues provided by Article 37.071(b)(1), (2), V.A.C.C.P., a definition of the term "deliberately," and the following instruction:
When you deliberate about the questions posed in the Special Issues, you must consider any mitigating circumstances raised by the evidence present in both phases of the trial. You are instructed that any evidence which, in your opinion, mitigates against the imposition of the death penalty, may cause you to have a reasonable doubt as to whether or not the death penalty should be imposed in this case. Even if you find and believe beyond a reasonable doubt that the conduct of the defendant which caused the death of the deceased was committed deliberately and with the reasonable expectation that the death of the deceased, [the named decedent], would result; and even if you find and believe beyond a reasonable doubt that there is a probability that the defendant would commit criminal acts of violence that would constitute a continuing threat to society; if you have a reasonable doubt based upon the mitigating evidence that has been presented in this case as to whether the death penalty should be imposed in this case, then you will answer the Special Issues propounded to you herein "No."
As noted above Appellant objected to the jury charge, and specifically challenged the instruction as, among other things, limiting the jury's discretion to consider mitigating aspects of his character and record and the circumstances of the crime that have no relationship to the special issues, limiting the jury's discretion and not allowing application of proffered mitigating circumstances that had little or no relationship to the special issues, creating aggravating factors out of certain aspects of his mitigating evidence, and making a death sentence mandatory under certain conditions. The trial court overruled the objections and submitted the above-quoted instruction.
In Fuller v. State, 829 S.W.2d 191, 209 (Tex.Cr.App.1992), cert. denied, ___ U.S. ___, 113 S. Ct. 2418, 124 L. Ed. 2d 640 (1993), we held that a similar instruction which directed the jury to consider mitigating circumstances and to answer at least one of the special issues "no" if it determined that a life rather than death sentence was appropriate "was adequate to avoid the constitutional infirmity condemned by Penry" in the face of evidence that that defendant as a young child had been physically abused by his stepfather. We likewise hold that in the instant cause the above-quoted instruction was adequate and that all of appellant's mitigating evidence could be given full consideration and effect through the special issues which were submitted at trial. Accordingly, we overrule point number fifty-four.
*701 Having reviewed all of appellant's points of error, we affirm the trial court's judgment and sentence.
McCORMICK, P.J., and MILLER, J., concur in the result.
BAIRD, J., not participating.
CLINTON, Judge, concurring.
In his first point of error appellant alleges the trial court erred to sustain the State's objection to "impeachment on collateral matters." On appeal appellant claims the trial court should have allowed him to admit the letter and accompanying report in an attempt to show that some of Dr. Grigson's prior predictions as to the likelihood that a capital defendant would constitute a future danger had proven erroneous. But at trial it is apparent appellant had a somewhat different purpose in mind. Because under the peculiar circumstances here it was within the trial court's discretion to exclude the letter and report as an attempt to impeach on a collateral matter, I concur in the result.
Before Grigson testified in front of the jury, the trial court allowed appellant to question him on voir dire. It was the trial court's express understanding that the object of this voir dire was to examine the basis of Grigson's expert opinion, pursuant to Tex. R.Cr.Evid., Rule 705(b) & (c). Appellant began by eliciting an admission from Grigson that he had previously testified in another capital murder trial in Lubbock County, in February of 1990. During that trial, on cross-examination, Grigson had testified that the only study he was aware of that had ever examined the accuracy of his predictions of future dangerousness was one that had been conducted by James Zimmerman, a district court judge in Dallas County. This study was limited to the accuracy of such predictions made in Zimmerman's own court. Appellant proffered the letter and report, addressed to Grigson and dated July 29, 1988, in a clear attempt to show that Grigson was aware as early as 1988 that another study of the accuracy of his predictions had been done, and that therefore his testimony in February of 1990 that he was not at that time aware of any other study had been a conscious distortion or lie. At the conclusion of the voir dire, appellant informed the trial court he had no intention of challenging Grigson's expertise, or the basis of his opinion, under Rule 705(c). He indicated that instead he intended to impeach Grigson in the manner developed during the voir dire.
But the particular way he proposed to impeach Grigson during voir dire fits the classic definition of impeachment on a collateral matter. See Goode, Wellborn & Sharlot, 33 Texas Practice: Texas Rules of Criminal Evidence: Civil and Criminal § 607.3, at 557-562 (2d ed. 1993). Had appellant clearly asserted at trial that he intended to use the letter and report to launch a general attack upon Grigson's ability to make accurate predictions about future dangerousness, as he now claims on appeal, we might well appropriately hold he should have been allowed to do soassuming, of course, that the State did not subsequently make a hearsay objection. See Id., § 607.4, at 562-65. However, it is not at all clear that this was his intention, and we cannot hold that the trial court erred to sustain the State's objection that the particular use to which appellant apparently intended to put the letter and reportto show Grigson lied on a prior occasion amounted to impeachment on a collateral matter. It was within the trial court's discretion to exclude this evidence under Tex. R.Cr.Evid., Rule 403, as being, inter alia, too confusing or time consuming to justify admission. Goode, et al., supra, at 560-61.
Accordingly, I concur in the judgment of the Court.
NOTES
[1] At the time of trial, § 12.31(b) read:
Prospective jurors shall be informed that a sentence of life imprisonment or death is mandatory on conviction of a capital felony. A prospective juror shall be disqualified from serving as a juror unless he states under oath that the mandatory penalty of death or imprisonment for life will not affect his deliberations on any issue of fact.
That section was amended, effective September 1, 1991, such that the second sentence was deleted and replaced with language not relating to a prospective juror's oath or disqualification.
[2] The trial court did include an additional instruction in the punishment jury charge about considering and applying any mitigating circumstances raised by the evidence. See discussion of point of error number fifty-four, infra.
[3] We also note that there is a potential preservation of error problem for appellant. He did object, unsuccessfully, when the prosecutor began questioning each veniremember-in-question about § 12.31(b). However, at the conclusion of the questioning of each (except for the subject of point number twenty-seven), he did not make any objection that the prosecutor's questioning had misled any of the veniremembers or that they had been contaminated thereby, nor did he seek to make a challenge for cause on that basis, i.e. they were either accepted as jurors or appellant exercised peremptory challenges thereon. (Appellant did object to the last one, who was the subject of point of error twenty-seven, noting that he had exhausted his peremptory challenges and unsuccessfully sought an additional one and the prosecutor's repeated questioning. He added that he was objecting and challenging the entire panel for cause, which the trial court denied. That veniremember was thus seated as the twelfth juror.)
[4] Points twenty-eight through thirty-nine go to the administration of the oath to each of the jurors individually during the course of the voir dire process, while point forty goes attacks the administration of the oath to the jury as a group.
[5] See discussion of point of error number fifty-four, infra.
[6] Appellant claims that he "suffered a `specially unfair disadvantage'" because his jury selection strategy hinged on that veniremember, i.e. he based decisions in his acceptance or rejection of other veniremembers based upon his belief that she was going to be on the jury. As in Draughon, supra, we perceive no error under these circumstances.
[7] We also note that there is a potential preservation of error problem for appellant. We observe that the focus of appellant's objection at trial was upon the very procedures allowing further questioning and subsequent challenging of Veniremember Patrick after she had already been accepted. At no time did appellant mention Article 35.16 or make any complaint about whether there was a statutory basis for the State's challenge. Prior to the State questioning Dr. Patrick and before the challenge was made, appellant in objecting made mention of his anticipation of what the veniremember's responses would be and that the State would then challenge for cause, "and a challenge for cause would probably be sustained." However, he did not question the merits of such a challenge, but still focused upon the propriety of the procedure. Nevertheless, as appellant did object, and in the interests of justice in a death penalty case, we have addressed the merits of appellant's point of error.
[8] At the time the instant offense was tried, Article 37.071(b)(2), V.A.C.C.P., provided that the second special issue asked "whether there is a probability that the defendant would commit criminal acts of violence that would constitute a continuing threat to society[?]"
[9] The State claims, among other things, that appellant failed to preserve error in not specifically citing Article 37.071(g) in his objection at trial. However, the objection was quite specific in denoting the merits of his complaint, i.e. that the State was informing veniremembers of particular information which it was statutorily prohibited from so informing. Such preserved his claim for review.
[10] In a supplemental brief, appellant also claims that the letter and report was admissible pursuant to Tex.R.Crim.Evid. 705(a) as disclosure of the expert's underlying facts or data. However clearly the letter and report was not in any way used to form the expert opinion which Dr. Grigson testified to in the instant cause. He also claims that it was admissible "under the state of mind exception" but does not sufficiently argue or brief that contention. Tex.R.App.Pro. 74(f) and 210(b).
[11] Tex.R.Crim.Evid. 612(a) also states, "If the witness unequivocally admits having made such statement, extrinsic evidence of same shall not be admitted." Thus, whether one can use extrinsic evidence is contingent upon the witness's response when confronted with the alleged inconsistent statement.
[12] The State mentions the impropriety of admitting extrinsic evidence to impeach a witness's testimony about a collateral matter. As noted in Ramirez v. State, 802 S.W.2d 674, 675 (Tex.Cr. App.1990), "[t]he general rule is that a party is not entitled to impeach a witness on a collateral matter[,]" with the test as to whether the matter is collateral being whether the cross-examining party would be entitled to prove it as part of his case tending to establish his plea. However, as noted by Judge Miller's concurring opinion, this collateral matter rule was created years prior to the adoption of the Rules of Criminal Evidence. Id. at 677 (Miller, J., concurring). Because the parties do not directly address the question of the continued viability of such in light of the Rules, but rather only focus upon the propriety of using extrinsic evidence to impeach, we express no opinion as to such continued viability. The State, in a supplemental response brief, does indeed more directly attack the continued viability issue; however appellant's supplemental brief does not address the issue nor respond to it in a supplemental response to the State's supplemental response. In light of such, and our conclusion, infra, with respect to harmlessness, we decline to discuss the continued viability issue.
[13] While appellant does not specifically cite the Confrontation Clause of the Sixth Amendment to the United States Constitution, his point of error does complain about being refused permission to "confront" Dr. Grigson with the prior inconsistent statements. He also argues that said prior statements were admissible under "the federal constitution to show that he was biased." At trial he likewise proffered the evidence to attack the witness's credibility. Thus the trial court's denial of the cross-examination, i.e. the constitutionally protected right of confrontation, is governed by the dictates of Van Arsdall, supra.
[14] We reject appellant's insistence that Dr. Griffith's testimony before the jury cannot be used to determine his qualifications. See, e.g., Jones v. State, 641 S.W.2d 545, 551 (Tex.Cr.App.1982) and Gholson v. State, 542 S.W.2d 395, 402 (Tex. Cr.App.1976), cert. denied, 432 U.S. 911, 97 S. Ct. 2960, 53 L. Ed. 2d 1084 (1977), where error in not even allowing a defendant to voir dire a character witness outside the presence of the jury prior to testifying is not reversible where the record does not show that the witness was not qualified to testify.
[15] In fact, the Court in Penry noted that that defendant's evidence of childhood abuse "indicates that there is a probability that he will be dangerous in the future." Penry v. Lynaugh, 492 U.S. at 324, 109 S.Ct. at 2949, 106 L.Ed.2d at 281. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1663263/ | 216 Miss. 485 (1953)
62 So. 2d 779
19 Adv. S. 11
COLE
v.
HAYNES.
No. 38654.
Supreme Court of Mississippi.
February 9, 1953.
*486 Crawley & Ford, for appellant.
*490 Means Johnston and J.J. Fraiser, Jr., and Johnson & White, for appellee.
*493 ETHRIDGE, J.
The principal questions are whether the contract between the parties is an option or contract of sale, and if *494 the latter, whether a vendee in an executory contract of sale of land has an equitable lien on that land for the return of his down-payment, upon the failure of the seller to make a good title. This is an appeal from a decree of the Chancery Court of Holmes County sustaining the general demurrer of appellee, defendant below, A.P. Haynes, to the bill of complaint of appellant, complainant below, T.C. Cole. An appeal was allowed to settle controlling questions of law. Hence for present purposes we must assume the averments of the bill to be correct.
On December 26, 1951, Cole and Haynes executed an "Option Contract and Agreement," under which Haynes, a resident of Greenwood in Leflore County, agreed to sell Cole a 586-acre farm in Holmes County, together with certain personal property, for a stated consideration of $10,000.00. Cole was to pay that amount to Haynes on or before 6 P.M. February 1, 1952, at which time Haynes would execute to Cole a general warranty deed conveying to Cole a fee simple title or such title as may be acceptable to Cole. Cole paid Haynes upon execution of the contract $3,250.00, and Haynes obligated himself to make the stated conveyance on or before the stated date. It was agreed that if Haynes was not able to convey to Cole a fee simple or other title acceptable to Cole by February 1, 1952, then the contract would be void and Haynes would repay to Cole the $3,250.00. The instrument provided that the covenants and agreements should bind and inure to the benefit of the heirs, personal representatives and assignees of both parties. The transaction was referred to as a "sale" and reference was made to "the purchase price."
Haynes was unable to clear title to the property by February 1, 1952. There were substantial outstanding and adverse mineral interests owned by other persons, an outstanding deed of trust on part of the property, and other material defects in the title at that time. Previously *495 on January 26, 1952, Cole had advised Haynes that the title defects would have to be cleared up in time, and on February 1st an attorney representing Haynes advised Cole's attorney that he had cleared up the title to timber on the lands, but that he was not able to eliminate other defects. Thereupon Cole's attorney advised the defendant's counsel that if Haynes could convey a fee simple title by 6 P.M., February 1, 1952, Cole would accept the deed and pay the balance of the purchase price, but that failure to do so Cole would expect repayment of his $3,250.00. Haynes made no further effort to obtain and convey to Cole a fee simple title, but refused to repay Cole the $3,250.00, contending that it was consideration for an option, or that it was liquidated damages for Cole's failure to complete the purchase. The bill charged that Haynes had taken this sum paid him by Cole and used it for payment of an outstanding indebtedness on this property.
The bill of complaint asked the court to construe the contract of December 26, 1951, between Cole and Haynes, to adjudicate whether defendant Haynes could convey a fee simple title, to relieve complainant from the asserted penalty and forfeiture, and to affix a lien upon the land of Haynes for the repayment to complainant Cole of the down-payment of $3,250.00.
Appellee filed a general demurrer to this bill, asserting that it had no equity, that complainant had a full, adequate and complete remedy in a court of law, and that the Chancery Court of Holmes County had no jurisdiction of the parties or of the subject matter. The decree sustained this demurrer, erroneously, we think.
We will not quote at length from the contract of December 26, 1951, between Cole and Haynes. Its substantial terms have been outlined above. (Hn 1) We are satisfied that this instrument evidences the intent of the parties to create an executory contract binding on both parties for the sale of the land; and that under its terms *496 if appellee was unable to make a good title on February 1, 1952, the contract was thereby rescinded and appellee was obligated to repay to appellant the down-payment made by appellant. Appellee was unable to make good title, so under this contract he is obligated to repay appellant. (Hn 2) Whether the nature of a contract is an option or a bilateral obligation to purchase is to be determined not by the name which the parties have given it, but by the nature of the obligations which it imposes. Where it appears that the general intention of the parties was to consummate a sale, that intention should be effectuated. The entire present instrument indicates that the parties thought that this was a contract to purchase and sell, creating mutual obligations on both parties. 55 Am. Jur., Vendor and Purchaser, Secs. 27-30; Anno. 3 A.L.R. 576; Anno. 87 A.L.R. 563. The only reference to an exception in the vendee lies in the fourth to the last paragraph, in which the vendee may at his option obtain a deed to the property before the deadline of February 1st. This apparently was designed to give Cole the privilege of obtaining his deed before that date if he was satisfied with the title. It did not relieve him from his obligation to purchase.
Appellee argues, however, that even if he has a duty to refund to appellant the amount of the down-payment, still appellant's right is solely in personam; that appellant must therefore sue appellee in the county of appellee's residence; and that appellant therefore cannot bring a suit in equity in Holmes County where the land is located, seeking to impose an equitable lien on the land. However, established principles of justice and law indicate a different conclusion. 55 Am. Jur., Vendor and Purchaser, Section 548, states that (Hn 3) the general rule is that a purchaser under an executory contract for the sale and purchase of land is entitled to an equitable lien upon the land for the amount which he has paid upon the purchase price, where the vendor is in default or unable to make *497 a good title. Sec. 549 says this with reference to the nature and basis of the lien:
"The lien of a purchaser of land under an executory contract for the amount which he has paid is to secure to him the repayment of expenditures made in pursuance of the contract. The exact nature of this lien is not clear. The doctrine has been quite generally applied without any discussion as to the nature of the lien, except, perhaps, the statement in general terms that it was an equitable lien, very similar to that of a vendor for unpaid purchase money. It has been said that the basis of the lien is the well-known fundamental rule that in equity what is agreed to be done is regarded as done, so that from the time that a contract is made for the purchase of real estate, the vendor is, in a sense, a trustee for the purchaser, and the purchaser in a sense is the real owner of the land, so that each, under the ordinary equitable rules, has a lien for his protection. The whole practice in equity with reference to such contracts is clearly on the basis that the parties are under equal equitable obligations to each other. It has also been said that all the reasoning by which the vendor's equitable lien for the purchase money after a conveyance is established is applicable in support of the vendee's lien after full or part payment and before conveyance, and that it is difficult to imagine upon what principle a court of equity could enforce the one and deny the other."
To the same effect are 66 C.J., Vendor and Purchaser, Secs. 1583-1587, pages 1495-1501; Anno. Right of Vendee under an Executory Land Contract to a Lien for Amount paid on the Purchase Price, 45 A.L.R. 352 (1926). In Davis v. Heard, 44 Miss. 50 (1870), a vendee filed a bill in chancery seeking damages, an injunction restraining transfer by the vendor of the remaining promissory notes he had given, and for a lien on the land for the purchase money advanced. In affirming a decree for the complainant which gave him a lien on the lands, *498 it was held that "the natural equity and intrinsic justice of this lien commend it to the favorable consideration of a court of chancery," and that the complainant vendee, upon default by the vendor, "has an equitable lien on the land for the reimbursement of the money advanced upon it, similar to that of the vendor for unpaid purchase money." The principles stated in the foregoing authorities are sound and warrant the recognition here of such an equitable lien in appellant.
(Hn 4) That being true, appellant had the right to bring this suit in the chancery court of the county in which the property is located. Code of 1942, Sec. 1274; Griffith, Miss. Chancery Practice (2d ed. 1950), Secs. 151-154. For these reasons this case is reversed and remanded for further proceedings not inconsistent with this opinion.
Reversed and remanded.
Roberds, P.J., and Kyle, Arrington and Lotterhos, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1746960/ | 363 S.W.2d 843 (1962)
UNITED BENEFIT FIRE INSURANCE COMPANY, Appellant,
v.
METROPOLITAN PLUMBING COMPANY, Appellee.
No. 5563.
Court of Civil Appeals of Texas, El Paso.
December 19, 1962.
Rehearing Denied January 23, 1963.
*844 Clinton & Shelton, Lubbock, for appellant.
Peticolas & Stephens, Wayne Windle, El Paso, for appellee.
LANGDON, Chief Justice.
Appellee, Metropolitan Plumbing Company, was a subcontractor in the construction of an addition to the Cooley Elementary School for the El Paso Independent School District, El Paso County, Texas. The prime contractor in such work, D. W. Austin, d/b/a Austin Construction Company, became bankrupt while owing appellee a balance of $3,579.40 for labor and materials furnished the school job under the terms of a lump-sum contract. Appellee sued the contractor's surety, United Benefit Fire Insurance Company, upon a payment bond executed by it as surety for D. W. Austin in compliance with the provisions of the McGregor Act (Article 5160, Vernon's Annotated Texas Civil Statutes, as amended April 27, 1959). In a trial to the court without the intervention *845 of a jury, judgment was awarded appellee for the sum of $3,579.40, as prayed for, and appellant has appealed.
Appellant rests its appeal upon only three points of error, and contends that this case presents but a single question of law for the court to decide, that being whether or not the appellee fully complied with the "Notice" requirements of the statute when appellee undertook to inform appellant of the claim; or, to state the question another wayis substantial compliance with the statute sufficient?
On the other hand, appellee contends that he fully complied with the requirements of the statute; but if he did not, that appellant waived strict compliance therewith so as to preclude if from asserting discharge from liability under the bond.
For the purpose of clarity the appellant will hereafter be referred to as the defendant or surety, and the appellee as plaintiff.
It is the surety's contention that the notice or notices of claim furnished it by plaintiff were insufficient, as a matter of law, to satisfy the strict requirements of the statute, and that plaintiff is thereby precluded from any recovery against defendant, as surety, on the payment bond executed by it in compliance with the statute.
The contract upon which the claim here is based was in writing and was for a lump-sum. It was a direct contract between plaintiff and the prime contractor and called for plaintiff to furnish the plumbing and mechanical work on the Cooley school. There is no dispute concerning the performance of the contract, nor of the amount thereon that remained unpaid. It is admitted that plaintiff, under date of February 28, 1961, did notify the surety by registered mail that the sum of $3,579.40 remained unpaid on the sub-contract; also, that at the instance of the surety plaintiff, under date of March 13, 1961, furnished the surety with a sworn notice of its claim. It is further admitted that a third notice of the claim was sent to the surety by plaintiff's attorney under date of April 28, 1961, and that such notice was received by appellant about May 1, 1961.
Defendant-surety contends that each of the three notices was in some manner defective; that the first notice was not sworn to; that the second notice did not contain the information requested by defendant and that none of the notices, including the third notice, contained a statement in the language of the statute to the effect that all just and lawful offsets known to plaintiff had been allowed; and further, that none of such notices contained any information showing how much labor or material was furnished by plaintiff month by month during the contract period.
We have been unable to find a case in which the statute (Article 5160), as amended April 27, 1959, has been construed, and believe this case to be one of first impression. In view of such fact, we deem a more detailed analysis of the statute is required than might otherwise be necessary.
Under the McGregor Act prime contractors on contracts exceeding $2,000 for the construction, alteration or repair of any public buildings or the prosecution or completion of any public work for this state, any department, board or agency thereof; or any municipality of this state, department, board or agency thereof; or of any school district of this state; or of any other governmental or quasi-governmental authority authorized by law to enter into such public works contract, shall be required, before commencing work, to execute two statutory bonds to the governmental authority or authorities for whom the work is to be performed. The bonds required to be furnished are a "Performance Bond" in the amount of the contract conditioned upon the performance of the work, and a "Payment Bond", also in the amount of the contract. The "Performance Bond" shall be solely for the protection of the governmental authority awarding the contract, *846 and the "Payment Bond" solely for the protection of all claimants supplying labor and material in the prosecution of the work provided for in the contract, for the use of each such claimant.
The statute not only specifies the conditions of the bonds that shall be required of prime contractors on public works, but prescribes the time limits within which "notice" of claims thereon must be given, and specifies the form and content of the "Notice" required of the several classes of claimants for perfecting their respective claims against the contractor's payment bond, for labor or material supplied by them in the prosecution of the contract work.
Part B, Subdivision (a) of the statute pertains generally to all classes of claimants and specifies the time for filing notices of "Unpaid Bills, other than notices solely for Retainages * * *." It provides that such notice shall be given within 90 days after the 10th day of the month next following each month in which the labor was done or performed or the material was delivered, for which such claim is made. Notice of such claims shall be in writing and are required to be sent by certified or registered mail, addressed to the prime contractor at his last known business address, or at his residence, and to the surety or sureties. The statute requires that such notices shall be accompanied by the following:
1. Sworn statement of account stating in substance that the amount claimed is just and correct and that all just and lawful offsets, payments and credits known to affiant have been allowed.
2. Amount of any retainages.
3. If claim is based on a written contract, claimant may at his option enclose a true copy of such contract.
4. Advising completion or value of partial completion
Subparagraph (1) subd. (a) of part B relates specifically to content of the notices required of claimants where no written contract exists, and which does not involve a claim for multiple items to be paid for on a lump-sum basis. In such case the notice is required to contain the following
1. Name of party for whom labor was done or to whom material was delivered.
2. Approximate dates of performance and delivery.
3. Description of labor or materials reasonably identified and generally itemized.
4. Amount due.
5. Copies of invoices or orders, identifying job and destination of delivery.
Subparagraph (2), subd. (a) of part B relates specifically to the content of notices required of claimants in direct contractual relation with the prime contractor where the claim is for multiple items of labor or material to be paid for on a lump-sum basis. In such case the notice is required to contain the following:
1. Name of the party for whom the labor was done or to whom the material was delivered.
2. Amount of contract.
3. Written or oral.
4. Amount claimed.
5. Approximate dates of performance or delivery.
6. Reasonably identifying description of labor or material.
Other provisions of the statute relate to additional notices required of claimants who do not have a direct contractual relation with the prime contractor; to claims for unpaid retainages; penalty for fraudulent claims and matters of venue and other *847 matters not applicable to the facts of this case, and which need not be discussed.
We consider the statute, as amended in 1959, to be highly remedial in nature. It clearly reflects the intention of the Legislature to change the public policy of the state as previously declared by the Supreme Court in its decisions under the former statute, and to provide a simple, direct method of giving notice and perfecting claims of laborers, materialmen and subcontractors on public works, as stated in the emergency clause of the amendment.
It will be noted that many of the requirements of the statute are couched in broad general terms: "stating in substance", "approximate dates", "reasonably identifying", "generally itemized", "may at his opinion", etc., which terms, by their nature, defy a strict construction; while other requirements of the statute are more specific and indicate that the Legislature intended that some of the provisions should be strictly complied with. The rule of liberal construction, however, applies will full force to remedial statutes, and will be accorded the most comprehensive and liberal construction of which it is susceptible in order to accomplish the legislative purpose. 39 Tex. Jur. 273, sec. 145 (and cases cited.)
Of the two bonds required by the statute, we are concerned here only with the "Payment Bond".
Plaintiff contends that the notice actually given satisfies the requirements of the statute; but, regardless of whether such notice was or was not sufficient, that the surety waived strict compliance with the statute and is thereby precluded from asserting its discharge from liability on the payment bond.
It is well settled that a right or privilege given by statute may be waived or surrendered, in whole or in part, by the party to whom or for whose benefit it is given, if he does not thereby destroy the rights and benefits conferred upon or flowing to another in or from the statute or other legal or equitable source.
Assuming, for purpose of this opinion only, that the notice actually given by plaintiff was insufficient to meet and satisfy the requirements of the statutedid the surety, by virtue of its acts and conduct, waive strict compliance on the part of the plaintiff with the notice requirements of the statute, so as to preclude the surety from asserting its discharge?
It has heretofore been noted that plaintiff sent, and appellant received, three separate notices relating to plaintiff's claim for the balance due under the contract. The first notice, under date of February 28, 1961, from the standpoint of timeliness, was given and received within time limitations sufficient under the statute to permit, if necessary, the inclusion of any unpaid claim for labor performed or material delivered subsequent to October 31, 1960. Under the statute, if the claim asserted by the plaintiff included any labor performed or material delivered during the month of November, 1960 (other than for retainages), notice of such claim was required to be given within 90 days after the 10th day of the month next following. Thus, by our calculations, plaintiff had until March 10, 1961, or 90 days from and after December 10, 1960, within which to give notice of its claim, even if such claim did, in fact, include labor or material furnished during the month of November, 1960, as well as subsequent months.
Prior to the filing of any claim, the prime contractor had paid plaintiff $8,000.00 of the contract price, and it is apparent from the record before us that this sum exceeded the value of the labor performed and material delivered up to November 1, 1960. We have concluded, therefore, that plaintiff's notice of February 28, 1961 was actually given and received by the surety before the time (allowed by the statute) for the giving of a proper notice had expired.
The notice of February 28, 1961 was not sworn to as required by the statute and, in *848 our opinion, failed in other respects to meet the requirements of the statute, if strictly construed. It was in writing however, and was sent to both the prime contractor and to the surety by registered mail. Upon receipt of such notice the surety wrote plaintiff, on March 8, 1961, under the letterhead "United Benefit Fire Insurance Company", as follows:
"Metropolitan Plumbing Co.
"P. O. Box 3488-Station A
"El Paso, Texas
"Re: Claim No. 16395
"D/A 2/6/61
"Policy No. 853757
"Insured: Austin Construction
Co.
"Gentlemen:
"This will acknowledge your claim for material and/or labor in regard to the Cooley School Addition.
"Please be advised that the bonding company has knowledge of their claim and is making a complete investigation and audit of this matter.
"We shall appraise you of our position when such investigation and audit is completed. We anticipate that this will at least take thirty days.
"Very truly yours,
"/s/ Gene Cook
Gene Cook"
"GC:HP
"CC: J. C. Hadsell
Admittedly the surety is not required to protest or object to an act or omission on the part of an obligee which operates to discharge the surety from liability, and the fact that a surety remains passive or silent after learning of such an act or omission on the part of the obligee does not constitute such acquiescence or consent as to preclude the surety from asserting the discharge. Nevertheless, a defective or improper notice, made before the time for the giving of proper notice has expired, may be held sufficient in the absence of some statutory prohibition, when the notice, by affirmative acts and conduct, creates the impression that the notice given is adequate; the ground most frequently relied upon by the cases being that the notifier has been lulled into a sense of security concerning the sufficiency of his notification and was thus led into failure to give another notification within the time prescribed by the statute. Acts most frequently held to constitute such grounds have arisen in cases where, in addition to the failure to object, there ison the part of the noticeea promise to act, or action, in response to the defective notification. 2 Merrill on Notice 412, ¶890.
In the case at hand, plaintiff alleged that the surety had full notice of plaintiff's claim and, after having received the notice of February 28, 1961, waived any further notice under the statute by its letter of March 8, 1961, quoted above. The letter itself constitutes a recognition, on the part of the surety, of the continued existence of the relationship; it not only acknowledges receipt of plaintiff's claim, but states "the bonding company has knowledge of their claim and is making a complete investigation and audit of the matter". In addition, the surety promises future action on the claim when the investigation and audit is completed, which it anticipates "will at least take thirty days". The letter contained no hint that the notice actually given was insufficient or defective, and in this case the surety's failure to object is clearly coupled with a promise to act, or action, in response to the defective notification.
The surety contends that the second notice, although sworn to by plaintiff, was also insufficient because it did not contain all the information requested by the surety. Plaintiff sent its second notice of claim to the surety on March 13, 1961, in response to a letter dated March 9, 1961, written to it by Lyle Adjustment Company on behalf of the surety, in which the adjustment company undertook to advise the plaintiff regarding *849 its claim and to "suggest" that plaintiff follow certain steps, enumerated in the letter, respecting such claim. While we deem it unnecessary to reproduce the letter, we have carefully examined its contends and have concluded that even if the plaintiff had complied with every detail of the enumerated suggestions, such notice still would have been insufficient to meet all requirements of the statute. Our view of the matter is that such letter, with its accompanying instructions (varying as they did from the requirements of the statute) was merely another indication on the part of the surety that notification would not be exacted according to the governing provisions of the statute. We believe, however, that plaintiff's second notice was sufficient to constitute at least substantial compliance with the instructions contained in the letter.
From what we have said it follows that we are of the opinion that the surety was given actual notice of plaintiff's claim before the time for the giving of such notice had expired, and that the surety, by its own affirmative acts and conduct, waived any ground of discharge it might otherwise have acquired by reason of any failure on the part of the plaintiff to thereafter give other notice or notices of the same claim in the manner required by the statute.
In the event we are found to be in error in holding that the surety waived the statutory notice required by the governing provisions of the Act; the next question presented by this appeal (assuming there was no waiver on the part of the surety, and that the first two notices were insufficient to satisfy the requirements of the statute) is whether or not the third notice sent by registered mail to the surety on April 28, 1961, and received by it on or about May 1, 1961, was sufficient to satisfy the requirements of the statute.
Since it is undisputed that plaintiff's claim is based upon a written contract for multiple items of labor or materials to be paid for on a lump-sum basis, wherein plaintiff was in direct contractual relation with the prime contractor, we are of the opinion that the claim (with respect to the contents of the notice required of such claimants) is governed by the provisions of subparagraph (2) subd. (a) of part B of the statute. We have compared the contents of the notice given by plaintiff on April 28, 1961 with the requirements of said subparagraph (2), set forth earlier in this opinion, and believe that each and every requirement thereof has been fully satisfied.
The notice states that the claimant has furnished labor and material in the prosecution of work provided for in a certain contract between D. W. Austin and the El Paso Independent School District; that the claimant has not been paid in full therefor and that the claim remains unpaid; that the name of the party for whom the labor was performed and the material was delivered was and is D. W. Austin, d/b/a Austin Construction Company; that the amount of the contract was and is $10,677.00 plus authorized changes and additions in the sum of $902.40; that the contract was and is written (a copy thereof being attached); that the amount claimed is $3,579.40; that the approximate dates of performance of labor and delivery of materials are from December 1, 1960 to February 1, 1961; that a reasonably identifying description of said labor and material is as follows: "The setting and installation of the fixtures and the providing of the fixtures consisting of lavatories, bowls and water fountains in the Cooley Elementary School".
We are also of the opinion that part B, subdivision (a) of the statute was satisfied by the notice, at least in the following respects: The notice was in writing and was sent by registered mail, addressed to the prime contractor at his last known business address and to the surety; it contained a statement that the contract had been completed and that the amount claimed included all retainage and retainages applicable to the account under the terms of the contract; and, as previously mentioned, a copy of the contract was enclosed. In addition, *850 the notice of claim was signed by G. W. Hancock in his capacity as a general partner in plaintiff company, and was accompanied by the following statement of account, sworn to and subscribed by the same G. W. Hancock:
"STATEMENT OF ACCOUNT
"Original contract $ 10,677.00
Authorized Changes and Additions,
dated November 22, 1960 902.40
___________
Total Adjusted Contract Price $ 11,579.40
Less:
Payment received Nov. 28, 1960 $4,000.00
Payment received Dec. 12, 1960 4,000.00 8,000.00
_________ ___________
Balance Due on Completed Contract $ 3,579.40"
The statute requires that affiant state only "in substance" that the amount claimed is just and correct and that all lawful offsets, payments and credits known to affiant have been allowed. The exact language of the statute is not required. We have examined plaintiff's affidavit and have concluded that the language used therein, while not identical to that of the statute, is to the same effect, and that it is more than sufficient to meet the requirements of the statute.
While it is true that plaintiff, during the performance of the contract, submitted a number of "estimates" which tend to show that the entire contract was substantially completed prior to the last day of December, 1960still, the trial court, as the trier of facts, found as a fact that all the labor and material for which the claim was made was performed and delivered subsequent to December 31, 1961, and that the notice of claim and statement of account given by plaintiff on April 28, 1961 was timely given, in that it was within 90 days after the 10th day of the month next following each month in which the labor was done or performed, in whole or in part, or material was delivered, in whole or in part. The court also found, in effect, that plaintiff's previous "estimates" were exactly what they purported to beonly a rough estimate of the labor performed and material delivered to the date thereof; further, that sub-contractors performing labor and furnishing material under lump-sum contracts generally "over-estimated" the value of the labor performed and material delivered, in order to draw on the contract in advance of the total work actually performed. The record adequately supports the trial court's findings in such respect and may therefore not be disturbed.
The statute itself requires the claimant to show only the "approximate date or dates" of performance or delivery when the claim is for multiple items of labor or material to be paid for on a lump-sum basis. Therefore, particularly in view of the remedial nature of the statute and the purposes to be accomplished thereby, we are of the opinion that plaintiff properly perfected its claim against the contractor's payment bond and the surety thereon, and that the judgment of the trial court is correct.
Finding no error, appellant's points and each of them are overruled, and the judgment of the trial court is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1799342/ | 549 So. 2d 833 (1989)
Richard Jere SHOPF
v.
MARINA DEL RAY PARTNERSHIP.
No. 89-C-0152.
Supreme Court of Louisiana.
September 12, 1989.
*834 Robert E. Leake, Jr., Leake & Anderson, for applicant.
Thomas D. Fazio, McCollister, McCleary & Fazio, for respondent.
LEMMON, Justice.
This case involves the determination of the amount to which plaintiff is entitled under La.C.C. art. 2823 from the Marina Del Ray Partnership (the Partnership) as the value of plaintiff's twelve percent partnership share after he withdrew from the Partnership in accordance with La.C.C. art. 2822.[1]
Facts
In 1983 Louis Ray began a venture in which he intended to develop a marina and a commercial and residential complex on the Tchefuncta River and LA. Highway 22 in St. Tammany Parish. The development was to be called Marina Del Ray. Later that year Robert Claitor purchased from Ray a fifty percent interest in the project for $150,000. Claitor subsequently transferred this interest to R.G. Claitor Realty *835 Company and to various trusts set up for his four children.
Ray and Claitor Realty, as partners of Marina Del Ray Partnership, thereafter entered into an employment contract with plaintiff, whereby plaintiff was employed as general manager of the Partnership for a period of one year, beginning December 1, 1983. The contract provided for a specified monthly salary, as well as for additional compensation as follows:
As an incentive Shopf will receive a Twelve (12%) per cent partnership interest in the Partnership at a cost of ONE AND NO/100 ($1.00) DOLLAR paid to the Partnership.... The Twelve (12%) per cent partnership interest to be initially acquired will reduce the partnership interest of Louis F. Ray.
In March, 1984, Ray, Claitor Realty and the trustees of the Claitor trusts executed articles of partnership, which were subsequently filed with the Secretary of State.[2] The articles provided for an ordinary partnership for the following purposes:
[T]o acquire, own, develop, lease, sell and manage real and personal property to be used for apartment projects, commercial offices, marinas, condominiums, shopping centers and other commercial and residential real estate developments located within and without the State of Louisiana; to furnish service to the tenants or occupants of such properties; to finance by mortgage or otherwise the acquisition, improvement and/or maintenance of such property; and to lease or acquire and finance real, personal or mixed property appurtenant thereto or used in connection therewith.
In April of 1984 Claitor Realty purchased thirty-two percent of Ray's partnership interest for $135,000. At the same time Ray donated the remaining six percent of his interest to Claitor.[3]
In July, 1984, the Partnership obtained a $2,500,000 loan committment for long-term financing to complete the first phase of the development. The lender made a $300,000 advance to the Partnership, and Claitor and plaintiff both signed a continuing guaranty for the remainder of the $2,500,000 loan. In response to a request by the lender, the articles of partnership were amended to reflect the twelve percent interest owned by plaintiff, the withdrawal of Ray as a partner, the increase in the partnership interest of Claitor Realty to seventy-seven percent, and the six percent interest owned by Claitor.[4]
On July 11, 1984, the same day the continuing guaranty was signed, Claitor (who was then managing partner of the Partnership) notified plaintiff that his employment as general manager would not be continued when the employment contract expired in November. Claitor further stated that he was assuming managerial authority for the development. At the same time Claitor offered either to sell plaintiff 6.194% of Claitor Realty's interest and 1.161% of Claitor's interest for $3,552.63 per point, plus thirteen percent interest from the date Claitor obtained these interests from Ray, or to purchase plaintiff's twelve percent interest for the same price per point. Plaintiff declined to accept either offer.
Having learned shortly after signing the continuing guaranty that his employment with the Partnership as general manager would not be continued, plaintiff immediately returned to the lender $200,000 of the $300,000 advance, stating his intent to cancel his continuing guaranty. Claitor then fired plaintiff as general manager, effective immediately, on the grounds that plaintiff *836 had breached his fiduciary duty to the Partnership by returning the funds. Plaintiff responded by filing suit for damages for breach of the employment contract.
On October 24, 1984, plaintiff formally withdrew as a partnership member by sending a "Notice of Withdrawal as Partner" to the Partnership and filing a copy with the Secretary of State. The remaining partners apparently elected to continue the partnership entity in existence.
When plaintiff and the remaining partners could not agree as to the value of plaintiff's share, plaintiff instituted the present action by filing a "Petition to Determine and Compel Payment of Partnership Interest". He demanded a judicial determination of the sum due him for the value of his twelve percent share pursuant to La.C.C. arts. 2823-2825.[5]
In both suits the Partnership filed a reconventional demand for damages for plaintiff's violation of his fiduciary duties and pleaded set-off and compensation against any sums awarded plaintiff.
The two suits were consolidated for trial. As to plaintiff's claim for payment of his share, the trial court held that plaintiff's twelve percent share had no value on the date of his withdrawal.[6] The trial court noted:
Testimony at trial indicated that due to a failing economy, the venture as of the time of the termination of Shopf had a negative book value. Plaintiff contends that value should be based on future development of the Marina. However, the court finds that placing a value on the future development of the project is so speculative, as to be of no value in determining partnership worth.
Plaintiffs demand in this respect was therefore dismissed with prejudice.
Both plaintiff and the Partnership appealed. The court of appeal affirmed, holding that there was no manifest error in the trial court's acceptance of the testimony of the Partnership's experts that the partnership entity had a negative book value at the time plaintiff withdrew. 539 So. 2d 1320.
We granted plaintiff's application for certiorari to determine the correctness of the ruling that plaintiff's partnership share had zero value on October 24, 1984, the date of his withdrawal.[7] 541 So. 2d 835.
Applicable Civil Code Provisions
The codal articles on partnership were revised in 1980. The new articles provide that when a partnership has been constituted without a specific term, a partner may withdraw at any time without the consent of his partners, provided he gives reasonable notice in good faith at a time that is not unfavorable to the partnership.[8] La. *837 C.C.art. 2822. The withdrawal does not automatically terminate the partnership, but merely causes the cessation of the membership of the withdrawing partner. See La.C.C. art. 2818, Revision Comment (a).
Although the partnership does not automatically terminate upon withdrawal of a partner, the remaining partners may, by unanimous consent, terminate the partnership. La.C.C. art. 2826. In the event of termination of the partnership, the partnership assets are divided according to La.C.C. arts. 2833-2834.
Once a partner has withdrawn from the partnership which continues to exist, he is not entitled to an interest in the assets of the partnership, because the assets belong to the partnership entity. See La.C.C. art. 2823, Revision Comment (a). However, the Code recognizes the former partner's entitlement to "an amount equal to the value that the share of the former partner had at the time membership ceased", and the value of the share must be paid in money, unless otherwise agreed, together with legal interest from the time membership ceases.[9] La.C.C. art. 2823-2824. When there is no agreement on the amount to be paid, any interested party may apply for a judicial determination of the value of the share and for a judgment ordering its payment.[10] La.C.C. art. 2825.
Thus, it is only in the event that the partnership continues in existence after withdrawal of a partner and only in the absence of any agreement between the partners that the court is called upon to determine the value of the partnership interest.
In the present case the articles of partnership did not provide for a specific term, and plaintiff exercised his right of withdrawal under Article 2822. The partners did not agree in advance on the method of determining the value of a withdrawing partner's share. Once plaintiff withdrew, the remaining partners elected to continue the partnership, but plaintiff and the remaining partners could not amicably agree on a value to be assigned to plaintiff's interest.[11] The court was therefore called upon to determine the value of plaintiff's share and to render a judgment ordering payment.
Valuation
The Code does not contain a definition of the word "value" in Article 2825 which authorizes a request for a judicial determination of the value of the share. It is therefore up to the courts to determine the method of valuation.
The trial court determined that plaintiff's twelve percent interest had no value on October 24, 1984, at least in part because the partnership had a negative book value. Plaintiff argues that book value is not the proper test for determining the value of plaintiff's share in this case and that fair market value, as used in evaluating property in expropriation cases, is the more appropriate standard, in the absence of an *838 agreement to use book value or some other standard. In this regard plaintiff cites Anderson v. Wadena Silo Co., 310 Minn. 288, 246 N.W.2d 45 (1976), in which the court, construing the Minnesota statute (patterned after the Model Partnership Act) which provided for payment of "the value of his [partnership] interest at the date of dissolution", rejected book value as a basis for valuation and held that, in the absence of an agreement to the contrary, fair market value is the proper standard.
The Partnership concedes that fair market value, rather than book value, is the proper standard for determining the value of plaintiff's share in the partnership.[12] See also Bohn v. Bohn Implement Co., 325 N.W.2d 281 (N.D.1982); Chapman v. Dunnegan, 665 S.W.2d 643 (Mo.App. 1984). However, the Partnership argues plaintiff's share had zero value on the date of withdrawal because the fair market value of plaintiff's interest did not exceed the partnership liabilities. The Partnership emphasizes that the testimony of its experts supports its position that the fair market value of plaintiff's share was zero.
The Partnership's accountant testified that, as of September 30, 1984, the assets of the partnership had a value of $5,003,974.01 and the liabilities totalled $5,631,549.15.
A real estate appraiser presented by the Partnership valued the partnership assets at $2,500,000 as of the withdrawal date. In reaching this conclusion, the appraiser first listed the expenditures to date, including the acquisition of the land, the construction of a causeway connecting the marina area and the highway, the construction of a harbor master building, utilities, and 178 boat slips, and miscellaneous costs. The total of these expenditures was $3,680,000. He then stated his opinion that no buyer could be found within a reasonable time who would pay the amount the Partnership had expended for the land and the construction, since only ten boat slips had been leased and there was no other significant income expected in the near future. He further opined that the "very best case scenario" would be to find a buyer which would pay sixty-six to seventy percent of the total investment, or approximately $2,500,000.[13] The appraiser applied the discount on the basis of his belief that it would take an investor three years to recover the amount that had been spent.
Since plaintiff did not introduce any expert evidence, the Partnership contends that its evidence of value is unrebutted. On the other hand, plaintiff argues that the following factors established a substantial amount of value for his share on October 24, 1984:
1. In December, 1983, Claitor paid Ray $150,000 for fifty percent of the project, or $3,000 per point, at a time when the project was only a concept backed by an option to purchase and when no construction permits or bank financing were in place;
2. In April, 1984, Claitor Realty paid Ray $135,000 for a thirty-two percent interest in the partnership, or $4,218.75 per point (unless the six percent interest donated by Ray to Claitor is considered as part of the purchase price, which would reduce the value to $3,552.63 per point);
3. In July, 1984, Claitor offered to sell plaintiff a portion of the interest he had acquired from Ray for $3,552.63 per point, or to buy plaintiff's share at the same price; and
4. In September, 1984, shortly before the October 24, 1984 withdrawal date, Claitor represented in his personal financial statement, which he used for all business purposes, that the net value of his interest in the venture (at a time in which financing had been completed and construction *839 was ongoing) was $35,965 per point.
Plaintiff also argues that the appraiser should have assigned more weight to the potential development value of the venture as of October 24, 1984, especially since plaintiff withdrew during the developmental stages of the project. Plaintiff points out that development potential is part of fair market value in expropriation cases. State, Department of Highways v. Rapier, 246 La. 150, 164 So. 2d 280 (La.1964). As to this factor, plaintiff notes the following:
1. In June, 1984, Claitor and plaintiff signed a loan application package which projected that the venture would be worth $50,000 per point by the end of 1986, if the development was successful;
2. In September, 1985, Claitor's financial statement reflected a net value of the venture at $62,395 per point;
3. In late 1985 or early 1986, Claitor represented in a loan application that a fair market value of the venture was $46,838 per point; and
4. In 1986, when the Partnership's property was listed for sale at $15,000,000, Claitor stated he would not even entertain an offer of $9,500,000.
Fair market value is defined generally as the price that a willing buyer would pay to a willing seller for a certain piece of property in an arm's length transaction, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. See Black's Law Dictionary 537 (rev. 5th ed 1979).
We agree with the Partnership's observation that the value listed in Claitor's financial statements and loan applications does not represent the price a willing buyer would pay for the property in an arm's length transaction, but rather represents the price an interested seller who has invested significant amounts of money in a speculative venture hopes to receive for his property. However, there are many other relevant factors established by the evidence in this case which preclude any reasonable conclusion that plaintiff's interest in the partnership had zero value on the pertinent date.
The prices paid by Claitor to purchase portions of Ray's interest in the Partnership at a time near the pertinent date are certainly relevant to the determination of value and compel the conclusion that plaintiff's interest was worth more than zero. The $3,552.63 per point price paid by Claitor for Ray's thirty-two percent interest three months before plaintiff's termination and six months before the withdrawal date is the most compelling comparable sale. Claitor and Ray were willing and knowledgable participants in the sale of shares of the same business entity at issue in this litigation (although Claitor's position as owner of shares in the same closely held business indicates less arm's length dealing in this transaction than in a sale to an outside investor). Moreover, Claitor's offer to purchase plaintiff's share for $3,552.63 per point, at the time of plaintiff's termination, is a reliable indictor of value.[14]
Apparently the Partnership's appraiser was not aware of these transactions. Additionally, because his approach to determining value focused on the immovable property rather than the share of the partnership in an ongoing development, he substantially disregarded the development potential.[15]*840 On the other hand, the prices paid by Claitor to Ray and offered by Claitor to plaintiff were necessarily based largely on development potential, which can be a significant factor in the appraisal of undeveloped or partially developed property. Therefore, the $3,552.63 per point price established in Claitor's dealings with his other partners, while subject to adjustment, is the most significant factor in the determination of fair market value.
The price of $3,552.63 per point must be adjusted to account for other considerations. Claitor's July, 1984 offer to plaintiff to sell or buy at that price was made in an effort to compromise a dispute over plaintiff's right to purchase a portion of the share Claitor had bought from Ray. Claitor's letter stated that the offer was only open for one week "after which we may or may not be interested at this price or some other price". Because of the dispute compromise element, this offer should not be accorded the same weight as a bona fide offer by a party interested only in buying the share.
The most significant adjustment must be made in recognition of the fact that plaintiff's share is a minority interest in a closely held business. The determination of the value of a fractional share in a business entity involves more than fixing the value of the business and multiplying by the fraction being evaluated, especially when the share is a minority interest. A minority interest may be uniquely valuable to the owner, but may have considerably less value to an independent third party, because the interest is relatively illiquid and difficult to market. G. Desmond & R. Kelley, Business Valuation Handbook, ¶ 11.01, 11.07 (1977).
Here, when Claitor paid Ray $3,552.63 per point and offered the same price to plaintiff, he already owned or controlled a majority of the shares and had more interest in increasing his percentage than an outside investor would have in acquiring a minority share in the venture. Accordingly, the $3,552.63 per point price must be discounted in order to determine the fair market value of plaintiff's share in a true arm's length transaction.
There is no testimony in this record discussing the applicability of a minority interest discount to plaintiff's share, but some reduction is clearly warranted. Under the circumstances of this case we apply a discount of one-third to the $3,552.63 per point price in the other transactions and fix $2,368.42 per point as the fair market value of plaintiff's share.
Accordingly, the judgments of the lower courts are reversed, and judgment is rendered in favor of plaintiff in the amount of $28,421.04, plus legal interest and all costs of the proceedings.
WATSON, J., dissents.
NOTES
[1] La.C.C. art. 2822 provides:
If a partnership has been constituted without a term, a partner may withdraw from the partnership without the consent of his partners at any time, provided he gives reasonable notice in good faith at a time that is not unfavorable to the partnership.
La.C.C. art. 2823 provides:
The former partner, his successors, or the seizing creditor is entitled to an amount equal to the value that the share of the former partner had at the time membership ceased.
[2] The articles reflected the names of the partners and their partnership interest as follows:
R.G. Claitor Realty 45%
James D. Claitor Trust 1.25%
Robert G. Claitor, Jr. Trust 1.25%
Daniel A. Claitor Trust 1.25%
Jon F. Claitor Trust 1.25%
Louis F. Ray 50%
Plaintiff was not listed as a partner in the original articles.
[3] Although the articles reflected that Ray owned a fifty percent interest, twelve percent of this interest had been transferred to plaintiff pursuant to the employment contract.
[4] The shares held by the trustees of the four trusts remained at a total of five percent.
[5] Article 2823 is quoted in footnote 1. Article 2824 provides:
If a partnership continues to exist after the membership of a partner ceases, unless otherwise agreed, the partnership must pay in money the amount referred to in Article 2823 as soon as that amount is determined together with interest at the legal rate from the time membership ceases.
Article 2825 provides:
If there is no agreement on the amount to be paid under Articles 2823 and 2824, any interested party may seek a judicial determination of the amount and a judgment ordering its payment.
[6] In the breach of contract action the trial court ruled that plaintiff was entitled to $506.74 in unpaid wages. The judge also found that plaintiff had breached his fiduciary duty to the Partnership and therefore was fired for cause. The judge, however, dismissed the Partnership's reconventional demand for damages for breach of fiduciary duty because the Partnership was not substantially damaged by the breach, the lender having reinstated the $200,000 advance within two days.
[7] Plaintiff's application for certiorari contained only one assignment of error, and certiorari was granted solely to consider the issue of the share's value at the time of withdrawal. In brief to this court filed after the granting of certiorari, plaintiff presented arguments relating to other issues arising from his involuntary termination. We choose not to address these additional issues.
[8] The recently revised partnership articles of the Quebec Civil Code were the most influential source materials for the committee charged with the Louisiana revision. See Introduction: 1980 Partnership Revision, Vol. 12, L.S.A.Civil Code. In a report on the Quebec revision, the commentators stated in relation to the Quebec counterpart of Article 2823:
Since dissolution is avoided, it was necessary to provide means by which the other partners might continue the partnership if they so desired, and which at the same time would allow the withdrawing partner or his successors, as the case may be, to receive the value of the withdrawing partner's share. Such is the aim of this article.
Quebec Civil Code Revision Office, Report on the Contract of Partnership 50 (1974).
[9] If the partnership does not continue to exist, either because the remaining partners unanimously agree to terminate or for some other reason, the withdrawing partner arguably may be relegated to obtaining the value of his share in the liquidation.
[10] An agreement as to value or as to the method of determining value may be specified in the original or in an amended partnership agreement, or all parties may agree after withdrawal as to the value of the withdrawing partner's interest. La.C.C. art. 2825, Revision Comment.
[11] The Partnership initially contended that plaintiff did not own a twelve percent interest at the time he withdrew, but rather that he was only entitled to obtain this interest upon completion of the one-year employment contract as general manager. This argument, however, was inconsistent with the articles of partnership, as amended in July of 1984, which reflected that plaintiff owned a twelve percent interest at that time. The employment contract also provided for plaintiff to retain a portion of his interest if, under certain conditions not present in this case, he was unable to complete his term of employment. The trial court accordingly found that plaintiff owned a twelve percent interest at withdrawal, although the share had no value.
[12] Of course, book value may be a factor to be considered in determining fair market value, but book value is not the sole factor.
[13] The appraiser apparently calculated sixty-eight percent of $3,680,000. This investment figure for appraisal purposes did not include other expenditures considered by the accountant, such as interest on the land investment and on the construction loans.
[14] Offers to purchase by third parties are clearly relevant, especially when the same property is involved. However, such offers have generally been excluded from evidence in expropriation cases because they are highly susceptible to fabrication. M. Dakin & M. Klein, Eminent Domain in Louisiana Ch. IV, § 5 (1970). This exclusion was criticized in Pugh, RelevancyOffers to Purchase, 22 La.L.Rev. 399 (1962). The present case differs, however, because the offer was made by one of the parties to the litigation over value.
[15] The appraiser evaluated the immovable property on March 14, 1986, estimating its value as of October 24, 1984, the date of plaintiff's withdrawal. Under cross-examination the appraiser admitted he did not assign any value to the potential development of the planned commercial area along the highway, of the planned 122 additional boat slips not yet constructed, or of the planned condominiums not yet built in October, 1984. He stated that he was not furnished with the development plan for his appraisal.
Further cross-examination showed that the appraiser had evaluated the same property in January, 1986 (two months before the date of the above appraisal) for the purpose of a loan to the Partnership. In the January, 1986 appraisal the expert emphasized the development potential of the property, noting that the remaining boat slips will be leased at prevailing rates which will generate income for the restaurant, lounges and boat service facilities, that full marina occupancy will enhance public income from the recreational facilities, that commercially-zoned property will be developed on the highway, and that residential lots can be made available for sale with the expenditure of very little additional capital. Capitalizing the potential income from boat slip rentals and related concessions and considering the potential land sales, he estimated the value at $5,240,000.
The record does not indicate any significant changes in the venture between October, 1984 and January, 1986. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2433308/ | 503 S.W.2d 362 (1973)
Anice CAUBLE, Administratrix of Estate of Thomas H. Cauble, Deceased, Appellant,
v.
Tom HANDLER, Appellee.
No. 17451.
Court of Civil Appeals of Texas, Fort Worth.
December 14, 1973.
Rehearing Denied January 11, 1974.
*363 Denning Schattman, and W. Garrett Morris, Fort Worth, for appellant.
Owens & Fortney, and Richard Owens, Fort Worth, for appellee.
OPINION
BREWSTER, Justice.
This is a suit brought by the administratrix of the estate of a deceased partner against the surviving partner for an accounting of the partnership assets. No jury was involved and the trial court did not file findings of fact and conclusions of law. Tom Handler, the defendant, was the surviving partner and Thomas Cauble was the deceased partner. The partnership was engaged in selling at retail furniture and appliances and each partner owned a 50% interest.
The trial court awarded the plaintiff, the administratrix of the estate of the deceased partner, a judgment against the surviving partner for $20.95 plus six per cent interest thereon from February 2, 1973, the date of the judgment. The judgment also awarded the court appointed auditor a fee in the sum of $1,800.00 for his services in auditing the partnership accounts, taxed the item as court costs, and then taxed the entire court costs against plaintiff. It is from this judgment that plaintiff is appealing. We will refer herein to the parties as they appeared in the court below.
We reverse and remand the case for a new trial.
The plaintiff's first point is that the trial court erred in basing its judgment upon the book value of the partnership assets that were arbitrarily established by defendant. Her eighth point of error is that the court erred in refusing to consider the cash market value of the partnership assets in arriving at its judgment.
We sustain both of these points of error.
It is apparent from the record that the trial court determined the value of the *364 partnership inventory by using the cost or book value thereof. Thomas Cauble died on May 18, 1971. The defendant, Handler, the surviving partner, thereafter filed an income tax return for the partnership covering the period from December 31, 1970, to May 18, 1971, wherein he stated in Section M thereof that the value of each partner's one-half interest in the partnership as of the date of Cauble's death (May 18, 1971) was $40,344.39. This is the exact figure the record reflects the trial court found to be the value of each partner's interest as of that date, before deducting from such figure each partner's one-half of $1,502.42 in partnership debts that came to light after this tax return was filed. (Tr. 23) Handler kept the partnership books and took a physical inventory that was used by the partnership tax man in preparing this final partnership income tax return. In preparing the inventory Handler testified that he priced each item in the inventory "According to the invoices, according to cost." Again he stated: "Take the count first and then you... go back to the invoice and pick up the amount." (S/F 125-126)
The value of the partnership inventory, arrived at as above indicated, was used by the accountant in preparing the final income tax return and was used by the court in determining the value of the plaintiff's interest in the partnership at the date of Cauble's death.
The court erred when he used the cost price or book value of the partnership assets in determining the value of the inventory. The following is from the opinion in the case of Johnson v. Braden, 286 S.W.2d 671 (San Antonio, Tex.Civ.App., 1956, no writ hist.), at page 672: "The judgment must be reversed. Market values of the company assets are wholly absent from the record, and Johnson, on cross-examination, demonstrated that the plaintiff's audit was based on book values. It should have been based on market value." (Emphasis ours.)
See also Caplen v. Cox, 42 Tex. Civ. App. 297, 92 S.W. 1048 (1906, writ ref.) and Hurst v. Hurst, 1 Ariz.App. 227, 401 P.2d 232 (1965). This Hurst case holds that book values are simply arbitrary values and cannot be used. The case also holds that the amount for which the partnership assets were sold four years after the date of dissolution is also not proper evidence to be considered on the issue of market value of the partnership property at date of dissolution.
The defendant contends that plaintiff offered no evidence during the trial tending to establish the reasonable cash market value of the partnership assets at date of dissolution and that the burden of proof was on the plaintiff to establish such value. He contends that since the record contains no evidence as to the market value of the inventory that the court's action in using book or cost value could not be reversible error.
We agree that the burden of proof in this accounting case was on the plaintiff to show that Handler was indebted to the deceased's estate and to show the amount of such debt. Plaintiff thus had the burden to prove the market value of the partnership assets. See Taormina v. Culicchia, 355 S.W.2d 569 (El Paso, Tex.Civ.App., 1962, ref., n. r. e.); Palmer v. Manville, 228 N.W. 20 (Iowa Sup., 1929); Oskaloosa Sav. Bank v. Mahaska County State Bank, 205 Iowa 1351, 219 N.W. 530 (1928); and Nichols v. Martin, 277 Mich. 305, 269 N.W. 183 (1936).
When the estate of a deceased partner sues the surviving partner for an accounting of partnership assets the burden of proof is upon the plaintiff to prove the amount for which the surviving partner should account to the deceased's estate. See Nichols v. Martin, supra, and the Oskaloosa Sav. Bank case, supra. Once the amount that should be accounted for is established, it then becomes the duty of the surviving partner to account to or to pay *365 to the estate of the deceased partner that sum.
It appears from the record before us that much of plaintiff's troubles in this case have resulted from an erroneous belief that the burden of proof in this case was on the defendant.
We do not agree, however, that there was no legitimate evidence offered during the trial that could be properly considered by the trial court on the issue of market value of the partnership inventory involved.
Prior to trial time the learned trial court had, pursuant to plaintiff's motion, appointed an auditor under Rule 172, Texas Rules Civil Procedure, to state the account between the parties and to make a report thereof to the court.
During the trial the plaintiff offered in evidence Exhibit B of the auditor's report which read as follows: "Inventory as of May the 18th, 1971, inventory at lower cost or market, $90,227.61." This constituted some legitimate evidence as to the market value of the inventory at the time in question.
The defendant did file exceptions to the auditor's report. The law on this is that even though the auditor's report is excepted to by one or more of the parties, it is still admissible in evidence. And since it is admissible it can be considered by the fact finder. In such a case the report is prima facie proof of the matters therein stated. Cook v. Peacock, 154 S.W.2d 688 (Eastland, Tex.Civ.App., 1941, ref., w. o. m.). In the absence of exceptions to the auditor's report it is conclusive of findings of fact that are properly contained therein. Griffin v. Sevier, 234 S.W.2d 272 (Galveston, Tex.Civ.App., 1950, no writ hist.).
Much of plaintiff's argument under her first three points of error is devoted to her contention that the trial court erred in failing and refusing to allow her a share of the profit made by Handler by continuing the partnership business between date of dissolution and date of judgment.
We sustain this contention.
The undisputed evidence shows that Handler continued to operate and to control the partnership business after the death of Cauble and down to the trial date, and that he used and sold the assets of the partnership during all that period. The record does not show that this was done with the consent of the administratrix of the deceased's estate.
Exhibit E of the court appointed auditor's report was offered into evidence and it showed that during the period from May 19, 1971, to May 21, 1972, Handler made a net profit of $40,163.42 out of operating the partnership business after dissolution. The fact that this net profit was made is undisputed. As demonstrated above this auditor's report was legitimate evidence of the amount of those profits.
The defendant, at page 11 of his brief, admits that plaintiff tried this case on the theory that she was entitled to recover, after the accounting, one-half of the value of the partnership assets, plus a share of the profits from the date of Cauble's death to date of judgment.
The trial court, in its judgment, refused to allow the plaintiff to recover one-half of the profits that were made by Handler after the dissolution of the partnership by his continued operation of the business. Instead the trial court awarded plaintiff a recovery of some interest in the amount of $3,764.89.
It is section 38(1) of Article 6132b, Vernon's Ann. Texas St., that gave the representative of the estate of the deceased partner the right to elect, if she so desired, to have the partnership assets liquidated, the debts paid, and the share of each partner in the surplus paid to him in cash.
The plaintiff in this case did not elect to have this done.
*366 If that election is made it many times results in the sacrifice of going concern values. See "Law of Partnership" by Crane and Bromberg, page 474, note 43.
The following quotation explains the several elections that were open to the plaintiff under the fact situation that we have here. It is from "Law of Partnership" by Crane and Bromberg, Section 86(c), pages 495-496, and is as follows:
"If a partnership is seasonably wound up after dissolution, profits and losses during the liquidation are shared by the partners in proportion to their pre-dissolution ratios, unless they have agreed otherwise.. . .
"The situation changes if the business is not wound up, but continued, whether with or without agreement. In either case, the non-continuing partner (or his representative) has a first election between two basic alternatives, either of which can be enforced in an action for an accounting. He can force a liquidation, taking his part of the proceeds and thus sharing in profits and losses after dissolution. Alternatively, he can permit the business to continue (or accept the fact that it has continued) and claim as a creditor (though subordinate to outside creditors) the value of his interest at dissolution. This . . . means he is unaffected by later changes in those values. If he takes the latter route, he has a second election to receive in addition either interest . . . or profits from date of dissolution. This second election shields him from losses, . . . .
"The second election may seem one-sided. It serves as `a species of compulsion. . . to those continuing the business. . . to hasten its orderly winding up.' In part it is compensation to the outgoing partner for his liability on partnership obligations existing at dissolution; this liability continues until satisfaction, which would normally occur in the process of winding up, . . . .
"The second election rests partly on the use of the outgoing partner's assets in the conduct of the business.... his right to profits ends when the value of his interest is properly paid to him." (Emphasis ours.)
Section 42 of Art. 6132b, V.A.T.S., is the part of the Texas Uniform Partnership Act that gives the representative of the estate of a deceased partner a right to share in the profits, if he elects to do so, if the other partner continues to operate the business after dissolution.
The great weight of authority is to the effect that Sec. 42 of Art. 6132b, V.A.T.S., giving the option to take profits to the non-continuing partner is applicable regardless of whether the business is continued with or without the consent of the non-continuing partner or the representative of his estate. For a full discussion of this see the law review article in 63 Yale Law Journal 709, entitled "Profit Rights and Creditors' Priorities After a Partner's Death or Retirement: Section 42 of the UPA" and the additional article on this subject in 67 Harvard Law Review 1271.
It is manifestly clear that the plaintiff in this case elected, as she had a right to do under Sec. 42, Art. 6132b, V.A.T.S., to have the value of Cauble's partnership interest at the date of dissolution ascertained and to receive from the surviving partner, Handler, as an ordinary creditor, an amount equal to the value of Cauble's interest in the dissolved partnership at date of dissolution, plus the profits attributable to his right in the property of the dissolved partnership.
The following proceedings that occurred during the trial show that this election was made by plaintiff:
"THE COURT: You think they're making an election for the profits, is that correct, sir?
*367 "MR. OWENS: The way they've been introducing their evidence and talking here I presume they have.
"MR. SCHATTMAN: That's correct.
"THE COURT: If you have not done so that is your election?
"MR. SCHATTMAN: Right.
"THE COURT: All right, then that disposes of that point."
Although the undisputed evidence showed that Handler made over $40,163.42 by operating the partnership business after dissolution, the Court refused to allow plaintiff to recover from Handler the Cauble estate's share of those profits, which plaintiff had a right to do. In lieu of profits, which plaintiff elected to recover, the Court awarded her six per cent interest on what he found to be the cost or book value of the Cauble interest in the partnership at date of dissolution. This interest amounted to $3,764.89, which sum was considerably less than a one-half interest in the $40,163.42 in profits that Handler made out of his operation of the partnership business after dissolution.
This error was obviously prejudicial to plaintiff.
In plaintiff's fifth point of error she contends that the trial court erred in taxing all the costs incurred in connection with the accounting case, including the court appointed auditor's fee of $1,800.00, against the plaintiff.
Since this case is being reversed and remanded the only reason we even mention this point is because it will obviously come up again on a retrial of the case.
The record does not reveal the court's reason for taxing all the court costs, including the $1,800.00 court appointed auditor's fee, against just one of the two partners involved in this accounting suit.
We will simply call attention to the following general rules and leave the matter there at this time.
We recognize that the trial court does have a broad discretion in taxing the costs in a case like this and there are occasions where the costs have been taxed against just one partner. But, as a general rule, the costs that are incurred in an accounting case are ordered paid out of the partnership estate. See 68 C.J.S. Partnership § 448, p. 1001, and "Partners and Partnerships", by Barrett and Seago, Vol. 2, Chapter 9, Sec. 6.1. This results in the costs being paid by the partners in proportion to their interest in the business.
It would seem that in the ordinary case both partners would benefit by having the state of the account between them legally adjudicated so that the partnership can be terminated. One partner is not obligated to accept the adverse party's word for the state of the partnership account.
In view of a retrial of this case we also suggest that some evidence be then heard on the matter of setting the auditor's fee and that it be put into the record. It is rather difficult for an appellate court to pass on the question of whether the fee allowed is reasonable in the absence of evidence as to the type of work done, the time consumed doing it, the type and skill of employees that did the work, and the charges usually made in the community for that type work. The complaint about the reasonableness of this auditor's fee is made in plaintiff's seventh point of error. We overrule the point because as plaintiff says, there is no evidence in the record tending to show whether or not the fee was reasonable. We believe it was the burden of the plaintiff to make the record show that the fee was unreasonable before he can complain about the amount of the fee.
We have considered all of plaintiff's points and overrule all of her contentions except those that are hereinabove expressly sustained.
Reversed and remanded for a new trial. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2539284/ | 706 F. Supp. 2d 817 (2010)
Shane MAYNARD, Plaintiff,
v.
JACKSON COUNTY OHIO, et al., Defendants.
Case No. 2:08-cv-1199.
United States District Court, S.D. Ohio, Eastern Division.
April 12, 2010.
*818 Alphonse Adam Gerhardstein, Jennifer Lynn Branch, Gerhardstein & Branch Co., LPA, Cincinnati, OH, Richard Dean Topper, Jr., Columbus, OH, for Plaintiff.
Randall Lee Lambert, Ironton, OH, for Defendants.
OPINION AND ORDER
TERENCE P. KEMP, United States Magistrate Judge.
On May 27, 2007, plaintiff Shane Maynard was riding his all-terrain vehicle northbound on State Route 233 in Jackson County, Ohio, when he encountered a sheriff's cruiser which had pulled sideways into *819 the northbound lane. He avoided the cruiser, but ended up driving his vehicle off an embankment. Upon hitting the embankment, Mr. Maynard was ejected from the ATV and suffered serious physical injuries.
In his complaint, Mr. Maynard claims that both Jackson County and Scott Conley, a Jackson County Sheriff's Deputy, violated his rights under the Fourth and Fourteenth Amendments to the United States Constitution. He also claims that Deputy Conley destroyed relevant evidence concerning the accident scene when he moved his cruiser after the crash. The case is currently before the Court to consider the defendants' motion for summary judgment. For the following reasons, the defendants' motion will be granted in part and denied in part consistent with this Opinion and Order.
I. Factual Background.
The Court sets out the summary judgment motion standard below. Under this familiar standard, the motion must be decided based upon the version of the facts that favors the plaintiff. That version of the facts can fairly be stated as follows.
Mr. Maynard began riding his ATV on the morning of May 20,2007. During the day, he drank eight to ten beers. He then decided to go to a cookout at a friend's house. The route to the cookout took him along State Route 233. He and another ATV rider, Jerry Nichols, at whose home the cookout was planned, entered the roadway sometime in the evening, perhaps around 7:00 p.m.
At the same time, Deputy Conley had been driving his police cruiser along Route 233 looking for the home of an alleged burglary victim. In his deposition, he stated that he had stopped to check the name on a mailbox when he saw the two ATVs enter Route 233 from a side road. Ordinarily, such vehicles should not be operated on the highway. Deputy Conley decided to stop the riders and give them a warning.
After the ATV riders had gone only a short distance on Route 233, Deputy Conley activated the lights on his cruiser. According to him, both riders then "gunned it" as they approached his car. He moved the cruiser slowly forward and also turned his wheels to the side in an effort to display the car's emblem to them. As he did so, the cruiser crossed the yellow dividing line in the center of the road. Mr. Nichols, upon seeing the cruiser, made a u-turn. Mr. Maynard swerved off the road to his right, went through someone's yard, hit some railroad ties next to a creek, and became airborne. Both the vehicle and Mr. Maynard landed in the creek. Deputy Conley went over to the scene of the crash and held Mr. Maynard's head out of the water until the fire department arrived. He moved his cruiser out of the roadway before he did so.
The primary factual dispute in this case is whether Mr. Maynard was forced to leave the roadway in order to avoid striking Deputy Conley's cruiser. According to Deputy Conley, he had moved his car no more than one-quarter of the way into Mr. Maynard's lane of traffic, and there was more than enough room for Mr. Maynard to drive around him. He also believed Mr. Maynard could have stopped his ATV short of the cruiser.
Mr. Maynard's version is quite different. He testified in his deposition that when he first saw the cruiser, he did not realize it was a police car. By the time he saw it, he was already moving toward the berm of the road so as not to be riding on the paved roadway. Next, he saw the car flashing its headlights and crossing into his lane of travel. He attempted to brake his vehicle. By that time, the car (which he still did not recognize as a cruiser) had taken up the entire lane of travel. He *820 veered into the grass in order to avoid hitting the car, but he was unable to stop the vehicle before he crashed into the creek.
Mr. Nichols was also deposed, and gave a similar account. He also saw the cruiser pulling into his lane of travel. At that time, Mr. Maynard was riding in front of him. Although he did not see the overhead lights activated, he did see the Sheriff's Department emblem on the door. At that point, he turned his vehicle around. Shortly afterward, he looked back and saw Mr. Maynard trying to avoid the cruiser, which was blocking the entire northbound lane of the road. However, he did not see the crash. Rather, he left the scene in order to avoid getting a ticket.
All of this happened right in front of the home of Yvonne McFann. She was also deposed. She said that shortly before the crash she was standing on her porch. She saw the cruiser crossing the roadway toward her driveway and then heard the ATVs coming. The lead ATV then crossed the edge of the road into her driveway. From her vantage point, the driver had two choices at that point: to hit the cruiser or to veer off through her yard. She believed he tried to brake as he approached the cruiser, but he clearly had to swerve in order to avoid a collision.
From this recitation of the testimony, there is clearly a dispute about how far Deputy Conley pulled across Mr. Maynard's lane of travel, and whether his actions forced Mr. Maynard to leave the roadway and end up crashing into the creek. Nevertheless, Deputy Conley has moved for summary judgment on the grounds that his actions did not constitute an unreasonable seizure under the Fourth Amendment. He also disputes that when he moved his cruiser after the crash occurred, he spoiled evidence in the case, and both defendants argue that there is no basis for holding Jackson County liable for Deputy Conley's actions. The Court will analyze these issues after reciting the appropriate summary judgment standard.
II. Summary Judgment Standard.
Summary judgment is not a substitute for a trial when facts material to the Court's ultimate resolution of the case are in dispute. It may be rendered only when appropriate evidentiary materials, as described in Fed.R.Civ.P. 56(c), demonstrate the absence of a material factual dispute and the moving party is entitled to judgment as a matter of law. Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 82 S. Ct. 486, 7 L. Ed. 2d 458 (1962). The moving party bears the burden of demonstrating that no material facts are in dispute, and the evidence submitted must be viewed in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970). Additionally, the Court must draw all reasonable inferences from that evidence in favor of the nonmoving party. United States v. Diebold, Inc., 369 U.S. 654, 82 S. Ct. 993, 8 L. Ed. 2d 176 (1962). The nonmoving party does have the burden, however, after completion of sufficient discovery, to submit evidence in support of any material element of a claim or defense on which that party would bear the burden of proof at trial, even if the moving party has not submitted evidence to negate the existence of that material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). Of course, since "a party seeking summary judgment ... bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact," Celotex, 477 U.S. at 323, 106 S. Ct. 2548, the responding party *821 is only required to respond to those issues clearly identified by the moving party as being subject to the motion. It is with these standards in mind that the instant motion must be decided.
III. Legal Analysis
A. The § 1983 claim against Deputy Conley
The elements of a constitutional claim which is brought under 42 U.S.C. § 1983 are familiar. By its terms, that statute requires proof that the party being sued was acting "under color of a[] statute, ordinance, regulation, custom or usage, of a[] State," that the plaintiff is a "citizen" or "person" entitled to bring suit under that statute, and that the defendant subjected the plaintiff "to the deprivation of... rights, privileges, or immunities secured by the Constitution" of the United States. See, e.g., Flagg Bros. v. Brooks, 436 U.S. 149, 155, 98 S. Ct. 1729, 56 L. Ed. 2d 185 (1978); Searcy v. City of Dayton, 38 F.3d 282, 286 (6th Cir.1994). Here, there is no dispute about Mr. Maynard's right to sue for relief under this statute or that Deputy Conley was acting under color of state law when he pulled his cruiser across the road. The only disputed legal issue is whether, if he did what Mr. Maynard says he did, his actions deprived Mr. Maynard of some constitutional right.
The first step in the analysis is identifying the specific constitutional right which the injured party claims to have been violated. The Fourth Amendment protects citizens against unreasonable federal governmental searches and seizures. Its protections have been incorporated into the Fourteenth Amendment's due process clause so that they apply to actions by the States as well. Mr. Maynard asserts that he was "seized" in violation of the Fourth Amendment when his passage along Route 233 was impeded by Deputy Conley's cruiser, and that because Deputy Conley had no basis for attempting to seize Mr. Maynard in that way, the seizure was unreasonable. If both of those assertions are correct, then a jury, if it believed Mr. Maynard's version of the events in question, could find for him on his Fourth Amendment claim.
B. Could a Jury Find a Fourth Amendment "Seizure"?
It might not be intuitively apparent that if a police officer causes an automobile or vehicle accident, he or she has "seized" someone within the meaning of the Fourth Amendment. Of course, motor vehicle accidents were certainly not within the contemplation of the authors of the Bill of Rights. Nevertheless, since the advent of the motor vehicle, the courts have been required to consider whether an officer's conduct during a vehicle pursuit or in setting up a roadblock to stop a moving vehicle can constitute a Fourth Amendment seizure. Based upon the reasons why the Fourth Amendment prohibits unlawful seizures, these decisions announce principles that allow this Court to answer the question of whether Mr. Maynard's Fourth Amendment rights may have been violated.
In Brower v. County of Inyo, 489 U.S. 593, 109 S. Ct. 1378, 103 L. Ed. 2d 628 (1989), the Supreme Court was presented, apparently for the first time, with the question of whether a police roadblock, if successful in stopping a fleeing suspect, qualified as a "seizure" within the meaning of the Fourth Amendment. In that case, police had been chasing what they believed to be a stolen vehicle, and at some point during the chase, ordered a roadblock established. The roadblock, which consisted of a tractor-trailer, blocked the entire highway on which the chase was taking place. The vehicle crashed into the roadblock and the driver was killed. The question before the Court was whether he had *822 been "seized" for Fourth Amendment purposes by the roadblock.
The Court began its analysis of the question by citing to Tennessee v. Garner, 471 U.S. 1, 105 S. Ct. 1694, 85 L. Ed. 2d 1 (1985), a case in which a fleeing felon had been shot by a police officer. Garner held that such an action was a "seizure" because it had the effect of restraining the suspect's freedom to walk away from his encounter with the police. The Court held that a roadblock effects the same type of restraint; certainly, once a suspect has crashed into the roadblock and come to a stop, his or her freedom to walk away has been restrained.
In Brower, the state had argued that a police roadblock case resulting in the crash of the suspect's vehicle was no different from a police pursuit case leading to the same result, and that courts which had considered pursuit cases had come to the conclusion that no seizure occurred there even if the pursuit caused the crash. The Court of Appeals in that case had agreed, holding that because the suspect could have stopped his car at any time during the chase but chose not to do so, "his freedom of movement was never arrested or restrained." Brower v. Inyo County, 817 F.2d 540, 546 (9th Cir.1987).
Although the Supreme Court agreed that no seizure occurs when a suspect who is being chased by the police "unexpectedly loses control of his car and crashes," its reasoning differed from that articulated by the Court of Appeals. The Court explained that a seizure in violation of the Fourth Amendment takes place "only when there is a governmental termination of freedom of movement through means intentionally applied." Id. at 597, 109 S. Ct. 1378. In the case of an officer using only flashing lights in an attempt to pull over a suspect, there is no seizure, even though the fleeing car subsequently crashes, because the suspect "was stopped by a different meanshis loss of control of his vehicle and the subsequent crash." Id. In contrast to that situation, "a roadblock is not just a significant show of authority to induce a voluntary stop, but is designed to produce a stop by physical impact if voluntary compliance does not occur." Id. at 598, 109 S. Ct. 1378. The Court declined to draw a distinction between types of roadblocks, noting that whether a roadblock was located far enough down the road to allow the suspect time to stop, or located just around a corner where stopping would have been impossible, if the roadblock accomplished its purpose of stopping the suspect, that suspect has been "seized" by that roadblock, which was "the very instrumentality set in motion or put in place in order to achieve that result." Id. at 599, 109 S. Ct. 1378. The type of roadblock and its placement were deemed relevant not to whether a seizure had occurred, but to whether that seizure was reasonable.
To a great extent, the defendants' argument that no seizure occurred is based solely upon Deputy Conley's testimony that he did not pull fully into the northbound lane and that he did not block Mr. Maynard's path of travel. Clearly, that factual scenario is disputed, and a jury could find that Deputy Conley's version of the facts is not accurate. It would be totally improper, under the applicable summary judgment standard, for the Court to conduct a Fourth Amendment analysis based on the defendants' version of disputed facts.
The defendants do offer an alternative argument, however, that seems to concede at least some of the facts as alleged by Mr. Maynard. That argument appears to have two parts: either that, even under Mr. Maynard's version of the facts, he had room to pass Deputy Conley's cruiser on the berm of the road, or, as everyone *823 agrees, Mr. Maynard did not actually come into contact with the cruiser. According to defendants, the former fact proves that there was no "roadblock," while the latter fact would prevent a jury from finding that any roadblock which might have been formed by the cruiser actually caused Mr. Maynard to stop.
The first part of this argument fails because it, too, relies on a "fact" that is reasonably subject to dispute. Whether the cruiser was pulled part or all of the way across Mr. Maynard's lane of travel, or even partly into the driveway of Ms. McFann's residence, is an issue for the jury. Similarly, whether Mr. Maynard had room to maneuver safely around the cruiser is also a jury issue. The evidence is simply in conflict about whether he had a reasonable opportunity to avoid hitting the cruiser by taking a safe path around it.
The second part of this argument fails for a different reason. A hypothetical example shows why. Suppose a police roadblock, consisting of police cruisers, is set up across a roadway at a point where other objectsrock formations, bridge abutments, or other typical side-of-the-road obstructionswould make it impossible for someone to drive around the roadblock. As the suspect approaches the roadblock and determines that he is unable to stop, he chooses to crash his vehicle into one of these objects rather than the police cars themselves. If the defendants' argument were accepted, the constitutional question of whether a seizure had occurred would depend entirely on which object caused the suspect's vehicle to come to a stop. Surely the proper interpretation of the constitution cannot depend upon these types of variables.
Here, under Mr. Maynard's version of events, his vehicle came to a stop, and he was seized within the meaning of the Fourth Amendment, as a direct result of the means intentionally chosen by Deputy Conley, whose actions insured either that Mr. Maynard would be stopped by the cruiser itself or by some feature of the surrounding landscape that was put into playand thereby incorporated into the "roadblock"precisely because Deputy Conley forced Mr. Maynard to encounter it. Under Brower, the relevant questions are (1) whether the police conduct intended to cause someone to stop by means of the roadblock, and (2) whether the roadblock accomplished that very purpose. Here, the jury could conclude that this is exactly what happened even though Mr. Maynard collided with an embankment rather than the cruiser itself.
Other courts have analyzed this issue in the same way. For example, in Johnson v. Grob, 928 F. Supp. 889, 897 (W.D.Mo. 1996), the court constructed a remarkably similar hypothetical based on Brower, assuming "for purposes of argument that Brower, in a state of panic, had not crashed into the roadblock but had instead swerved off the road and into a tree." The court concluded that "[a]t that point, Brower would still have been seized as a result of the crash." Id. The court also observed that "[a] suspect who swerves to avoid an unreasonable roadblock chooses not to flee justice but to save his life ...." Id. at 899. Thus, for all of these reasons, the Court cannot accept the defendants' argument that there is no version of the facts which would support a finding that Mr. Maynard was seized for Fourth Amendment purposes.
C. Could a Jury Find the Seizure Unreasonable?
The defendants also argue that to the extent Deputy Conley's actions constituted a seizure, those actions were not unreasonable. They point out that the reason Deputy Conley pulled across the road was to allow the two ATV riders to see the emblem on the side of his cruiser. In their *824 words, "[t]he officer attempted to stop two individuals by allowing them to see that he was a law enforcement officer." Defendant's memorandum, Doc. #26, at 14. The reasonableness of this conduct seems evident to the defendants because Mr. Nichols was able to slow down his ATV and reverse course after seeing the emblem. However, they continue to rely on Deputy Conley's testimony that he "did not pull fully into the northbound lane. He gave the ATVs enough room to pass and plenty to (sic) time to stop or turn around." Id. They then characterize Mr. Maynard's actions as unreasonable because he chose not to take either of these optionsstopping or traveling a safe path around the cruiserand instead voluntary chose to run off the road and crash down the embankment.
Mr. Nichols' ability to stop and turn around is clearly not determinative of the reasonableness of Deputy Conley's actions. For one thing, Mr. Nichols was further away from the cruiser than Mr. Maynard was when it began to pull across the road. The fact that he had time to turn around does not prove beyond dispute that Mr. Maynard could have done the same. A jury could believe Mr. Maynard's testimony, and the other evidence corroborating his testimony, that he did not have time to stop. Further, the defendants are again inviting the Court to determine the reasonableness of Deputy Conley's conduct based on his testimony alone. The Court may not do so. Distilled to its essence, defendant's argument on this point is that Deputy Conley's actions, even if they constituted a seizure, were reasonable because he left Mr. Maynard with a safe pathway around his cruiser. This precise fact is in dispute, and the Court cannot grant summary judgment when that is the case.
D. Section 1983 Issues Not Raised
The defendants spend a portion of their memorandum outlining the contours of the qualified immunity doctrine. Under that doctrine, once the Court determines that a constitutional violation has occurred (or that a jury could so find), the Court must, if asked by the defendant, determine if the right in question was clearly established at the time the defendant acted. See Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S. Ct. 2727, 73 L. Ed. 2d 396 (1982); Dominque v. Telb, 831 F.2d 673 (6th Cir.1987). Defendants do not argue that the Fourth Amendment right not to be seized by an unreasonably-erected police roadblock was not clearly established in 2007, and in light of decisions like Brower and Buckner v. Kilgore, 36 F.3d 536 (6th Cir.1994), they would be hard-pressed to make such an argument. Because the defendants's qualified immunity argument focuses solely on issues relating to whether a jury could find a Fourth Amendment violation here, the Court will not address this aspect of qualified immunity.
Defendants also do not argue that, if Deputy Conley actually established a roadblock that Mr. Maynard could not safely avoid, he had a reasonable basis for doing so. Again, given the fact that Mr. Maynard may have been committing, at most, a minor misdemeanor, it would seem that any argument that potentially deadly force, or force designed to cause serious bodily injury, could reasonably have been used to stop Mr. Maynard would fail. Nonetheless, because defendants have not advanced any argument on this point, the Court makes no decision on the issue.
E. § 1983 Claims against Jackson County, Ohio
Since the Supreme Court's decision in Monell v. Department of Social Services, 436 U.S. 658, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978), municipal governmental bodies such as cities and counties have been considered as "persons" who can be sued under 42 U.S.C. § 1983. However, *825 Monell made clear that a municipality cannot be held liable under that statute simply because it employed the individual who violated the plaintiff's constitutional rights. Rather, the plaintiff must prove that the individual's actions can legitimately be viewed as the actions of the county itself.
In decisions handed down after Monell, the Supreme Court outlined various avenues for that type of proof. One of the most frequently attempted methods for holding a municipal body liable for the actions of its employees is to show that the municipality had a policy or practice of failing to give adequate training to its employees about how to behave in situations they are likely to encounter. If those untrained employees then violate the constitution in such a situation, it may fairly be said that the cause of that violation was the county's failure to train it employees to do otherwise. See, e.g., City of Canton v. Harris, 489 U.S. 378, 389, 109 S. Ct. 1197, 103 L. Ed. 2d 412 (1989).
However, not just any failure to train will do. As the Harris court observed, "it may happen that in light of the duties assigned to specific officers ... the need for more or different training is so obvious, and the inadequacy so likely to result in the violation of constitutional rights, that the policymakers of the [county] can reasonably have been said to have been deliberately indifferent to the need." If that is so, "the failure to provide proper training may fairly be said to represent a policy for which the [county] is responsible, and for which the [county] may be held liable if it actually causes injury." Id. at 390, 109 S. Ct. 1197 (footnotes omitted). For liability to attach under this theory, the plaintiff must also prove that "the identified deficiency in a [county]'s training program [is] closely related to the ultimate injury." Id. at 391, 109 S. Ct. 1197. Further, it is important to keep in mind that even if "a particular officer may be unsatisfactorily trained, [that fact] will not alone suffice to fasten liability on the [county]" and that the negligent administration of "an otherwise sound program" is not a basis for § 1983 liability. Finally, the Harris court pointed out, and it is worth remembering, that "adequately trained officers occasionally make mistakes, [and] the fact that they do says little about the training program or the legal basis for holding the [county] liable." Id.
The County's summary judgment motion sets forth several reasons why, in its view, Mr. Maynard cannot prove this claim. First, it points out that if Deputy Conley is entitled to summary judgment on the claim asserted against him in his individual capacity, it cannot be held liable for his actions, either. However, this argument is foreclosed by the Court's ruling that a jury could find Deputy Conley liable. In a related argument, it asserts that Deputy Conley acted like "an appropriately trained and supervised police officer" because, in his deposition, he testified that he left Mr. Maynard a safe path of travel. Defendant's memorandum, at 21. Of course, because this fact is also in dispute, the Court may not resolve the issue of the County's liability on this basis.
Next, the County argues that Mr. Maynard has not identified any written policy it has adopted that led to the crash. That much is true, but his claims against Jackson County are not based on an assertion that Deputy Conley was following a prescribed policy when he pulled his cruiser over in an attempt to stop Mr. Maynard. Rather, his claims are based on the assertion that Deputy Conley was neither aware of nor adequately trained about the County's roadblock policy.
Finally, the County argues that the record does not contain any facts from which a jury could find an actionable failure to train. It asserts, for example, that Mr. *826 Maynard will not be able to produce any evidence that Deputy Conley ever used an unreasonable road-blocking technique in the past, so that Jackson County could not have been aware that he was not adequately trained in this area. It also notes that he is a certified law enforcement officer in the State of Ohio, although it has not presented any evidence about what training, if any, certified law enforcement officer usually receive concerning using their police cruisers to stop oncoming motorists. The argument that there are no facts in the record to support the claim that the County could be liable for Deputy Conley's actions is sufficient under Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986), to place the burden on Mr. Maynard to produce enough evidence to show that a reasonable jury could find in his favor on this issue.
According to Mr. Maynard, Jackson County can be held responsible for Deputy Conley's actions in this case because it gave him no training regarding the proper use of roadblocks and, following the test set forth in Harris, it should have been obvious to County officials that if a patrol officer does not know how properly to use a vehicle to effect a traffic stop, constitutional violations such as the one alleged in this case are likely to occur. The question then becomes whether there are any facts in the record showing that this might be true.
At his deposition, Deputy Conley was asked about the training he received from Jackson County on the use of his cruiser to block oncoming traffic. When asked to define a roadblock, he testified that he did not "have the definition of a roadblock available." Conley Deposition, Doc. # 31, at 109. He said that the question of roadblocks "might be" addressed in the Jackson County Sheriff's policies, but he did not know. Id. He did say, however, that he did not "recall specific training on road-blocks." Id. He knew about the County's pursuit policy, however, and was aware that he could initiate a chase only if the suspect was believed to be a violent felon. Id. at 110. After being shown the pursuit policy, he acknowledged that setting up a roadblock was part of the pursuit policy, and that the policy said that roadblocks could be authorized only by patrol supervisors or senior deputies. He further agreed that the policy prohibited using occupied vehicles for a roadblock and that any roadblock had to leave room for a slow-moving vehicle to pass through it. Id. at 113-14. He refused to characterize his action in pulling his cruiser at least halfway across Mr. Maynard's lane of travel as a roadblock, however.
The only other witness who testified on this issue was Jackson County Sheriff John Shasteen. Sheriff Shasteen testified, first, about training in general, stating that "We haven't been able to do a lot of training. We can't afford to send people to training. So the training most officers here have is they go to school on their own, pay for it themselves, or they received it in the basic police course." Shasteen Deposition, Doc. #34, at 18. When asked about the road patrol policies, he testified that after he took office (which was in 2001) he obtained written policies from Montgomery County and distributed them to his officers. Id. Counsel then inquired about what kind of training Jackson County officers received on the policies. Sheriff Shasteen responded that "it's hard to explain. There hasn't been that much training." Id. at 19. Jackson County has not had a training officer since 2005. Id. at 22. Sheriff Shasteen himself had never received any training on the way in which the Fourth Amendment applies to roadblocks. Id. at 30. Finally, he acknowledged that injuries can occur if a vehicle stop is not done properly, and that he could not say that he did anything "to *827 make sure that before [he] gave [Deputy] Conley the keys to that cruiser, he knew how to properly stop people." Id. at 45. Rather, he relied on the fact that Deputy Conley "had his training as all deputy sheriffs across the state has." Id. at 46.
Although it is a close question, the Court concludes that, based on the testimony of these two witnesses, a reasonable jury could conclude that Jackson County's training program is inadequate regarding the tasks that its road officers must perform. Other decisions support this conclusion. For example, in Hockenberry v. Village of Carrollton, 110 F. Supp. 2d 597, 602 (N.D.Ohio 2000), the court held that a jury question existed on the issue of municipal liability because the Village had provided only one training course on its policies and procedures and the officer involved in the incident (a police pursuit that led to a crash) had never been tested on the procedures. And in Harvey v. Campbell County, Tenn., 2008 WL 5429646, *4-*5 (E.D.Tenn. Dec. 30, 2008), the court held that a triable issue existed about the adequacy of a county's training policies where the County's training on the use of deadly force consisted of providing written policies to the officers and relying on their general law enforcement training, which included forty hours of in-service training each year. The court noted that "without any indication as to the full extent" of the officer's training and without "specific evidence regarding the nature and extent of his [previous] training," reasonable minds could differ on whether the training provided was adequate.
This case presents even stronger reasons to conclude that issues of fact exist on the training question. As in Harvey, there is no evidence about what general training Jackson County deputies receive before they are allowed to work as law enforcement officers. Further, unlike the situation described in Harvey, it does not appear that Jackson County offered any in-service training to its road deputies other than having them ride in a cruiser with another officer. Further, unlike the department involved in Hockenberry, Jackson County has not shown that it offered even one general training course to its road deputies on its policies and procedures. It also appears to be the case that Jackson County deputies, like Village of Carrollton officers, are not tested on those policies. Given the seriousness of the injuries that can result from improper use of a vehicle to stop oncoming trafficinjuries to both the public and the involved officer, which can, under some circumstances, be fataland the apparent lack of any training provided to its road deputies, a jury could (although it would not have to) find that Jackson County has adopted a policy of not training its officers and that, by doing so, it has been deliberately indifferent to the possibility that those untrained officers will violate the constitution. Because the failure to train deputies on road policies also is closely related to Deputy Conley's actions on the day in question, the issue of municipal liability is one for the jury.
Mr. Maynard does make several other arguments in support of his claim that Jackson County can be held directly liable here. One of those arguments is that Jackson County did not properly supervise Deputy Conley. This claim appears to be based almost entirely on the fact that Jackson County did not discipline Deputy Conley for his actions on the day in question. Mr. Maynard argues that this inaction on the County's part is a ratification of Deputy Conley's unconstitutional behavior and that this shows its deliberate indifference to Mr. Maynard's constitutional rights.
The Court of Appeals for the Sixth Circuit has held in at least two decisions *828 that a sheriff's failure to investigate incidents of police abuse and to discipline the officers involved may constitute ratification of the illegal acts and may amount to deliberate indifference to the constitutional rights of the victims of the misconduct. See Leach v. Shelby County Sheriff, 891 F.2d 1241, 1248 (6th Cir.1989); Marchese v. Lucas, 758 F.2d 181, 188 (6th Cir. 1985). Under Ohio law, the sheriff is the chief law enforcement officer in each county, State ex rel. Watson v. Hamilton Cty. Bd. of Elections, 88 Ohio St. 3d 239, 244, 725 N.E.2d 255 (2000), and makes policy for the county with regard to the operation of his office and the discharge of his duties. Stone v. Holzberger, 807 F. Supp. 1325, 1335 (S.D.Ohio 1992). Accordingly, if a sheriff does ratify the unconstitutional behavior of his deputies or officers, he may make the county liable for their actions. Id. at 1335-1336; see also Marchese, 758 F.2d at 189 (construing Michigan law).
This case, however, is different from the situations addressed in the Court of Appeals' decisions. Neither Leach nor Marchese involved a single, isolated incident. In Leach, the district court found numerous instances of abuse of paraplegic or physically infirm inmates in addition to the plaintiff's own deplorable treatment at the hands of his jailers. 891 F.2d at 1247-48. The Court of Appeals held that given this pattern of abuse, "the need for more adequate supervision was so obvious and the likelihood that the inadequacy would result in the violation of constitutional rights was so great that the County as an entity [could] be held liable ..." Id. at 1248. In Marchese, the same inmate, who had earlier threatened a sheriff's deputy with a gun, was beaten on two separate occasions while in the presence and custody of other deputies. 758 F.2d at 188.
In the present case, the only time that Sheriff Shasteen allegedly failed to conduct a proper investigation into Deputy Conley's conduct and failed to discipline him is the incident with Mr. Maynard. There is no evidence that Deputy Conley violated the roadblock policy on other occasions or that other deputies violated the road policies but were not disciplined. Therefore, the Sheriff's failure to discipline Deputy Conley's conduct on this single occasion (which, as the Sheriff explained, was based on the fact that he believed Deputy Conley's version of the events) "cannot logically be the moving force behind the alleged constitutional violation." Swann v. City of Columbus, No. 2:04-cv-578, 2007 WL 1831131 at *3 (S.D.Ohio Jun. 25, 2007) (Holschuh, J.); see also Ellis ex rel. Pendergrass v. Cleveland Mun. School Dist., 455 F.3d 690, 701 n. 5 (6th Cir.2006) ("We have not found any legal support for the proposition that, in the absence of deliberate indifference before a constitutional violation, a municipality may be liable for simply failing to investigate or punish a wrongdoer after the violation"). Thus, the only theory of liability which Mr. Maynard may pursue against Jackson County is the one based on failure to train.
F. The Spoliation of Evidence Claim
The complaint also pleads a cause of action under state law for spoliation of evidence. As discussed earlier, Mr. Maynard claims that he was unable to continue safely past Deputy Conley's cruiser because the cruiser was blocking the entire roadway. That is a fact in dispute. There is no dispute, however, that as soon as Mr. Maynard's vehicle crashed into the ditch, Deputy Conley pulled his cruiser into Ms. McFann's driveway. According to his deposition, Deputy Conley did so "to avoid any other crashes and render [Mr. Maynard] assistance." Conley deposition, at 88. Despite this testimony, Mr. Maynard claims that a jury could conclude that Deputy Conley had another reason for taking that actionto prevent investigators from *829 learning that he had blocked the roadway with his cruiser, thus making it more difficult for Mr. Maynard to prove his legal claims. The questions raised by this claim and Deputy Conley's motion for summary judgment are whether Ohio law recognizes a spoliation of evidence claim based on this type of conduct, and whether a reasonable jury could infer that all of the required elements of a spoliation claim are present here.
The Ohio Supreme Court has recognized a common law cause of action in tort for interference with or destruction of evidence. See Smith v. Howard Johnson Co., 67 Ohio St. 3d 28, 615 N.E.2d 1037 (1993). To prevail on such a claim (also known as spoliation of evidence), a plaintiff must prove (1) pending or probable litigation involving the plaintiff, (2) the defendant's knowledge that litigation is pending or probable, (3) the defendant's willful destruction of evidence in order to disrupt the plaintiff's case, (4) actual disruption of the plaintiff's case, and (5) damages proximately caused by the defendant's actions. Id. at 29, 615 N.E.2d 1037.
Deputy Conley makes one legal argument and several factual arguments in support of his motion for summary judgment on this claim. As a factual matter, he asserts that a jury could not reasonably infer many of the factual predicates of the claim. For example, he argues that when he moved his cruiser, a reasonable person knowing the details of the accident could not have foreseen that a lawsuit would be filed. He also argues that willfulness cannot be inferred because there is no evidence that he moved his vehicle with the intent to destroy relevant evidence. In addition, he asserts that Mr. Maynard's case was not disrupted because he was able to file this case. Finally, he asserts that under Ohio law, in order to make out a valid spoliation claim, a plaintiff must prove the physical destruction of tangible evidence and not simply the physical rearrangement of evidence at a crime or accident scene.
Several of these arguments are tenuous at best. In similar circumstances, courts have held that immediately after a motor vehicle accident occurs, reasonable people can anticipate that a lawsuit may be filed. As the Indiana Court of Appeals observed in Burton v. Estate of Davis, 730 N.E.2d 800, 805 (Ind.App.), opinion vacated upon settlement, 740 N.E.2d 850 (Ind. 2000), "[i]t should come as no surprise to a motorist who negligently caused a vehicular accident that his negligence will result in litigation and that the evidence at the accident scene will be a focus of that litigation." Additionally, in order to prove prejudice from the destruction of evidence, a plaintiff need not show that he or she was completely prevented from filing suit, but only that, without the evidence in question, it will be more difficult to prove the case. See, e.g., Green v. Taylor, No. 1:03-cv-1084 (N.D. Ohio April 11, 2006), aff'd on other grounds 239 Fed.Appx. 952 (6th Cir. 2007). Finally, as Judge Oliver's decision in Green notes, moving a vehicle after a crash is an interference or manipulation of physical evidence, and that type of act can support a spoliation claim under Ohio law. However, the Court finds that the defense based on the lack of evidence of willful conduct has merit.
In a spoliation case, the term "willful" denotes both the intentional and wrongful commission of an act. White v. Ford Motor Co., 142 Ohio App. 3d 384, 387, 755 N.E.2d 954 (Franklin Co.App.2001), citing Drawl v. Cornicelli, 124 Ohio App. 3d 562, 567, 706 N.E.2d 849 (Lake Co.App.1997). Acts that are willful include those committed with premeditation, malice, or a bad purpose. See Drawl, citing Black's Law Dictionary 1599 (6th ed. 1990). When different motives could cause the party accused *830 of destroying evidence to have acted in a certain way, a complaint alleging willful conduct is sufficient. However, if the defendant presents evidence that he or she had a legitimate reason for the actions in question, the plaintiff "will have to do more than merely assert the contrary in his pleadings to avoid summary judgment." Hibbits v. Sides, 34 P.3d 327, 330 (Alaska 2001).
Here, the only evidence about why Deputy Conley moved his cruiser is his deposition testimony. He gave two reasons for his actions: to clear the roadway to prevent other crashes, and to help Mr. Maynard. He could have done the latter even if his cruiser had stayed on the roadway, but he could not have done the former. Under Mr. Maynard's version of the facts, which the Court must accept as true for purposes of ruling on this motion, the cruiser was blocking the entire roadway. Route 233 is a state highway. It would have been grossly unreasonable for Deputy Conley simply to have left the cruiser in that position. Even if he could have placed flares or markers out to stop traffic, to do so would have prevented him from immediately helping Mr. Maynard, who was lying face-down in a creek. This evidence is so strong as to foreclose other reasonable inferences about Deputy's Conley's motivation, including the inference that he moved his cruiser so that it would be harder for Mr. Maynard to file and prove a claim against him.
Mr. Maynard argues that an intent to destroy evidence can be inferred from the fact that, when Deputy Conley was interviewed about the accident, he failed to mention that he had pulled his cruiser even part-way into Mr. Maynard's lane of travel. There may be cases where an intentional falsehood about the circumstances of an accident, made shortly after evidence is manipulated or destroyed, will support an inference that the manipulation or destruction of the evidence was willful, but this is not one of them. Deputy Conley has consistently maintained that the sole cause of the crash was Mr. Maynard's deliberate choice to drive off the roadway in an effort to elude capture, and that the cruiser did not block Mr. Maynard's path. The investigating officer also had the benefit of Mr. Maynard's statement about how the crash occurred, and there is no evidence that Deputy Conley lied about the position of his cruiserhe apparently was not asked that question. Consequently, the most that can be said is that he did not volunteer any information about the position of his cruiser. Under all of these circumstances, a reasonable jury could not conclude, solely from that omission, that Deputy Conley acted willfully when he pulled his cruiser into Ms. McFann's driveway immediately after Mr. Maynard went into the ditch. Summary judgment is therefore appropriate on this claim.
IV. Conclusion
For the foregoing reasons, the Court grants in part and denies in part the defendants' motion for summary judgment (# 26). Summary judgment is granted to the defendants on Mr. Maynard's § 1983 claim against Jackson County under a failure-to-supervise theory and on his spoliation of evidence claim. The remaining claims will proceed to trial. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1368367/ | 621 F.Supp. 1567 (1985)
STA OF BALTIMOREILA CONTAINER ROYALTY FUND, Plaintiff,
v.
UNITED STATES of America.
Civ. No. H-84-1855.
United States District Court, D. Maryland.
November 19, 1985.
*1568 A. Adgate Duer, Paul B. Lang, Neil S. Kurlander and Niles, Barton & Wilmer, Baltimore, Md., for plaintiff.
Will E. McLeod, Tax Div., U.S. Dept. of Justice, Washington, D.C., and Larry D. Adams, Asst. U.S. Atty., Baltimore, Md., for defendant.
ALEXANDER HARVEY, II, District Judge.
In this civil action, plaintiff is seeking a refund of certain taxes which it alleges have been erroneously or illegally assessed and collected by the Internal Revenue Service (hereinafter the "IRS"). The plaintiff, STA of Baltimore ILA Container Royalty Fund (hereinafter the "Fund") is here asserting that it is entitled to refunds of certain taxes it paid pursuant to the Federal Insurance Contributions Act, 26 U.S.C. §§ 3101 et seq. (hereinafter "FICA") and the Federal Unemployment Tax Act, §§ 3306 et seq. (hereinafter "FUTA"). Plaintiff contends that the payments upon which the taxes were assessed and paid do not constitute "wages" either under 26 U.S.C. § 3121 or under 26 U.S.C. § 3306.
Relying on various authorities, counsel for the government maintain that the payments in question did in fact constitute wages under §§ 3121 and 3306 and that accordingly the taxes were properly paid under the provisions of FICA and FUTA. In the alternative, counsel for the defendant have asserted that even if this Court were to conclude that the payments in question were not wages, the Fund did not timely file claims for refunds as to most of the taxes claimed in this suit.[1]
Following discovery by the parties, a pretrial conference was held and a Pretrial Order was entered. Most of the pertinent *1569 facts were stipulated by the parties. Pretrial briefs were filed, and the case came on for trial before the Court sitting without a jury. One witness testified at the trial, and numerous exhibits were entered in evidence. Findings of fact and conclusions of law, pursuant to Rule 52(a), F.R.Civ.P., are contained in this Opinion.[2]
I
The Facts
The essential facts are not in dispute. Plaintiff Fund was established by an Agreement and Declaration of Trust (hereinafter the "Trust Agreement") dated December 1, 1971 between the Steamship Trade Association of Baltimore, Inc. (hereinafter the "STA") and the International Longshoremen's Association and its five affiliated locals in the Port of Baltimore (hereinafter collectively referred to as the "ILA"). The Fund was established pursuant to the settlement of a labor dispute between the STA and the ILA which arose from the anticipated reduction in employment opportunities for longshoremen in the Port because of the introduction of containerization by employer members of the STA.
Before containerization was introduced by the shipping industry, cargo destined for ocean shipment would be placed on trucks or railroad cars at inland points of origin by non-ILA labor and shipped to the piers, where ILA longshoremen would remove the cargo from the trucks or railroad cars and load it aboard ship. The same system in reverse was used for imported cargo. ILA longshoremen would unload imported cargo from the ships and place it on trucks or railroad cars for shipment to inland destinations, where it would be unloaded by non-ILA labor.
The shipping of cargo in containers simplifies the process for shippers by eliminating the piecemeal loading and unloading of cargo at pierside. Once containerization came into use, cargo would be loaded into containers (or "stuffed") at its inland point of origin by non-ILA labor and unloaded at its ultimate point of designation (or "stripped") without any piecemeal handling by longshoremen. The dockside activity of longshoremen would be limited merely to loading and unloading the bulk containers on and off ship, and longshoremen would not do any of the stuffing and stripping work.
In an effort to protect its members from the loss of employment opportunities caused by containerization, the ILA, in negotiating a new collective bargaining agreement for its members in 1971, took the position that it would not handle containers at all unless some provision were made for reimbursing longshoremen for the lost work which resulted from containerization. It was eventually agreed that the employer members of the STA (the direct employers of longshoremen in the Port of Baltimore) would make contributions to a container royalty fund, from which eligible ILA workers would receive, in addition to their regular wages, special compensation. Following negotiations, the STA agreed to establishing such a fund because the ILA had taken the position that pursuant to provisions of previous collective bargaining agreements all containers would have to be stuffed and stripped at pierside by longshoremen. Were this to occur, the very purposes of containerization would be defeated.
The Trust Fund itself is maintained by contributions from employer members of STA based upon the degree to which ships being loaded or unloaded could accommodate containers. To this end, ships were divided into four categories. At the lowest end of the scale were conventional or so-called "non-automated" ships. At the highest end of the scale were ships which had more than two hatches or more than forty percent of cargo-carrying capacity converted or fitted for containers. Inasmuch as the design of each ship determined the tonnage of cargo shipped in containers, contributions to the Fund made by STA members were in effect determined by the gross tonnage of cargo handled by non-ILA labor at the ultimate points of origin and destination.
*1570 Benefits from the Fund are distributed to all eligible employees. The term "employee" was defined in Section 1.03 of the 1971 Trust Agreement as follows:
(a) Any employee covered by a collective bargaining agreement between the STA and the Union.
(b) Employees of the administrative office staffs of the STA-ILA Pension Fund, Benefits Fund, Container Royalty Fund, and Seniority Board, Inc. who formerly were employed in the longshore industry as set forth in Section 1.03(a) above.
(c) Union officials and union employees of the unions who have Collective Bargaining Agreements with the Association.
Section 2.03 of the 1971 Trust Agreement sets forth additional requirements for eligibility for payments from the Fund. This section has been amended three times since the Fund was established in 1971. The most recent amendment, that of 1975, requires that an employee must have worked 700 or more hours in at least one contract year beginning after September 30, 1973 to be eligible for payments from the Fund.
The actual amount paid to each employee is governed by the language of Section 2.04 of the Trust Agreement, as amended, which provides:
Each eligible Employee shall receive the same amount of benefits. The individual amount of benefits shall be determined by the Trustees, based upon the total amount of container contributions received, less reasonable and proper costs of administration and a reasonable reserve divided by the total number of Employees eligible under this Container Royalty Trust Agreement. Ten percent (10%) of each eligible Employee's allotted share of benefits shall be deducted therefrom, and forwarded to the International Longshoremen's Association, in accordance with a resolution duly approved by the ILA delegates at the International Convention. Such assignment shall be pursuant to a written voluntary authorization of the Employee.
This civil action has followed the failure of the IRS to act on various claims for refunds of taxes filed by the Fund. Those claims sought refund of employment taxes withheld from benefits paid from the Fund to ILA employees pursuant to both FICA and FUTA. Plaintiff asserts that its first claim for refund was filed on or about April 15, 1981 for the refund of taxes paid for calendar year 1977. Two similar claims for refund were allegedly filed on or about April 15, 1982 and on or about April 15, 1983 for the calendar years 1978 and 1979 respectively. The total amount which the Fund seeks to have refunded as erroneously or illegally assessed employment taxes for these three years is $1,248,975.69, plus interest.
The Fund initially regarded the payments made to the longshoremen as wages subject to FICA and FUTA taxes and reported them as such on each Form 941 which it filed with the IRS. The Fund now believes that it erred in regarding these royalty payments as wages and is here seeking judgment for the amount in question, together with attorneys' fees and costs.
II
The applicable statutes
Title 26, U.S.C. § 3102 requires every employer to deduct social security taxes from wages paid to employees. Section 3111 imposes a matching FICA tax on the employer. Section 3301 imposes an additional FUTA or unemployment tax on employers only.
Section 3121(a) broadly defines the term "wages" as "all remuneration for employment...."[3] Section 3121(b) broadly defines "employment" as "any service, of whatever nature performed ... by an employee for the person employing him ..."[4] Taken together, subsections (a) and (b) of § 3121 define "wages," therefore, as "all remuneration" for "any service." The *1571 question presented here is whether payments to individual longshoremen from the Fund constituted "wages" as defined in FICA and FUTA.
III
Discussion
Plaintiff contends that payments to the Fund by STA employers and payments by the Fund to longshoremen did not constitute wages under the statutes in question because the payments were made to partially compensate longshoremen for lost work opportunities resulting from the introduction of containerization. Plaintiff accordingly argues that the payments in question did not compensate the longshoremen for services actually performed.
On the record here, this Court concludes that there is no merit to plaintiff's arguments. For the reasons set forth herein, this Court holds that contributions made by employer members of STA to the Container Royalty Fund and subsequently distributed to eligible longshoremen are "wages" pursuant to 26 U.S.C. § 3121 and § 3306 and that such amounts are therefore subject to taxation pursuant to provisions of FICA and FUTA.[5]
(a)
The Trust Agreement as Amended
Provisions of the Trust Agreement itself, as well as of subsequent amendments thereto, clearly indicate that the money distributed to eligible ILA members constitutes "supplementary pay" and that this pay is earned, derived or acquired as a result of prior services rendered by the employee. Indeed, Section 2.02 of the Agreement, captioned "General Purpose," flatly states that the purpose of the Fund is to provide "supplementary pay."
Section 2.03 of the original Trust Agreement of December 1, 1971, provided as follows:
All employees, as defined in Section 1.03(a)(b) and (c) hereof, who worked seven hundred hours or more in the longshore industry in the contract year of October 1, 1970 to September 30, 1971 shall be eligible to receive container royalty pay. Time off due to compensable injury shall be credited as time worked, at the rate of twenty hours per week for each week off.
This provision was part of the original benefit package which was negotiated between the STA and the ILA. It is apparent that employer members of STA were agreeing to make supplementary pay available only to those longshoremen who worked the requisite number of hours. This supplementary pay therefore constitutes "wages," under the definition of "all remuneration for employment" contained in § 3121(a).
Section 2.03 of the Agreement was first amended in 1972 to eliminate the requirement that the 700 hours be worked during the contract year of October 1, 1970 to September 30, 1971. Under the 1972 amendment, a worker could fulfill the requirement during any year in which payments were made into the Fund. This amendment thus allowed workers to receive supplementary pay during all subsequent contract years, not just the first year, provided, of course, that they worked the 700 hour minimum during the given contract year.
In 1973, Section 2.03 was again amended to increase the amount of prior services required to be rendered by an employee before he might be entitled to receive supplementary pay from the Fund. Section 2.03(a) provided that in addition to working or receiving credit for at least 700 hours during the paying contract year, the employee must also have received, or been eligible to receive, supplementary pay for any contract year prior to October 2, 1973. As amended, section 2.03(b) provided that those employees who had not received, or were not eligible to receive, supplementary pay prior to October 1, 1973, must work, or receive credit for, at least 700 hours in the *1572 industry in at least five out of six consecutive contract years subsequent to October 1, 1973. Inasmuch as the 1973 amendment increases the work requirements which must be met for eligibility for the supplementary pay, it serves to illustrate that the receipt of such pay is conditioned upon specified prior employment service to STA employers.
The final amendment to the Agreement, ratified in 1975, illustrates the same point inasmuch as it too increases the work requirement. Under the 1975 Amendment, employees are eligible for supplementary pay from the Fund only if they actually worked (as distinguished from receiving credit for time off due to injury or sickness) at least 700 hours in at least one contract year beginning after September 30, 1973. The elimination of time off because of injury or sickness from the computation of the number of hours worked is yet another indication that the supplementary payments made to a longshoreman were intended to be based on or acquired through the prior rendering by such longshoreman of actual services. Being payment for services actually rendered, the supplemental pay is properly understood to be "wages," as defined in § 3121(a) and (b).
This conclusion is supported by consideration of the statutory exceptions contained in § 3121(a) in its definition of "wages." The various exceptions to "all remuneration for employment" include payments made from funds established on account of (1) retirement, (2) sickness or accident disability, (3) medical or hospitalization expenses in connection with sickness or accident disability, or (4) death. There are other specific exclusions, including any payments made by an employer under a state unemployment compensation law. Payments made to longshoremen from the Fund do not fall within any of the statutory exceptions to the FICA definition of taxable wages. It is apparent that these exceptions largely concern situations where payments have been made to or on behalf of an employee no longer in active service because of retirement, illness, accident, death or unemployment. In contrast, payments from the Fund are made only to actively employed workers who have previously worked the requisite number of hours.
In sum, Section 2.03 of the Agreement, as amended, requires that longshoremen meet specific hourly work requirements to be eligible for the supplementary pay. New longshoremen, fresh on the job, are not eligible for this supplementary pay, despite the fact that they too, from the very commencement of their employment, have less work opportunities available to them because of containerization. The supplementary pay provided by the Trust Fund is, therefore, based on services actually performed and is clearly "remuneration for employment" pursuant to § 3121(b).
This Court's conclusion that the payments in question are wages under FICA and FUTA is supported by consideration of the tax treatment of other payments made by employer members of STA to longshoremen pursuant to the collective bargaining agreement. Eligibility of longshoremen for vacation pay and for payment of Guaranteed Annual Income (hereinafter "GAI") are both also determined in much the same way as is eligibility for payments from the Fund. Both vacation pay and payments of GAI are determined by the number of previous hours worked by longshoremen.
Plaintiff has never contended that vacation pay and payments of GAI are not wages pursuant to FICA and FUTA. Treasury regulations unequivocally state that vacation allowances paid to an employee constitute wages under FICA and FUTA. See Treas.Reg. § 31.3121(a)-1(g). So-called "idle time" payments, similar to payments of GAI, have likewise been construed by the IRS to be wages taxable under FICA and FUTA. Rev.Rul. 76-217, 1976-1 C.B. 310. It is thus apparent that pay earned as a result of prior service rendered by the employee has consistently been treated by the IRS as wages under the FICA and FUTA definition. For similar reasons, the payments at issue here constitute wages taxable under FICA and FUTA.
*1573 (b)
Legislative History
In Rowan Companies, Inc. v. United States, 452 U.S. 247, 101 S.Ct. 2288, 68 L.Ed.2d 814 (1981), the Supreme Court held that the definition of wages under FICA and the definition of wages for income tax withholding should be interpreted in tax regulations in the same manner in the absence of statutory provisions to the contrary. In enacting the Social Security Amendments of 1983, Congress decided to override the Rowan decision. The purpose of those amendments was stated as follows:
The social security program aims to replace the income of beneficiaries when that income is reduced on account of retirement and disability. Thus, the amount of "wages" is the measure used both to define income which should be replaced and to compute FICA tax liability. Since the social security system has objectives which are significantly different from the objectives underlying the income tax withholding rules, your committee believes that the amounts exempt from income tax withholding should not be exempt from FICA unless Congress provides an explicit FICA tax exclusion. [Emphasis added] S.Rep. No. 98-23, 98th Cong., 1st Sess. p. 42 (1983 U.S.Code Cong. & Adm.News 183); H.Rep. 98-25 98th Cong., 1st Sess. p. 80 (1983 U.S.Code Cong. & Adm.News 299).
Similarly, in the Deficit Reduction Act of 1984, Congress stated that the 1983 amendments to the Social Security Act, which effectively overrode the Rowan decision, applied for all purposes other than payments made for employer-provided meals and lodging and that these amendments applied not only to remuneration paid after March 4, 1983, but also to all remuneration paid on or before that date where such remuneration was treated by the employer as wages when paid. See H.Rep. No. 98-432, Part II, 98th Cong. 2d Sess., p. 1658 (1984 U.S.Code Cong. & Adm.News 587). Recent action by Congress has therefore made it apparent that the term "wages" in FICA and FUTA should be broadly interpreted. In the absence of an explicit exclusion by Congress, payments of the type involved here are includable as remuneration for employment and thus subject to these employment taxes.
(c)
Other Authorities
In Educational Fund of Electrical Industry v. United States, 305 F.Supp. 317 (S.D.N.Y.1969), the question before the Court was whether payments made pursuant to a collective bargaining agreement could properly be construed to be wages under 26 U.S.C. § 3401(a). In that case, employers of electricians had contributed a percentage of the weekly payroll into a Vacation Expense Fund, established pursuant to a collective bargaining agreement. The purpose of the Fund was to permit electricians to attend adult education courses for one week annually. Although the electricians who took these courses received no wages and were not performing services for their employers during the week in question, they were paid $140 for attending and completing the courses, the amounts to be taken out of extra funds in the Vacation Expense Fund. Relying on Treasury Regulation § 31.3401(a)-1 and Regulation Ruling 57-316, the District Court concluded that the electricians had performed or were available for the performance of services rendered to the employers in the past. The Court consequently held that the $140 payment was in effect compensation for services already rendered and therefore constituted wages within the meaning of § 3401.
On appeal, the Second Circuit affirmed. Educational Fund of Electrical Industry v. United States, 426 F.2d 1053 (2d Cir. 1970). At page 1056, the Court said the following:
The $140 payments were properly characterized as wages under § 3401(a), which defines wages as "all remuneration ... for services performed by an employee for his employer...." The $140 payments to those who attended the school represented part of the benefit package which was negotiated as part of the wage structure under the collective *1574 bargaining agreement in effect between the employers and the Union as representative of the electrical workers. The payments ultimately derived from the employers and represented a portion of the agreed upon remuneration for services performed by the employees within the intent of § 3401(a), just as do payments from pension and vacation funds. See Treas.Reg. § 31.3401(a)-1(b); Rev. Rul. 57-316, (1957-2 Cum.Bull. 626).
Similar principles are applicable in this case, which involves §§ 3121 and 3306 rather than § 3401(a). Here, payments from the Fund to longshoremen represent a part of the benefit package negotiated between STA and ILA as a part of the collective bargaining agreement. The payments came from the employers, were ultimately paid to the employees and were a part of the agreed remuneration for services performed by the employees. Indeed, had the STA not agreed to the establishment of the Fund, it would undoubtedly have been required to pay higher wages to longshoremen who would be working longer hours by stuffing and stripping containers at dockside.
(d)
Plaintiff's Contentions
Since payments from the Fund to longshoremen are not for specific services rendered, plaintiff contends that they cannot be construed to be wages under FICA or FUTA. Citing Central Illinois Public Service Company v. United States, 435 U.S. 21, 98 S.Ct. 917, 55 L.Ed.2d 82 (1978), plaintiff asserts that courts have on numerous occasions held that not all payments by employers to employees are wages. In Central Illinois, the Supreme Court had before it the question whether the reimbursement of meal expenses constituted "wages" subject to withholding under 26 U.S.C. § 3401(a). Citing Royster Co. v. United States, 479 F.2d 387 (4th Cir.1973) and Acacia Mutual Life Ins. Co. v. United States, 272 F.Supp. 188 (D.Md.1967), the Supreme Court observed that decided cases had indeed made the distinction between wages and income and had refused to equate the two in withholding or similar controversies. 435 U.S. at 31, 98 S.Ct. at 922. The Court then went on to conclude that reimbursement for lunch expenses of employees did not constitute wages subject to withholding by the employer within the meaning of § 3401(a). In reaching its decision, the Court made the following observation:
This is not to say, of course, that the Congress may not subject lunch reimbursements to withholding if in its wisdom it chooses to do so by expanding the definition of wages for withholding.
435 U.S. at 33, 98 S.Ct. at 923.
Plaintiff's reliance on Central Illinois, Royster, and Acacia Mutual is misplaced. Both Central Illinois and Royster involved reimbursements of employees for meals. In Royster, the Fourth Circuit held that where amounts paid by the employer to its salesmen to reimburse them for the cost of meals eaten in sales territory were not attributable to any service performed by the salesman, such payments did not constitute wages under FICA, FUTA and for purposes of income tax withholding. The Court noted that the salesmen in question were not on call during their lunch break, received a free lunch whether or not they made any sales on the day in question and performed no services during the lunch hour.
Acacia Mutual likewise involved facts quite different from those involved here. The payments at issue in Acacia Mutual were reimbursements made by a life insurance company to certain managers and agents for their expenses in attending the company's annual convention. Thus, the payments were not for prior services rendered but with the hope that by attending the company's convention the future performance of such employees might be improved.
The facts here are quite different. In this case, payments from the Fund, as discussed hereinabove, are conditioned on the number of hours of work performed and are therefore clearly attributable to prior services rendered to employers. Furthermore, both Central Illinois and Acacia *1575 Mutual involved consideration of the term "wages" in § 3401(a). By overriding the Rowan decision, Congress has now made it clear that the definition of wages for purposes of income tax withholding is not the same as the definition of wages under FICA and FUTA. This Court concludes that the term "wages" in §§ 3121 and 3306 should be construed more expansively than the term "wages" in § 3401(a).
Plaintiff has further argued that amounts involved here cannot be considered to be wages because payments into the Fund are assessed on the basis of the tonnage of cargo handled and because each eligible employee receives the same amount of benefits. Such facts have little relevancy to the determination made by the Court in this case. As provided by the regulations, the basis upon which remuneration is paid is generally immaterial in determining whether or not the remuneration constitutes wages. See Treasury Regulations § 31.3121(a)-1(d) and 31.3306(b)-1(d). Were the law otherwise, the parties to a collective bargaining agreement could in effect determine which portion of an employee's compensation would be included in the social security wage base.
Plaintiff also contends that payments from the Fund are not wages because the Fund cannot be considered to be the "employer". However in Otte v. United States, 419 U.S. 43, 51-52, 95 S.Ct. 247, 253-54, 42 L.Ed.2d 212 (1974), the Supreme Court determined that the term "employer" under FICA and FUTA means the person having control of the payment of the wages. Here the Fund is clearly given that control pursuant to the Trust Agreement and therefore is deemed the "employer" for purposes of FICA and FUTA taxes. See also, In Re Armadillo Corp., 410 F.Supp. 407, 409 (D.Col.1976). Moreover, the Fund has clearly been acting as an agent for the employers for many years and is therefore subject to the provisions of FICA and FUTA. See 26 U.S.C. § 3504; Rev.Proc. 70-6, 1970-1 C.B. 420.
Finally, plaintiff relies on the testimony of the President of the STA and on an exhibit[6] admitted in evidence to support its argument that the Trust Agreement did not intend payments from the Fund to be treated as wages. But little weight can be given to the interpretation by STA's President to the language of the Trust Agreement itself. Moreover, the views of a Board of Arbitration (the so-called "Stein Award") contained at pages 6-8 of plaintiff's Exhibit No. 6, is entitled to even less weight.[7] The Trust Agreement was negotiated in 1971 and was amended several times in later years. What is controlling here is the language of the Trust Agreement, as amended, considered in the light of the applicable statutes and the circumstances existing in the Port of Baltimore during the years in question. What arbitrators may have said in deciding a matter before them in the Port of New York in 1960 is hardly pertinent to determining whether these payments were wages under FICA and FUTA.
IV
Conclusion
In sum, this Court concludes that there is no merit under the facts here and under the pertinent law to plaintiff's contention that payments from the Fund to longshoremen are not "wages" under provisions of FICA or FUTA. The language of the Trust Agreement itself, pertinent legislative history and applicable decisions of other federal courts support this Court's conclusion that the payments in question constitute "wages" under both § 3121 and § 3306. The amounts previously paid by the Fund for the tax years in question were therefore properly paid and should not be refunded. Accordingly, judgment will be *1576 entered in favor of the defendant, with costs.
NOTES
[1] Defendant contends that a claim for refund for the first quarter of 1978 was never filed by the plaintiff and that valid claims for refunds were not timely filed by plaintiff for all four quarters of 1979.
[2] Supplementary post trial briefs were likewise submitted by the parties.
[3] A similar definition is contained in § 3306(b).
[4] See also § 3306(c).
[5] In view of the Court's conclusion in this regard, it is not necessary to consider whether claims for refund were in fact filed or were timely filed by plaintiff for certain quarters of 1978 and 1979.
[6] The exhibit in question, Plaintiff's Exhibit No. 6, is a 46-page document which includes a decision of a Board of Arbitration dated November 21, 1960 in an arbitration dispute between the New York Shipping Association and the ILA.
[7] Defendant objected strenuously to the admission in evidence of plaintiff's Exhibit No. 6. In overruling defendant's objection, the Court stated that the weight to be given to the Exhibit would be determined at a later time. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/250461/ | 276 F.2d 321
Daniel Joseph GARBER, Petitioner-Appellant,v.CIVIL AERONAUTICS BOARD, Respondent.
No. 215, Docket 25839.
United States Court of Appeals Second Circuit.
Argued March 1, 1960.Decided March 28, 1960.
Robert J. Kilgore, Erie, Pa. (Marsh, Spaeder, Baur, Spaeder & Schaaf, Erie, Pa., on the brief), for petitioner-appellant.
Abbott A. Leban, Atty., Civil Aeronautics Board, Washington, D.C. (John H. Wanner, Deputy Gen. Counsel, O. D. Ozment, Associate Gen. Counsel, Civil Aeronautics Board, Washington, D.C., Robert A. Bicks, Acting Asst. Atty. Gen., Richard A. Solomon, Atty., Dept. of Justice, and Franklin M. Stone, Gen. Counsel, Civil Aeronautics Board, Washington, D.C., on the brief), for respondent.
Before CLARK, MOORE and FRIENDLY, Circuit Judges.
PER CURIAM.
1
Petitioner, now a resident in this circuit seeks review, 49 U.S.C. 1486, of an order of the Civil Aeronautics Board, made pursuant to 609 of the Federal Aviation Act, 49 U.S.C. 1429, revoking his flight instructor certificate and directing that he shall not be issued any type of flight instructor certificate for 90 days thereafter. The order resulted from a complaint by the Civil Aeronautics Administrator, as he was then called, charging that on July 17, 1958, petitioner had endorsed the log-book of R. C. Jaye for flight instruction when this had not been given by petitioner or any other holder of a flight instructor rating. Section 20.136 of the Civil Air Regulations, 14 C.F.R. 20.136, to which the complaint did not specifically refer, requires that a flight instructor 'shall sign the student pilot's record for each period of flight instruction'.
2
Petitioner's answer admitted falsely signing Jaye's log-book but denied that 'this displayed such disregard for the Civil Air Regulations that said flight instructor certificate should be revoked'; as 'New Matter' petitioner recited alleged 'duress' practiced on him by Jaye. Hearing was waived. The Hearing Examiner suggested that petitioner might wish to reconsider his waiver of a hearing; petitioner did not do so. In accordance with the Board's practice in non-hearing cases, 14 C.F.R. 301.17, the Administrator then filed a 'recommendation' with the Hearing Examiner. Attached to this were copies of two letters from Jaye. The first made the charge that petitioner had signed Jaye's log-book for a flight in which Jaye was accompanied by a pilot not licensed as an instructor. The second gave further details and added that, four days after the 45-minute flight as to which petitioner had made the false entry, petitioner gave Jaye 45 minutes of instruction but did not sign the log. The recommendation commented adversely on petitioner's excuse as to duress. Petitioner says no copy of the recommendation was sent to him; the Board does not deny this. The Examiner rendered and Initial Decision concurring in the Administrator's view that the alleged duress did not excuse the false entry and ordering revocation. Petitioner appealed to the Board, alleging that the Examiner had not given adequate consideration to his defense of coercion and that the sanction was excessive. The Board affirmed.1
3
We need not pass upon the Board's contention that some of the attacks that petitioner now makes on the Board's order are not open to him under 1006(e) of the Federal Aviation Act, 49 U.S.C. 1486(e), which limits us to objections urged before the Board unless there were reasonable grounds for failure to urge them. For we find petitioner's objections to be without merit in any event. Petitioner criticizes the complaint on the ground that it did not inform him of the precise section of the Civil Air Regulations claimed to be violated. However, the complaint clearly apprised the petitioner of the facts contended to constitute a violation and the legal consequences claimed to ensue. It thus complied with 5(a)(3) of the Administrative Procedure Act, 5 U.S.C. 1004(a)(3); the Regulations had been duly published as required by 3 of the Administrative Procedure Act, 5 U.S.C. 1002(a), and the Administrator was not required to refer to the particular section claimed to have been violated, at least when his failure to do so was in no way misleading. American Newspaper Publishers Ass'n v. N.L.R.B., 7 Cir., 1951, 193 F.2d 782, 799-800, affirmed 1953, 345 U.S. 100, 73 S.Ct. 552, 97 L.Ed. 852; see N.L.R.B. v. Pecheur Lozenge Co., 2 Cir., 1953, 209 F.2d 393, 402, certiorari denied 1954, 347 U.S. 953, 74 S.Ct. 678, 98 L.Ed. 1099. Petitioner next attacks the failure to send him a copy of the Administrator's recommendation. While it would have been better practice to have done this, we cannot say that the Board's rule, 14 C.F.R. 301.17, required it or that the Board was bound to require it when hearing had been waived. In any event, petitioner was not prejudiced, since the recommendation and he had full opportunity to disputed and he had full opportunity to reply to its arguments on his appeal from the Initial Decision. See Sisto v. C.A.B., 1949, 86 U.S.App.D.C. 31, 179 F.2d 47, 51. Plainly 20.136 of the Regulations was violated; the mandate that an instructor 'shall sign the student pilot's record for each period of flight instruction' means equally that he shall not sign the record for instruction not received. The Board was justified in overruling petitioner's excuses of 'duress' on the part of Jaye and of penitence on his own part by giving Jaye a later lesson for which petitioner did not sign the log-book, the latter apparently constituting a fresh violation of the regulation. While the remedy of revocation, with a three-months' waiting period before issuance of a new certificate, may have been severe under the circumstances, we cannot find it was arbitrary where safety is at stake. Walker v. C.A.B., 2 Cir., 1958, 251 F.2d 954, 956.
4
The petition to review is denied and the order affirmed.
1
We have omitted reference to another violation of the Civil Air Regulations alleged by the Administrator and found by the Examiner but not passed on by the Board | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/2549781/ | 83 So.3d 380 (2012)
WAYNE COUNTY SCHOOL DISTRICT
v.
Ernestine WORSHAM, Individually and on behalf of Ze'metrice Denison, a Minor.
No. 2011-CA-00328-SCT.
Supreme Court of Mississippi.
March 22, 2012.
*382 Lonnie D. Bailey, F. Ewin Henson, III, Greenwood, Richard D. Norton, Brad A. Touchstone, attorneys for appellant.
Larry Stamps, Jackson, attorney for appellee.
Before DICKINSON, P.J., RANDOLPH and PIERCE, JJ.
PIERCE, Justice, for the Court:
¶ 1. This Mississippi Tort Claims Act (MTCA) case arises out of an accident that occurred in Wayne County, Mississippi, between a school bus and a four-door passenger car. Following the accident, the driver of the car, Ernestine Worsham, brought suit alleging negligence and negligence per se on behalf of the driver of the school bus, and negligence, negligence per se, and gross negligence on behalf of Wayne County School District. After a bench trial, the driver of the school bus, Natasha Middleton, was dismissed from the suit. And despite evidence that a local county supervisor unilaterally had placed the speed-limit signs on County Farm Road, without a traffic investigation, approval by the Board, or passage of an ordinance, the trial court found Middleton's actions constituted negligence per se, and thus awarded judgment in favor of Worsham in the amount of $800,000. Worsham was apportioned seventy-five percent fault, reducing the judgment against Wayne County School District to $200,000. Wayne County timely appealed. Because Mississippi Code Section 63-3-511 (Rev.2004) requires that "[w]henever local authorities, including boards of supervisors. . . determine and declare, by ordinance, a reasonable and safe speed limit," that such determinations be made "upon the basis of an engineering and traffic investigation," we reverse and remand for proceedings consistent with this opinion.
FACTS AND LEGAL PROCEEDINGS
¶ 2. On February 12, 2008, Middleton was en route to a Wayne County school to *383 pick up school children and take them home.[1] She was traveling west on County Farm Road. County Farm Road is a short, two-lane road that runs east and west and connects two major highways. The posted speed limit on the road at the time of the accident was thirty miles per hour.
¶ 3. While Middleton was traveling west on County Farm Road, Worsham attempted to exit a private driveway that connected to the northernmost lane of County Farm Road.[2] Worsham was attempting to exit the driveway by making a left turn onto County Farm Road, which if successful, would have put her traveling east, the opposite direction of Middleton.
¶ 4. There is conflicting testimony as to exactly what transpired next, but a collision occurred. Worsham contends that Middleton was a safe distance away to ensure that Worsham could complete her left-hand turn, but because Middleton was speeding, the accident occurred. To the contrary, Middleton claims she was within ninety feet of Worsham when Worsham began to exit the driveway, and that she was not speeding. After hearing the conflicting testimony, the trial court found that Middleton was likely 100-to-200 feet away from Worsham when Worsham entered County Farm Road; also, the court found that Middleton was traveling between thirty-five and forty-five miles per hour prior to the accident. As a result of the accident, Worsham's injuries totaled $120,210.45 in medical costs, and her minor child's total medical costs were $753.
¶ 5. Worsham filed suit in Wayne County Circuit Court on February 11, 2009, alleging negligence and negligence per se against Middleton, and negligence, negligence per se, and gross negligence against Wayne County School District ("Wayne County"). Worsham also sought punitive damages against Wayne County. Wayne County denied any liability and admitted that Middleton, its employee, was acting in the course and scope of her employment when the accident occurred.
¶ 6. After discovering that Wayne County Supervisor Fred Andrews unilaterally had placed the speed-limit signs on County Farm Road in violation of section 63-3-511,[3] Wayne County filed a motion for partial summary judgment on the issue of negligence per se. Subsequent to the motion for partial summary judgment, Wayne County filed a motion to amend its answer to reflect the statutory defense. The trial court denied Wayne County's motion to amend, finding that Worsham was unduly prejudiced by the motion and that Worsham did not have adequate time to conduct discovery, even though Wayne County maintained that Worsham had the relevant information for more than five months prior to its filing the motion for partial summary judgment. Additionally, the trial court denied the motion to amend because Wayne County failed to specifically plead the statutory defense under Rule 9(d) of the Mississippi Rules of Civil Procedure. The trial court noted that Wayne County should have filed a motion to amend its answer prior to filing a motion for partial summary judgment.
¶ 7. On October 26, 2010, the trial court conducted a bench trial and later issued an *384 order finding both Middleton and Worsham negligent, but failed to find evidence of gross negligence on behalf of either defendant.[4] The trial court substantively addressed Wayne County's statutory defense, despite its pretrial ruling, and found that, while the erection of the speed-limit signs was improper, the Board of Supervisors effectively had adopted the signs by allowing them to remain on County Farm Road since 2001. The trial court issued an order/judgment in favor of Worsham. Wayne County filed its post-trial motions on December 3, 2010. Wayne County filed a timely appeal, and raises the following issues:
I. Whether the trial court erred in finding, as a matter of law, that a single member of a county board of supervisors can unilaterally post reduced speed limit signs on a county road without following the statutory requirements for establishing reduced speed limits.
II. Whether the trial court erred in finding that Middleton, the bus driver for Wayne County, was negligent per se for driving at a speed greater than the illegally posted speed limit of thirty miles per hour.
III. Whether the trial court erred in finding that Middleton's speed was the proximate cause of the accident at issue.
IV. Whether the damage award to plaintiffs was supported by substantial, credible and reasonable evidence.
V. Whether the trial court erred in denying defendants' motion for a new trial.
¶ 8. We find that only issues one and two have merit, and we will address both together.
DISCUSSION
A. Standard of review
¶ 9. This case was brought under the Mississippi Tort Claims Act, and, therefore, was subject to a hearing and determination without a jury.[5] Accordingly, the trial judge's findings of fact must be supported by substantial, credible evidence.[6] This Court reviews questions of law, de novo.[7]
B. Whether the trial court erred in finding that the speed-limit signs were valid and that Middleton was negligent per se.
¶ 10. Wayne County contends that the trial court erred when it ruled that a single member of the Board of Supervisors unilaterally can reduce the speed limit on a county road without complying with the mandatory requirements found in Section 63-3-511. Worsham avers that Wayne County is procedurally barred from raising this issue on appeal, because it was not properly raised according to Mississippi Rule of Civil Procedure 9(d). The trial court agreed with Worsham, and held that Wayne County should have sought leave to amend its answer prior to its filing a motion for partial summary judgment.
¶ 11. In denying Wayne County's motion to amend its answer, the trial court *385 relied on the following specific language found in Rule 9(d), which requires, in pertinent part, that:
In pleading an ordinance of a municipality or a county, or a special, local, or private statute or any right derived therefrom, it is sufficient to identify specifically the ordinance or statute by its title or by the date of its approval, or otherwise.
This Court finds this procedural rule to be inapplicable to the instant facts. Wayne County is not relying on a specific "ordinance" or a "special, local, or private statute" as its defense. Rather, Wayne County relies on a state statute and evidence of noncompliance with that statute to contend that, as a matter of law, it was not negligent per se. But even so, Worsham failed to object at trial to the testimony of Andrews. And the trial court specifically addressed the merits of Wayne County's statutory defense in its final order. Thus, Wayne County is not procedurally barred from raising this issue on appeal.
¶ 12. Section 63-3-511 provides that "local authorities, including boards of supervisors . . . determine and declare, by ordinance, a reasonable and safe speed limit," and that such determinations be made "upon the basis of an engineering and traffic investigation." At trial, Andrews testified that, in 2001, he had erected two thirty-mile-per-hour speed-limit signs on County Farm Road without authority from the Board or any other basis to do so. But the trial court held that, at the time of the accident, the thirty-mile-per-hour signs were controlling, because the Board of Supervisors effectively had adopted the signs through "implied dedication" and "prescription." We disagree with the trial court's application of the theories of prescription and dedication to the present circumstances.
¶ 13. Implied dedication is the donation of land or creation of an easement for public use by reasonable inference from the owner's conduct.[8] The trial court found that the Wayne County Board of Supervisors accepted the speed-limit signs as valid when they allowed the signs to remain in place since 2001 without any attempt to have the signs removed. We cannot follow the trial court's logic, and fail to make the connection between the unilateral act by Andrews and "implied dedication." Moreover, the trial court's reliance on the doctrine of prescription to validate the speed-limit signs is a stretch. The trial court cites Armstrong v. Itawamba County to support its findings. In Armstrong, the Court found that the board of supervisors never had adopted a road for public use in its official minutes, however its continued use by the public for more than ten years, along with a supervisor's direction to maintain the road, made it a public road by prescription.[9]Armstrong provides little instruction to the present facts, and its application is misplaced.
¶ 14. Even if this Court applied the theory of prescription to the present circumstances, the facts would not support the trial court's findings. In Myers v. Blair, this Court laid out the necessary elements to establish prescription, which are: "(1) open, notorious and visible; (2) hostile; (3) under claim of ownership; (4) exclusive; (5) peaceful; and (6) continuous and uninterrupted for ten years."[10] Despite the fact that the signs had been in *386 place for a period of less than ten years, the trial court found the signs to be controlling under the aforementioned theory, because no member of the public or the Board of Supervisors made any attempt to have the signs removed. We cannot agree with the trial court's holding, and find the doctrine of prescription to have no bearing on whether a county supervisor can unilaterally change the speed limit on a county road.
¶ 15. What is controlling over the present facts is the statutory requirement laid out in Section 63-3-511, which requires that "local authorities, including boards of supervisors . . . determine and declare, by ordinance, a reasonable and safe speed limit," and that such determinations be made "upon the basis of an engineering and traffic investigation." The foregoing statute is plain on its face, and leaves no room for statutory construction.[11] The statute requires two criteria: (1) that determinations be made on the basis of an engineering and traffic report; and (2) that the board of supervisors determine and declare a safe speed limit by ordinance based upon said engineering and traffic report. It is quite clear from the record that Andrews did not follow the law when he unilaterally placed the speed-limit signs on County Farm Road, without first having conducted an engineering and traffic investigation, and then seeking approval through an ordinance by the Wayne County Board of Supervisors.
¶ 16. Accordingly, the speed-limit signs in place at the time of the accident between Middleton and Worsham were not valid. And it naturally follows that, if Worsham failed to show that Middleton violated any statute or ordinance, then Worsham cannot prevail on a claim for negligence per se.[12]
¶ 17. That said, we decline to render a judgment in favor of Wayne County at this juncture. The trial court addressed only negligence per se in its final judgment, while the plaintiffs also had averred negligence and gross negligence. We remand for the trial court to address these additional claims in light of the record already before it. We do not intend for the plaintiffs to have a second try at proving their case, only that the trial court should rule on these additional claims based on the evidence already before it. Accordingly, we remand this case to the trial court for further proceedings consistent with this opinion
CONCLUSION
¶ 18. We reverse and remand this case for further proceedings consistent with this opinion.
¶ 19. REVERSED AND REMANDED.
WALLER, C.J., CARLSON AND DICKINSON, P.JJ., RANDOLPH, LAMAR, KITCHENS, CHANDLER AND KING, JJ., CONCUR.
NOTES
[1] Middleton testified that she was heading toward the junior high school. However, the trial-court order says she was en route to the elementary school.
[2] Ze'metrice, Worsham's minor child, was a passenger in the car.
[3] "[L]ocal authorities, including boards of supervisors. . . [may] determine and declare, by ordinance, a reasonable and safe speed limit," but such determinations must be made "upon the basis of an engineering and traffic investigation." Miss.Code Ann. § 63-3-511(Rev.2004).
[4] The trial court assessed twenty-five percent fault to Middleton and seventy-five percent fault to Worsham, which resulted in a judgment against Wayne County for $200,000.
[5] Miss.Code Ann. § 11-46-13(1) (Rev.2002).
[6] Donaldson v. Covington County, 846 So.2d 219, 222 (Miss.2003) (citing Maldonado v. Kelly, 768 So.2d 906, 908 (Miss.2000)).
[7] Id. (citing City of Jackson v. Perry, 764 So.2d 373, 376 (Miss.2000)).
[8] Black's Law Dictionary 185 (3d pocket ed. 2001).
[9] Armstrong v. Itawamba County, 195 Miss. 802, 16 So.2d 752, 753-58 (Miss. 1944).
[10] Myers v. Blair, 611 So.2d 969, 971 (Miss. 1992) (citations omitted). This case dealt with the establishment, by prescription, of a private road for public use.
[11] Camp v. Stokes, 41 So.3d 685, 686 (Miss. 2010).
[12] "Mississippi recognizes the doctrine of negligence per se, which in essence provides that breach of a statute or ordinance renders the offender liable in tort without proof of a lack of due care." Palmer v. Anderson Infirmary Benevolent Ass'n, 656 So.2d 790, 796 (Miss. 1995). To prevail on a claim for negligence per se, a party must prove by a preponderance of the evidence that he or she was a member of the class sought to be protected under a statute, and that the injuries suffered were the type sought to be prevented. Further, the violation of the statute must be the proximate cause of the injuries. See Snapp v. Harrison, 699 So.2d 567, 571 (Miss.1997). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1846851/ | 731 So.2d 482 (1999)
George C. YARBROUGH, et al., Plaintiffs-Appellants,
v.
The FEDERAL LAND BANK OF JACKSON, et al., Defendants-Appellees.
No. 31,815-CA.
Court of Appeal of Louisiana, Second Circuit.
March 31, 1999.
*484 Theus, Grisham, Davis & Leigh by Phillip D. Myers, Monroe, Counsel for Appellant, Liberty Mutual Ins. Co.
Mayer, Smith & Roberts by Steven E. Soileau, Shreveport, Counsel for Appellee, U.S. Fire Ins. Co.
F. Scott Kaiser, Rebecca Crawford, Baton Rouge, Counsel for J. Burns Wright.
Samuel T. Singer, Winnsboro, Counsel for Clovis C. Bringol.
Cotton, Bolton, Hoychick & Doughty by John Hoychick, Jr., Rayville, Counsel for Dallas Thomason.
W. Brian Babin, Baton Rouge, Counsel for Estate of Warner Bruner.
Before NORRIS, C.J., and KOSTELKA and DREW, JJ.
NORRIS, Chief Judge.
In this breach-of-contract and tort action against the Federal Land Bank of Jackson and several of its officers and directors, the bank's insurer, Liberty Mutual Insurance Company ("Liberty"), appeals a summary judgment finding that it has a duty to defend the defendant officers and directors against plaintiffs' suit. For the reasons assigned, we affirm.
FACTS AND PROCEDURAL HISTORY
In the 1980's, George Yarbrough secured $13 million in debts to Federal Land Banks in Jackson, Mississippi and Alexandria *485 and Rayville, Louisiana by pledging his Federal Land Bank stock and by mortgaging approximately 8,200 acres of farmland he owned in Franklin and Catahoula Parishes as well as a cotton gin he operated and its associated property.[1] In 1985, Yarbrough defaulted on the loans. Rather than declare bankruptcy, he dationed his land and stock to the Federal Land Bank of Jackson ("the Bank") in satisfaction of the debt on March 20, 1985. On the same date and in conjunction with the dation, the Bank leased Yarbrough 2,662 acres of his former land to which he claimed "a very personal [family] attachment," including the cotton gin. Terminating on January 10, 1986, this lease gave Yarbrough the "first right of refusal" to buy all or part of the leased land "at the purchase price offered [to the Bank] by a third party within 30 days after receiving written notice of said offer."
In July 1985, the Bank received an offer on the cotton gin and notified Yarbrough. At that time, Yarbrough exercised his right of first refusal on that six acre parcel for $200,000. As to the remaining property, Yarbrough received no notice of any additional offers before the lease terminated. Nonetheless, Yarbrough suspected that the Bank had received but had not notified him of other offers on the remaining property. As a result, Yarbrough's attorney sent a letter to the Bank on March 4, 1985, asking whether the Bank had received any offers on the property or taken action to prevent consideration of offers prior to the lease's expiration. The Bank replied that it "was obligated to give Mr. Yarbrough the opportunity to purchase the land at such time as an offer from a third party acceptable to the bank was received" but that it had received no such offers.
On August 4, 1986, Yarbrough filed the present action against the bank. In his initial petition, Yarbrough alleged that the Bank failed to honor the right of first refusal; specifically, he alleged that his son-in-law, George McAlister, had made a good faith offer on the property in May 1985 but the bank failed to communicate it to him. Additionally, he alleged that the Bank had listed the property for sale along with other bank-owned property but with the provision that it would not be sold until January 1, 1986, shortly before the lease and right of first refusal expired, and had failed to inform him, when he executed the dation and lease, of its internal policy of not selling such property to either the defaulting debtor or his immediate family members. Thus, contending that the bank had no intention of honoring his right of first refusal, Yarbrough claimed $10 million in damages for alleged lost profits he would have realized upon buying the property back.
Yarbrough died on June 7, 1989. On May 29, 1990, his estate and widow were substituted as plaintiffs and filed an amended and supplemental petition increasing the demand for damages to $30 million.[2] The petition joined as defendants several individual officers and directors of the bank, namely Warner Bruner,[3] Burns Wright, Dick Bringol and Dallas Thomason (hereinafter referred to as the "Named Officers."). Additionally, the pleading listed as an unknown defendant "XYZ Insurance Company" which was alleged to be "an insurance company that at all times material and pertinent [to the litigation] had in full force and effect an insurance *486 policy providing coverage to officers, employees and directors for liability resulting from the acts described [in the petition]."
The amended petition also expanded the allegations of wrongdoing, including a contention that Bruner collaborated with the other Named Officers to reject two offers on the leased land: one from Yarbrough's son-in-law for $929 per acre in May 1985 and another from a neighboring farmer for $1000 per acre in June and July 1985. They then sold the land to other buyers for $640-740 per acre after the right of first refusal expired. The petition concluded that the defendants' actions constituted torts, breach of contract, and intentional interference with contract rights, all resulting in mental anguish, pain, suffering, and loss of profits.
In March 1992, plaintiffs through discovery learned that Old Republic Insurance Company ("Old Republic") provided the Bank with an officers and directors indemnity policy and accordingly amended the second petition to substitute this insurer for the previously unidentified "XYZ Insurance Company." After further discovery, plaintiffs filed a Third Amended and Supplemental Petition naming Liberty, Home Insurance Company of Illinois, and National Union Fire Insurance Company of Pittsburgh as additional parties contending that each insurer had issued insurance policies that provided coverage to one or more of the defendants for "liability resulting from any or all of the acts" described in the petitions. Furthermore, the third petition alleged as additional damages that defendants' actions contributed to the premature death of Yarbrough at age 69.[4] Following the filing of the third petition, all four of the Named Officers filed separate answers denying plaintiffs' allegations while further including cross claims against Liberty and Old Republic, asserting coverage and a duty to defend against the suit.
On June 2, 1997, Liberty filed a motion for summary judgment seeking to declare that its policies with the Federal Land Bank did not provide coverage for the claims asserted by plaintiffs and that it owed no duty to defend the Named Officers. Liberty relied on several exclusion provisions in its comprehensive general liability ("CGL") policy issued to Bank for the initial period of January 1, 1985 to January 1, 1986, and renewed for January 1, 1986 through January 1, 1987. The Named Officers opposed Liberty's motion and filed their own summary judgment motion seeking a declaration that Liberty owed a duty to provide them a defense against plaintiffs' claims. The parties submitted the matters on briefs and the relevant insurance policies.
On April 3, 1998, the trial court issued a ruling denying Liberty's motion for summary judgment on the issue of coverage. The court wrote that although Liberty's policy would indeed exclude coverage for "loan personal injury" if the Old Republic policy provided it, the latter fact had not been established. Because "[r]esolution of Old Republic's coverage depends on a fact-based determination of whether the [Named Officers'] alleged actions or inactions were acts of active and deliberate dishonesty committed with actual dishonest purpose and intent," the court denied Liberty's motion. No appeal or writ application was sought regarding this coverage issue ruling.
On the same day, the trial court issued a separate written ruling regarding Liberty's obligation to defend the Named Officers. In that opinion, the court granted the Named Officers' motion,[5] finding Liberty had a duty to defend them on "the *487 entire suit, even the claims that fall outside the policy's coverage." In the reasons, the court noted its ruling on coverage and concluded that Liberty's policy did not unambiguously exclude coverage based on the allegations in plaintiffs' petition. This conclusion was based particularly on the separate ruling regarding the coverage issue and the finding that plaintiffs petition states a claim within the policy's coverage, "i.e., loan personal injury resulting in mental anguish." A judgment certified as final under C.C.P. art.1915 and effectuating the ruling granting the Named Officer's summary judgment was signed by the court on May 5, 1998. Liberty now appeals presenting the sole issue of whether it has the duty to defend the Named Officers against plaintiffs' suit.
LAW
Summary judgment procedure is designed to secure the just, speedy and inexpensive determination of every action, except those disallowed by law; the procedure is favored and must be construed to accomplish these ends. La. C.C.P. art. 966 A(2). After adequate discovery or after a case is set for trial, a motion which shows that there is no genuine issue as to material fact and that the mover is entitled to judgment as a matter of law shall be granted. Art. 966 C(1). The burden of proof remains with the mover. Art. 966 C(2). Appellate review of summary judgment is de novo, utilizing the same criteria that guide the trial court's grant of the judgment. Guillory v. Interstate Gas Station, 94-1767 (La.3/30/95), 653 So.2d 1152.
It is well settled law that the insurer's obligation to defend suits against its insured is generally broader than its liability for damage claims. Steptore v. Masco Const. Co., 93-2064 (La.8/18/94), 643 So.2d 1213; American Home Assurance Co. v. Czarniecki, 255 La. 251, 230 So.2d 253 (1969); Gleason v. State Farm Mut. Auto. Ins., Co., 27,297 (La.App.2d Cir.8/23/95), 660 So.2d 137, writ denied, 95-2358 (La.12/15/95), 664 So.2d 454. This duty to defend is determined by the allegations of the plaintiffs petition, with the insurer being obligated to furnish a defense unless the petition unambiguously excludes coverage. Id. Thus, if, assuming all the fact allegations of the petition to be true, there would be both (1) coverage under the policy and (2) liability to the plaintiff, the insurer must defend the insured regardless of the outcome of the suit or the eventual determination of actual coverage. The allegations of the petition are liberally interpreted in determining whether they set forth grounds which bring the claims within the scope of the insurer's duty to defend the suit brought against its insured. Yount v. Maisano, 627 So.2d 148 (La.1993); American Home Assurance Co. v. Czarniecki, supra; C.L. Morris, Inc. v. Southern American Ins. Co., 550 So.2d 828 (La.App. 2d Cir.1989); Milano v. Board of Com'rs of Orleans Levee Dist., 96-1368 (La.App. 4th Cir.3/26/97), 691 So.2d 1311.
The insured need not prove the outcome of the suit will necessarily impose liability for plaintiffs claims. Rather, the duty to defend arises whenever the pleadings against the insured disclose even a possibility of liability under the policy. Steptore v. Masco Const. Co., Inc., supra; Ellis v. Transcontinental Ins. Co., 619 So.2d 1130 (La.App. 4th Cir.1993). Thus, even though a plaintiff's petition may allege numerous claims for which coverage is excluded under an insurer's policy, a duty to defend may nonetheless exist if there is at least a single allegation in the petition under which coverage is not unambiguously excluded. Edwards v. Daugherty, 95-702 (La.App. 3d Cir.1/10/96), 670 So.2d 220, writ denied, 96-0362 (La.3/22/96); 669 So.2d 1212; Employees Ins. Representatives, Inc. v. Employers Reinsurance Corp., 94-0676 (La.App. 1st Cir.3/3/95), 653 So.2d 27, writ denied, 95-1334 (La.9/1/95), 658 So.2d 1268; Duhon v. Nitrogen Pumping & Coiled Tubing Specialists, 611 So.2d 158 (La.App. 3d Cir. *488 1992). Put differently, once a complaint states one claim within the policy's coverage, the insurer has a duty to accept defense of the entire lawsuit, even though other claims in the complaint fall outside the policy's coverage. Treadway v. Vaughn, 633 So.2d 626 (La.App. 1st Cir. 1993), writ denied, 94-0293 (La.3/25/94), 635 So.2d 233, and authorities therein; Duhon v. Nitrogen Pumping & Coiled Tubing Specialists, supra.
Whether an insurance contract is ambiguous is a matter of law. Gleason v. State Farm Mut. Auto. Ins. Co., supra. Policies should be construed to effect, not deny coverage. Yount v. Maisano, supra, and authorities therein. Any exclusion from coverage in an insurance policy must be clear and unmistakable. South Cent. Bell Telephone Co. v. Ka-Jon Food Stores, 93-2926 (La.5/24/94), 644 So.2d 357. It is the duty of the insurer to clearly express exclusions or limitations in a liability policy. Little v. Kalo Laboratories, Inc., 406 So.2d 678 (La.App. 2d Cir.1981), writ denied, 410 So.2d 1133 (La.1982). Thus, any ambiguity in an exclusion should be narrowly construed in favor of coverage. South Cent. Bell Telephone Co. v. Ka-Jon Food Stores, supra; Yount v. Maisano, supra.
DISCUSSION
The "Broad Form Comprehensive General Liability Endorsement" of Liberty's CGL policy provides in section II(A):
[Liberty] will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of personal injury ... sustained by any person or organization and arising out of the conduct of the named insured's business ..., and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such injury, even if any of the allegations of the suit are groundless, false or fraudulent.[6]
Additionally, a "Supplementary General Amendatory Endorsement" defines "personal injury" as:
Injury arising out of one or more of the following offenses committed during the policy period:
Mental injury, mental anguish, shock disability, false arrest, false imprisonment, wrongful eviction, detention, malicious prosecution, discrimination..., humiliation, invasion of right of privacy, libel, slander or defamation of character.
The endorsement also defines a "Loan Personal Injury" as one which "arises out of and in connection with a wrongful act relating to loan or lending transactions" but states that it does not apply to "any director, officer or employee of the named insured for whom coverage is provided for `loan personal injury' under any other policy."[7]
Liberty argues in brief that its coverage for "loan personal injury" is unambiguously excluded simply because plaintiffs have alleged that Old Republic provides the same coverage.[8] However, *489 narrowly construing the exclusion in light of the plaintiffs' allegations, we find no merit in this argument.
It is well settled that the allegations of fact, and not conclusions, contained in the petition determine the obligation to defend. Duhon v. Nitrogen Pumping & Coiled Tubing Specialists, Inc., supra; Guidry v. Zeringue, 379 So.2d 813 (La.App. 4th Cir.1980); see also, W.S. McKenzie & H.A. Johnson, III, Insurance Law and Practice, § 211, at 442, in 15 Louisiana Civil Law Treatise (2d Ed.1996). The only references to Old Republic in the second amended and supplemental petitions are in a subparagraph naming it as an additional defendant that generally alleges coverage for the Bank and the Named Officers, and a later paragraph requesting judgment against Old Republic as part of the prayer for relief. Indeed, this is the bare minimum plaintiffs must set forth to bring Old Republic into the suit. To find that such a statement unambiguously excludes coverage under Liberty's policy would clearly produce inequitable results in cases involving multiple insurers whose policies may cover the damages and actions alleged in a plaintiff's petition. We do not believe Czarniecki and its progeny will allow an insurer to deny its duty to defend simply because the plaintiff has previously asserted coverage and a duty to defend by another insurer. See, Allstate Ins. Co. v. Roy, 94-1072 (La.App. 1st Cir.4/7/95), 653 So.2d 1327, writs denied, 95-1121, 95-1215 (La.6/16/95), 655 So.2d 339. This is particularly true in the present case where it is quite clear from the pleadings that many of the facts relevant to determining whether Old Republic's policy provides coverage are in dispute, a factor the trial judge must have considered in finding material issues of fact present regarding the separate and unappealed issue of Liberty's coverage. There is a vast difference between allegations of facts and statements of conclusions in pleadings. Guidry v. Zeringue, supra. Moreover, Old Republic's policy is actually an indemnity policy which does not render it liable to the Named Officers until they actually make payment or sustain a loss. Whether coverage is provided cannot be determined until the lawsuit is concluded. See, Meloy v. Conoco, 504 So.2d 833 (La.1987). As correctly noted by the trial judge, Old Republic's coverage is not yet a proven fact.
Furthermore, in light of the broader scope of the duty to defend, the mere naming of one insurer as a defendant and alleging its policy provides coverage does not absolve another insurer of its duty to defend simply because its policy contains an "other insurance" clause.[9] In the present case, both the Old Republic and the Liberty policies contain "other insurance" clauses, the Old Republic policy containing an "excess" insurance clause[10] and the Liberty Policy's "loan *490 personal injury" provision with an "escape" clause.[11] Generally, when faced with competing escape and excess "other insurance" clauses, Louisiana courts have found them to be irreconcilable and mutually repugnant and pro rate the loss between the two insurers. Graves v. Traders & General Ins. Co., 252 La. 709, 214 So.2d 116 (1968); Citgo Petroleum Corp. v. Yeargin, Inc., 95-1574 (La.App. 3d Cir.2/19/97), 690 So.2d 154, writs denied, 97-1223, 97-1245 (La.9/19/97), 701 So.2d 169, 170; Sledge v. Louisiana DOTD, 492 So.2d 139 (La.App. 1st Cir.1986), writ denied, 494 So.2d 1176 (La.1986); Dette v. Covington Motors, Inc., 426 So.2d 718 (La.App. 1st Cir.1983). Indeed, the presence of such clauses requires the court to determine all facts relative to coverage, terms, and responsibility of the polices. The absence of any of these facts leaves questions of material fact that preclude summary judgment. Dette v. Covington Motors, Inc., supra. Therefore, presence of the conflicting "other insurance" clauses in this case leads to further ambiguities regarding whether Liberty's "loan personal injury" provision precludes coverage on these facts.
Even so, plain reading of the plaintiffs' factual allegations and Liberty's policy provisions does not show that coverage is unambiguously excluded. Clearly, the type of injuries alleged are included as covered "personal injuries" under the previously mentioned endorsements. The petition alleges that one or several of the Named Officers committed acts that caused plaintiffs' damages starting from the initial execution of the dation and lease contract with Yarbrough. Included in these are the failure to disclose the Bank policy of refusing to sell property back to a defaulting debtor or his family and allegations that the Bank through the Named Officers failed to inform Yarbrough of purchase offers from at least two separate individuals in May and June of 1985. The petition therefore sets forth facts showing that some of the claimed wrongful acts occurred during the effective period of the Liberty Policy but prior to the October 31, 1985 effective date of the Old Republic policy. Placed in contrast to the allegations of acts taking place after October 31, 1985 and at least through January 10, 1986, the last day of Yarbrough's lease and right of first refusal, these allegations clearly do not unambiguously exclude coverage but instead have the opposite effect.
In sum, the "loan personal injury" provisions of the Liberty policies at issue simply do not unambiguously exclude coverage for the numerous claims asserted by plaintiffs in their original and amended petitions.[12] Therefore, the District Court properly ruled that Liberty is obligated to defend appellees against the present suit.
CONCLUSION
For the reasons assigned, we affirm the summary judgment on Liberty's duty to defend appellees against plaintiffs' suit. Costs of appeal are assessed to Liberty.
AFFIRMED.
NOTES
[1] The facts contained herein are gathered from the original petition and various amended petitions filed by plaintiffs in this case as well as a prior appeal in this matter, Yarbrough v. Federal Land Bank, 616 So.2d 1327 (La.App. 2d Cir.1993).
[2] Because the Federal Land Banks in Jackson, Alexandria and Rayville had been placed in receivership and had undergone a merger into "Federal Land Bank Associations," the petition added several entities associated with the bank as defendants. We will collectively refer to them as "the Bank."
[3] Bruner died during the pendency of the litigation and his estate was substituted as a party defendant.
[4] Prior to the filing of the third petition, this court handed down its opinion in Yarbrough v. Federal Land Bank, 616 So.2d 1327 (La. App. 2d Cir.1993).
[5] It is unclear from either the judgment or the written reasons whether the court specifically denied Liberty's summary judgment motion on the duty to defend issue, but such intent is implicit in the granting of the opposition motion.
[6] It is undisputed that the officers and directors of the Bank are insureds under Liberty's CGL policy.
[7] We note that this language is contained in the policy issued to the Bank for 1985. While the 1986 language of the "personal injury" provision added certain offenses and the "loan personal injury" exclusion contained slightly different language, we find those changes irrelevant to our resolution of this appeal.
[8] Liberty has neither in briefs to this court nor the trial court contended that the "loan personal injury" coverage is simply not provided under plaintiffs' alleged facts notwithstanding the reference to the Old Republic policy. Thus, they have continually conceded its application in the absence of the Old Republic coverage. Yet, for the first time at oral argument, Liberty's counsel contends that the "loan personal injury" provisions did not apply because the Yarbrough suit involves a lease and not a loan. While we consider this argument to be untimely raised, we find it to be meritless. The provision language broadly states that it is applicable to wrongful acts "relating" to loan transactions. Considering that the lease and right of first refusal was executed on the same date as and essentially formed a part of the dation transaction Yarbrough executed in satisfaction of his loans with the Bank, we find any wrongful acts involving the lease could reasonably be interpreted to "relate" to the original loan transactions, any ambiguity to be read in favor of the insured.
[9] An other insurance clause is a provision that seeks to establish how the liability will be shared in the event that there is other valid and collectible insurance applicable to the same insured. See, McKenzie & Johnson, § 228, at 499.
[10] An "excess" insurance clause generally provides that the coverage of the policy will be excess over other valid and collectible insurance so that the insurer will not be obligated to pay until coverage of the other policy or policies had been exhausted. See, McKenzie & Johnson, § 228, at 499. The Old Republic policy covering the Named Officers states: "The Insurer shall not be liable to make any payment for loss in connection with any claim made against the Directors or Officers: (1) which is insured by another valid policy or policies except in respect of any excess beyond the amount or amounts of payments under such other policy or policies."
[11] An escape clause is intended to make the coverage of the policy applicable only in the event that there is no other coverage available to the insured. See, McKenzie & Johnson, § 228, at 499.
[12] Having found that coverage under the "loan personal injury" provision of Liberty's policies is not unambiguously excluded in the present case, Liberty is obligated to provide a defense to appellees' as to the entire suit. Thus, we pretermit discussion of the other grounds asserted by Liberty for relieving it of its duty to defend or the intervenor brief of United States Fire Insurance Company, an excess insurer who filed a brief in support of one of Liberty's contentions. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3346445/ | [EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.] MEMORANDUM OF DECISION
The plaintiff in this matter seeks to retain as liquidated damages the sum of 214,500 which represents the deposit made by the defendant towards the purchase price of real property owned by the plaintiff. CT Page 1830
James Peterson, a real estate broker who represented the defendants Ralph and Janice Sylvester in connection with the contemplated purchase of the plaintiff's property, testified that he prepared an offer embodied in the usual real estate agreement form and following some negotiating between the parties an agreement was reached and an agreement to buy and sell was executed (P. Ex. 1) on September 29, 1997. In connection therewith, deposits were made totaling $14,500. The agreement provided, inter alia, that in the event the purchasers defaulted, any deposits made could be retained by the sellers as liquidated damages. (P. Ex. 1, paragraph E). Mr. Peterson testified that he went over all the terms and conditions of the agreement with the prospective buyers before they executed the document including the provision as to liquidated damages. The agreed purchase price was $290,000. The closing date was set for March 30, 1998 or earlier as the parties might agree.
The plaintiff Neal Ramadon testified that following the execution of the agreement, the property was removed from the market and pursuant to a further agreement between the parties (P. Ex. 2) he proceeded to make certain repairs and improvements as well as affording the buyers a monetary credit of $1000 at the closing. This agreement was executed on October 14 and 15, 1997. The plaintiff also informed tenants on the property to move anticipating the transfer of the premises as set out in the agreement. At all times the sellers were ready, willing and able to sell pursuant to the terms of the agreement.
On March 27, 1998 the buyers' attorney, Joseph Ragozzine, advised the Ramadons through their attorney Stephen Studer that they would be unable to purchase the property because of problems the buyers were having with the Internal Revenue Service which precluded their ability to obtain a mortgage. (P. Ex. 6) Prior to the receipt of counsel's letter requesting the refund of the deposit, the defendant Ralph Sylvester had on several occasions advised the sellers that obtaining the mortgage would present no problem. The condition concerning the buyers obtaining a mortgage commitment, paragraph 6, set a time limit of 45 days from the execution of the agreement and this date passed without explanation or a request for an extension by the prospective purchasers.
With the collapse of the sale of the property to the defendants, the plaintiff put the property back on the market and eventually sold it for $280,000, or $10,000 less than the price CT Page 1831 originally agreed to with the defendants.
The defendants by way of counterclaim to this action claim a return of the deposit on the grounds that they were not aware of a second page to the agreement which provided for liquidated damages and that provision was never agreed to. The documents, Plaintiff's Exhibits 1 and 2, both refer to the second page or reverse side and recite above the respective signatures of the parties that the reverse side is a part of the agreement. This together with the agent's testimony that the provision as to liquidated damages was fully explained to the buyers leads the court to conclude that the buyers either were or reasonably should have been aware of this condition and finds for the plaintiffs on the counterclaim. See Diulio v. Richard Goulet, etal, 2 Conn. App. 701, 704.
Turning to the right of the sellers to retain the deposit of $14,500 as liquidated damages, such a provision in a real estate agreement has long been recognized as an appropriate and lawful conclusion where damages in event of default might be difficult to ascertain and the amount set was a reasonable sum as related to the contract and the amount of damages likely to be sustained in the event of default and it was the intention of the parties to provide in advance a definite sum as to damages likely to be sustained. New York Life Ins. Co. v. Hartford National Bank andTrust Co., 2 Conn. App. 279, 280. It appears to the court that it was the intention of the parties to so provide in this instance and that the amount set out as liquidated damages was reasonable. This is evidenced by the cost of satisfying the defendants requests as to repairs et cetera, the loss sustained by the plaintiff upon the eventual sale and the costs incident to recovering the deposit from the defendant realtor.
Judgment may enter in favor of the plaintiffs as against the defendants in the amount of $14,500 plus costs.
George W. Ripley II Judge Trial Referee | 01-03-2023 | 07-05-2016 |
https://www.courtlistener.com/api/rest/v3/opinions/816412/ | 12-1008-cv
Farren v. Shaw Environmental, Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order filed on or
after January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and
this Court’s Local Rule 32.1.1. When citing a summary order in a document filed with this Court, a
party must cite either the Federal Appendix or an electronic database (with the notation “summary
order”). A party citing a summary order must serve a copy of it on any party not represented by
counsel.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 31st
day of January, two thousand thirteen.
PRESENT:
JOSÉ A. CABRANES,
RICHARD C. WESLEY,
DEBRA ANN LIVINGSTON,
Circuit Judges.
_____________________________________
ANN FARREN, as Administratrix of the Estate
of KENNETH FARREN,
Plaintiff-Appellant,
v. No. 12-1008-cv
SHAW ENVIRONMENTAL, INC.,
Defendant-Appellee.
_____________________________________
FOR PLAINTIFF-APPELLANT: SHAWN W. CAREY, The Carey Firm, LLC,
Grand Island, NY.
1
FOR DEFENDANT-APPELLEE: MARGARET A. CLEMENS (Trent M. Sutton, on
the brief), Littler Mendelson, P.C., Rochester,
NY.
Appeal from a judgment of the United States District Court for the Western District of New
York (William M. Skretny, Chief Judge).
UPON DUE CONSIDERATION WHEREOF, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the District Court is AFFIRMED.
Plaintiff-appellant Ann Farren (“the plaintiff”) brings this employment-discrimination suit
on behalf of her late husband Kenneth Farren (“Farren”) based on the alleged harassment and
discrimination that he suffered while working as a foreman for defendant-appellee Shaw
Environmental, Inc. (“Shaw”). As relevant to this appeal, the plaintiff alleges that Shaw managers
refused, because of Farren’s sex, to respond to his complaints of sexual harassment in the
workplace, thus violating the ban against disparate treatment on the basis of sex under Title VII of
the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq.1
In a decision and order dated February 10, 2012, the District Court granted summary
judgment to Shaw on two grounds with respect to the plaintiff’s disparate-treatment claim. First,
the Court concluded that the claim is barred because the plaintiff failed to exhaust available
administrative remedies by not bringing the disparate-treatment claim before the New York State
Division of Human Rights (“DHR”) and the U.S. Equal Employment Opportunity Commission
(“EEOC”). See Farren v. Shaw Envtl., Inc., 852 F. Supp. 2d 352, 360–61 (W.D.N.Y. 2012). Second,
the Court concluded that the plaintiff failed to establish a prima facie cause of disparate treatment
because she had “offer[ed] no evidence of similarly situated female employees whose complaints
resulted in more decisive action than that afforded by [Shaw] to Farren’s complaint.” Id. at 360.
The plaintiff now appeals the District Court’s grant of summary judgment with respect to
the disparate-treatment claim. We assume the parties’ familiarity with the facts and procedural
history of this case.
1 In her amended complaint, the plaintiff brought three claims under Title VII, alleging that Shaw (1) created a hostile
work environment by condoning the workplace sexual harassment suffered by Farren; (2) engaged in disparate treatment
on the basis of sex by refusing to respond to Farren’s complaints because of his sex; and (3) unlawfully retaliated against
Farren because of his complaints. The complaint also included analogous state-law claims under the New York State
Human Rights Law. The plaintiff abandoned her state-law claims in the court below, see Farren, 852 F. Supp. 2d at 357,
and on appeal she now abandons all but the disparate-treatment claim, see Appellant’s Br. at 12. Arguments not raised
on appeal are waived, see Yueqing Zhang v. Gonzales, 426 F.3d 540, 545 n.7 (2d Cir. 2005), and therefore we consider only
Farren’s disparate-treatment claim under Title VII.
2
DISCUSSION
We review an award of summary judgment de novo, “construing the evidence in the light most
favorable to the non-moving party and drawing all reasonable inferences in its favor.” Fincher v.
Depository Trust & Clearing Corp., 604 F.3d 712, 720 (2d Cir. 2010) (quotation marks omitted).
Summary judgment is appropriate if “the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a). A
genuine dispute exists “if ‘the evidence is such that a reasonable jury could return a verdict for the
nonmoving party.’” Gen. Star Nat’l Ins. Co. v. Universal Fabricators, Inc., 585 F.3d 662, 669 (2d Cir.
2009) (quoting Roe v. City of Waterbury, 542 F.3d 31, 35 (2d Cir. 2008)).
For substantially the reasons stated in the District Court’s well-reasoned opinion, we
conclude that Farren failed to exhaust the disparate-treatment claim in the relevant administrative
proceedings before the DHR and EEOC. We now briefly summarize our reasoning.
“Before an individual may bring a Title VII suit in federal court, the claims forming the basis
of such a suit must first be presented in a complaint to the EEOC or the equivalent state agency.”
Williams v. N.Y.C. Hous. Auth., 458 F.3d 67, 69 (2d Cir. 2006) (citing 42 U.S.C. § 2000e-5).
Consequently, “[e]xhaustion is ordinarily an essential element of a Title VII claim.” Id. at 70
(internal quotation marks omitted). “Claims not raised in an EEOC complaint, however, may be
brought in federal court if they are ‘reasonably related’ to the claim filed with the agency.” Id.
(quoting Butts v. N.Y.C. Dep’t of Hous. Pres. & Dev., 990 F.2d 1397, 1401 (2d Cir. 1993)). We have
explained the meaning of “reasonably related” as follows:
Recognizing that EEOC charges frequently are filled out by employees without the
benefit of counsel and that their primary purpose is to alert the EEOC to the
discrimination that a plaintiff claims she is suffering, we have allowed claims not
raised in the charge to be brought in a civil action where the conduct complained of
would fall within the “scope of the EEOC investigation which can reasonably be
expected to grow out of the charge of discrimination.”
Butts, 990 F.2d at 1402 (quoting Smith v. Am. President Lines, Ltd., 571 F.2d 102, 107 n.10 (2d Cir.
1978)). “In this inquiry, the focus should be on the factual allegations made in the EEOC charge
itself, describing the discriminatory conduct about which a plaintiff is grieving,” and “[t]he central
question is whether the complaint filed with the EEOC gave that agency adequate notice to
investigate discrimination on both bases.” Williams, 458 F.3d at 70 (alteration and internal quotation
marks omitted).
3
Farren’s complaint to the DHR and EEOC did allege one variant of sex discrimination—
namely, that the sexual harassment he experienced at work was so pervasive as to create a hostile
work environment. See Meritor Sav. Bank, FSB v. Vinson, 477 U.S. 57 (1986) (holding that, pursuant
to regulations of the EEOC, pervasive sexual harassment by coworkers can give rise to a Title VII
sex-discrimination claim); Oncale v. Sundowner Offshore Servs., Inc., 523 U.S. 75 (1998) (holding that
pervasive sexual harassment by a coworker of the same sex can give rise to a Title VII sex-
discrimination claim).
The facts alleged in Farren’s administrative complaint to the DHR and EEOC, however, do
not reveal any suggestion of intentionally discriminatory treatment by Shaw’s managers on account
of Farren’s sex, and therefore the complaint did not provide those agencies with adequate notice of
the disparate-treatment claim. In other words, Farren’s administrative complaint discusses the
sexual nature of the alleged workplace threats in the course of making a hostile-work-environment
claim, but it does not state or suggest that Shaw’s managers responded to Farren’s claims differently
because of his sex. Rather, the complaint simply states that Shaw “took no action to correct the
situation.” Joint App’x at 64–65. The DHR and EEOC therefore reasonably viewed Farren’s
complaint as alleging sexual harassment by Farren’s coworker and an insufficient response by Shaw
managers—not disparate treatment by Shaw managers because of Farren’s sex. In this context, the
two types of sex-discrimination claims are sufficiently distinct, both factually and legally, such that
Farren’s failure to raise the disparate-treatment claim in his administrative complaint precludes our
consideration of that claim here.
Because the disparate-treatment claim was not exhausted and the plaintiff has waived all
other claims, we need not examine any other aspect of the District Court’s opinion.
CONCLUSION
Accordingly, for the reasons stated above, we AFFIRM the judgment of the District Court.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
4 | 01-03-2023 | 01-31-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/816416/ | 11-5184-cv
Benn v. Kissane et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order filed on or
after January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and
this Court’s Local Rule 32.1.1. When citing a summary order in a document filed with this Court, a
party must cite either the Federal Appendix or an electronic database (with the notation “summary
order”). A party citing a summary order must serve a copy of it on any party not represented by
counsel.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 31st
day of January, two thousand thirteen.
PRESENT:
JOSÉ A. CABRANES,
RICHARD C. WESLEY,
DEBRA ANN LIVINGSTON,
Circuit Judges.
_____________________________________
MONIQUE BENN,
Plaintiff-Appellant,
v. No. 11-5184-cv
DETECTIVE JOHN KISSANE, DETECTIVE
CHRISTOPHER BOLLERMAN, FIRE MARSHALL
MICHAEL FARRELL, FIRE MARSHALL STEPHEN
M. CALCUTTI, FIRE MARSHALL STEPHEN
O’KEEFE, THE CITY OF NEW YORK,
Defendants-Appellees.*
_____________________________________
* The Clerk of Court is directed to amend the caption as shown above.
1
FOR PLAINTIFF-APPELLANT: KENECHUKWU C. OKOLI, Law Offices of
K.C. Okoli, P.C., New York, NY.
FOR DEFENDANTS-APPELLEES: SUSAN B. EISNER (Francis F. Caputo,
Alexandra Corsi, on the brief), for Michael A.
Cardozo, Corporation Counsel of the City of
New York, New York, NY.
Appeal from a judgment of the United States District Court for the Eastern District of New
York (Carol Bagley Amon, Chief Judge).
UPON DUE CONSIDERATION WHEREOF, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the District Court is AFFIRMED.
In this suit, plaintiff-appellant Monique Benn brings claims of false arrest and malicious
prosecution against Detectives John Kissane and Christopher Bollerman of the New York Police
Department.1 In particular, Benn argues that Detectives Kissane and Bollerman lacked probable
cause to arrest her for arson and homicide in connection with a house fire that took place in Queens
County, New York, on the evening of July 18, 2006. Benn acknowledges that she was at the site of
the fire and was removing objects from a friend’s apartment where the fire started, but she asserts
her innocence and alleges that the real culprits were Gary Mariner and Bryan Gibson—two men
whom she did not know but who were associated with her friend, and who told police officers that
Benn confided in them that she had started the fire. Following an investigation, Detective Kissane
arrested Benn on October 4, 2006. A state grand jury indicted Benn for deliberate-indifference
murder, reckless endangerment, arson, and criminal mischief. Following a trial, Benn was found not
guilty of all pending charges on February 5, 2009, having been incarcerated for about 15 months.
Benn subsequently brought this suit under 42 U.S.C. § 1983.
In a memorandum and order dated November 10, 2011, the District Court granted summary
judgment to Detectives Kissane and Bollerman on all of Benn’s claims. With regard to the false-
arrest claim, the District Court concluded that “it was reasonable for the defendants to credit the
statements of Mariner and Gibson, in which they admitted to damaging the apartment, and both
said that Benn admitted to starting the fire.” Dist. Ct. Op. at 6. The Court explained that “the
detectives investigated the arson for months before arresting Benn, and interviewed several
witnesses who corroborated most of Mariner’s and Gibson’s account of what happened, including
Benn’s presence at the scene and the destruction of the property.” Id. at 8. Discussing the
testimony of Harold Williams, upon which Benn heavily relied in her arguments, the Court noted
1 As noted in the District Court’s opinion, the plaintiff abandoned her claims against the other defendants in this case.
See Dist. Ct. Op. at 1 n.1. Accordingly, all claims against those defendants are waived. See Yueqing Zhang v. Gonzales, 426
F.3d 540, 545 n.7 (2d Cir. 2005) (issues not raised on appeal are waived).
2
that “[t]he fact that Benn might not have been the last to leave the house did not prove, or even
suggest under the facts of this case, that she did not start the fire.” Id. The Court then concluded
that “[p]robable cause supported Benn’s arrest, and the defendants are therefore entitled to
summary judgment on her false arrest claim.” Id. at 9.
With regard to the malicious-prosecution claim, the District Court concluded that because
no evidence negated the probable cause existing at the time of arrest, Benn had not presented
sufficient evidence for that claim to go to a jury. See id. (“For the same reasons that the defendants
had probable cause to arrest Benn, the Court finds that there was probable cause to initiate criminal
proceedings against her.”). The Court reiterated that the testimony of Harold Williams did not
negate the existence of probable cause.
Benn appeals the District Court’s grant of summary judgment with respect to her claims
against Detectives Kissane and Bollerman. The defendants defend the District Court’s decision on
the merits, and they assert in the alternative that they are entitled to qualified immunity. We assume
the parties’ familiarity with the facts and procedural history of this case.
DISCUSSION
A.
We review de novo an award of summary judgment. See Fincher v. Depository Trust & Clearing
Corp., 604 F.3d 712, 720 (2d Cir. 2010). Summary judgment is appropriate if “the movant shows
that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” FED. R. CIV. P. 56(a). A genuine dispute exists “if ‘the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.’” Gen. Star Nat’l Ins. Co. v. Universal
Fabricators, Inc., 585 F.3d 662, 669 (2d Cir. 2009) (quoting Roe v. City of Waterbury, 542 F.3d 31, 35
(2d Cir. 2008)).
In analyzing the record on appeal from a grant of summary judgment, we “constru[e] the
evidence in the light most favorable to the non-moving party and draw[ ] all reasonable inferences in
its favor.” Fincher, 604 F.3d at 720. Benn argues that the District Court misapplied this standard
because it “failed to believe the evidence of the Appellant and [to] draw all reasonable inferences in
the light most favorable to Appellant as the non-moving party to the motion.” Appellant’s Br. at
16-17. Benn further asserts that by “resolv[ing] material issues of fact in favor of the moving party,”
the District Court acted “contrary to governing law.” Id. at 34. Before we proceed to the merits, a
point of clarification is in order regarding how the summary judgment standard applies in this
context, where a court considers the objective reasonableness of a probable-cause determination.
3
As mentioned above, a federal court considering a summary judgment motion must resolve
material factual disputes in favor of the non-moving party. Fincher, 604 F.3d at 720. But “[f]actual
disputes that are irrelevant or unnecessary will not be counted.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986). When considering a probable-cause determination in a false-arrest or
malicious-prosecution suit, the relevant factual inquiry is to determine what information the officer
knew at the time of arrest or outset of prosecution. See Devenpeck v. Alford, 543 U.S. 146, 152 (2004);
Ornelas v. United States, 517 U.S. 690, 696 (1996). That information is all that matters. “[A]n arresting
officer’s state of mind (except for the facts that he knows) is irrelevant to the existence of probable
cause.” Devenpeck, 543 U.S. at 153. And whether the substance of the information known to the
officer is actually true is also irrelevant; all the court need decide is “whether the officer had probable
cause to believe” that the person committed a crime. Maryland v. Pringle, 540 U.S. 366, 370 (2003)
(emphasis added).
Although determining what the officer knew at the relevant time is an issue of fact, whether
those known circumstances satisfy the probable-cause standard is a mixed question of law and fact,
see Ornelas, 517 U.S. at 696–97, and “‘[t]he ultimate determination of whether probable cause . . .
existed is essentially a legal question,’” Hui Lin Huang v. Holder, 677 F.3d 130, 135 (2d Cir. 2012)
(quoting United States v. Patrick, 899 F.2d 169, 171 (2d Cir. 1990)). To be sure, the Supreme Court
has admonished that “[t]he probable-cause standard is incapable of precise definition or
quantification into percentages because it deals with probabilities and depends on the totality of the
circumstances,” and the Court has emphasized that “[p]robable cause is a fluid concept—turning on
the assessment of probabilities in particular factual contexts—not readily, or even usefully, reduced
to a neat set of legal rules.” Pringle, 540 U.S. at 370–71 (quotation marks omitted). Probable cause,
in other words, is a standard and not a bright-line rule. Nonetheless, the critical point here is that the
probable-cause inquiry is legal in nature, asking “whether the[ ] historical facts, viewed from the
standpoint of an objectively reasonable police officer, amount to reasonable suspicion or to
probable cause.” Ornelas, 517 U.S. at 696; see also Hui Lin Huang, 677 F.3d at 135 (“What the law’s
legal construct of a reasonable person would believe or do under the particular circumstances of a
case is normally a question of law . . . .”).
Accordingly, a court considering a summary judgment motion in a false-arrest or malicious-
prosecution case must construe in favor of the non-moving party any factual disputes regarding
what circumstances were known to the officer at the relevant time. After that, however, the court
must undertake a neutral, legal analysis of whether those (assumed) circumstances satisfy the
probable-cause standard. See Jenkins v. City of New York, 478 F.3d 76, 88 (2d Cir. 2007). In other
words, the court should resolve in favor of the non-moving party any disputes about what
information the officer knew, but it should neutrally determine whether that information gave rise to
probable cause. An objectively reasonable police officer applying the probable-cause standard
4
would not automatically or necessarily construe all available information in favor of a particular
individual, and neither should the court.
Moreover, state-officer defendants in § 1983 suits “are shielded from liability for civil
damages insofar as their conduct does not violate clearly established statutory or constitutional rights
of which a reasonable person would have known.” Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982).
This protection, which we style “qualified immunity,” is based on “the need to avoid the impossible
burden that would fall upon all our agencies of government if those acting on behalf of the
government were unduly hampered and intimidated in the discharge of their duties by a fear of
personal liability.” Filarsky v. Delia, 132 S. Ct. 1657, 1662 (2012) (quotation marks omitted).
“Under federal law, a police officer is entitled to qualified immunity where (1) his conduct
does not violate clearly established statutory or constitutional rights of which a reasonable person
would have known, or (2) it was objectively reasonable for him to believe that his actions were
lawful at the time of the challenged act.” Jenkins, 478 F.3d at 87 (internal quotation marks omitted).
The second of these categories applies “if ‘officers of reasonable competence could disagree’ on the
legality of the action at issue in its particular factual context.” Walczyk v. Rio, 496 F.3d 139, 154 (2d
Cir. 2007) (quoting Malley v. Briggs, 475 U.S. 335, 341 (1986)). Qualified immunity therefore allows
for “reasonable mistakes” in an officer’s application of law to fact, Saucier v. Katz, 533 U.S. 194, 205
(2001), and it protects “‘all but the plainly incompetent or those who knowingly violate the law,’” id.
at 202 (quoting Malley, 475 U.S. at 341).
In the context of probable-cause determinations, the applicable legal standard is clear, but
there are “limitless factual circumstances” that officers must confront when applying that standard.
Id. at 205. Accordingly, “there can frequently be a range of responses to given situations that
competent officers may reasonably think are lawful.” Walczyk, 496 F.3d at 155 n.16. An officer is
shielded from liability “if there was ‘arguable’ probable cause at the time of arrest—that is, if
‘officers of reasonable competence could disagree on whether the probable cause test was met.’”
Jenkins, 478 F.3d at 87 (quoting Lennon v. Miller, 66 F.3d 416, 423–24 (2d Cir. 1995)). “The essential
inquiry . . . is whether it was objectively reasonable for the officer to conclude that probable cause
existed.” Id.
B.
Having reviewed the record de novo, we affirm the District Court’s opinion for substantially
the reasons stated in its well-reasoned memorandum and order of November 10, 2011. We need
not reach the issue of whether probable cause actually existed, however, because the information
known to the officers at the relevant times plainly gave rise to an “arguable” case that the probable
cause standard was satisfied in these circumstances. See Pearson v. Callahan, 555 U.S. 223 (2009)
5
(holding that the qualified-immunity inquiry may precede consideration of the merits); Dandridge v.
Williams, 397 U.S. 471, 475 n.6 (1970) (explaining that an appellate court may affirm the judgment
on an alternative ground).
Combined with the other available evidence, Mariner’s and Gibson’s accounts of Benn’s
admission created at least an arguable basis for concluding that probable cause existed at the time of
her arrest. Moreover, Harold Williams’s testimony, though perhaps helpful to Benn’s defense, did
not exculpate her of criminal responsibility. Even assuming the truth of Williams’s statements—
which we need not do, given that a reasonable officer would not automatically or necessarily
construe evidence in favor of a particular individual—we agree with the District Court’s assessment
that Benn still could have been criminally culpable for setting the fire. Benn relies heavily on the
New York Fire Department’s conclusion that the fire had two distinct origins, but it obviously
would not be difficult for an individual to set two fires in the same building, or for Benn to have
been legally culpable even if Mariner and Gibson had physically started the fire. For the same
reasons, arguable probable cause existed for Benn’s prosecution. Moreover, Benn failed to rebut the
presumption of probable cause created when she was indicted by the grand jury. See Colon v. City of
New York, 60 N.Y.2d 78, 82–83 (1983).
CONCLUSION
We have considered all of Benn’s arguments on appeal and find them to be without merit.
Accordingly, for the reasons stated above, we AFFIRM the judgment of the District Court.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
6 | 01-03-2023 | 01-31-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1039261/ | IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
In the Matter of the Dependency of No. 69458-8-I
E.C., dob 10/25/07,
DIVISION ONE
Minor child,
STATE OF WASHINGTON,
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CHRISTOPHER CARR, £T
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Appellant. FILED: August 12, 2013
Schindler, J. — Christopher Carr challenges the "Order of Dependency"
because he did not receive notice of the dependency fact-finding hearing. In the
alternative, he argues the State did not establish the child was dependant under RCW
13.34.030(6)(c). We affirm.
FACTS
E.C. was born October 25, 2007 in Riverside County, California. Michele Moses
is E.C/s mother. Moses was E.C.'s primary caretaker. Christopher Carr was not listed
on the birth certificate but is the alleged father of E.C. By the time E.C. was four-years-
No. 69458-8-1/2
old, he was diagnosed with autism. E.C. does not communicate well and speaks very
little. In 2011, E.C. and his mother moved to Whatcom County.
In early 2012, an apartment manager contacted the police about drug dealing in
the apartment where Moses and E.C. lived. In April, the police went to the apartment to
check on the welfare of E.C. and found drug paraphernalia. Moses told the police she
had relapsed and admitted using methamphetamine.
On May 2, Child Protective Services received an emergency referral from St.
Joseph Medical Center. A baby-sitter had taken E.C. to the emergency room. E.C. was
limp. The baby-sitter said that E.C. had been vomiting and shaking. E.C. was initially
diagnosed with a sepsis infection. Moses arrived at the hospital several hours later.
Moses told the doctor that she was moving and wanted to leave E.C. at the hospital.
The doctor told Moses she had to stay with the child. The next day, E.C.'s diagnosis
was changed from a sepsis infection to "severe hydration."
While E.C. was in the hospital, Moses spent long periods away from her child
and missed several scheduled meetings with the social workers. After Moses failed to
attend the meeting on May 3, the police placed E.C. into protective custody, and the
hospital released E.C. to foster care.
On May 4, the State filed a "Dependency Petition" on behalf of E.C. The
Dependency Petition alleged that E.C. is abused or neglected and has no parent
capable of caring for the child. As to Carr, the petition alleged, in pertinent part:
Christopher Carr is the alleged father of [E.C] Christopher is reported to
not be listed on the birth certificate, reported to be possibly living in
California, and reported to have severe mental health concerns. Ms.
Moses explained when she gave birth to [E.C], she was listed in the
hospital as "Jane Doe" as a protection due to severe domestic violence.
Mr. Carr's exact whereabouts are unknown and there is no current contact
No. 69458-8-1/3
information. The Department [of Social and Health Services (DSHS)] will
continue searching for Mr. Carr.
The notice scheduled a shelter care hearing for May 8 and a fact-finding hearing
for June 4. Carr received the summons for the dependency proceedings, the
Dependency Petition, and the notice scheduling the shelter care and fact-finding
hearings.
Carr appeared at the shelter care hearing on May 8 and participated by
telephone. At Carr's request, the court appointed him an attorney and continued the
shelter care hearing to May 15. At the shelter care hearing on May 15, Carr's attorney
was present and Carr participated by telephone. The court denied Carr's request for
placement of E.C. with him.
Carr and his attorney were present at the fact-finding status conference hearing
on June 4. Carr participated by telephone. The court ordered the parents to file an
answer to the Dependency Petition by July 6 and submit witness lists by August 10.
The court scheduled a status conference for 2:30 p.m. on August 16, and scheduled a
contested fact-finding hearing for August 27. Carr's attorney was present at the status
conference hearing on August 16. Carr was not present. At the request of the mother,
the court appointed a new attorney to represent her and continued the fact-finding
hearing to September 20 at 2:30 p.m.1 The court also entered an order granting Carr's
motion to testify by telephone at the fact-finding hearing. "Compelling circumstances
and father's due process rights are sufficient to allow . . . father to testify telephonically."
1The orderstates the new attorney "needs time to prepare." The orderalso states that the "date
may be moved if the social worker is still unavailable."
No. 69458-8-1/4
Neither Moses nor Carr attended the fact-finding hearing on September 20. The
court-appointed special advocate told the court that she had "no contact with the father."
DSHS asked the court to proceed and allow the social worker to testify.
Ms. Moses is not present; Mr. Carr, I think [Carr's counsel] is trying to
reach him yet again, but he is not present and so [DSHS] is asking that
the court enter a judgment on the pleadings; that any pleadings or
responses or answers filed by the parents be stricken; and that we would
like to just take the expert testimony of [the social worker] to confirm and
finalize a finding of dependency.
The attorney representing the mother told the court that Moses had received
notice to appear at the fact-finding, but despite "multiple" efforts, the attorney had not
been successful in contacting the mother. The attorney representing the father stated
that he had "instructed [Carr] via message, text and phone to call into court," and did not
know why Carr was not present by phone.
The court proceeded with the hearing. DSHS social work supervisor Annie
Taylor testified about the services provided to Carr.
[DSHS] asked that [Carr] complete a substance abuse evaluation and
follow through with recommendations; that he complete some assessment
around alleged domestic violence perpetrator behavior which the mother
has alleged against him; and that he engage in mental health assessment
and treatment series consistent with his self-report that he suffers from
mental health symptoms that are at times debilitating.
Taylor also testified that Carr had not yet established paternity but had recently
completed an inpatient chemical dependency program. Taylor said that Carr was
currently living in "a shared clean and sober housing environment that is not appropriate
for the child." Taylor testified that the father had not spent any time with E.C
The recommendation for visitation with the mother has been weekly for
two hours. The father, because of his distance from the child, has not
been visiting at this time, but if he were to make himself available our
recommendation would be similar, supervised weekly.
No. 69458-8-1/5
The court entered an Order of Dependency. The court found that Carr was not
"capable of adequately caring for the child, such that the child is in circumstances which
constitute a danger of substantial damage to the child's psychological or physical
development."
ANALYSIS
For the first time on appeal, Carr contends he did not receive notice of the fact
finding hearing on September 20.
The due process clause of the Fourteenth Amendment protects parental rights to
the custody, care, and companionship of their children. In re Welfare of Key, 119
Wn.2d 600, 609, 836 P.2d 200 (1992).
A parent's right to control and have custody of children is a fundamental
civil right which may not be interfered with without the complete protection
of due process safeguards, particularly notice and an opportunity to be
heard.
In re Welfare of S.E.. 63 Wn. App. 244, 250, 820 P.2d 47 (1991).
To ensure proper notice and a meaningful opportunity to be heard, Washington
law requires service of the summons and Dependency Petition. RCW 13.34.070(1), (2).
"Upon the filing of the petition, the clerk of the court shall issue a summons ... to the
parents . . . requiring them to appear personally before the court at the time fixed to
hear the petition." RCW 13.34.070(1). Proper service is a necessary prerequisite for
jurisdiction over the parties. In re Dependency of A.G.. 93 Wn. App. 268, 276, 968 P.2d
424(1998).
Juvenile Court Rule 1.4(a) states that the Civil Rules "shall apply in proceedings
other than those involving a juvenile offense when not inconsistent with these rules and
No. 69458-8-1/6
applicable statutes." CR 5(b)(1) states that service of pleadings and other papers
subsequent to the party's summons and complaint shall be on the party's attorney.
"The attorney's knowledge is deemed to be the client's knowledge, when the attorney
acts on his behalf." Hallerv. Wallis. 89 Wn.2d 539, 547, 573 P.2d 1302 (1978).
The record establishes that Carr had notice of the status hearing on August 16
and that his attorney was present. At the hearing, the court continued the fact-finding to
September 20 and granted Carr's motion to present testimony at the fact-finding by
telephone. Carr's attorney signed the order and acknowledged receipt of the order
continuing the fact-finding hearing to September 20. On September 4, DSHS served
Carr's attorney with a CR 43 notice requiring Carr to attend the fact-finding to testify.
The record also shows that Carr's attorney "instructed [Carr] via message, text and
phone to call into court" to testify at the fact-finding hearing on September 20. Because
the record establishes Carr had notice and the opportunity to be heard at the fact
finding hearing, his due process rights were not violated.
In the alternative, Carr claims insufficient evidence supports finding E.C.
dependent.
Parents have a fundamental liberty interest in the care and welfare of their
children, and State interference is never to be taken lightly. In re Dependency of
Schermer. 161 Wn.2d 927, 941, 169 P.3d 452 (2007) (citing In re Welfare of Sumev. 94
Wn.2d 757, 762, 621 P.2d 108 (1980)). But the State has an interest in protecting the
physical, mental, and emotional health of children. Schermer, 161 Wn.2d at 941. A
dependency is a preliminary proceeding that does not permanently deprive a parent of
rights. In re Dependency of T.L.G.. 126 Wn. App. 181,203, 108 P.3d 156 (2005); Key,
No. 69458-8-1/7
119 Wn.2d at 609. Dependency proceedings are designed to protect children from
abuse and neglect, help parents alleviate problems that led to State intervention, and
reunite families if appropriate. In re Interest of J.F., 109 Wn. App. 718, 728, 37 P.3d
1227 (2001); In re A.W., 53 Wn. App. 22, 27, 765 P.2d 307 (1988).
To find a child dependent, the State must prove by a preponderance of the
evidence that the child meets one of the statutory definitions of dependency. RCW
13.34.110(1); Key, 119 Wn.2d at 612. In this case, the trial court found E.C. dependent
under RCW 13.34.030(6)(c). RCW 13.34.030(6)(c) provides that a child is dependent
where the child "[h]as no parent, guardian, or custodian capable of adequately caring for
the child, such that the child is in circumstances which constitute a danger of substantial
damage to the child's psychological or physical development."
In evaluating a claim of insufficiency of the evidence in a dependency
proceeding, we determine whether substantial evidence supports the findings of fact
and whether those findings support the court's conclusions of law. In re Dependency of
CM., 118 Wn. App. 643, 649, 78 P.3d 191 (2003). Evidence is substantial if, when
viewed in the light most favorable to the prevailing party, a rational trier of fact could find
the fact by a preponderance of the evidence. In re Dependency of E.L.F., 117 Wn. App.
241,245, 70 P.3d 163 (2003).
The legislature has determined that in balancing the legal rights of parents
against the rights of the child, the rights and safety of the child shall be the paramount
concern. RCW 13.34.020; Schermer, 161 Wn.2d at 942. There are no specific factors
a court must consider when determining whether a parent is capable of parenting under
RCW 13.34.030(6)(c); rather, the inquiry is highly fact specific. Schermer, 161 Wn.2d at
No. 69458-8-1/8
951-52. Additionally, the State need not prove that a parent is unfit to prove a
dependency.
A dependency based on RCW 13.34.030[(6)](c) does not turn on parental
"unfitness" in the usual sense. Rather, it allows consideration of both a
child's special needs and any limitations or other circumstances which
affect a parent's ability to respond to those needs. Under RCW
13.34.030[(6)](c), it is unnecessary to find parental misconduct in order to
find a child dependent.
Schermer, 161 Wn.2d at 944.
The undisputed testimony established that Carr was living in post-treatment
housing that was not appropriate for the care of a child. The court found that Carr
suffered from mental illness that was occasionally debilitating, and there was no
evidence that he could care for the special needs of E.C The uncontroverted evidence
supports the finding that Carr was not capable of adequately caring for E.C, such that
the child is in circumstances which constitute a danger of substantial damage to the
child's psychological or physical development. We affirm.
j.^cOSL.
WE CONCUR:
J. | 01-03-2023 | 08-28-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1142410/ | 669 So.2d 2 (1996)
STATE of Louisiana
v.
Felix POLKEY.
No. 95-KA-564.
Court of Appeal of Louisiana, Fifth Circuit.
January 17, 1996.
Bruce G. Whittaker, Staff Appellate Counsel, 24th Judicial District, Indigent Defender Board, Gretna, Louisiana, for appellant.
John M. Mamoulides, District Attorney, Alison Wallis, Assistant District Attorney, Gretna, Louisiana, for appellee.
Before WICKER, GOTHARD and CANNELLA, JJ.
CANNELLA, Judge.
Defendant, Felix Polkey, appeals from his conviction of criminal trespass. For the reasons which follow, we dismiss the appeal.
Defendant was originally charged by bill of information with the felony of attempted simple burglary of an inhabited dwelling, in violation of La.R.S. 14:27 and 62.2. At arraignment on January 21, 1994, defendant pled not guilty. As part of a plea agreement, the state reduced the charges to a misdemeanor, criminal trespass, a violation of La.R.S. 14:63, and on May 4, 1994, defendant entered a guilty plea to that charge. Defendant was advised of his rights before entering his plea and was advised that he would be sentenced to pay a $500 fine and court costs. The guilty plea form likewise indicated the waiver of rights and sentence. The trial court deferred sentencing until May 18, 1994, advising defendant that he must pay the fine at that time.
*3 A minute entry indicates that sentencing was continued until September 15, 1994. Another minute entry indicates that defendant did not appear for sentencing on October 20, 1994 and an attachment was issued for his arrest. Defendant was brought before the trial court on May 5, 1995. The minute entry for that day indicates that defendant was sentenced. However, the transcript of the hearing conducted on that day does not indicate that sentence was imposed by the court. Rather, it appears from the remarks of defense counsel and the district attorney that they believed defendant had already been sentenced. Defense counsel referred to a pre-trial conference where defendant was given an additional ninety days to comply with the sentence of a $500 fine and court costs. The assistant district attorney stated that he believed defendant had been sentenced in March of 1994 to pay $673 in restitution plus a $500 fine and court costs.[1] The only comment by the trial court was a question presented to defendant whether he understood what his counsel had said, that he was to pay the $500 fine and court costs within ninety days. The transcript from this hearing does not evidence a sentencing of defendant. Where the transcript and the minute entry disagree, the transcript prevails. State v. Lynch, 441 So.2d 732 (La.1983). Therefore, after reviewing the record, we find nothing to indicate that defendant has ever been sentenced. Absent sentencing, the case is not appealable. La.C.Cr.P. art. 912(A); State v. Chapman, 471 So.2d 716 (La.1985).
Moreover, it is noted that defendant's conviction was for a misdemeanor offense, not triable by jury, and, thus, is not appealable. La. Const. 1974, Art. 5 § 10; La. C.Cr.P. art. 912.1; La.C.Cr.P. art. 779. This court, by En Banc Order of December 9, 1994, provided that, effective January 1, 1995, all non-appealable matters filed as an appeal will be dismissed.
Accordingly, because defendant has not yet been sentenced and his conviction is for a misdemeanor, the appeal must be dismissed.
APPEAL DISMISSED.
NOTES
[1] The assistant district attorney has made reference, in his remarks in open court and in brief to this court, to his belief that if defendant does not pay the fine, then the original charges can be reinstated against defendant. It is noted that defendant has already pled guilty to the reduced charge and that the plea was accepted by the court. However, since the issue is not squarely before us at this time, we will not address the question of whether such a procedure would be legally permissible. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1101257/ | 732 So.2d 645 (1999)
Sandy EDMOND, appearing as Tutrix of her minor son, Christopher Bell, Plaintiff-Appellant,
v.
DEPARTMENT OF PUBLIC SAFETY, et al., Defendants-Appellees.
No. 31,821-CA.
Court of Appeal of Louisiana, Second Circuit.
March 31, 1999.
*646 Linda Ritzie, baton Rouge, Counsel for Appellant.
Richard P. Ieyoub, Attorney General,, Mary A. Brown, Heather L. Horton, Assistant Attorneys General, Counsel for Appellees.
Before WILLIAMS, STEWART and GASKINS, JJ.
GASKINS, Judge.
The plaintiff, Sandy Edmond[1], as natural tutrix for her minor son, Christopher Bell, appeals a trial court judgment dismissing a personal injury claim against the defendants, the Department of Public Safety and Corrections, through Louisiana Training Institute at Monroe, and Howard Randall. The trial court dismissed the suit because the plaintiff failed to comply with the Corrections Administrative Remedy Procedure, provided in La. R.S. 15:1171 et seq. For the following reasons, we affirm in part and amend in part the trial court judgment.
FACTS
On April 8, 1996, Christopher Bell was injured when four of his fingers were severed by a wood planer machine while Bell was in the custody of the Department of Safety and Corrections at Louisiana Training Institute (LTI) in Monroe, Louisiana. At the time of the accident, Bell was 14 years old. One year later, on April 8, 1997, Bell's mother, Sandy Edmond, in her capacity as natural tutrix of her minor son, Christopher Bell, filed suit against the Department of Public Safety and Corrections (DPSC). She also named Howard Randall as a defendant. Mr. Randall allegedly was Bell's shop instructor at LTI at the time the accident occurred. The defendants filed an answer to the lawsuit, and after the parties had exchanged interrogatories and requests for the production of documents, the defendants filed a motion to dismiss. The motion was based on the provisions of La. R.S. 15:1171(B), which provide that the DPSC may adopt an administrative remedy procedure providing the exclusive remedy for adult and juvenile offenders against the state and its employees for all complaints and grievances arising while the offender is in the custody of the state. Also, La. R.S. 15:1172(B) provides that no state court shall entertain an offender's grievance or complaint which falls under the purview of the Corrections Administrative Remedy Procedure unless or until the offender exhausts the remedies provided therein.
*647 A hearing on the motion to dismiss was held in the trial court on November 19, 1997. At the hearing, the plaintiff argued that the basis of the defendants' motion to dismiss was, in effect, an exception of prematurity, which was waived because it was filed after the defendants answered the plaintiffs petition. On February 13, 1998, the trial court issued written reasons for its decision to grant the motion to dismiss in favor of the defendants. The trial court discounted the plaintiffs argument that the motion to dismiss was based upon an exception of prematurity.[2] The trial court noted that, under La. R.S. 15:1172, if an offender fails to pursue administrative remedies, any petition filed in the trial court shall be dismissed. The trial court found that the plaintiffs right to file suit would not come into existence until the Department of Corrections renders a decision adverse to him and therefore, dismissal was appropriate and was granted in favor of the defendants. On April 8, 1998, the trial court filed a judgment in favor of the defendants, dismissing the plaintiffs claim with prejudice. The plaintiff appealed the trial court judgment.
DISMISSAL OF CLAIM
On appeal, Ms. Edmond argues that the trial court erred in dismissing her claim against the defendants, asserting that the Corrections Administrative Remedy Procedure is not applicable to her. She contends that La. R.S. 15:1171 et seq. applies only to offenders as defined in that statutory scheme. Ms. Edmond argues that she is the plaintiff in this case and she is not an offender as defined in the statute. Therefore, the Corrections Administrative Remedy Procedure is not applicable to her and does not preclude the prosecution of her claim against the state in the trial court. This argument is without merit.
The statutory provisions relevant to this case are set forth below in pertinent part:
La. R.S. 15:1171(B):
The department or sheriff may ... adopt, in accordance with the Administrative Procedure Act, administrative remedy procedures for receiving, hearing, and disposing of any and all complaints and grievances by adult or juvenile offenders against the state, the governor, the department or any officials or employees thereof, ... which arise while an offender is within the custody or under the supervision of the department.... Such complaints and grievances include but are not limited to any and all claims seeking monetary, injunctive, declaratory, or any other form of relief authorized by law and by way of illustration includes actions pertaining to conditions of confinement, personal injuries, medical malpractice, time computations, even though urged as a writ of habeas corpus, or changes to rules, regulations, policies, or statutes. Such administrative procedures, when promulgated, shall provide the exclusive remedy available to the offender for complaints or grievances governed thereby insofar as federal law allows.... [Emphasis supplied.]
La. R.S. 15:1172(A):
Upon approval of the administrative remedy procedure ... and the implementation of the procedure within the department or by the sheriff, this procedure shall constitute the administrative remedies available to offenders for the purpose of preserving any cause of action they may claim to have against the State of Louisiana, the Department of Public Safety and Corrections, or its employees....
La. R.S. 15:1172(B):
No state court shall entertain an offender's grievance or complaint which falls under the purview of the administrative remedy procedure unless and until the offender shall have exhausted the remedies as provided in said procedure. If the offender has failed timely to pursue administrative remedies through *648 this procedure, any petition he files shall be dismissed. If at the time the petition is filed the administrative remedy process has not yet been completed, the court shall stay the proceedings for ninety days to allow for completion of the procedure and exhaustion of the remedies thereunder.
La. R.S. 15:1174(2):
"Offender" means an adult or juvenile offender who is in the physical or legal custody of the Department of Public Safety and Corrections, a contractor operating a private prison facility, or a sheriff when the basis for the complaint or grievance arises. Any subsequent event, including posttrial judicial action or release from custody, shall not affect status as an "offender" for the purposes of this Part. [Emphasis supplied.]
La. R.S. 15:1177(A):
Any offender who is aggrieved by an adverse decision by the Department of Public Safety and Corrections ... rendered pursuant to any administrative remedy procedures under this Part may, within 30 days after receipt of the decision, seek judicial review of the decision only in the Nineteenth Judicial District Court ... in the manner hereinafter provided: [Emphasis supplied.]
* * *
(9) The court may reverse or modify the decision only if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:
(a) In violation of constitutional or statutory provisions.
(b) In excess of the statutory authority of the agency.
(c) Made upon unlawful procedure.
(d) Affected by other error of law.
(e) Arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.
(f) Manifestly erroneous in view of the reliable, probative and substantial evidence on the whole record. In the application of the rule, where the agency has the opportunity to judge the credibility of witnesses by firsthand observation of demeanor on the witness stand and the reviewing court does not, due regard shall be given to the agency's determination of credibility issues.
It is clear from the wording of La. R.S. 15:1171(B) that the statutory scheme is intended to apply to juvenile offenders. However, La. C.C.P. art. 683 provides that an unemancipated minor does not have the procedural capacity to sue. Therefore, in compliance with La. C.C.P. art. 683, La. C.C.P. art. 4502 and La. C.C. art. 235, Ms. Edmond took proper steps to be duly appointed as natural tutrix for her son. She then filed suit on her son's behalf. Ms. Edmond did not sue or assert any claims in her individual capacity. Therefore, she is merely the legal representative for her son. She is not the plaintiff in this suit in her individual capacity. The damages claimed in the petition are those of the minor, Christopher Bell, not those of his mother, Ms. Edmond. Damages for personal injuries to a minor belong to the child and not to the parent who brings suit. Hanna v. Otis, 151 La. 851, 92 So. 360 (1922); Bernard v. Gravios, 8 So.2d 318 (La.App. 1st Cir.1942); Lane v. Mud Supply Company, 111 So.2d 173 (La.App.Orleans 1959). Therefore, it is the status of the minor, the owner of the claim, that is determinative of this issue. Because the juvenile is an offender as defined by La. R.S. 15:1174(2)[3], the exclusive *649 relief of the Corrections Administrative Remedy Procedure is applicable to this case and must be followed.
Because administrative remedies were not exhausted prior to the filing of this suit in the Fourth Judicial District Court, the trial court was required by La. R.S. 15:1172(B) to dismiss the suit. The plaintiff must exhaust administrative remedies before seeking judicial review. Such review may be made only in the Nineteenth Judicial District.[4] La. R.S. 15:1172(B); La. R.S. 15:1177; Marler v. Petty, 94-1851 (La.4/10/95), 653 So.2d 1167; Bellard v. Louisiana Correctional & Industrial School, 95-0157 (La.10/16/95), 661 So.2d 430; State v. Demouchet, 95-0661 (La.10/27/95), 661 So.2d 1357. Accordingly, we affirm that portion of the trial court judgment dismissing the plaintiff's claim.
We amend that portion of the judgment dismissing the claim with prejudice. No reasons were given for dismissing the claim with prejudice. The trial court may have reasoned that, because the Corrections Administrative Remedy Procedure was not instituted within 30 days of the date of the incident giving rise to the claim, the plaintiff's cause of action was extinguished. We note that the administrative rules enacted in compliance with La. R.S. 15:1171 et seq., and promulgated in Louisiana Register Volume 17, No. 1, provide that the administrative remedy process must be commenced by writing a letter to the unit head setting forth the basis of the claim and the relief sought. The letter is to be written to the unit head, within 30 days of the alleged event. However, the rule provides that this requirement may be waived where the circumstances warrant, such as where the offender is ill and unable to write. The rule provides that the screening officer will use his best, reasonable judgment in such matters.
In Jackson v. Kaylo, 96 2775 (La.App. 1st Cir. 2/20/98), 709 So.2d 820, the issue was whether an inmate's failure to initiate the prison grievance procedure within 30 days of the date of the incident giving rise to the claim extinguished the cause of action against the state. Citing La. R.S. 15:1172, requiring an offender to timely pursue administrative remedies or have his petition dismissed, the appellate court stated that it was clear the legislature contemplated there would be some time limit on the right to pursue an administrative remedy. However, the legislature did not impose a time limit in the statute, and the court noted that it is axiomatic that there can be no prescription other than that established by legislation. The 30-day time period allowed for initiation of the claim was part of the administrative procedure, not part of the statute. The appellate court concluded that the 30-day limitation in the administrative rules did not extinguish the cause of action because the administrative officers were granted discretion to waive the time limit and accept untimely claims.
Therefore, the appellate court concluded that, although the trial court did not have jurisdiction to entertain the lawsuit at the time the offender filed suit, because of the offender's failure to exhaust the administrative remedy procedure, the trial court was not required to dismiss the suit as time-barred or extinguished by prescription. Instead, if the offender chose to initiate the administrative remedy, an administrative official would determine whether the offender's failure to file his complaint within 30 days of the incident giving rise to the claim was justifiable, under all the circumstances. The court affirmed dismissal without prejudice.
In accordance with the reasoning in Jackson v. Kaylo, supra, we find that the *650 claim in the present case should be dismissed without prejudice. The plaintiff will then have the opportunity to comply with the prescribed administrative procedure and an administrative officer may make a determination of whether the failure to timely comply with the Corrections Administrative Remedy Procedure was justifiable, under all the circumstances in this case. In the event of an adverse decision, the plaintiff may seek judicial review in the Nineteenth Judicial District Court.
CONCLUSION
For the reasons stated above, we hereby affirm the dismissal of the suit, but amend to delete the prejudicial effect assigned by the trial court, and make the judgment one of dismissal without prejudice. The plaintiff is given 30 days from the date this judgment becomes final to institute a claim under the Corrections Administrative Remedy Procedure and the rules promulgated pursuant thereto. Costs in this court and in the court below are assessed to the plaintiff.
AFFIRMED IN PART, AMENDED IN PART, AND AS AMENDED, AFFIRMED.
NOTES
[1] With the exception of the caption in this suit, the plaintiff is referred to by her attorney as "Sandy Edmonds." For purposes of this opinion, we will utilize the name of the tutrix as it appears in the caption of this case.
[2] This ruling is not raised as error on appeal.
[3] We note that La. R.S. 15:1174(2), defining "offender" was amended by Acts 1997, No. 575. The wording of the statute is now contrary to the rule established in Bumgarden v. Wackenhut Corrections Corporation, 93-1349 (La.App. 3d Cir.9/21/94), 645 So.2d 655, writ denied 95-0156 (La.6/2/95), 654 So.2d 1102, cited in brief by the plaintiff. Bumgarden held that the status of the plaintiff at the time the suit is filed and not at the time the cause of action arose is determinative of whether the exclusive remedy of the Corrections Administrative Remedy Procedure must be followed.
[4] If the offender is in the physical custody of the sheriff, however, judicial review would lie in the district court having jurisdiction in the parish in which the sheriff is located. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1148896/ | 708 So.2d 820 (1998)
James P. STOTTS, Jr., Plaintiff-Appellant,
v.
CITY OF LAFAYETTE, Defendant-Appellee.
No. 97-1251.
Court of Appeal of Louisiana, Third Circuit.
March 6, 1998.
James P. Stotts, Jr., pro se.
Samuel Robert Aucoin, Lafayette, for City of Lafayette.
*821 Edward O. Taulbee, IV, Lafayette, for Edward Taulbee, IV, & Escott.
Before DECUIR, AMY and PICKETT, JJ.
DECUIR, Judge.
James P. Stotts, Jr. filed suit against his employer, Lafayette City-Parish Consolidated Government (hereinafter referred to as the City of Lafayette), for injuries allegedly sustained as a result of exposure to toxic industrial paint. He contends that defendant's "intentional" refusal to approve and pay for medical treatment entitles him to sue his employer in tort. The defendant filed a peremptory exception of no cause of action on the grounds that plaintiff's exclusive remedy lies under the Workers' Compensation Act. The trial court granted the exception, dismissing plaintiff's claim with prejudice. Plaintiff appeals. We affirm.
Stotts was employed by the City of Lafayette as an electric plant shift foreman at a power plant in Lafayette. During the Fall of 1990, the City of Lafayette contracted with a company to spray paint a boiler at the power plant with what plaintiff alleges was a toxic industrial paint. Plaintiff alleges that he sustained injuries as a result of exposure to the paint particles, fumes and other chemical toxins in the paint. According to plaintiff's petition, he initiated a workers' compensation claim with the Office of Workers' Compensation on December 4, 1992. Thereafter, Stotts and the City of Lafayette entered into a compromise wherein the City agreed to pay past due compensation benefits, all medical expenses incurred to the date of the compromise, as well as penalties and attorney's fees. Plaintiff's petition also alleges that the defendant also agreed to pay future medical expenses which were casually related to the work-related injury for the duration of plaintiff's disability. Despite the defendant's alleged agreement to pay future medical, plaintiff alleges that the City of Lafayette has refused to approve any recommended medical treatment and has refused to pay medical expenses associated with treatment for his work-related injury.
According to plaintiff's petition, he instituted a second compensation claim as a result of the defendant's continued denial of medical benefits. There is no indication in the record of the disposition of this claim. At any rate, plaintiff contends in his petition that the City of Lafayette "intentionally" denied medical benefits relating to his employment injury despite defendant's knowledge of the serious nature of his condition and with knowledge that it was substantially certain that his condition would worsen without treatment. Predictably, plaintiff contends that as a result of the defendant's "intentional" refusal to pay medical benefits, his condition has worsened "and, in some respects, has become permanent."
Plaintiff argues that he is entitled to sue his employer in tort relying on the Louisiana Supreme Court case of Weber v. State, 93-0062 (La.4/11/94); 635 So.2d 188. Defendant argues that by granting a tort remedy to an employee who died as a result of the arbitrary and capricious management of a workers' compensation claim, our supreme court in Weber undercut the "great compromise" that has existed since 1914, when our legislature passed the first workers' compensation law. Prior to Weber, an employee's exclusive remedy for the employer's arbitrary and capricious refusal to pay benefits or medical expenses is provided for in La.R.S. 23:1201(E) and 23:1201.2.
The holding of Weber is that an employer's alleged conduct in intentionally and arbitrarily denying necessary medical expenses, if proved, may result in liability for damages beyond the remedies provided in the Workers' Compensation Act, when the conduct and resulting injury does not occur in the course of employment and only marginally arises out of the employment, and when the employer knew to a substantial certainty that denial would cause death that would not otherwise have occurred. The court went on to state:
This is a narrow exception to the general rule that penalties and attorney's fees are the exclusive remedy for the employer's misconduct in handling the administration of compensation claims. The exception applies only when there is intentional conduct *822 and when the employer acts arbitrarily despite knowledge that death is substantially certain to follow.
Id. at 194. (Emphasis added).
Thus, the holding of Weber is limited to the facts of that case. Note Justice Marcus' concurrence:
I agree [sic] the majority's holding that in this limited situation where an employee dies prior to seeking a judicial determination that his employer was arbitrary and capricious in failing to pay medical expenses, the employee's survivors have a cause of action against the employer in tort. Under these circumstances, the employer should not profit from the fact that the employee's death has eliminated the need for medical expenses. However, in those situations where the employee does not die, I would find that his exclusive remedy for the arbitrary refusal by the employer to pay benefits is penalties and attorney's fees under La.R.S. 23:2101 E and La. R.S. 23:1201.2. I would not allow an employee who has a remedy under these provisions to file a tort suit, since such a suit would clearly run counter to the exclusive remedy provision of La.R.S. 23:1032.
Id. at 194.
Accordingly, we conclude that Weber applies only in death cases involving the narrowly defined factual circumstances of that case and does not apply to other cases, including this case. We note that the court in Weber was faced with the situation that the medical benefits claim upon which penalties and attorney's fees could be imposed arguably became moot after the employee's death and the survivors' death benefits claim under the Workers' Compensation Act arguably had prescribed.
We find that the holding in Weber is very limited and does not extend to the case sub judice. We refuse to upset the balance struck by the legislative compromise governing the rights of employees and employers in employment-related accidents. La.R.S. 23:1201 E and La.R.S. 23:1201.2 are part of that compromise. To rule otherwise, would open the floodgates to suits in tort for an employer's arbitrary and capricious failure to pay compensation benefits and medical benefits, effectively eliminating the penalties and attorney's fees provision of the Workers' Compensation Act. The result of such a ruling would also be piecemeal litigation of an employee's claim for compensation and medical benefits with the Office of Workers' Compensation and his claim for refusal to pay benefits in district court.
The judgment of the trial court is affirmed. Costs of appeal are assessed to plaintiffappellant.
AFFIRMED.
PICKETT, J., dissents. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1267764/ | 391 S.E.2d 283 (1990)
SEAWARD INTERNATIONAL, INC., et al.
v.
PRICE WATERHOUSE.
Record No. 891137.
Supreme Court of Virginia.
April 20, 1990.
*284 T. Jay Barrymore (Carolyn J. Harvey, Jones, Day, Reavis & Pogue, on briefs), for appellants.
John J. Sabourin, Jr. (Charles F.B. McAleer, Jr., Hazel, Thomas, Fiske, Beckhorn & Hanes, Alexandria, on brief), for appellee.
Present: CARRICO, C.J., and COMPTON, STEPHENSON, RUSSELL, WHITING, and HASSELL, JJ., and COCHRAN, Retired Justice.
RUSSELL, Justice.
This is an action for professional malpractice brought by corporate clients against an accounting firm. At a jury trial, the defendant moved to strike the plaintiffs' evidence at the close of the plaintiffs' case and renewed the motion at the close of all the evidence. On both occasions, the court took the motion under consideration. The case was submitted to the jury, which returned a verdict in favor of the plaintiffs. After verdict, the court sustained the motion to strike, set the verdict aside, and entered final judgment for the defendant. On appeal, the sole question is whether the evidence was sufficient to create a jury issue. We conclude from the record that the evidence was insufficient, and affirm.
When a plaintiff's verdict has been set aside by the trial court, it is not entitled to the same weight as one approved by the trial court. On appellate review in these circumstances, however, the plaintiff is entitled to the benefit of all "substantial conflicts in the evidence and all reasonable inferences that may be drawn from the evidence." Kelly v. Virginia Power, 238 Va. 32, 34-35, 381 S.E.2d 219, 220 (1989) (citations omitted). We will consider the evidence in that light.
Seaward International, Inc. (Seaward), is engaged in the sale of fenders, buoys, and other marine supplies, some of which are sold to foreign markets. In 1978, in order to encourage exports, federal legislation permitted the deferral of taxes on export sales made by certain qualifying wholly-owned subsidiaries of exporters, known as domestic international sales corporations (DISC). See Commonwealth v. General *285 Electric Company, 236 Va. 54, 372 S.E.2d 599 (1988). In 1978, Seaward formed Seaward International Sales Corporation (SISC), a wholly-owned subsidiary, to take advantage of the tax-deferral provisions of the federal law. Like most DISCs, SISC was essentially a shell corporation, having no employees.
Price Waterhouse (PW), a partnership having over 1700 partners, is engaged in the practice of professional accountancy. Seaward engaged PW to audit the consolidated financial statements of both Seaward and SISC for Seaward's fiscal year ending July 31, 1983.[1] PW agreed to undertake the audit by a letter dated June 10, 1983, which contained the following terms:
Our examination will be conducted in accordance with generally accepted auditing standards, and accordingly will include such tests of the accounting records and such other auditing procedures as we consider necessary in the circumstances. This examination, however, will not include a detailed audit of transactions such as would normally be required to disclose defalcations or other irregularities.
PW points out that it was not engaged to prepare financial statements or tax returns for either Seaward or SISC; those functions were to be performed entirely by Seaward's employees. Further, PW was not engaged to provide tax advice. Seaward originally charged PW with negligence in that regard, but the trial court granted summary judgment in PW's favor on those allegations, and that ruling was not appealed.
The prerequisites for tax deferral were complex. If a DISC failed to meet those requirements in any fiscal year, it would lose its status as a "qualified DISC" for that year and would confer no tax benefits upon its parent corporation. One of the prerequisites for tax deferral was a requirement that 95% of a DISC's assets at the end of a fiscal year must be "qualified export assets" (the QEA test). Qualified export assets could consist of, among other things, foreign accounts receivable, "producer's loans" from the parent corporation, and "export-import obligations." Seaward contends that a primary purpose of the audit was to verify the work of its own employees, to insure that SISC would meet the QEA test by the end of its fiscal year, and to obtain timely warning if it was falling short of the DISC requirements so that the fault could be rectified.[2]
PW began its work about June 20, 1983. Its employees engaged in field work at Seaward's offices, examined Seaward's physical inventory on July 31, and conducted "year-end" field work in September. On October 6, PW issued its audit report, declaring that the financial statements Seaward had prepared "present fairly the financial position of [Seaward and SISC] at July 31, 1983 ... in conformity with generally accepted accounting principles consistently applied."
Seaward's comptroller, William B. Bryan, a certified public accountant, had reported to PW that SISC met the QEA test for the fiscal year, and it is undisputed that he furnished backup information to PW which substantiated his representation. PW's field work revealed no cause to dispute that assertion, and PW's report therefore reinforced the conclusion, reached by Seaward's employees, that SISC met the QEA test for the 1983 fiscal year. Accordingly, Seaward's comptroller prepared a tax return for SISC, which Seaward's president approved, signed, and filed in the spring of 1984, which represented that SISC met the QEA test as of August 31, 1983.
*286 In April 1985, an agent of the Internal Revenue Service (IRS), reviewing SISC's tax returns, concluded that SISC had failed to meet the QEA test for the 1983 fiscal year. Judith McCune, who had replaced Mr. Bryan as Seaward's comptroller, went over such records as were available in 1985, and agreed with the IRS agent. Ultimately, Seaward negotiated a settlement with the IRS, evidenced by a "closing agreement" in June 1986, in which Seaward incurred a substantial additional tax liability. Seaward and SISC brought this action against PW, seeking to recover their losses on both tort and contract theories.
At trial, Seaward relied on the testimony of Chris Turner, a certified public accountant, who qualified as an expert witness. With regard to the applicable standard of care, she testified:
if you as a CPA are going to issue an opinion on financial statements, you have to have a basis for that opinion. You have to get evidence to support it. If you don't get that evidence, you can't issue an opinion. If you don't get the evidence and issue an opinion anyway, then you haven't met the standards.
The witness also testified that an accountant must ask for "management representationsasking the company. But ... management representations by themselves are not enough evidence to issue an opinion on financial statements."
Chris Turner was Seaward's only witness with respect to the standard of care and PW's alleged departure from that standard. She expressed the opinion that PW had been negligent in failing to investigate Seaward's records in sufficient depth to discover that Mr. Bryan's QEA calculations were incorrect. The ultimate issue in the case is whether records existed in 1983, which if PW had examined them, would have revealed that Mr. Bryan was in error.
Chris Turner, when asked what documents she had examined as a predicate for her opinion, said, "Well, there were a couple of copies of documents which were produced and copied and I looked at all of them. That included Price Waterhouse's work papers for various years." She also stated that she had reviewed the applicable professional standards and the tax rules governing DISCs, had read several depositions, and had listened to the testimony of other witnesses. Later, she testified that she had "looked at two cartons worth of documents" consisting of PW's "work papers." But throughout, her testimony fell short of identifying any particular documents or other evidence which would have revealed Mr. Bryan's error to PW in 1983. The jury was left to speculate whether any such evidence had in fact existed at that time.
The expert testified that PW had requested and received schedules relating to SISC's qualified export receipts, and that they had been verified. She concluded, however, that PW had not asked for "anything related to the assets test." She gave no factual basis for that conclusion, pointed to no work papers which supported it, and identified no evidence available in 1983 that would have been at variance with the information furnished by Seaward's management, which at all times assured PW that the QEA test was met. Indeed, she testified that the books of Seaward and SISC were in balance, and that they were supported by the underlying journal entries. With regard to PW's alleged shortcomings, she said,
"it's hard to tell from looking at the entries which were reported what actually was on that company's books.... [s]o if you'd made an investigation at the time, you might have been able to straighten some of this out. I can't tell from the record exactly what you could have done, but you certainly should have at least tried."
On cross-examination the expert was asked:
Q If you had a list of qualified export receivables, and if the comptroller used that to go through and make a computation of the qualified export assets as you approached the end of the year, and if the accounting firm auditing that particular company reviewed that list, would that be a sufficient evidentiary basis to *287 find that the QEA test had been satisfied?
A Well, when you're doing all these ifs, if they had done this monitoring, if they had done this list, and if they had done these precalculations, did you come out with 95 percent or not?
Q I came out with 95 percent.
A Then it seems like that should have done it.
The cross-examiner's question was based upon PW's evidence as to the work it had actually done. Seaward made no effort to refute that evidence.
When granting PW's motion to strike, the trial court observed:
The alleged negligence of [PW] is that the auditors failed to look at the backup material, but merely accepted Mr. Bryan's representation that the DISC met the test.... [W]hat would [PW] have discovered if they had looked as Seaward says they should have looked? In an effort to answer that question, ... Seaward says in its brief that [PW] would have found that the DISC had insufficient qualified export assets to meet the test for its fiscal year ending in 1983.... But [Seaward] failed to prove that.
I kept waiting for the evidence ... and it's very, very direct and very simple ... it would have taken half an hour to prove. Witness one gets on the stand: "I am familiar with the records of Seaward as of ... whatever day you want to say is the day or dates on which [PW] should have looked and should have found ... here they are."
Witness two, an expert, gets on the stand and says "I have reviewed this pile of records ... and I can say ... that a competent auditor ... should have looked at these records and, if they had looked at these records, would have found that the DISC was not going to qualify and should have then told Seaward...." Now that evidence was never produced. It just wasn't there.
We think the trial court analyzed the evidence correctly. In an action to recover damages for professional malpractice, as in any other action at law, the plaintiff ordinarily has the burden of producing sufficient evidence of negligence, or breach of the terms of the defendant's contract,[3] to frame an issue of fact to be submitted to the jury. Unless a malpractice case turns upon matters within the common knowledge of laymen, see, e.g., Easterling v. Walton, 208 Va. 214, 218, 156 S.E.2d 787, 790-91 (1967) (foreign object left by surgeon in patient's body), or upon rules which have ripened into rules of law, see, e.g., Spainhour v. B. Aubrey Huffman & Assoc., 237 Va. 340, 346, 377 S.E.2d 615, 619 (1989) (surveyor's duty to follow rule that monuments prevail over acreage measurements), expert testimony is required to establish the appropriate professional standard, to establish a deviation from that standard, and to establish that such a deviation was the proximate cause of the claimed damages. Raines v. Lutz, 231 Va. 110, 113, 341 S.E.2d 194, 196 (1986).
The definition of "generally accepted auditing standards," and the application of that definition to the facts of a particular case, are matters beyond the common knowledge of laymen. Accordingly, the plaintiffs in the present case had the burden, common to most malpractice actions, of producing expert testimony which would not only define the applicable standard, but also would adduce facts from which the jury could find that the defendant had deviated from it. Such a finding may not be left to speculation. A jury may draw inferences from facts in evidence, but it may not draw inferences from conjecture. Southern R. Co. v. Hall, 102 Va. 135, 139, 45 S.E. 867, 868 (1903).
Here, the record is devoid of facts from which the jury could properly infer negligence. The plaintiffs failed to prove what, if any, records were available in 1983 which, if discovered and examined with the greatest professional skill and diligence, *288 would have revealed to the auditors that the information provided by the plaintiffs' employees was incorrect. For all the jury could determine, no such records existed in 1983.[4] The evidence provided no facts from which the jury could infer an answer to that crucial question. Because the verdict was necessarily based upon conjecture, the court did not err in setting it aside.
Accordingly, the judgment will be
Affirmed.
NOTES
[1] The fiscal year of SISC ended on August 31, 1983, one month later than that of the parent corporation. Seaward contends that the purpose of this difference was to provide a time during which SISC could be brought into conformity with federal law if the audit should show that it was falling short of the annual prerequisites necessary to qualify for tax deferral.
[2] The witnesses agreed that action could be taken during some indeterminate period of time after the close of the fiscal year in order to bring a DISC into compliance, although they disagreed as to the amount of leeway available.
[3] Here, the alleged negligence was the defendant's failure to follow "generally accepted auditing standards." Because those were the precise terms of the contract between the parties, the plaintiffs' burden was the same under both their tort and contract theories.
[4] Agents of the IRS concluded that SISC had failed to meet the QEA test based upon records examined in 1985, not in 1983. Further, no witnesses were called to testify with respect to the IRS investigation. The report of the IRS was not admitted in evidence for the truth of its content, but merely to show the position the IRS had taken. Indeed, PW takes the position here, as it did below, that there is no probative evidence in this case that SISC in fact failed to meet the QEA test in 1983. Because of the view we take of the evidence, we do not reach that question. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1955520/ | 227 B.R. 658 (1998)
In re David Lynn ALEXANDER, Lyndia Kaye Alexander, Debtors.
Bankruptcy No. 598-50745-7.
United States Bankruptcy Court, N.D. Texas, Lubbock Division.
December 10, 1998.
*659 Max R. Tarbox, Lubbock, TX, Chapter 7 Trustee.
Wendy McDowell, Boren & Waggoner, Lubbock, TX, Coleman Young, Templeton, Smithee, Hayes, Fields & Young, Amarillo, TX, for Debtors.
MEMORANDUM OF OPINION ON CLAIM OF EXEMPTION TO A WRONGFUL DEATH SETTLEMENT/ANNUITY
JOHN C. AKARD, Bankruptcy Judge.
David Lynn Alexander and Lyndia Kaye Alexander (Debtors) claim as exempt the proceeds of a settlement which they received as a result of the tragic death of two of their children. They entered into a structured settlement which is being paid to them in the form of an annuity. Max R. Tarbox, the Trustee-in-Bankruptcy, objected to the claim of exemption. The court finds that the claim of exemption must be allowed.[1]
FACTS
In April 1989 two of the Debtors' children, David Lynn Alexander, II and Wendy Jeannette Alexander, were killed in an automobile accident while on their way to school. The Debtors alleged that Robert H. Krauter, Jr., an employee of Unique Field Services, veered across the highway and collided head-on with the vehicle which the Debtors' son, David, was driving. On July 27, 1989 the Debtors (as Plaintiffs) entered into a settlement agreement and release with Mr. Krauter, Unique Field Services (Defendants), and Unique's insurance carrier which provided for the following payments:
a. An initial payment of $350,000.
b. The sum of $1,500 per month for five years beginning August 15, 1989.
c. The sum of $2,000 per month for five years beginning August 15, 1994.
d. The sum of $2,500 per month for five years beginning August 15, 1999.
e. The sum of $3,000 per month for five years beginning August 15, 2004.
f. The sum of $3,450 per month beginning in 2009 and continuing for the remainder of the Debtors' lives, but for not less than five years.
g. The sum of $200,000 on July 15, 2014.
Should the Debtors die before receiving all of the payments under the agreement, they designated their daughter, Dundie Alexander McInroe, as the beneficiary with Timm Joe McInroe as the alternate beneficiary.
The agreement provided that the Debtors "are and shall be a general creditor to the Defendants and/or the insurer" (paragraph 3). The Debtors cannot accelerate, mortgage or assign their payments under the settlement agreement. The agreement was made pursuant to § 130(c) of the Internal Revenue Code of 1986 and is commonly referred to as a structured settlement. It provided that the Defendants and the insurer could make a "qualified assignment" to Capital Assignment Corporation (Assignee) which would assume the obligation of making the payments. The assignment released the Defendants and the insurer from further liability under the settlement agreement. In paragraph 5, the agreement stated:
Rights to Purchase an Annuity. The Assignee may fund the Periodic Payments by purchasing a "qualified funding asset", within the meaning of Section 130(d) of the Code, in the form of an annuity policy from Commonwealth Life Insurance Company ("Annuity Carrier"). All rights of ownership and control of such annuity policy shall be vested in the Assignee. The Assignee may have the Annuity Carrier mail payments directly to the Plaintiffs.
The Assignee purchased the contemplated Single Premium Immediate Annuity for the benefit of the Debtors. The terms of the annuity match the terms of the settlement agreement except for the initial $350,000 payment. The Assignee is listed as the owner of the annuity. At the time of the issuance of the annuity, Mr. Alexander was 40 years *660 of age and Mrs. Alexander was 41 years of age.
The Debtors live in a rural area near Morton, Texas. Apparently, that is where they lived at the time of the accident. At the time of the accident, Mr. Alexander was employed as a truck driver and Mrs. Alexander was a housewife. The loss of two of their three children was emotionally devastating to them. Mrs. Alexander testified that neither of them have held steady employment since the accident. She had tried to engage in business, but the business failed. She stated that since they live in a rural area, she needed to remain home to take care of Mr. Alexander because he now has periodic mental problems.
The Debtors' statement of income and expenses shows the $2,000 per month payment from the annuity policy and $50 per month which Mrs. Alexander gets from sewing as their only income. Their expenses approximate that amount. However, in response to question 1 of the Statement of Financial Affairs dated May 20, 1998, Mr. Alexander listed income from wages during 1998 in the amount of $1,500, in 1997 $7,976, and in 1996 $5,253. In addition they showed the $2,000 per month payments from the annuity.
The Debtors' schedules show that they own 195 acres in Cochran County, Texas where they live. There is no lien on the property. They have approximately $15,000 of personal property consisting of household furniture, furnishings and vehicles. They valued the annuity at $350,000. The parties agreed that the total payments yet to be made under the annuity total approximately $750,000. In this bankruptcy proceeding, they seek to discharge $134,004.61 of unsecured debt consisting almost exclusively of credit card obligations. Mrs. Alexander acknowledged that some of those obligations were incurred in early 1998 when they went to Nevada for gambling and gold prospecting purposes.
The Debtors claimed the Texas exemptions as permitted by the Bankruptcy Code, 11 U.S.C. § 522(b)(2).
STATUTES
The Debtors claim the proceeds of the annuity contract as exempt under Article 21.22 of the Texas Insurance Code which reads as follows:
[A]ll money or benefits of any kind, including policy proceeds and cash values, to be paid or rendered to the insured or any beneficiary under any policy of insurance or annuity contract issued by a life, health or accident insurance company, including mutual and fraternal insurance, or under any plan or program of annuities and benefits in use by any employer or individual, shall:
. . . .
(2) be fully exempt from execution, attachment, or garnishment or other process; [and]
. . . .
(4) be fully exempt from all demands in any bankruptcy proceeding of the insured or beneficiary.[2]
DISCUSSION
The Debtors noted that they are receiving payments under an annuity contract and that under Article 21.22 of the Texas Insurance Code, they are entitled to exempt that stream of payments. The Trustee argued that under the terms of the settlement agreement, the Debtors are creditors of the Defendants and that the annuity is simply a method of securing the obligation of the Defendants to the Debtors created in the settlement agreement. He asserted that the annuity does not change the debtor/creditor relationship. Therefore, the benefits to the Debtors of that relationship should be paid to the bankruptcy estate for the benefit of the Debtors' creditors.
The Trustee finds support for his argument in the Fifth Circuit case Young v. Adler (In re Young), 806 F.2d 1303 (5th Cir.1987). Mr. Young was an attorney who represented a widow and her children in connection with the death of their husband/father on an offshore drilling rig. As part of the resolution *661 of that matter, he entered into a structured settlement for his attorney's fees which provided for an initial payment of $25,000 and monthly payments over a number of years. When Mr. Young subsequently filed bankruptcy, the Trustee objected to his claim of exemption for the annuity. Id. at 1304-05. The case was decided under Louisiana law, but Louisiana's exemption for annuity payments appears to be equally as strong as that provided by Texas law. The Fifth Circuit said it should look at the substance of the transaction rather than the form. Id. at 1306. The court found that the annuity was simply an account receivable and denied the exemption. Id. at 1307.
The Fifth Circuit distinguished Young in Walden v. McGinnes (In re Walden), 12 F.3d 445 (5th Cir.1994), a case involving Article 21.22 of the Texas Insurance Code. The court noted that Young was decided under Louisiana law and that the Texas courts had a strong policy of favoring exemptions. Id. at 450. Mr. Walden received payments under an annuity policy in connection with a non-competition agreement. The annuity policy was issued in order to secure a release of real property liens which Mr. Walden retained to secure the payments under the non-competition agreement. Id. The Fifth Circuit held that the payments were exempt in Mr. Walden's bankruptcy. Id. at 452.
Apparently the only Texas case in point is Daniels v. Pecan Valley Ranch, Inc., 831 S.W.2d 372 (Tex.App. San Antonio 1992, writ denied), cert. denied, 508 U.S. 965, 113 S.Ct. 2944, 124 L.Ed.2d 692 (1993). When Daniels was decided, Article 21.22 of the Texas Insurance Code did not exempt annuities. The case involved a structured settlement of a personal injury claim which was funded by an annuity. The court said:
While there may be sound public policy arguments for the Legislature to require benefits payable from a structured settlement to be at least partially exempt from garnishment, neither the Texas Legislature nor the United States Congress has chosen to do so. We hold we have no authority to create a common-law exemption.
Id. at 375.
Although the court was not cited any legislative history, at its next session after the Daniels decision, the Texas Legislature added the italicized language to Article 21.22 allowing an exemption for annuities by an individual.
Article 21.22 of the Texas Insurance Code, as it presently exists, does not limit the term "annuity." The statute does not restrict the source of the funds used to purchase the annuity, nor does it look to the underlying purpose of the annuity. Whether the lack of such limitations is a legislative oversight or an intentional act on the part of the legislature to exempt every annuity regardless of its source or purpose is of no consequence in this case. This court must read the statute as it is written. Texas courts have a strong policy favoring exemptions:
[O]ur exemption laws should be liberally construed in favor of express exemptions, and should never be restricted in their meaning and effect so as to minimize their operation upon the beneficent objects of the statutes. Without doubt the exemption would generally be resolved in favor of the claimant.
Carson v. McFarland, 206 S.W.2d 130, 132 (Tex.Civ.App. San Antonio 1947, writ ref'd) (cited with approval in Hickman v. Hickman, 149 Tex. 439, 234 S.W.2d 410, 413-14 (1950) and Walden, supra at 448).
CONCLUSION
In light of the strong Texas authority for broad interpretation of exemptions in favor of claimants, and because Article 21.22 of the Texas Insurance Code does not in any way limit the term "annuity", this court finds that the Debtors are entitled to claim the proceeds of the annuity in question as exempt. The Trustee's objection must be denied. *662 See In re Scott, 193 B.R. 805, 808 (Bankr.N.D.Tex.1996).
ORDER ACCORDINGLY.[3]
NOTES
[1] This court has jurisdiction of this matter under 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a), and Miscellaneous Rule No. 33 of the Northern District of Texas contained in Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc dated August 3, 1984. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(1), (b)(2)(B).
[2] Article 21.22 was amended, effective September 1, 1998. Tex.Ins.Code art. 21.22 (West Supp.1994). The words and phrases added are italicized above.
[3] This Memorandum shall constitute Findings of Fact and Conclusions of Law pursuant to FED. R.BANKR.P. 7052 which is made applicable to Contested Matters by FED.R.BANKR.P. 9014. This Memorandum will be published. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1915990/ | 168 So.2d 347 (1964)
TECHE CONCRETE, INC., et al., Plaintiffs-Appellees,
v.
Velma Richard MOITY, Defendant-Appellant.
No. 1279.
Court of Appeal of Louisiana, Third Circuit.
October 27, 1964.
Rehearing Denied November 18, 1964.
Writ Refused January 18, 1965.
*349 Dugas, Bertrand & Smith, by Fred M. Smith, Lafayette, for defendant-appellant.
Armentor & Resweber, by A. J. Resweber, New Iberia, for plaintiff-appellee.
Allen J. Lacobie, Lafayette, for defendant-appellee.
Before TATE, FRUGÉ, and CULPEPPER, JJ.
TATE, Judge.
The plaintiff furnished certain materials to complete a warehouse building owned by the defendant, Mrs. Moity. The materials were furnished through the order of Cloa Industries, Inc., which held a lease from Mrs. Moity. However, recovery is sought from Mrs. Moity individually, as owner of the premises, on the ground that the lease from her to Cloa was "a sham and simulation designed to complete the aforedescribed building at a cost of approximately $8,000 without paying for any of the labor and material furnished in said completion." (Art. 13, original petition.)
The trial court gave judgment to the plaintiff in accordance with this demand. The defendant Mrs. Moity appeals to this court, urging that the lease was not a simulation but a bona fide transaction between the defendant and the Cloa corporation and that, as owner-lessor, she cannot be held individually liable for the substantial improvements to her building ordered by Cloa but not paid for by this corporate lessee. Fruge v. Muffoleto, 242 La. 569, 137 So.2d 336.
The defendant has also appealed from judgments against four other suppliers awarded on the same basis as the present, which were consolidated for trial and for appeal as the present, and in which the issues are substantially the same: LeBlanc v. Moity, La.App., 168 So.2d 355; Lalande v. Moity, La.App., 168 So.2d 355; Green v. Moity, La.App., 168 So.2d 356; and Zepherin v. Moity, La.App., ___ So.2d 356.
The trial court awarded judgment against Mrs. Moity individually for the materials purchased through Cloa, upon its holding that the lease between Mrs. Moity and Cloa was only a simulation. As a pretended act without reality, it could thus be disregarded as if never made. Thus Cloa, not being a real lessee, was only an interposed party through whom Mrs. Moity had the improvements built for her own account.
The trial court's finding was based upon evidence produced by the plaintiff-appellees only. Although the defendant-appellant Mrs. Moity participated through her counsel in the consolidated trials, the defendant then rested at the conclusion of the plaintiff's case. No testimony of Mrs. Moity, her husband, or the Cloa incorporators-officers was produced to explain or disprove any inference arising from the plaintiffs' evidence.
Very able counsel for Mrs. Moity, the defendant-appellant, contends that the trial court committed error in several respects. Counsel contends that there is no evidence whatsoever of collusion on the part of Mrs. Moity with Cloa, and that the appellee suppliers did not meet the heavy burden of proof required of those alleging fraud, that of exceptionally strong proof, stronger even than a preponderance of the evidence, Fitch v. Broussard, La.App. 3 Cir., 156 So.2d 127. It is also contended that the trial court improperly applied the lesser standard of proof applicable to simulations *350 (see below) because the present case concerns a lease and not a sale as in the simulation cases relied upon in the trial court judgment. Finally, it is suggested that, whatever connection there was between Mrs. Moity's husband and Cloa and the improvements made on Mrs. Moity's premises, there is no proof upon which the lease between Mrs. Moity and the corporation could be declared a simulation, since there is no evidence whatsoever to show that Mrs. Moity herself had any connection with Cloa, or that Mr. Moity acted with the knowledge and consent of his wife. Therefore, it is suggested, the defendant Mrs. Moity cannot be held responsible for any acts of Cloa and her husband which resulted in the improvement of her separate property.
In our opinion, the trial court properly applied to the present facts the law regarding simulations in holding the Cloa-Moity lease to be such, in accordance with the plaintiff's allegations.
Application of law of simulations to present facts.
"A simulation is a feigned, pretended act; one which assumes the appearance without the reality. Being entirely without effect, it is held not to have existed, and, for that reason, it may be disregarded or attacked collaterally by any interested person." Houghton et al. v. Houghton et al., 165 La. 1019, 1022-1023, 116 So. 493. See also: Koerkel v. Scallan, La.App. 3 Cir., 166 So.2d 370; Lemann, Some Aspects of Simulation in Louisiana and France, 25 Tul.L.Rev. 22 (1954); Comment, The Action in Declaration of a Simulation, 17 Tul.L.Rev. 459 (1943). As noted, "there can be as many different types of simulation as there can be contracts", 17 Tul.L.Rev. 458.
Not only have simulated sales and simulated mortgages been judicially disregarded as nullities as to one injured by the simulated act, as in the cases relied upon by the trial court; but also a simulated partnership (Oppenheim v. Loovis, 9 La.Ann. 261, 1854), or a simulated note and a simulated confession of judgment (see Koerkel case cited above), or a simulated judicial sale based upon a simulated judgment obtained when actually no debt was due (Dennistoun v. Nutt, 2 La.Ann. 483, 1847). We can find no basis for the appellant's argument that a simulated lease or a simulated corporation may not likewise be disregarded at the instance of one injured by the simulated act.
Also, while an action in declaration of a simulation attacks conduct which may be characterized as fraudulent, nevertheless the proof required of the party alleging the simulation is less demanding and less burdensome than that upon the party attempting to prove fraud. Howard v. Howard, La.App. 2 Cir., 96 So.2d 345. For, as the Supreme Court recently restated in Smith v. Smith, 239 La. 688, 119 So.2d 827, 831:
"This Court has recognized that simulation, because of its nature, can usually be proven only by indirect and circumstantial evidence * * * [Citations omitted.], so that, if one alleging a simulation produces evidence of circumstances which create highly reasonable doubts or suspicions as to the honesty of the transaction, a prima facie case is considered as having been made out, and the burden of proof is shifted to the defendant to show that a valid sale [contract] existed. * * [Citations omitted.]"
See also: Luquette v. Floyd, La.App. 3 Cir., 147 So.2d 894; Landry et al. v. Landry, La. App. 3 Cir., 140 So.2d 706; Broussard v. Broussard et al., La.App. 3 Cir., 132 So.2d 85, and cases therein cited.
We agree therefore with the trial court's conclusions as to the legal principles properly applicable under the allegations and the evidence of this case: "* * * if the plaintiffs have shown by their evidence circumstances which create highly reasonable *351 doubts or suspicion as to the genuineness of Mrs. Moity's lease with Cloa Industries, then the plaintiffs have made out a prima facie case and the burden was shifted to Mrs. Moity to show that a valid lease existed. As Mrs. Moity did not make any showing then it is only necessary to make the determination of whether or not the plaintiffs have succeeded in showing circumstances which create highly reasonable doubts or suspicion as to the genuineness of her transaction with Cloa Industries. If the evidence makes this showing then we must find for the plaintiffs as it has not been rebutted."
The facts.
In December of 1960, the defendant Mrs. Moity through her husband had constructed the walls and roof of a large warehouse on land she owned near New Iberia.
After this preliminary work was completed, Mrs. Moity, joined and authorized by her husband, then executed a 10-year lease of this building to Cloa Industries, Inc. The lease specifically provided that "Lessor" (Mrs. Moity and her husband) were not to be liable for any repairs or improvements made on the property, and it also specifically provided that improvements made by the lessees were to belong to the Lessor at the termination of the lease. Another provision of the lease was that the lessee was to be "immediately expelled from property for non-payment of rent or lease on the date due in advance".
The Cloa corporation came into existence on January 6, 1961, and the lease with Mrs. Moity and her husband was executed some ten days later.
The Cloa corporation through one or the other of its three incorporators then proceeded to complete the Moity warehouse at a cost of approximately eleven thousand dollars. Flooring was supplied, interior offices were constructed and finished with airconditioning, and a large amount of shell was used to construct a parking area around the building. A large amount of glazed brick was ordered and delivered to the premises. All this was done by ordering various items of the construction separately from different suppliers, usually on a rush basis, between January and April 1961, allegedly in order to permit the corporation to commence its business-to-be of furnishing oil field supplies and chemicals.
The corporation never paid one cent to any of these suppliers of material or labor.
The last work was done on April 15th. On May 8th, Mrs. Moity filed suit to cancel the lease for non-payment of the March and April rent. No defense or appearance was made by the alleged corporation. Although no default or judgment was taken, nor was the writ of sequestration ever executed, Mrs. Moity and her husband immediately went back into possession of the nearly-finished premises as if a lease had never been executed, for instance removing to their home the glazed bricks which had been delivered to the warehouse at the order of the alleged corporation.
Evidence was also introduced that at the same time a similar course of conduct had resulted in Mrs. Moity's having four unfinished houses on her property in Lafayette completed at a cost of some fourteen thousand dollars. Cloa had leased these structures from Mrs. Moity on the same date as it executed the New Iberia lease, and it had then ordered some fourteen thousand dollars worth of labor and materials to complete and finish the houses. Immediately following their completion, Mrs. Moity filed suit to cancel the alleged lease on the ground of non-payment of rent. No judgment was secured cancelling the lease, but about a year later Mrs. Moity proceeded to sell the now-completed residences for a total of over thirty thousand dollars.
Again, not one cent had been paid by Cloa for the labor or materials used to complete Mrs. Moity's houses.
Cloa Industries, Inc., had been incorporated in Lafayette Parish on January 6, *352 1961. The incorporators were two married women and the son of one of them. At the time of suit, about a year later, the latter had been inducted into the military service. The address of the corporation and of all of these incorporators was listed as at a Holly Street property in Lafayette owned by Mrs. Moity, which was one of the uncompleted houses immediately thereafter leased by her to the alleged corporation. The articles of incorporation showed that its paid-in capital was one thousand dollars (with an authorized capital through any subsequent issuance of shares of five thousand dollars).
To recapitulate: This corporation, with a paid-in capital of one thousand dollars and with offices on Moity property, proceeded ten days after it was formed to lease the Moity warehouse property in New Iberia and the Moity lots with four uncompleted residences in Lafayette. The leases specifically contemplated the corporation completing the warehouse and the four residences without liability to the Moity lessors, and with the improvements to belong to the Moity lessors when the lease terminated; the lease also provided for automatic termination of the lease upon non-payment of rent. The corporation immediately ordered some twenty-five thousand dollars of repairs and substantially completed the buildings and then, as soon as this was done, become defunct. Tho Moitys took possession of the premises upon the basis that the rent had (allegedly) not been paid after the first month. Thus, the apparent sole result of the incorporation and the leasing was to complete the uncompleted construction work on Mrs. Moity's premises and then to go out of business, without paying a single supplier or doing a day's other business than this construction work on Mrs. Moity's behalf.
Summary and conclusion.
Counsel for Mrs. Moity contends that the plaintiff has burden of proving its case of simulation. It is argued that the above facts do not preponderantly prove any simulation, but that they simply show a bona fide lease transaction between Mrs. Moity as lessor and a bona fide corporation as lessee. Although unfortunately the corporation became defunct after a month or so and was unable to pay for the twenty-five thousand dollars of improvements to Mrs. Moity's property, it is suggested that this is just an instance of a poor business deal on the part of the corporation which through happenstance has resulted in Mrs. Moity's great good fortune in receiving twenty-five thousand dollars worth of improvements without any personal liability therefor (since the owner is not personally liable for improvements made by her lessee, nor is she even regarded as being unjustly enriched, according to our Supreme Court's holding in Fruge v. Muffoleto, cited above).
We respectfully disagree. While the result shown may not be impossible as flowing from a bona fide series of unfortunate events, it is certainly most improbable that, without collusion for the purpose of benefiting Mrs. Moity, a corporation was formed and made the improvements and then became defunct, all within the space of a month or so, with the sole result if not the sole purpose of the incorporation and the lease being to enrich Mrs. Moity without personal liability on her part. Even under Mrs. Moity's construction of the evidence, this corporation had only one thousand dollars of paid-in-capitalyet it proceeded to order twenty-five thousand dollars worth of building materials and labor to complete Mrs. Moity's unfinished buildings, which it could not hope to pay for, since it was unable to pay the rent due for the property even before the buildings were finished and ready for occupancy, causing Mrs. Moity to cancel the lease and take back the premises as soon as the construction work on them was finished.
We think that substantial evidence was produced which creates highly reasonable doubts or suspicions as to the honesty and reality of the alleged transactions between the Cloa corporation and the Moitys. Especially is this so when, in addition to the *353 above improbable circumstances, we take into consideration other indicia of collusion or of the work being done primarily for Mrs. Moity rather than Cloa: such as the continuing interest of Mrs. Moity through her husband in the completion of the improvements on the leased premises, including Mr. Moity's request that alleged defects in the work be corrected; and such as Mr. Moity's assurance to suppliers who requested such information that Cloa was still paying the rent at a time when, even by the self-serving allegations of Mrs. Moity's unpursued cancellation suit against Cloa, rent was even then in arrears, shortly after the lease had been executed.
As earlier stated, under such a showing of suspicious circumstances, a prima facie case of simulation has been made out, and the burden shifts to the defendant to prove the reality of the presumptively simulated transactions.
Since in the present case the defendant saw fit to introduce no evidence at all to explain the suspicious circumstances, the trial court properly held that the lease transaction was a simulation through which Mrs. Moity secured through the corporation the substantial improvement of her premises. The corporation is regarded as lending its name to Mrs. Moity for a fraudulent purpose, in which function the acts of the corporation in front of the mask of the simulation are considered to be also those of Mrs. Moity behind the mask, she being an undisclosed principal acting through the corporation as her prête-nom[1]; and she is therefore liable individually for the repairs and improvements on the same bases that the corporation is. See Planiol, Civil Law Treatise (LSLI Translation, 1959), Volume 2, Sections 1189, 1198, 2271, 2272. See also: Grimaldi & Co. v. Sbisa, 10 Orl. App. 176 (1913); Comment, Juridical Basis of Principal-Third Party Liability in Louisiana Undisclosed Agency Cases, 8 La.L. Rev. 409 (1948). Cf.: Williams v. Winchester, 7 Mart. (N.S.) 22 (1828); Childers v. Police Jury, 2 Cir., 9 La.App. 490, 121 So. 248 (1928); Valmont Service Station v. Avegno, Orl., 3 La.App. 335 (1925); 3 C.J.S. "Agency" § 244, p. 170.
We affirm the trial court's holding in these respects.
Miscellaneous contentions.
1. The defendant-appellant suggests that she, Mrs. Moity, cannot be charged with any collusion possibly shown between her husband and Cloa, since there is not a scintilla of evidence directly connecting her with the transactions. We shall simply state that the record reflects that Mr. Moity acted for his wife in connection with the commencement of improvements on her property before the lease, that his interest in the progress of the completion of improvements after the lease can only be construed as being in his wife's interest, and that we think the trial court properly held that, under the evidence, Mrs. Moity should be charged with having known and consented to her husband's acts in connection with the warehouse-premise improvements, which actually were made within sight of the Moity home.
2. In fairness, before concluding, we should note an additional circumstance that gave us pause.
When a consideration has been paid, no matter how inadequate, then the transaction cannot be said to be simulated and without reality. Eureka Homestead Society v. Baccich, 190 La. 494, 182 So. 653; Citizens' Bank and Trust Co. v. Willis, 183 La. 127, 162 So. 822; 29 Tul.L.Rev. 44-45; 17 Tul.L.Rev. 463. In the present instance, the plaintiffs introduced copies of the Iberia and Lafayette Parish suits by Mrs. Moity against Cloa to cancel the alleged lease for non-payment of rent. Each of these suits alleges that the only rent paid was in January when the lease was executed and in *354 February for the next month; but that no further rentals had been paid upon the leases. However, if indeed some of the rent was actually paid by a bona fide corporation, the argument could be made that the action in declaration of a simulation does not lie because some consideration was paid for the lease.
Nevertheless, we have concluded that these allegations in the suit by Mrs. Moity against Cloa do not prove, as against the plaintiffs-appellees, that any rent was actually paid by Cloa to Mrs. Moity. For one thing, the plaintiffs-appellees were not parties to the suit, and the self-serving declarations of the parties to a simulation, of necessity and by definition, do not by themselves amount to proof of the facts declared. The very purpose of actions in declaration of a simulation is to pierce through self-serving acts and statements of the parties to the simulation, in order to prove a sham what these parties have attempted, by their pretended acts and declarations, to set up as a real and bona fide transaction.
Further, the prima facie simulation resulting from the highly improbable and suspicious circumstances shown by the present evidence, includes within its scope that the corporation itself may be simulated and actually an alter ego of the Moitys. In part, the lease was not a bona fide lease because it was not to a genuine third party, but instead to an alleged corporation which, under the evidence, must be presumed to have acted for and on behalf of Mrs. Moity. Even if any sums of money might have been "transferred" from the corporation to Mrs. Moity in payment of rentals due under the alleged lease, such "payment" might have amounted to no more than the transfer of funds from one pocket to another of the same person, for the alleged corporation was (under the totality of the evidence creating a prima facie case of simulation) only an alter ego or agent of Mrs. Moity.
If Mrs. Moity had introduced proof of a bona fide payment of rent by Cloa to herselfand if the plaintiffs-appellees did not then prove that the alleged corporation funds were in reality those of the Moitys, then under the jurisprudence most probably the transaction could not have been characterized as a simulation; for some bona fide consideration was paid. Although perhaps Mrs. Moity could have dispelled the presumption of simulation by such proof, she did not choose to do so.
There being no proof that any consideration was actually paid to Mrs. Moity for the alleged lease, the prima facie case of simulation made out by the totality of the evidence is not rebutted by the circumstance that one of the transactions between the parties, not verified by evidence in this record, amounted to an ex parte allegation by Mrs. Moity that she had been paid some rent as consideration.
3. Finally, the defendant alleges that the trial court allowed a double recovery by giving judgment to Teche Concrete, the present plaintiff, for the materials delivered by it to the warehouse premises, and by also including an amount for the same materials within the judgment granted to the plaintiff Zepherin in a companion suit 168 So.2d 356. Zepherin had ordered these materials to be used by him in completing the improvements on the premises. Zepherin had a written contract with Cloa to make certain improvements, which contract was recorded. No bond to protect materialmen was required.
Teche Concrete, by timely inscription and timely suit, secured the right to a personal judgment against the owner of the premises under LSA-R.S. 9:4806, applicable in instances such as the present where a written contract with the owner to make improvements is recorded without bond. Since Teche Concrete delivered materials used to fulfill the contract, the judgment in its favor was therefore correctly rendered, for the defendant owner (through Cloa as a nominal interposed party) had contracted for the improvement on her property in which the material was used.
*355 As earlier stated, Zepherin, the plaintiff in the companion suit, had contracted with Cloa to make the improvements in question, and he had ordered the material from Teche Concrete. He was likewise correctly awarded judgment for the contract price on the basis of Mrs. Moity's direct liability to him through Cloa as a nominal interposed party. In Zepherin's judgment, however, the trial court specifically provided that any payment to Teche Concrete should amount to a credit on amounts due to Zepherin and should discharge the obligation to that extent. We fail to find that the defendant-appellant was prejudiced by this award to Zepherin, or that double recovery was allowed against her by it.
Decree.
For the foregoing reasons, the judgment of the trial court in favor of the plaintiff is affirmed, at the cost of the defendant-appellant.
Affirmed.
On Application for Rehearing.
En Banc. Rehearing denied.
NOTES
[1] A prête-nom is one who lends his name for the use of another. Peterson v. Moresi, 191 La. 932, 186 So. 737, 739. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2139350/ | 965 F.Supp. 72 (1997)
CLEVELAND COUNTY ASSOCIATION FOR GOVERNMENT BY THE PEOPLE, et al., Plaintiffs,
v.
CLEVELAND COUNTY BOARD OF COMMISSIONERS, et al., Defendants.
Civil Action No. 96-1447.
United States District Court, District of Columbia.
May 19, 1997.
*73 *74 Neil C. Williams, Horack Talley Pharr & Lowndes, Charlotte, NC, Robinson O. Everett, Durham, NC, for Cleveland County Association for Government by the People, Gaines B. Washburn, Lester D. Roak, Kyle Smith.
Neil C. Williams, Horack Talley Pharr & Lowndes, Charlotte, NC, for Sandra S. Allen, George H. Morris, Jr., Glenn A. Short.
Michael Crowell, Ruth Dowling, E. Hardy Lewis, Tharrington, Smith & Hargrove, Raleigh, NC, Julian B. Wray, Church, Paksoy & Wray, Shelby, NC, for Cleveland County Board of Commissioners, Cecil D. Dickson, Sam Gold, Edwin T. Vanhoy, Ralph L. Gilbert, James E. Crawley, Mary Accor, Bobby C. Malloy.
Elizabeth Johnson, U.S. Department of Justice, Civil Rights Division, Washington, DC, for U.S. amicus.
J. Gerald Herbert, Alexandria, VA, for Center for Voting and Democracy amicus.
Harvey Lloyd Pitt, Fried, Frank, Harris, Shriver & Jacobson, Washington, DC, for Harvey L. Pitt amicus.
Kevin J. Lanigan, Hogan & Hartson, L.L.P., Washington, DC, for National Association for Advancement of Colored People, M.L. Campbell, C.D. Montgomery, John N. Osborne, Jr., Eddie Evans, Jr., Maggie M. White, Robert E. Devoe, Julie C. Brooks, Clarence L. Brantley, Glenwood J. Carson.
MEMORANDUM OPINION
SPORKIN, District Judge.
The plaintiffs in this case are individual registered voters of Cleveland County, North Carolina, and the Cleveland County Association for Government by the People ("CCAGP"), an unincorporated association.[1] This matter is before the Court now on (1) Plaintiffs' Motion for Judgment on the Pleadings or, in the alternative, for Summary Judgment; (2) Defendant Cleveland County Board of Commissioners' (the "Board of Commissioners") Motion to Dismiss; and (3) Defendant National Association for the Advancement of Colored People's (the "NAACP") Motion to Dismiss. The Court has considered the motions and the opposition thereto, and has received and considered amicus curiae briefs from the United States; the mediator (the "Mediator") in the case of Campbell v. Cleveland County Board of Commissioners, Civ. No. 94-0845-S § (the "Campbell Case"), Mr. Harvey L. Pitt, Esq.[2]; and the Center for Voting and Democracy.[3] The Court heard oral argument on May 6, 1997.
BACKGROUND
From 1966 to 1994 the Cleveland County Board of Commissioners in Cleveland County, North Carolina, consisted of five members elected from the county at-large in partisan elections for four-year staggered terms. Elections were held in even-numbered years. In the 1990 census, African-Americans constituted 20.9 percent of the county's total population of 84,714 and 18.8 percent of the voting age population. Through the 1994 election, no black citizen ever had been elected to the Board of Commissioners.
Following a 1991 request from the local chapter of the NAACP, the Board of Commissioners initiated a study of Cleveland County's election method and whether it could be modified to improve the ability of black citizens to elect candidates of their choice. In October 1992 a study committee created by the commissioners recommended *75 expansion to a seven-member board, five to be elected from districts and two at-large. One of the districts would have had a majority of black citizens. Legislation to authorize the county to adopt such a plan was enacted by the North Carolina General Assembly in 1993. The legislation expired by its own terms in January 1994, however, as the Board of Commissioners was unable to agree on a districting plan.
In January 1994 M.L. Campbell, other black citizens of Cleveland County, and the NAACP filed the Campbell Case in the United States District Court for the Western District of North Carolina, contending that the method of electing county commissioners violated Section 2 of the Voting Rights Act, 42 U.S.C. § 1973 (the "Voting Rights Act"). The Campbell Case was transferred to the District of Columbia on April 15, 1994. On May 19, 1994, the Court appointed the Mediator, without objection from the parties, to assist the parties in resolving their disputes. The Campbell Case was resolved by the Court's approval of a consent decree on July 22, 1994 (the "Consent Decree").
The Consent Decree adopted an election plan (the "Election Plan") that provided for an expansion of the Board of Commissioners to seven members, and the eventual adoption of at-large, limited voting in the election of Commissioners. For the 1994 and 1996 elections, the old methods remained in place with two notable exceptions: (1) the members of the Board of Commissioners elected in 1996 would serve only two years; and (2) after the 1994 election, two additional Commissioners who were "representative of the black community in Cleveland County" would be appointed to the Board for four-year terms. Consent Decree ¶ 5a. Beginning with the 1998 election all seven seats would be elected at the same time, with newly-elected commissioners to serve at-large. In both party primaries and the general election, each voter would be allowed to cast up to four votes for different candidates, with the top seven candidates to be elected.
The Consent Decree was subject to pre-clearance under Section 5 of the Voting Rights Act, 42 U.S.C. § 1973c. It was submitted and was precleared by the United States Attorney General on September 26, 1994. The Board of Commissioners thereafter appointed the two new commissioners and those appointments were approved by the Court. Both new commissioners took office in September 1995.
Plaintiffs filed the immediate case in the Western District of North Carolina on January 5, 1996. This case was transferred to this Court in June 1996. Plaintiffs' Second Amended Complaint asserts two causes of action: (1) the Consent Decree violates (a) the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution because the Consent Decree is allegedly "race based" and (b) the Fifteenth Amendment because it allegedly abridges Plaintiffs' right to vote on account of Plaintiffs' race by denying them the right to vote for the two appointed Board members; and (2) this Court lacked authority to issue an order implementing the Consent Decree because the Consent Decree is contrary to North Carolina law and the Court made no finding that the old method of electing members of the Board of Commissioners violated federal law. It is the contention of Plaintiffs that the recent cases of Shaw v. Reno, 509 U.S. 630, 113 S.Ct. 2816, 125 L.Ed.2d 511 (1993) ("Shaw I") and Shaw v. Hunt, ___ U.S. ___, 116 S.Ct. 1894, 135 L.Ed.2d 207 (1996) ("Shaw II") are controlling here.[4] Plaintiffs have moved for judgment on the pleadings or, in the alternative, for summary judgment, and ask that the Court vacate the Consent Decree, provide additional injunctive relief, and award fees.
*76 Defendant Board of Commissioners has moved to dismiss, claiming that Plaintiffs lack standing to bring this action and that Plaintiffs cannot show that the Election Plan is a race-based measure. Defendant NAACP has moved to dismiss, also claiming that Plaintiffs lacked standing to bring this action and that Plaintiffs cannot show that their interests were not represented in the Campbell Case by their elected representatives on the Board of Commissioners.
The United States argued in its amicus brief that Shaw I does not require that every consent decree entered to resolve Section 2 litigation automatically states a claim for an equal protection violation or that all such consent decrees are automatically subject to strict scrutiny. The government claims that Defendant Board of Commissioners' motion to dismiss should be granted, at least in part because Plaintiffs have failed to allege facts to establish that the permanent limited voting plan embodied in the Consent Decree violates the Equal Protection Clause of the Fourteenth Amendment.
The Mediator argued in his amicus brief that the Consent Decree does not violate the Fourteenth Amendment or the Fifteenth Amendment and that the Court had authority to enter the Consent Decree. The Center for Voting and Democracy claimed in its amicus brief that the limited voting plan adopted by Cleveland County has, at most, a modest effect on election outcomes, since it does not guarantee any seats on the Board of Commissioners to blacks, nor does it give black voters any more voting power than other voters.
ANALYSIS
I. Plaintiffs Have a Proper Basis For Bringing this Action
A. Plaintiffs Have Standing
Defendants Board of Commissioners and the NAACP challenge Plaintiffs' standing to bring this case, so the Court will address standing as a threshold matter.
"In order to establish standing under Article III, a complainant must allege (1) a personal injury-in-fact that is (2) `fairly traceable' to the defendant's conduct and (3) redress able by the relief requested." Branton v. Federal Communications Comm., 993 F.2d 906, 908 (D.C.Cir.1993); (quoting Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 3324, 82 L.Ed.2d 556 (1984)), cert. denied, 511 U.S. 1052, 114 S.Ct. 1610, 128 L.Ed.2d 338 (1994). In addition, "[t]he alleged injury must be `distinct and palpable.'" Branton, 993 F.2d at 908 (quoting Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 2206, 45 L.Ed.2d 343 (1975)). "A plaintiff who seeks to challenge [governmental] practices must allege specific, concrete facts demonstrating that the challenged practices harm him, and that he personally would benefit in a tangible way from the court's intervention." Warth, 422 U.S. at 508, 95 S.Ct. at 2210. More particularly, an association must allege that it has been injured by the challenged action or "that its members, or any one of them, are suffering immediate or threatened injury as a result of the challenged action of the sort that would make out a justifiable case had the members themselves brought suit." Warth, 422 U.S. at 511, 95 S.Ct. at 2211-12.
Plaintiffs have standing in this case. They are registered voters and citizens of Cleveland County bringing an action concerning an alleged violation of the Equal Protection Clause with respect to the election procedures used in their county. In Shaw II and United States v. Hays, 515 U.S. 737, 115 S.Ct. 2431, 132 L.Ed.2d 635 (1995), the Supreme Court made clear that a plaintiff who resides in a district which is the subject of a racial gerrymandering claim had standing to challenge the legislation which created that district. It would be consistent with the governing principles established by the Supreme Court in those cases to conclude that standing should also extend to resident voters who make a colorable claim that they have been subjected to an alleged constitutionally impermissible voting scheme brought about as the result of the settlement of litigation by their elected representatives.[5]
*77 Defendants' motion to dismiss on the grounds that Plaintiffs lacked standing to bring this action will be denied.
B. Plaintiffs Are Not Estopped From Bringing This Action
Defendant NAACP argued that this action should be dismissed because it improperly seeks to relitigate the precise dispute that the Court conclusively resolved in its July 22, 1994 order approving the Consent Decree. The NAACP claimed that Plaintiffs have not alleged and cannot show that their interests as Cleveland County citizens were not adequately represented in the Campbell Case by their own elected representative, the 1994 members of the Board of Commissioners. In essence, the NAACP argued that the CCAGP should be estopped from challenging the Consent Decree in a separate action.
The Court finds that Defendant NAACP's argument on adequate representation should not be accepted in the immediate case. The Eleventh Circuit has addressed the issue of adequate representation in a case similar to this one. See Meek v. Metropolitan Dade County, Fla., 985 F.2d 1471 (11th Cir.1993). In that case, black and Hispanic citizens and registered voters brought an action against the county for an alleged violation of the Voting Rights Act by diluting voting power in at-large elections for county commissioners. The district court found for the plaintiffs and, when the county commissioners decided not to appeal, registered voters filed motions to intervene for purposes of appeal which the district court denied. The Eleventh Circuit reversed the denial of a motion to intervene and stated that "we disagree with the district court's conclusion that the county defendants were adequate representatives of the intervenors because they had identical interests ... divergent interests created a risk that Dade County might not adequately represent the applicants." Id. at 1478.
In this case, the Plaintiffs are situated similarly to the intervenors in Meek. Their interests and those of Cleveland County arguably are materially different.
What is more, it appears that Plaintiffs may not have had adequate opportunity to challenge the Consent Decree before the Board of Commissioners approved it. Plaintiffs represented to the Court that there were no public hearings on the Consent Decree prior to its acceptance by the Board of Commissioners and little publicity was given to the case within Cleveland County. The Court also finds that Plaintiffs brought this case as soon as was reasonably possible after the Court approved the Consent Decree.
Defendant NAACP's motion to dismiss this matter as an effort to relitigate the Campbell Case will be denied.
II. Challenges To The Authority for Approving and Entering the Consent Decree
A. The Court Did Not Need An Admission or Finding of a Section 2 Violation to Enter the Consent Decree
Plaintiffs point out that the Court did not adjudge a violation of Section 2 of the Voting Rights Act in the Campbell Case.[6] In the absence of any finding (or admission) that federal law had been violated, Plaintiffs argue that the Court lacked authority to enter the Consent Decree and should have left any modification of Cleveland County's election plan to the North Carolina legislature.
The specific issue of whether a court must find a violation of Section 2 of the Voting Rights Act before entering a consent decree is unsettled among the circuits and has not been addressed by this circuit.[7] It should be *78 noted that the Fourth Circuit has viewed the altering of an election method through a consent decree as a valid and binding means for settling a dispute.[8]
This Court finds that a trial court has the authority to enter a consent decree in a Voting Rights Act case without first finding a Section 2 violation. Courts have repeatedly upheld the validity of consent decrees in analogous situations without requiring admissions of wrongdoing or court findings against one of the parties. See, Armstrong v. Adams, 869 F.2d 410 (8th Cir.1989)(upholding the district court's approval of a consent decree in a case involving allegations of unconstitutional race discrimination in a state election); Moch v. East Baton Rouge Parish School Bd., 533 F.Supp. 556 (M.D.La.1980); Moore v. Beaufort County, N. C., 936 F.2d 159 (4th Cir.1991).
It would make little sense to deny trial courts the authority to enter consent decrees without finding Section 2 violations in Voting Rights Act cases. Consent decrees are agreements which, by their nature, forge consensus among the parties in order to avoid adjudication on the merits of the claims. It is fair to conclude that, if "public bodies must admit guilt in order to settle [voting rights] cases, then settlements are going to be few and far between." Moch, 533 F.Supp. at 556. If a court had to first adjudge a Section 2 violation, the plaintiffs having established liability would have little incentive to negotiate a consensual resolution of their claims.
The Court did not operate in a vacuum before entering the Consent Decree. There was ample evidence to conclude that the plan was fair and reasonable and arguably necessary to remedy alleged violations of the Voting Rights Act. Resolving, unnecessarily, the issue of whether a Section 2 violation actually had occurred likely would have undermined the negotiation of a consent decree that enjoyed considerable support from parties and non-parties alike. As a guiding principle, the Court has always believed a settlement vigorously negotiated by parties of equal bargaining strength was almost always the preferred way to resolve a lawsuit. The concept of requiring an unconditional surrender by one of the parties to a lawsuit would bring our civil and criminal justice system to an almost total impasse.
B. The Court Cannot Conclude that the Board of Commissioners Lacked Authority To Accept The Consent Decree
Plaintiffs also argue that, in the absence of a finding or a stipulation that Cleveland bounty's election plan violated Section 2 of the Voting Rights Act, any change to the election plan for the county must have been based on authority found in state law. It is Plaintiffs' theory that Sections 153A-58 through 153A-64 of the General Statutes of North Carolina provide the only means by which a North Carolina county commission can alter the structure of a board of commissioners. Plaintiffs claim specifically that "under this statute, the number, term and mode of election can be modified only be referendum." Plt. Motion for Summary Judgment, page 7. Since there was no referendum prior to settling the Campbell Case, Plaintiffs claim that the Consent Decree was approved by the Board of Commissioners without proper authorization. Defendant Board of Commissioners disputed Plaintiffs' theory of *79 North Carolina law and argue that "the referendum procedure [for changing a county's election method] is rarely used and most of the 100 county boards of commissioners in the state use elected methods adopted by other means." Brief of Defendant Board of Commissioners Opposing Plaintiffs' Motion for Summary Judgment, page 7.
It would not be appropriate for this Court to make a ruling as to whether the Board of Commissioners violated North Carolina election law on such an issue, when the factual and legal predicates for any such ruling are not a part of the record. Since any dispute of fact would preclude this Court from ruling on this case, the Court finds it is not in a position to rule on this issue without a more adequate record. The Court will not decide this issue without a thorough research of the facts and law based on valuable input from counsel for all parties. The Court does find from the limited record before it there was no facial violation of North Carolina election law in the settling of the Campbell Case.
It is undisputed that, as a matter of general local government law, counties may settle lawsuits through consent decrees or by any other means. The inherent power to settle lawsuits has been recognized by the 4th Circuit in a case that remains controlling: "Again, the power to sue and to defend suits carries with it, by necessary implication, the power to make bona fide compromise adjustments of such suits." Board of Commissioners v. Tollman, 145 F. 753, 772 (4th Cir.1906)(upholding authority of Onslow County, North Carolina, Board of Commissioners to settle lawsuits concerning railroad stock).
The Court also understands that limited voting is used in elections for several boards of county commissioners other than Cleveland, and has several times been approved by the North Carolina General Assembly. In Moore, the court held that the county commissioners had authority to settle a voting rights case by adopting a limited voting plan. The court rejected arguments that the election method was contrary to state law.[9]
On the basis of the record before it, the Court cannot conclude that the Board of Commissioners lacked authority to approve the Consent Decree.[10] The Court also finds that it had the authority to enter the Consent Decree.
III. Constitutional Challenges to the Consent Decree
Plaintiffs argue that Shaw I and II are the controlling precedents for this case. Plaintiffs contend that the Equal Protection Clause of the Fourteenth Amendment along with controlling legal precedent require that the Election Plan must be subjected to strict scrutiny. To survive strict scrutiny, the Election Plan must be narrowly tailored to serve a compelling government interest. Richmond v. J.A. Croson Co., 488 U.S. 469, 109 S.Ct. 706, 102 L.Ed.2d 854 (1989); Shaw I; Shaw II; Bush v. Vera, ___ U.S. ___, 116 S.Ct. 1941, 135 L.Ed.2d 248 (1996). Plaintiffs argue that the Election Plan failed strict scrutiny.
A. Plaintiffs Cannot Show That the Election Plan Must Be Subjected to Strict Scrutiny Under the Equal Protection Clause of the Constitution
In order to trigger strict scrutiny in a Shaw type case, a plaintiff must show that race was the "predominant factor" motivating the configuration of a particular district such that the challenged redistricting plan "subordinated [to race] traditional race-neutral districting principles," such as compactness, contiguity, respect for political subdivisions, *80 or "communities defined by actual shared interests." Miller v. Johnson, 515 U.S. 900, ___, 115 S.Ct. 2475, 2486, 132 L.Ed.2d 762 (1995).
Plaintiffs overstate the holdings of Shaw I and II when they argue that race must, of necessity, be the "predominant factor" for any settlement of a case under Section 2 of the Voting Rights Act. The Shaw cases apply principally to redistricting cases, when "redistricting legislation ... is so extremely irregular on its face that it rationally can be viewed only as an effort to segregate the races for purposes of voting, without regard for traditional districting principles." Shaw I, 509 U.S. at 642, 113 S.Ct. at 2824. The Consent Decree did not involve any redistricting within Cleveland County, so Shaw I and II are not directly on point.
While the Election Plan was certainly race-conscious, race-consciousness alone does not necessarily trigger strict scrutiny. The Supreme Court has recognized that local governments could validly "attempt to prevent racial minorities from being repeatedly outvoted" by adopting methods to afford fair representation, so long as sound non-discriminatory principles were used to implement those methods. Shaw I, 509 U.S. at 651, 113 S.Ct at 2829 (quoting United Jewish Organizations of Williamsburgh, Inc. v. Carey, 430 U.S. 144, 168, 97 S.Ct. 996, 1011, 51 L.Ed.2d 229 (1977)). It is the classification of individuals on the basis of race, not the mere motivation to facilitate equal opportunity for representatives of all races, that requires heightened scrutiny. Shaw I, 509 U.S. at 649-52, 113 S.Ct. at 2828-29.
The Consent Decree does not contemplate any racial classifications among voters. It does not separate voters or distinguish among voters or candidates along racial lines. It treats all voters in the county black or white in precisely the same way. Voting occurs county-wide, with no separation of candidates or voters, geographic or otherwise, and each voter has the same number of votes.
The fact that limited voting provides a greater opportunity to elect minority candidates more readily does not render this election feature constitutionally suspect. A limited voting plan is not an unusual voting procedure at odds with traditional principles of voting.[11]
In sum, the limited voting plan in the Consent Decree is constitutionally permissible. It does not guarantee any seats on the Board of Commissioners to blacks, nor does it give black voters any more voting power than other voters.
While the provision of the Consent Decree calling for the appointment of two additional commissioners "representative of the black community" has certain racial overtones, that provision is not a sufficient basis for concluding that the Consent Decree in its entirety should be subject to strict scrutiny. The provision is strictly an interim measure to facilitate the agreement to adopt a permanent racially neutral election process. It does not require on its face that any black commissioners be appointed. The Election Plan requires that, if the two appointed commissioners choose to seek a full term on the Board of Commissioners, they must run for election on an equal basis with all other candidates in 1998.[12]
*81 The Court is reluctant to tinker with the Consent Decree. The Consent Decree was only arrived at after extraordinary negotiations by the parties and the Mediator. When the Court queried the parties during oral argument as to whether a modification of the Consent Decree to deal with the interim appointment of commissioners would be an acceptable compromise, counsel for Plaintiffs and Defendant Board of Commissioners each declined to agree to any modification of the Consent Decree, stating that his client wanted the Consent Decree to be upheld or vacated in its entirety.[13]
B. The Court Does Not Reach Analysis Under Strict Scrutiny
The Consent Decree, when viewed as a whole, is not a race-based measure subject to strict scrutiny, so the Court does not reach the issue of whether the election plan is narrowly tailored to serve a compelling government interest. The Consent Decree is constitutionally permissible.
CONCLUSION
Plaintiffs' Motion for Judgment on the Pleadings or, in the alternative, for Summary Judgment will be denied. Defendants' motion to dismiss will be granted. An appropriate order is attached hereto.
ORDER
This matter is before the Court on (1) Plaintiffs' Motion for Judgment on the Pleadings or, in the alternative, for Summary Judgment; (2) Defendant Cleveland County Board of Commissioners' Motion to Dismiss; and (3) Defendant National Association for the Advancement of Colored People's Motion to Dismiss. For the reasons cited in the accompanying Memorandum Opinion, it is hereby
ORDERED that Plaintiffs' motion is denied; and it is
FURTHER ORDERED that Defendants' motion is granted.
NOTES
[1] Plaintiffs' Second Amended Complaint describes the CCAGP as a "nonpartisan, voluntary, unincorporated, non-profit association of citizens of Cleveland County and of other persons who are opposed to unconstitutional methods for the election of public officials in Cleveland County." Second Amended Cmplt, page 2.
[2] Mr. Pitt is a partner in the law firm of Fried, Frank, Harris, Shriver & Jacobson, and is based in Washington, D.C. and New York. He took on the role of mediator in the case on a pro bono basis. It was largely through his unstinting efforts that the case was settled.
[3] The Center for Voting and Democracy (the "Center") is a non-partisan, non-profit corporation, incorporated in the District of Columbia for educational purposes. The Center researches and distributes information on electoral systems that promote voter participation and fair representation. The Center has special interest in the theory and practice of limited voting plans.
[4] Shaw v. Reno and Shaw v. Hunt were related actions brought by North Carolina residents seeking to challenge North Carolina's congressional redistricting plan. In Shaw v. Reno, the Supreme Court held that North Carolina's redistricting legislation was so extremely irregular on its face that it could rationally be viewed only as an effort to segregate races for the purpose of voting, without regard to traditional districting principles and without sufficiently compelling justification. Plaintiffs' complaint had sufficient weight to be considered a claim upon which relief could be granted under the Equal Protection Clause. In Shaw v. Hunt, the Supreme Court held that the redistricting plan was not narrowly tailored to serve a compelling state interest and violated the Equal Protection Clause.
[5] Indeed, if the Court accepted the logic of the NAACP's arguments on standing, then the Court might have to conclude that the NAACP was not a proper plaintiff in the Campbell Case that led to the Consent Decree.
[6] As stipulation 9 of the Consent Decree stated: "Nothing in this Consent Decree is intended as an adjudication of the lawsuit, nor is the entry of this decree intended in any manner to imply that the county's election system has violated Section 2 of the Voting Rights Act or the Fourteenth Amendment."
[7] It does appear that a resolution is imminent. The Supreme Court heard argument on February 19, 1997 on a voting rights case wherein a three-judge panel in the Middle District of Florida upheld a trial court's entering of a consent decree. Scott v. US. Department of Justice, 920 F.Supp. 1248 (M.D.Fla.1996) juris. noted sub norm. Lawyer v. Department of Justice, ___ U.S. ___, 117 S.Ct. 292, 136 L.Ed.2d 212, and motion granted, ___ U.S. ___, 117 S.Ct. 761, 136 L.Ed.2d 709 (1997). In Scott, the three-judge panel opined that a trial court "may exercise authority under the Fourteenth Amendment if, after a careful evaluation of the terms of the proposed resolution and the details of the underlying dispute, the court concludes the case presents a sufficient evidentiary and legal basis to warrant the bona fide intervention of a federal court into matters typically reserved to a state. In that circumstance [the parties] may propose a resolution to this action without a dispositive, specific determination of the controlling constitutional issue."
[8] The Fourth Circuit considered the issue in the context of a challenge to the manner in which a district court implemented a consent decree creating a new electoral system for the Town of Blackstone, Virginia. Neal v. Harris, 837 F.2d 632 (4th Cir.1987). The court upheld the consent decree in Neal and noted in a footnote that "consent judgments, no less than contested judgments, require the protections of repose to guard, inter alia, against debilitating inconsistencies of results." Id. at 634 n*.
[9] As the 4th Circuit stated: "Finally, the Board contends that the district court should not order limited voting because it is contrary to the public policy of North Carolina. However, four jurisdictions in North Carolina have used limited voting in consent decrees (Bladen County, Clinton City Board of Education, the Sampson County Board of Education, and the Town of Benson). The partial limited voting scheme in Bladen County was approved by the state legislature." Id. at 164.
[10] It is to be noted that while Plaintiffs claim the Consent Decree violates North Carolina law, no North Carolina official with authority to enforce North Carolina law has taken any action to have that issue appropriately adjudicated.
[11] As Moore v. Beaufort County, N.C. made clear, the Fourth Circuit has recognized at least four consent decrees entered in settlement of voting rights disputes in North Carolina that have incorporated limited voting. 936 F.2d at 164. Limited voting has also been approved by courts in many other states, including Pennsylvania, Connecticut and Alabama. See, e.g., Kaelin v. Warden, 334 F.Supp. 602 (E.D.Pa.1971); LoFrisco v. Schaffer, 341 F.Supp. 743 (D.Conn.), aff'd, 409 U.S. 972, 93 S.Ct. 313, 34 L.Ed.2d 236 (1972); Orloski v. Davis, 564 F.Supp. 526 (M.D.Pa.1983); Dillard v. Town of Cuba, 708 F.Supp. 1244 (M.D.Ala.1988). In fact, limited voting is a long-recognized method of ameliorating any consistent lack of minority representation. See Richard L. Engstrom, Modified Multi-Seat Election Systems as Remedies for Minority Vote Dilution, 31 STETSON L.REV. 743,758-60 (1992); Joseph F. Zimmerman, The Federal Voting Rights Act and Alternative Election Systems, 19 WM. & MARY L.REV. 621, 652-54 (1978).
[12] Plaintiffs also raise a Fifteenth Amendment claim with respect to the appointment of the two Commissioners, inferentially claiming that the appointment violated their right to vote, on account of race. Second Amended Complain, ¶ 28. The Fifteenth Amendment provides that "[t]he right of citizens of the United States to vote shall not be denied or abridged by the United States or any State on account of race, color, or previous condition of servitude." There is no Fifteenth Amendment violation in this case. This case does not involve a Fifteenth Amendment issue.
[13] Counsel for Plaintiffs likewise said his client would not be placated by a decision that would only read out of the Consent Decree the interim "appointment" aspect. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2079836/ | 129 Ill. App. 2d 28 (1970)
262 N.E.2d 338
Ferne B. Eike, Plaintiff-Appellee,
v.
Central National Life Insurance Company, an Illinois Corporation, Defendant-Appellant.
Gen. No. 69-134.
Illinois Appellate Court Third District.
September 11, 1970.
*29 Robert H. Reck, of Mendota, for appellant.
Jack Trager, of Ottawa, for appellee.
ALLOY, J.
Defendant Central National Life Insurance Company appeals from a judgment of the Circuit Court of LaSalle County based upon a claim for indemnity for loss of life under a policy issued by the defendant-company to the husband of plaintiff, Ferne B. Eike.
The record discloses that Marshall J. Eike, plaintiff's deceased husband, purchased a health and accident insurance policy from defendant Central National Life Insurance *30 Company in September of 1952. The premiums were payable upon the policy annually on the anniversary date of the policy (September 5). There was a 30-day grace period in the policy. In the years 1953, 1954, 1955, 1956, 1957, 1958, and 1960 the premium was paid after September 5 but within the 30-day grace period. The September 5, 1961 premium was not paid within the 30-day grace period, and the policy lapsed. Thereafter, a new application was made by Eike and the policy was reinstated on November 1, 1961. From 1961, the anniversary date of the policy was November 1 of each year. The decedent, Mr. Eike, continued to pay on the policy through 1966 and all payments except one were made after November 1, but before the end of the 30-day grace period. The payment due November 1, 1967, was not made within the 30-day grace period.
The policy contained a provision that if default was made in the payment of the premium on the policy subsequent acceptance of the premium by the company or any of its duly authorized agents would reinstate the policy only to cover accidental injury thereafter sustained and for such sickness as may begin more than ten days after the date of such acceptance. Under the terms of Ill Rev Stats, c 73, § 969.5 (containing a provision applicable to the policy at the times under consideration), the statute provides that if any renewal premium is not paid within the time granted the insured for payment, subsequent acceptance of the premium by the insurer or any agent "without requiring in connection therewith an application for reinstatement, shall reinstate the policy."
Sometime before December 6, 1967, the Levinson Insurance Agency was notified by defendant-company that the Eike policy had lapsed and that the agency should contact Mr. Eike relative to a possible renewal. Mr. Eike did not contact Levinson and had no knowledge that the agency had been notified of the lapse until Edward *31 Levinson had called at the Eike residence on December 6, 1967. Levinson discussed the reinstatement of the policy with Mr. and Mrs. Eike, and Mr. Eike expressed a desire to renew the policy. Levinson had a reinstatement form with someone else's name on it and he modified it by writing in Mr. Eike's name. Levinson asked about Mr. Eike's health, but did not fill out the portion of the application for reinstatement which dealt with medical history. Mr. Eike then read the application and signed it, wrote out a check to the company for $79 for one year's premium, and Levinson took the application and check and mailed it about an hour after leaving Mr. Eike. Mrs. Eike testified at the trial that Levinson told her and Mr. Eike on December 6, 1967, that the policy was reinstated as of that date. Levinson testified that he did not represent to Mr. Eike that the policy was reinstated on December 6, 1967, when he took the application and the check for $79. No receipt was left with Mr. Eike when the application was taken by Levinson on December 6, 1967.
On December 11, 1967, the application form which Levinson had completed and Mr. Eike had signed was returned by the company to Mr. Eike with the request that he answer the medical questions. This was done and the application was mailed back to the company on December 12. Mr. Eike was accidentally killed on December 14, 1967. The defendant-company, after being notified of the death of Mr. Eike, wrote Mrs. Eike and stated that the policy was not in force on December 14, 1967, the date upon which Mr. Eike was killed. It was shown at the hearing, by testimony of a company executive, that the insurance company, in handling reinstatement applications, checks the statements with doctors or hospitals. The Eike application bore the handwritten notation "claims checked o.k." which was a notation made by an employee of defendant insurance company that the check had been made on Mr. Eike. The company *32 records show that the application was processed and Mr. Eike's check was deposited on December 18, 1967, which was a period of four days after Mr. Eike was killed. The company had no record of when it received the Eike application the second time.
The policy under consideration was in the principal sum of $2,500 and a part of the policy provided that after the first year's premium had been paid, "each annual renewal premium paid in advance on this policy shall add 10% of the amount payable for loss of life." The court found in favor of plaintiff and held that the policy was in force at the date of the death of Mr. Eike. The court also awarded plaintiff an additional $2,500 on the annual increase provision, and likewise awarded plaintiff $1,000 in attorney's fees pursuant to Ill Rev Stats, c 73, § 767. Judgment was entered for $5,000 on the policy, plus the $1,000 in attorney's fees referred to.
[1] The first issue for consideration was whether Edward Levinson was an agent of Central National Life Insurance Company pursuant to either express or implied authority. The record discloses that defendant-company first contacted the Levinson Agency when the Eike premium was past due. Until Levinson talked with him, Mr. Eike did not know that the Levinson Agency had been contacted in this matter. The defendant-company, therefore, set the whole process of renewal in motion. There was evidence from Mrs. Eike that when Mr. Eike signed the application he was advised by Mr. Levinson, when he left with the check and the application, that the policy had been reinstated as of that time. Under such facts, the trial court was justified in finding that Edward Levinson was the agent of defendant insurance company. In Moone v. Commercial Cas. Ins. Co., 350 Ill. App. 328, 112 NE2d 626, an attorney called on an agency to obtain coverage under a group bar association health policy. A Mr. Hughes who had an office in the insurance company building rent-free, and *33 who was often sent out to answer inquiries for the insurance agency, was sent to see the lawyer by the agency. Hughes filled out an application for coverage with the company that sent him out and because of some problems on the application the question arose as to whether Hughes was an agent of the insurance company. While he was a licensed broker and insurance agent he was not licensed specifically as an agent for the insurance company. The trial court held that Hughes was not an agent for the insurance company. The appellate court on appeal, found that such conclusion was contrary to the manifest weight of the evidence and that Hughes was the agent of the insurance company. The court stated in that case (at page 335):
"Whether he was a broker or agent is determined not by what he is called, but by what he does. Midwest Transfer Co. v. Preferred Acc. Ins. Co., 342 Ill. App. 231. Whether Hughes was the agent of plaintiff or insurer, so as to charge one or the other with responsibility for the answers in the application, depends upon who first set him in motion, who could control his action, who is to pay him and whose interest was he there to protect."
The court there concluded that defendant-company had set Hughes in motion, just as in the case before us, Central National Life Insurance Company had set Levinson in motion. In the Moone case, the court looked specifically to see whose interest the agent was trying to protect and it concluded he was looking after the insurance company interests, just as Levinson was presumably looking after Central National Life Insurance Company's interest in the instant case. The court in the Moone case stated that it agreed with plaintiff that if Hughes was not expressly authorized to act as agent of the company, the trial court should have found that he was held out as agent of the company and that his actions *34 under his apparent authority were binding on the insurer.
[2, 3] In the case before us, while the language of the policy was more limiting, the provisions of section 969.5 of chapter 73 of Ill Rev Stats automatically became part of the policy. Under that section, payment to an agent of the company automatically reinstated the policy, unless the agent issued a conditional receipt for the premium tendered. Levinson did not issue such conditional receipt in the cause before us and pursuant to that section, the policy was reinstated. This principle has been sustained in cases in other states (Bousquet v. Transportation Ins. Co., 354 Mass. 99, 235 NE2d 807). Defendant has cited other cases in which there was an express condition that the application was not to be effective for the purpose of reinstatement until approved at the home office. No such statement is found in the application in the instant case.
[4, 5] The next question for consideration is whether the maximum increase under the policy for payment of premiums "in advance" was made properly applicable by the trial court. It is noted that the provision is that for each annual premium paid "in advance" on the policy, another 10% is added to the amount payable for loss of life. Defendant-company contends that this phrase means that the premium must be paid prior to the anniversary date of the policy each year in order to add the 10% increase. Plaintiff contends that the payment of the premium each year, being a payment in advance for the coming year, makes the 10% increase applicable regardless of whether such payment is made before the anniversary date or during the grace period. We agree with the contention of plaintiff. Since the language is ambiguous it should be construed liberally in favor of the insured (Van Hulle v. State Farm Ins., 99 Ill. App. 2d 378, 241 NE2d 320; Reiner v. St. Paul Fire & Marine Ins. Co., *35 106 Ill. App. 2d 210, 245 NE2d 655). If defendant-company intended that the 10% yearly increase was not to be effective unless the premium was paid prior to the anniversary date, the company should have so provided specifically in the terms of the policy. The use of the phrase "in advance" may have been another means of describing the yearly advance premium due on the policy, and such premium could be paid prior to the anniversary date or during the grace period. The provision might well have been considered an effective means of inducing policyholders to keep policies in force for several years, rather than permitting them to lapse. Thus, a payment at any time during the grace period would still allow the insured the 10% increase and accomplish the company's objective.
[6, 7] Attorney's fees are to be awarded in actions against insurance companies pursuant to chapter 73 of Ill Rev Stats, § 767, where the conduct of the defendant-company is "vexatious and without reasonable cause." In such case, the court may allow 25% of the amount which is found recoverable by plaintiff, or $1,000. In the case before us, defendant had asserted two defenses to the action. One was that Levinson was not the agent of Central National Life, and the other was that Levinson had no authority to reinstate the policy when he called upon Mr. Eike on December 6, 1967. As stated in Zak v. Fidelity-Phoenix Ins. Co., 34 Ill. 2d 438, 444, 216 NE2d 113, at page 116, the purpose of the statute is not to allow attorney's fees simply because a defendant-company was unsuccessful in litigation. In the cause before us there were issues and ambiguities to be resolved. On the basis of the record, we believe that the conclusion that the insurance company was guilty of vexatious conduct and acted without reasonable cause was not justified. Accordingly, we find that the allowance of attorney's fees in the sum of $1,000 was improper.
*36 This cause will, therefore, be affirmed as to the judgment for $5,000 and reversed as to the allowance of the $1,000 attorney's fee. This cause is, therefore, remanded to the Circuit Court of LaSalle County with directions to modify the judgment in accordance with the views expressed in this opinion.
Affirmed in part, reversed in part and remanded.
RYAN, P.J. and STOUDER, J., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2048615/ | 132 Ill. App. 3d 845 (1985)
477 N.E.2d 740
MADGE HOBART, Plaintiff-Appellee,
v.
CHESTER O. HALE et al., Defendants-Appellants.
No. 3-84-0341.
Illinois Appellate Court Third District.
Opinion filed April 25, 1985.
*846 Glenn F. Ruud, of Rock Island, for appellants.
Peter Denger, of Rock Island, for appellee.
Reversed and remanded.
JUSTICE BARRY delivered the opinion of the court:
The matter before us today was initiated by plaintiff Madge Hobart as a complaint and confession of judgment on a note dated January 28, 1980, signed by defendants, Chester and Genevieve Hale, and in the amount of $10,000. The note on its face was made payable on demand to Walter Stradley and endorsed on the reverse side to the plaintiff. Judgment by confession was entered January 14, 1984, by the circuit court of Rock Island County in the sum of $12,000-$10,000 in principal plus $2,000 in attorney fees. Summons to confirm judgment by confession was served on February 1, and on February 29, 1984, defendants filed motions to open and vacate the judgment by confession as well as their answer to the complaint. On May 1, 1984, the court granted defendants' motion to vacate and opened the matter for a trial on the merits. At the conclusion of testimony and presentation of counsel's arguments, the court took the matter under advisement. The court's decision of May 11, 1984, found in favor of plaintiff and awarded judgment of $10,000 plus costs and $2,081.25 in attorney fees. Defendants thereafter filed a timely notice of appeal to this court.
1 Defendants' primary contention is that the trial court's judgment is contrary to the manifest weight of the evidence. Defendants urge that the judgment be reversed and vacated, that judgment be entered for defendants, and that plaintiff's cause of action be dismissed with prejudice. Plaintiff maintains that the trial court's decision should be affirmed and an additional award of $1,968.75 be approved for attorney fees incurred at the appellate level. We find neither party's position persuasive, but find that the matter must be remanded to the trial court for the purpose of joining a necessary party namely, the estate of Alice Dinkle, deceased since 1981.
The facts as they appear from the testimony of the parties and Walter Stradley are somewhat complex, but will be set forth chronologically to the extent possible. In 1972 and 1973 Walter Stradley, an attorney, represented defendants Chester and Genevieve Hale with respect to certain real estate litigation in Warren County entitled Hale v. Ault. Stradley became ill, and the matter was taken over by other counsel. Stradley was not paid for his services, but maintained an ongoing *847 relationship with the Hales. He was kept apprised of the progress of the litigation, which eventually wended its way to Federal court in Chicago as a discrimination suit.
Meanwhile, it appears that in 1973 a woman named Alice Dinkle sued Stradley and received a judgment against him for an unknown sum. A copy of the judgment cannot be found in the record before us. In supplemental proceedings to enforce that judgment, Stradley was ordered to assign to Dinkle the unpaid fees owed by the Hales. Although a copy of the assignment itself is not in the record, it appears that the court's order was dated February 25, 1976, and that Stradley complied by executing the assignment as ordered in 1976.
Stradley lost his license to practice law in 1977. His secretary, plaintiff Madge Hobart, who had been with Stradley since 1968, kept Stradley's law office open until 1979 at her own expense, and she was continuing to work for Stradley on a part-time basis at the time of the trial of this matter on May 1, 1984. Hobart testified that she had received no reimbursement or compensation from Stradley since early 1978.
Mrs. Dinkle never cancelled, reassigned or collected on Stradley's 1976 assignment during her lifetime. She died in 1981. According to the record before us, the assignment was not included in her estate's inventory.
Although the record is extremely confused as to the next series of events relevant to this suit, it appears that in early 1982 or 1983 Stradley appeared on behalf of the Hales at a deposition in connection with the Federal litigation in Chicago. The matter of fees owed Stradley on the Warren County litigation was broached, and the Hales and Stradley agreed upon a sum of $10,000 for legal services. The judgment note which is at the heart of the matter now before us was drawn confessing judgment in the amount of $10,000 payable to Stradley. Although it bears a date of January 28, 1980, testimony of the Hales and Stradley indicate that it was not in fact signed until 1982 or 1983. According to Stradley, another document bearing the date of January 3, 1983, was signed by the Hales concurrently to secure the note. That document is entitled "assignment" and reads as follows:
"FOR VALUE RECEIVED, the undersigned do HEREBY ASSIGN, TRANSFER AND SET OVER TO WALTER E. STRADLEY the sum of $10,000.00 of the proceeds received pursuant to a judgment that may be entered in a certain action pending in the United States District Court of the Northern District of Illinois, Eastern Division, Chester O. Hale and Genevieve *848 A. Hale, Plaintiffs, vs. Lula L. Ault and Russell F. Ault, et al Defendants, No. 81 C 3169, to secure a certain promissory note Dated January 28, 1980 payable to said Walter E. Stradley.
Dated at Rock Island, Illinois, this 3rd day of January, 1983.
Chester O. Hale (signature)
Genevieve A. Hale (signature)."
Although the Hales expressed some reluctance to sign the note and assignment document, they did so on Stradley's assurances that Alice Dinkle had died some time ago without acting on Stradley's prior assignment of his fees to her.
On January 6, 1984, Stradley procured a document entitled "disclaimer" from Robert Ellison, an attorney with Klockau, McCarthy, Ellison, Rinder & Hartsock, the firm that had represented Mrs. Dinkle in her 1973 suit against Stradley. This document reads as follows:
"An Assignment of fees owed Walter E. Stradley by Chester O. and Genevieve Hale was given to Alice Dinkle, which Assignment stated as follows:
`Pursuant to prior order of the Circuit Court of the Fourteenth Judicial Circuit, Rock Island County, Illinois, entered on the 25th day of February, 1976, in Cause No. 73 LM 391, Walter E. Stradley does hereby transfer and assign to Alice Dinkle all right, title and interest in and to a certain statement or claim for legal services and costs previously rendered by Walter E. Stradley to Chester O. and Genevieve Hale, R.R. #2, Taylor Ridge, Illinois, on account of Walter E. Stradley's prior representation of Hales in the trial of a cause entitled Chester O. Hale and Genevieve Hale vs. Russell Ault and Lula Ault, Warren County, Illinois, cause number 73 LM 26.
Walter E. Stradley'
Signature duly notarized.
The law firm of Klockau, McCarthy, Ellison, Rinden & Hartsock disclaims any intention of pursuing the claim against Chester O. and Genevieve Hale for fees owed to Walter E. Stradley concerning the law suit.
Dated this 6th day of January, 1984.
KLOCKAU, McCARTHY, ELLISON,
RINDEN & HARTSOCK
By Robert L. Ellison (signed)
Robert L. Ellison."
*849 No date appears of record as to when Stradley endorsed the 1982 or 1983 judgment note to Hobart; however, the record indicates the endorsement may have taken place after the disclaimer document was signed by Ellison.
Finally, although no evidence was introduced, counsel for both parties suggested during the cross-examination of defendant Chester Hale that Dinkle had reassigned Stradley's 1976 assignment of fees to the Klockau law firm to pay fees owed them by Dinkle. The record does not reveal the identity of the attorney or personal representative for Alice Dinkle's estate.
Perhaps the dearth of evidence concerning Stradley's 1976 assignment to Alice Dinkle and the aura of mystery created by the alleged misdating of documents most poignantly illustrates why the trial court erred in awarding judgment to plaintiff in this case. Neither plaintiff nor defendants had any incentive to join the estate of Alice Dinkle, since it is quite clear that the deceased Alice Dinkle was the only individual in the complex paper transactions who received a valid assignment of the fees owed Stradley by the Hales.
While it is true there was no proof of collusion adduced at trial, it is undeniable that fertile ground existed for charges of unfairness in the absence of any representation of the estate at the proceedings in this matter. Hobart herself typed up most, if not all, of the documents purporting to assign, confess judgment, reassign and disclaim the assignment of the fees owed by the Hales for Stradley's legal services. Chester Hale admitted that he knew of the assignment to Dinkle when he and his wife signed the confession of judgment note dated January 28, 1980, and the assignment document dated January 3, 1983, in 1982 or 1983. The parties were painfully aware that the estate of Dinkle may have had a superior interest in the fund at the heart of this litigation. By proceeding to trial without joining the estate, Hobart could hope to realize the full face value of defendants' judgment note. Had she joined the estate, she risked losing part or all of the $10,000, depending on the estate's ability to establish its rights to the same fund.
Similarly, the Hales were able to assert defenses to resist Hobart's claim and could hope to avoid paying the $10,000 to anyone in the absence of representation on behalf of Dinkle's estate. On the other hand, had the Hales joined the estate of Alice Dinkle, their defenses against Hobart would merely have been assumed by the estate, and the only question would have been to whom or in what proportions the $10,000 would be paid, since the Hales never denied owing $10,000 for Stradley's services.
*850 As indicated above, the only nonparty witness to testify at the trial of this matter was Walter Stradley. Stradley, like the others, cannot be said to have represented interests friendly to those of Alice Dinkle's estate. He could hope to pay off two debts from the same fund. By avoiding the estate's rights to fees owed by the Hales, Stradley could discharge his obligations to Hobart for unpaid salary as well.
Although our research has revealed no cases involving a similar scenario, we find the primary legal concepts relevant to our resolution of the issue on appeal succinctly stated in Litwin v. Timbercrest Estates, Inc. (1976), 37 Ill. App. 3d 956, 958, 347 N.E.2d 378, 379-80:
"As a general rule, an assignment is a transfer of some identifiable property, claim or right from the assignor to the assignee. (Buck v. Illinois National Bank & Trust Co., 79 Ill. App. 2d 101, 223 N.E.2d 167.) The assignment operates to transfer to the assignee all the right, title or interest of the assignor in the thing assigned. (American Sand & Gravel Co. v. Chicago Gravel Co., 184 Ill. App. 509.) It is an elementary principle of law applicable to all assignments, that they are void unless the assignor has either actually or potentially the thing which he attempts to assign. (North Chicago Street R.R. v. Ackley, 171 Ill. 100, 111, 49 N.E. 222.) In any event, the assignee can obtain no greater right or interest than that possessed by the assignor, inasmuch as one cannot convey that which he does not have. North Chicago Street R.R.; Mid-City Trust & Savings Bank v. City of Chicago, 292 Ill. App. 471, 11 N.E.2d 617."
Further guidance relevant to the facts before us is found in McHenry Hospital v. Metropolitan Life Insurance Co. (N.D. Ill., 1983), 578 F. Supp. 122, 125:
"The Hornbook rule is that the obligor, once on notice of the existence of an assignment, may not subsequently enter an accord and satisfaction to defeat the assigned rights. 4 A.L. Corbin, Corbin on Contracts § 894 (1951)."
The issue in this case is really whether the 1976 assignment to Dinkle was still valid at the time the documents were executed assigning $10,000 of the proceeds of the Federal suit to Stradley and confessing judgment in the same amount. If it was, then according to the foregoing principles of law, the assigned note upon which this suit is based was at least voidable because of Dinkle's prior and superior interest in the fund.
Plaintiff assumes three alternate positions to defeat any rights *851 that the estate of Alice Dinkle might have: (1) that Robert Ellison's disclaimer of January 6, 1984, waives the estate's rights; (2) that the 1973 judgment against Stradley had become dormant since it was not satisfied within seven years; and (3) that the estate's failure to include the assignment in its inventory effectively abandoned Dinkle's claim. We reject these positions for reasons which follow.
2 Since Robert Ellison has not been shown in the record here to be a representative of either the estate of Alice Dinkle or its beneficiaries, he had no standing to waive the estate's interest in the fees owed by Hale for Stradley's services, and his "disclaimer" of January 6, 1984, cannot defeat the rights obtained by Mrs. Dinkle by the 1976 assignment. Attorney Ellison did not testify at the hearing. (No factual basis was presented to support counsel's suggestion during Hale's cross-examination that the Klockau law firm had obtained a reassignment of Stradley's assignment from Mrs. Dinkle prior to her death.) If such were the case, certainly the estate had an interest in ascertaining its rights in the suit initiated by Hobart for the same fund.
3 Secondly, the trial court's 1976 order resulting in Stradley's assignment of fees owed by the Hales satisfied Mrs. Dinkle's 1973 judgment to the extent that the fees Stradley had earned in the Ault case were adequate to do so. Since the 1973 judgment was satisfied within three years, the seven-year limitation period alluded to by plaintiff (Ill. Rev. Stat. 1983, ch. 110, par. 12-108(a)) cannot debar the estate from claiming its rights based on the 1976 assignment. Although the record contains mention of a 1980 petition to revive judgment, which apparently was answered by Hobart's attorney on behalf of Stradley and not thereafter acted upon by Dinkle, it is not at all clear that this action, or inaction as the case may be, was indicative of Mrs. Dinkle's intent to abandon her interest in the 1976 assignment. Since the written instrument could be acted upon at any time within 10 years (Ill. Rev. Stat. 1983, ch. 110, par. 13-206), it cannot be seriously argued that Dinkle's failure to pursue the 1980 action debarred her estate from claiming an interest in the fund when this suit was brought in 1984.
4 We find no merit in plaintiff's third contention that the estate's failure to inventory the assignment among the estate's assets constitutes an abandonment of its interest. No representative of the estate, so far as the record on appeal reveals, was even given notice that the sum of $10,000 had been determined as the amount of fees owing to Stradley from his services on the Ault case, or that a fund from which the fees could be paid had come into existence. Although *852 the Hales' confession of judgment note is dated January 28, 1980, over a year before Alice Dinkle died, all of the witnesses who testified at trial in this cause admitted that the date was false. In fact, the note was not signed until 1982 or 1983. Furthermore, it is abundantly clear that the fund from which the $10,000 was to be paid did not come into existence until 1982 or 1983, at the earliest. The lawsuit from which the fees were to be generated was still in the discovery stage when Stradley appeared for his deposition in 1982 or 1983 and secured the Hales' assignment and note. The 1982 or 1983 assignment and note were void or at least voidable, since the Hales, as assignors, had knowledge of Stradley's prior assignment of his fees to Alice Dinkle. The instruments furnish evidence of the amount of fees due for Stradley's legal services on the Ault case, but could not confer a renewed interest in Stradley absent a cancellation, reassignment or other renunciation of interest in the fees by a representative of Alice Dinkle's estate, which, as we have hereinabove indicated, was not done.
Although this case must be remanded, we choose to address a final matter which undoubtedly would otherwise inspire renewed dispute in the trial court.
The question of whether $10,000 represented only fees earned by Stradley in 1972 and 1973 while representing the Hales in their suit against the Aults or whether the amount included payment for some services thereafter was raised in the trial court. The court found that the entire sum was subject to the 1976 assignment executed as satisfaction of Alice Dinkle's claim against Stradley. The testimony and evidence of record supports the conclusion that Stradley's fees, as determined in 1982 or 1983, represented the amount due for legal services performed by him during the Ault litigation in Warren County in 1972 and 1973. Neither party in this appeal has embraced this factual finding in their arguments to this court; however, because their positions are not friendly to the interests of Alice Dinkle's estate, we observe simply that the trial court's conclusion on this issue is not contrary to the manifest weight of the evidence and need not be relitigated on remand.
Since none of the persons who testified in the instant suit represented the interests of the estate of Alice Dinkle, who, as we have indicated, held the sole legitimate interest to the fees via the 1976 assignment from Stradley, the trial court had a duty to direct that the estate be made a party pursuant to section 2-406(a) of the Code of Civil Procedure (Ill. Rev. Stat. 1983, ch. 110, par. 2-406(a)).
Accordingly, we reverse the judgment of the circuit court of Rock *853 Island County and remand this cause with directions to join the estate of Alice Dinkle and to conduct a new trial pursuant to the views expressed herein.
Reversed and remanded with directions.
STOUDER and WOMBACHER, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1663758/ | 819 S.W.2d 578 (1991)
Raymond SHADE, Appellant,
v.
CITY OF DALLAS, Appellee.
No. 05-90-01394-CV.
Court of Appeals of Texas, Dallas.
October 2, 1991.
*580 David R. Weiner, Dallas, for appellant.
Robert J. Davis, Dallas, for appellee.
Before ROWE, WHITTINGTON, and CHAPMAN, JJ.
OPINION
CHAPMAN, Justice.
Raymond Shade (Shade) appeals from a summary judgment rendered in favor of the City of Dallas (the City). In two points of error, he contends that the trial court erred in granting the City's motion for summary judgment and in denying his motion for partial summary judgment. We reverse and remand.
FACTS
This case involves sewage backup into a home. Shade built his home in Dallas, Texas, after the City's main sewer line was already in place. Shade connected his private sewer line into the City's main for service. Shade experienced sewage backup into his home in 1975 and again in the early 1980's. A third incident occurred in March 1988 and is the subject of this suit. At that time, Shade's wife discovered that the sewer had backed up and was flooding the house. Raw sewage flowed from the bathrooms into the rest of the house. The City found ten gallons of grease in its line.
In his affidavit, Shade stated that he experienced lingering odor and mold growth throughout the home. Shade eventually closed the business he was operating out of his home because of the problems with the house. Shade attempted to repair the damage himself and stated that he experienced frustration and mental anguish because he had to live with the situation. Shade sued the City alleging (1) negligence, (2) nuisance, and (3) unconstitutional taking of his property.
STANDARD OF REVIEW
The rules to be followed by an appellate court in reviewing a summary judgment were set forth by the Supreme Court in Nixon v. Mr. Property Management Co., 690 S.W.2d 546 (Tex.1985). They are as follows:
(1) The movant for summary judgment has the burden of showing there is no genuine issue of material fact and that it is entitled to judgment as a matter of law.
(2) In deciding whether or not there is a disputed material fact issue precluding summary judgment, evidence favorable to the non-movant will be taken as true.
(3) Every reasonable inference must be indulged in favor of the non-movant and any doubts resolved in its favor.
Nixon, 690 S.W.2d at 548-49. The question on appeal, as well as in the trial court, is not whether the summary judgment proof raises fact issues with reference to the essential elements of a plaintiff's claim or cause of action, but is whether the summary judgment proof establishes, as a matter of law, that there is no genuine issue of fact as to one or more of the essential elements of the plaintiff's cause of action. Gibbs v. General Motors Corp., 450 S.W.2d *581 827, 828 (Tex.1970). A summary judgment for the defendant disposing of the entire case is proper only if, as a matter of law, the plaintiff cannot succeed upon any theory pleaded. Delgado v. Burns, 656 S.W.2d 428, 429 (Tex.1983). When a defendant moves for summary judgment based on an affirmative defense, such as sovereign immunity, the burden is to prove conclusively all elements of the affirmative defense as a matter of law so that there is no issue of material fact. Montgomery v. Kennedy, 669 S.W.2d 309, 310-11 (Tex.1984).
NUISANCE
In his first point of error, Shade contends that the trial court erred in granting the City's motion for summary judgment. The City moved for summary judgment solely on the ground of governmental immunity. Shade contends that governmental immunity does not apply in nuisance cases and that he has properly pleaded nuisance.
The operation and maintenance of a sanitary sewage system by a city is a governmental function. Steele v. City of El Paso, 417 S.W.2d 923, 924 (Tex.Civ. App.El Paso 1967, writ ref'd n.r.e.). A municipality is liable for the creation or maintenance of a nuisance in the course of the non-negligent performance of a governmental function. Goteher v. City ofFarmersville, 137 Tex. 12, 151 S.W.2d 565, 566 (1941). If a nuisance is caused by the negligent performance of a governmental function, then a city is protected from liability because of governmental immunity. City of Texarkana v. Taylor, 490 S.W.2d 191, 194 (Tex.App.Texarkana 1972, writ ref'd n.r.e.). Merely pleading that an alleged condition constitutes a nuisance is not sufficient for recovery under a nuisance theory. City of Uvalde v. Crow, 713 S.W.2d 154, 156 (Tex.App.Texarkana 1986, writ ref'd n.r.e.); Steele, 417 S.W.2d at 923.
To be classified as a nuisance within the exception to governmental immunity, the condition must, in some way, constitute an unlawful invasion of property or the rights of others, beyond that arising merely from its negligent or improper use. Goteher, 151 S.W.2d at 566; Crow, 713 S.W.2d at 156; Stein v. Highland Park Independent School Dist, 540 S.W.2d 551, 553 (Tex.Civ.App.Texarkana 1976, writ ref'd n.r.e.). Some courts have stated that the invasion of rights contemplated by nuisance law "must be inherent in the thing or condition itself, beyond that arising merely from its negligent or improper use." Stein, 540 S.W.2d at 553; see also Jones v. City of Dallas, 451 S.W.2d 271, 274 (Tex. Civ.App.Dallas 1970, writ ref'd n.r.e.).
In its motion for summary judgment, the City pleaded that the summary judgment evidence established conclusively that Shade failed to state a cause of action for which the City could be held liable. The City pleaded that it had no liability as a matter of law and that the doctrine of sovereign immunity precluded Shade from recovery. In his response, Shade pleaded that the City failed to show that there is a lack of genuine issues of material fact. Shade contended that there is nothing contained in the City's pleadings that would affirmatively negate his right to recovery.
The summary judgment evidence shows that Gary Morgan, the City's Assistant Manager of Waste Water Collection, testified in his deposition that there is no evidence that a City employee caused the flooding of Shade's home. He testified that grease and roots had blocked the sewer lines, causing the backup into Shade's home. He agreed that this is "something that happens routinely in the operation of sewer lines" and that this kind of blockage is "something that is almost inherent in the operation of a sewer line." In his deposition, Shade testified that someone working to clear the sewer lines told him that, where an eight-inch sewer line entered an eighteen-inch line, "the line was put in too low." The man told him that "the line is too low where it goes in. If there is any debris or slow down in the main line, it will back up and cause a juncture at that point [b]ecause it drops in the bottom of the line, instead of up in the middle ... [sic]." Shade testified that one worker told him this when the workers were replacing or raising up the line where the problem had occurred.
*582 The City has failed in its burden to show as a matter of law that Shade's nuisance claim is barred under the doctrine of governmental immunity. There exists a question of fact about whether the problem was caused by the City's negligence or whether the condition is inherent in the sewer system itself. The City was not entitled to summary judgment on this cause of action.
NEGLIGENCE
Shade's second theory for recovery is negligence. While engaged in the governmental function of constructing, operating, and maintaining its sewer system, the City enjoys sovereign immunity for its negligent acts, except to the extent that the Tort Claims Act waives that immunity. Parr Golf, Inc. v. City of Cedar Hill, 718 S.W.2d 46, 47 (Tex.App.Dallas 1986, no writ). The Texas Tort Claims Act provides for recovery of personal injury damages resulting from the negligence of a governmental unit. Tex.Civ.Prac. & Rem.Code Ann. § 101.021(2) (Vernon 1986). If the City were found to be negligent, Shade could recover mental anguish damages.[1]Brown & Root, Inc. v. City of Cities Mun. Util. Dist, 721 S.W.2d 881, 884-85 (Tex. App.Houston [1st Dist.] 1986, no writ). Shade would not be able to recover property damages under his negligence claim. See § 101.021(2). The summary judgment evidence from the City, Morgan's deposition testimony, is that there is no evidence that a City employee caused the flooding of Shade's home. However, Shade's summary judgment evidence that a City worker said that the sewer line was put in too low raises a fact issue concerning the City's negligence. Since the City has failed to prove as a matter of law that the sewer backup was not caused by the negligence of the City, there exists a question of material fact concerning whether the City was negligent in the operation of the sewer system.
The City has argued, in its brief in support of its motion for summary judgment, that cities are immune from liability caused by overflow of sewage into homes, citing Callaway v. City of Odessa, 602 S.W.2d 330 (Tex.App.El Paso 1980, no writ); City of Texarkana v. Taylor, 490 S.W.2d 191 (Tex.Civ.App.Texarkana 1972, writ ref'd n.r.e.) and Rowe v. City of Temple, 510 S.W.2d 173 (Tex.App.Beaumont 1974, no writ). In Callaway, an obstruction in the sewer pipe caused sewage backup into the Callaway's home. The Callaways pleaded that a broken piece of sewer pipe caused the obstruction and that the city's maintenance or failure to maintain the defect had existed long enough for it to be a nuisance. The court overruled the Callaway's point of error, apparently holding that there was nothing inherently dangerous in the sewer system beyond that arising from negligence in its use or maintenance. See Callaway, 602 S.W.2d at 333. Therefore, because there was no inherent problem with the sewer and because negligence of the city was involved, the Callaways were prevented from recovering. In Taylor, a problem in the sanitary sewer system caused sewage backup into the Taylor's residence. The Taylors sued the city on a nuisance theory. The court noted the confusion in the state of the law on nuisance. Taylor, 490 S.W.2d at 193. The court stated that a municipality is liable for creation of a nuisance in non-negligence situations. Taylor, 490 S.W.2d at 194. Because the jury found that the city was negligent in the maintenance and operation of the sewer system, the court affirmed the judgment rendered that the Taylors take nothing. Taylor, 490 S.W.2d at 194. In Rowe, the court said: It is clear that plaintiff relies upon negligence of the city employees in his effort to establish a nuisance. It was his theory, and his testimony, that some unidentified employee of the City disconnected his out fall line and that this negligence proximately caused his damage. Rowe, 510 S.W.2d at 174. These cases do not establish, as the City apparently contends, that cities are immune from liability from all damages caused by all backup and overflow of sewage into homes. Rather, cities are afforded such immunity only *583 where negligence is involved and only for property damages. The City argues that Shade cannot recover personal injury damages for mental anguish because these damages were not raised in Shade's response to the City's motion for summary judgment, citing City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671, 678-79 (Tex.1979). Shade, in his petition, pleaded mental anguish damages. The City did not move for summary judgment on the ground that Shade suffered no damages. Therefore, Shade was not required to respond to the motion and allege and offer proof of damages. See Gibbs, 450 S.W.2d at 828. The City was not entitled to summary judgment on this cause of action.
UNCONSTITUTIONAL TAKING
Shade asserts that the flooding of his home constituted a "taking" of his property under article I, section 17 of the Texas Constitution, which states as follows:
No person's property shall be taken, damaged or destroyed for or applied to public use without adequate compensation being made unless by the consent of such person; ....
Tex. Const, art. I, § 17. A litigant may recover under article I, section 17 of the Texas Constitution by establishing a nuisance. City of Abilene v. Downs, 367 S.W.2d 153, 159 (Tex.1963). When proof of a nuisance is established, the Texas Supreme Court recognizes an exception to the doctrine of governmental immunity. Steele v. City of Houston, 603 S.W.2d 786, 791 (Tex.1980). However, recovery under section 17 is not allowed where the damage in connection with a public structure was based on some act of negligence such as the negligent acts of an employee. Ivey v. City of Temple, 415 S.W.2d 542, 543 (Tex. Civ.App.Austin 1967, writ ref'd n.r.e.). The Texas Supreme Court has stated that the test under article I, section 17 is whether "the State intentionally perform[ed] certain acts in the exercise of its lawful authority... for public use which resulted in the taking or damaging of plaintiffs' property, and which acts were the proximate cause of the taking or damaging of such property." State v. Hale, 136 Tex. 29, 146 S.W.2d 731, 736 (1941). The City moved for summary judgment alleging that it has no liability as a matter of law because of sovereign immunity. The City would not be liable for a "taking" if its acts involved negligence. See Steele, 603 S.W.2d at 791. The City moved for summary judgment solely on the ground of governmental immunity. The City failed to establish, as a matter of law, that it was negligent, and, therefore, immune from liability for its acts. Thus, the City was not entitled to summary judgment on that ground.
The City contends, on appeal, that the taking was neither (1) intentional, (2) for public use, nor (3) repeated and continuous, citing Durden v. City of Grand Prairie, 626 S.W.2d 345 (Tex.AppFort Worth 1982, writ ref'd n.r.e.) and Abbott v. City of Kaufman, 111 S.W.2d 927 (Tex.App.Tyler 1986, writ dism'd). The City did not move for summary judgment on those grounds, however. The sole ground on which it moved for summary judgment was governmental immunity. Although it raised these other grounds in a brief in support of the motion, we hold that this is not sufficient. A brief in support is not a motion, answer, or response as contemplated by rule 166a. The City's motion does not incorporate the brief, and the trial court's judgment does not state that the brief was considered. The right to summary judgment exists only where there is compliance with the rule. Rozsa v. Jenkinson, 754 S.W.2d 507, 509 (Tex.App.San Antonio 1988, no writ). Because these grounds were not contained in the City's motion, we hold that summary judgment was improper if granted on those grounds. See Black v. Victoria Lloyds Ins. Co., 797 S.W.2d 20, 27 (Tex.1990).
The City has failed in its burden to show, as a matter of law, that Shade's claims are barred under the doctrine of governmental immunity. Shade has pleaded facts sufficient to constitute a cause of action for the type of nuisance coming within the exception to the rule of immunity, for unconstitutional taking of property, and for negligence. Summary judgment was improper unless Shade's claim was defeated by some *584 other overriding defense. No other defense was pleaded by the City. For the reasons stated, we sustain Shade's first point of error and hold that it was error to grant the City's motion for summary judgment.
SHADE'S MOTION
In his second point of error, Shade contends that the trial court erred in failing to grant his motion for summary judgment. When both parties move for summary judgment, each must carry its own burden, and neither can prevail because of the failure of the other to discharge its burden. The Atrium v. Kenwin Shops of Crockett, 666 S.W.2d 315, 318 (Tex.App.Houston [14th Dist.] 1984, writ ref'd n.r.e.). When one motion is granted and the other is denied, all questions presented to the trial court may be considered on appeal, including whether the losing party's motion should have been granted. See Jones v. Strauss, 745 S.W.2d 898, 900 (Tex.1988).
As movant, Shade had the burden to establish each element of his cause of action as a matter of law. See Brooks v. Sherry Lane Nat'I Bank, 788 S.W.2d 874, 876 (Tex.App.Dallas 1990, no writ). Shade contends that he established a cause of action for nuisance as a matter of law. However, as we stated earlier, there was evidence that the sewer backup was caused by a sewer line being put in too low and also evidence that it was caused by normal use of the sewer. We hold that Shade has failed to establish his nuisance cause of action as a matter of law. We overrule Shade's second point of error.
We reverse the judgment of the trial court and remand the cause for proceedings consistent with this opinion.
NOTES
[1] Shade has pleaded personal injury damages due to the sewer backup. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1846948/ | 219 B.R. 402 (1998)
In re Paul William ORSO, Debtor.
Bankruptcy No. 94-11491.
United States Bankruptcy Court, M.D. Louisiana.
March 23, 1998.
*403 *404 *405 *406 Derren S. Johnson, Baton Rouge, LA, for Debtor.
George L. Clauer, III, Baton Rouge, LA, for Valerie Canfield.
Martin A. Schott, Baton Rouge, LA, Chapter 7 Panel Trustee of Bankruptcy Estate.
RULING
LOUIS M. PHILLIPS, Bankruptcy Judge.
Now before the court is the objection of Valerie Canfield, formerly known as Valerie Canfield Orso ("Canfield"), to the claim of exemption of Paul William Orso (the "Debtor") under La. R.S. 22:647 (1995) of the proceeds of annuities (the "Annuities") issued in accordance with § 130 of the Internal Revenue Code and pursuant to a structured tort settlement (the "Tort Settlement"), as compensation for personal injury damages sustained by the Debtor.
This court has original jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(a). Pursuant to 28 U.S.C. § 157(b)(2)(A), this is a proceeding over which the court has authority to issue a final order.
Resolution of Canfield's objection requires that this court decide, pursuant to 11 U.S.C. § 522(b)(2)(A), the domicile of the debtor during the 180 days prior to the petition date (or where the debtor had been domiciled for the longest portion of the period), as there is a dispute over whether the debtor was domiciled in Alabama or Louisiana.[1] For reasons set forth below, the court finds that the debtor was, prior to the bankruptcy petition date, a domiciliary of the state of Louisiana.
Secondly, the court must, in light of the domicile finding, determine whether the Fifth Circuit case, Matter of Young, 806 F.2d 1303 (5th Cir.1987),[2] is controlling authority which dictates the outcome requested by the objector, that the debtor's rights in, to, and upon the "annuities" and the payments thereunder are not properly claimable as exempt under Louisiana law. As will be shown, the court concludes that Young is inapplicable to this proceeding, and that upon analysis of the Louisiana state law of exemption of annuities (along the way, the court takes a look at Young and finds, to its satisfaction, that it does not correctly state Louisiana law on the issue of annuities and exemptions and that a future panel of the court, if faced with the same question raised in Young, would be bound to reverse it), Orso's rights in, to, and upon the annuities at issue are exempt.
For reasons set forth below, the court dismisses the objection of Canfield.
FINDINGS OF FACT
A. The Accident and the Tort Settlement.
On November 11, 1986, only a few months after he married Canfield, the Debtor's life as he, his wife, his family, and his friends knew it was forever and inexorably altered. As a result of a closed head injury which he sustained in a car accident on that date, the Debtor was permanently and severely brain damaged, rendering him mildly mentally retarded *407 with an I.Q. of less than seventy and unable to function as he had prior to the accident.
On November 9, 1987, the Debtor and Canfield filed suit against Cook Construction Company, Inc. of Mississippi ("Cook Construction") and its insurer, Liberty Mutual Insurance Company ("Liberty Mutual"); C & S General Contractors, Ltd. ("C & S") and its insurer, American General Fire & Casualty Company ("American General"); and the State of Louisiana (the "State"), in the Eighteenth Judicial District Court in the Parish of West Baton Rouge, Louisiana, seeking damages as a result of the injuries the Debtor had sustained in the car accident. On September 29, 1989, the Debtor and Canfield entered into a Consent Judgment with the defendants (the "Consent Judgment").
Pursuant to the Consent Judgment, Cook Construction and its insurer, Liberty Mutual, agreed to pay to Canfield the sum of $39,375.00, upon the signing of the judgment, and agreed to pay to the Debtor the sum of $240,846.45, upon the signing of the judgment, plus $1,180.00 per month to the Debtor for life, commencing October 15, 1989, with thirty years of these monthly payments guaranteed to him or to his estate should he die before thirty years. In addition, C & S and its insurer, American General, agreed to pay to Canfield the sum of $3,750.00, and to pay to the Debtor the sum of $41,704.55, upon the signing of the judgment. Lastly, the State agreed to pay to Canfield the sum of $19,375.00, upon the signing of the judgment, and to the Debtor the sum of $55,625.00 upon the signing of the judgment, plus the sum of $850.00 monthly for life, with thirty years of these payments being guaranteed to the Debtor or to his estate should he die before thirty years, with such payments commencing on October 26, 1989. In addition, the State agreed to pay the following lump sum payments to the Debtor: $ 5,000 to be paid at the end of five years from entry of the Consent Judgment; $15,000 at the end of ten years from entry of the Consent Judgment; $20,000 at the end of fifteen years from entry of the Consent Judgment; and $35,000 at the end of twenty years from entry of the Consent Judgment.
The parties to the Tort Settlement also agreed that all funds paid to the Debtor and to Canfield were their respective separate property. In return for receiving these sums of money, the Debtor and Canfield agreed to dismiss with prejudice all their claims against the defendants.
Also on September 29, 1989, the Debtor, Cook Construction, and Liberty Mutual entered into a Settlement and Release and Satisfaction of Consent Judgment (the "Liberty Mutual Agreement"). The Liberty Mutual Agreement provided that Cook Construction or Liberty Mutual had the right to:
. . . fund Periodic Payments [to the Debtor] by purchasing a "qualified funding asset," within the meaning of Section 130(d) of the Internal Revenue Code, in the form of an annuity policy from Liberty Life Assurance Company of Boston [the "Liberty Mutual Annuity"]. All rights of ownership and control of such annuity policy shall be vested in the Defendant [Cook Construction] or the Insurer [Liberty Mutual].
Moreover, in the Liberty Mutual Annuity "Policy Information," the Debtor is designated as the "Annuitant," if living; otherwise, all payments made pursuant to the Annuity are to be made to the following beneficiaries: to Janice Elaine Orso, the Debtor's mother, and Adam Paul Orso, the Debtor's father, equally, if living, and if not living, to the survivor, if any, and otherwise to the Estate of the last surviving payee. In addition, regarding a change of beneficiary of the Liberty Mutual Annuity, this Annuity states:
You [the Owner Cook Construction or Liberty Mutual] may change the Owner or any Beneficiary by written request during the Annuitant's lifetime.
Therefore, the Debtor is the annuitant, but not the owner, under the Liberty Mutual Annuity, and lacks the authority to change beneficiaries under this Annuity. As the recipient of the proceeds of the Liberty Mutual Annuity, the Debtor, however, is the payee under this Annuity.
Like Cook Construction, the State also desired to purchase an annuity to fund its obligation to the Debtor, and on September *408 22, 1989, the Debtor, Canfield, and the State entered into a Receipt and Release and Indemnity Agreement (the "State Agreement"), pursuant to which the State assigned its obligation to make future periodic payments to Conseco Annuity Guaranty Company ("Conseco"), which agreed to fund this obligation by purchasing an annuity from Western National Life Insurance Company ("Western National").
The State Agreement provides that Conseco is the Owner of the Western National Annuity and that Conseco has the sole authority to change beneficiaries:
Conseco, as owner of the annuity contract purchased to fund the periodic payment obligation [to the Debtor], possesses the sole authority to designate a change of beneficiary, but in no event shall the request of the payee be unreasonably withheld or denied.
Moreover, in the Western National Annuity, the Debtor is the "Measuring Life," i.e., the Annuitant. The Western National Annuity does not appear to designate beneficiaries.
B. The Separation and its Aftermath.
Shortly after the Tort Settlement of the lawsuit, the Debtor's and Canfield's marriage apparently deteriorated, and on May 21, 1990, a Judgment of Separation was entered in the family court of East Baton Rouge Parish, Louisiana. On that same date, the Debtor and Canfield entered into a Settlement of Community Agreement pursuant to which the debtor agreed to transfer to Canfield the house in which they had lived in Baton Rouge, all household furniture, furnishings, appliances, and equipment located in the house, all of Canfield's personal clothing and belongings, including personal jewelry, and a 1988 Ford Mustang. Canfield agreed to assume the $72,000 note covering the house, and to be responsible for paying off the balances on two credit cards.
In addition, the Debtor and Canfield acknowledged that any funds they had received pursuant to the Tort Settlement of the lawsuit were separate funds, and Canfield relinquished any interest she might have in the Debtor's social security benefits, Navy benefits, and a 1990 Jeep Wrangler. Finally, the Debtor agreed to pay to Canfield $1,250 per month through May, 1994, if Canfield remained enrolled as a student, either part-time or full-time, at Louisiana State University ("LSU") until that date, but that if Canfield dropped out of LSU, then the monthly payments would decrease to $1,000 per month, with all payments terminating in May, 1994. However, if Canfield dropped out of LSU and then re-enrolled, the monthly payments again would increase to $1,250 per month for all such months that she was enrolled as an LSU student, until May, 1994, when all payments would terminate.
Canfield apparently could not make the mortgage payments on the house, so on August 31, 1990, the Debtor and Canfield executed an Amended Settlement of Community Agreement, which amended the prior Settlement of Community Agreement only in that the Debtor agreed to pay to Canfield $15,000, to be paid in fifteen monthly installments of $1,000, unless the community home was sold during that time, in which case the full balance of the $15,000 would be due. In return, Canfield transferred the house to the Debtor, who assumed the $72,000 note thereon.
On January 18, 1991, in the family court of East Baton Rouge Parish, Louisiana, it was ordered that the Debtor and Canfield be granted a divorce.
C. The Interdiction and the Medical Findings.
On May 23, 1992, the Debtor's mother, Janice Orso, filed in the 19th Judicial District Court of East Baton Rouge Parish, Louisiana, a petition of interdiction, seeking to have herself appointed as the Debtor's curator and the Debtor's father, Adam Orso, as undercurator. The reasons given for this petition were as follows:
Paul William Orso experiences difficulties in a number of areas as a result of a closed head trauma and, as a result, has language related deficiencies, significant motor coordination problems, visual tracking difficulties, difficulty with various language functions, including speech, verbal abstractions, vocabulary skills and some common sense understanding of social norms and customs, motor slowing and impaired visual *409 coordination. Furthermore, Paul William Orso is in constant need of assistance to deal with his personal matters and to manage his affairs due to the brain damage which resulted from his automobile accident.
On May 29, 1992, the 19th Judicial District Court of East Baton Rouge Parish ordered that the Debtor's mother be appointed the Debtor's provisional curator pending the appointment of the curator, that the Debtor's father be appointed the provisional undercurator of the Debtor, and that Dr. Charles Tessier, a general practitioner, be appointed as an expert to examine the Debtor.
On June 22, 1992, Dr. Tessier examined the Debtor, and in a letter to the 19th Judicial District Court dated August 18, 1992, made the following findings regarding the Debtor:
This patient [was] first presented to my office on 6/22/92, as being referred to my clinic for evaluation as to this patient's mental capacities and being able to handle financial needs appropriately. When this patient [was] presented to our office, he could not relate to our medical staff as to why he was here when he first checked in. His affect was very inappropriate in the waiting room and he seemed to be very fidgety, pacing, walking in and out of the building prior to my examining him. When asked to come back, the patient spoke with me and, initially, could not relate to me why he was there. He rambled on about many things. He couldn't relate that he was in an accident in 1986[[3]] in which he was in a coma that he thinks [was] for approximately two months. . . . During the office exam, he is noted to have definite speech defects, equilibrium problems in not being able to stand straight at all times and had a positive Romberg test confirming his disequilibrium problems. . . . My impression [was] that he had multiple neurological deficits status post neurological injury. . . . I could definitely see that the patient is unable to handle financial type planning and would be extremely irresponsible concerning large sums of money or important decisions. . . . Again it is my opinion that this patient is definitely unable to perform financial planning and, evidenced by my own physical exam, . . . the multiple evidences of medical data . . . support this. I think it would be disastrous to have this patient controlling any large sums of money or being able to [conduct] financial planning for himself.
In this letter, Dr. Tessier also agreed with the findings of the LSU Speech and Hearing Clinic, which found that the Debtor has a language disorder, as was evidenced by his lack of comprehension of reading passages and by his failure to comprehend many simple words and complex sentences, resulting in many incorrect answers to questions. In his deposition, Dr. Tessier also testified that the Debtor had:
. . . flight of ideas. . . . [I]t was kind of hard to pin him down as to exactly why he was here and his past, but all of a sudden, he told [m]e, he said he had been having a driver's license since 1987. He stated his ex-wife wanted sixty thousand dollars more from him. . . . He told me that he was not able to deal with big financial type things and he said, such as his mother and father having to sell his house for him.[4] Dr. Tessier also agreed with the findings of Dr. Richard Strobach, who examined the Debtor on April 15, 1992, for disability determination services. Dr. Strobach, a psychiatrist, had diagnosed the Debtor with "organic brain syndrome," which means that the Debtor had a depressed mood due to brain damage, and that as a result of the organic brain syndrome, the Debtor had suffered and would continue to suffer a moderately severe to severe restriction of daily activities due to his regression, irritability, poor impulse control, depression, decreased concentrating ability, decreased recent and remote memory ability, mild mental retardation, decreased abstracting ability, and decreased judgment. Specifically, the symptoms of organic brain *410 syndrome that the Debtor suffers are apathy, anarchy, sadness, sleep disturbances, withdrawal, agitation, and irritability.
Moreover, Dr. Strobach found that because of the Debtor's organic brain syndrome, the Debtor had suffered moderate deterioration of his personal habits, his ability to relate to others had been impaired from a moderately severe to a severe degree, and that since the accident the Debtor had been barely able to function without structure. In addition, Dr. Strobach found that because the accident "probably cost him I.Q. points,"[5] the Debtor was mildly mentally retarded, with an I.Q. of below 70, and that the Debtor was "cognitively pretty seriously impaired."[6]
In describing the Debtor's impairment, Dr. Strobach stated:
Well, anyone with a concentration deficit combined with a recent memory deficit is going to have problems understanding anything that is said to them or anything that they might read, because as they read it they're going to be forgetting what they read, or as they're listening they're going to forget what they hear. As I recall, he [the Debtor] didn't remember three objects after three minutes, which most people can do. So in a span of three minutes, he's forgotten what has been said to him. You can imagine the confusion that would create. . . . This type of damage . . . tends to be static. These people will sustain brain damage from an accident, there is loss of some type of central nervous system functioning, they may get back some abilities like hand movements or arm movements or this sort of thing, but the cognitive losses tend to be static, meaning that if you test them one year after the trauma, two years, three years, et cetera, you just keep doing serial testing, the losses remain exactly the same. There's no further deterioration, there is no further gain.[7]
With regard to whether, in his opinion, the Debtor could manage his own funds, Dr. Strobach found that the Debtor was not capable of controlling his own funds:
. . . because of the [Debtor's] concentration and memory deficits. . . . It would be very easy for him to give money away and not remember what he did with it, or pay a bill, go back and pay that same bill again, have somebody come up to him and say, "Oh, you owe me $50. Don't you remember yesterday I gave it to you," and he wouldn't remember, this sort of thing.[8]
Regarding the Debtor's prognosis, Dr. Strobach stated:
It's poor. There is just no chance he will ever recover or with our technology now. If he lives into the next century and somehow there's a miracle in advancement, maybe things could change, but as the state of the art exists now, the prognosis is terrible.[9]
Finally, Dr. Strobach gave the following compelling analogy regarding the seriousness of the Debtor's impairment:
There's a couple of ways I can give you examples here. In his case he does not have recent memory ability, he doesn't his remote memory is impaired, and he has very poor concentrating ability. He would resemble somebody, say, in a moderate state of Alzheimer's, if you were comparing him against somebody you want to look at in another diagnostic category. He would resemble a child who's mentally retarded . . . [to a] [m]ild degree. He would resemble somebody who, if you give him three things to do, perhaps does one and forgets the other two. If I can take an inanimate object and describe and make a comparison, it's a little bit easier. If you have a T.V. with a cable and you get 50 channels, and I can go into your T.V. and play with that circuit and do some damage so that now you're only getting ten channels, and that those ten channels, a couple of them are fuzzy and one of them you don't get sound on, that would be the kind of brain *411 damage he would have. And this would be a good example too, because your T.V. set would stay that way forever. You would always be without those channels, and those channels that were impaired of the remaining ten would always look the same way.[10]
Dr. Strobach admitted that "some of these channels are not impaired at all,"[11] so that the Debtor could form sentences and words. If given time, he could express himself; he could follow a routine; if given directions and ample time to get there, with enough time to get lost and back on track, the Debtor could find his way some place; dress himself; brush his teeth; feed himself; and do the simple routine things of living. However, Dr. Strobach noted that the Debtor's situation was worse than that of someone who is mildly mentally retarded:
This [mild mental retardation] is different for Mr. Orso's situation. A retarded person is kind of globally subdued cerebrally, okay, across the board. In Mr. Orso's case he is brain damaged in specific areas, and in terms of comprehension or concentration, if you tap into those areas of deficits, there is going to be no functioning or understanding, as opposed to the mentally retarded person who, as you tap into the different areas, there is some level of comprehension and understanding. . . . In his case he has specific losses, and when you tap into those there's going to be no comprehension.[12]
On September 3, 1992, the court tried the interdiction suit, ordered the limited interdiction of the Debtor, and ordered that the Debtor's mother be appointed limited curatrix of the Debtor, so that she could "handle all contractual, financial and business matters related to Paul William Orso, including the payment of his living expenses, management of any monies to which he is entitled, approval of any contractual agreements which may be entered into on his behalf." On September 8, 1992, the court issued Letters of Curatorship to the Debtor's mother, certifying that she had been appointed as limited curatrix of the Debtor.
D. Canfield's judgment against the Debtor, the Debtor's move to Alabama, and the Debtor's Chapter 7 bankruptcy petition.
The Debtor did not pay Canfield the sums due to her under the Amended Settlement of Community Agreement, and on December 19, 1990, Canfield filed a Petition to Enforce Contractual Obligation in the 19th Judicial District Court in the Parish of East Baton Rouge, Louisiana. In her petition, Canfield stated that the Debtor had not paid her the sums due under the Amended Settlement of Community Agreement since September 1990, and requested the total sum of $5,000.00, representing arrearages, and also any sums that might become due and owing after December 19, 1990.
On January 25, 1994, the Debtor's mother filed a motion to substitute herself, as the Debtor's limited Curatrix, in Canfield's suit against the Debtor. On January 25, 1994, the district court issued oral reasons for judgment in the amount of $48,000 in arrearages in favor of Canfield, and further ordered the Debtor to pay Canfield $1,000 per month for the succeeding five months. The district court signed a judgment to this effect on July 7, 1994.[13]
Sometime in March, 1994, the Debtor "moved" to Mobile, Alabama. In Mobile, the Debtor leased an apartment, opened a credit union account with a small balance for living expenses, obtained an Alabama driver's license, *412 changed his vehicle registration to Alabama, and transferred his car insurance to Alabama.
The Debtor's mother stated in the § 341(a) creditor's meeting that he moved to Mobile "to be around his grandparents and stuff like that and to get away from Baton Rouge and the memories."[14] Nevertheless, the Debtor quickly learned that his hope of spending time with his relatives was quite unrealistic, for they were busy working and had little time to spend with him during the week.
Every weekend, the Debtor always returned to Baton Rouge to stay with the few people who remained in his significantly altered life: his then-girlfriend Tammy, with whom he maintained a relationship until the latter part of 1994; his brother; and his childhood buddy Wayne, who still lives in the same neighborhood in which the Debtor grew up. In addition, the Debtor continued to visit his optometrist in Louisiana and to seek medical care from the V.A. Hospital in Louisiana, to do his laundry in Baton Rouge, to maintain his Baton Rouge bank accounts, to have his prized truck repaired in Louisiana, to keep his Louisiana voter registration, to maintain his Baton Rouge health club membership, and to keep his East Baton Rouge Parish Library card.
On December 24, 1994, the Debtor filed a Chapter 7 petition in the United States Bankruptcy Court for the Middle District of Louisiana. On March 24, 1995, Canfield filed a Proof of Claim with this court, in the amount of $53,494.92, pursuant to the July 7, 1994, Judgment issued by the 19th Judicial District Court in the Parish of East Baton Rouge, Louisiana. On March 27, 1995, the court entered an Order denying Canfield's motion for relief from automatic stay, denying Canfield's motion requesting the court to abstain from exercising jurisdiction over the case, and denying Canfield's motion to dismiss.
In March or April, 1995, the Debtor "moved" back to Baton Rouge, Louisiana, and on April 24, 1995, he registered his vehicle in Louisiana and obtained a Louisiana driver's license.
CONCLUSIONS OF LAW; DISCUSSION
I. The Debtor's Domicile And Choice of Law.
A. The Role of Domicile Within the Scheme of Exemptions as set forth in § 522 of the Bankruptcy Code.
The filing of a bankruptcy case creates an estate which is composed of all of the debtor's property, as defined in § 541, including "all legal or equitable interests of the debtor in property as of the commencement of the case."[15] Section 522, however, permits a debtor to exempt property from the bankruptcy estate by claiming certain exemptions authorized by that section.
Section 522 provides the debtor with a choice between two exemption schemes, but federalizes a state's right to limit a debtor's choice. Under § 522(b),[16] the debtor may choose the federal exemptions set forth in subsection (d),[17] unless the state law that is *413 applicable to the debtor pursuant to § 522(b)(2)(A) specifically does not so authorize. Alternatively, the debtor may choose under § 522(b)(2)(A) the exemptions to which the debtor is entitled under other federal law and state or local law which is applicable on the date of the filing of the petition at the place in which the debtor's domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place.
The power of a state to "opt out" of the federal exemptions available to the debtor under § 522(d), thereby requiring debtors to choose a state's exemption scheme (and concomitantly allowing the debtor to obtain the benefits of "other federal law" than of § 522(d)) is limited by these domicile requirements. For a state to exert its influence over a debtor, therefore, the state law (or local law, if applicable) must be applicable by virtue of the debtor's domicile during the 180 days before bankruptcy.
Pursuant to § 522(b)(2)(A), both Alabama and Louisiana have chosen to "opt out" of the federal exemptions established in § 522.[18] The debtor's domicile during the 180 days before bankruptcy must be determined in order to determine the applicable law concerning the exemption of annuities. For reasons that will become immediately clear, Canfield initially argues that Alabama was Orso's domicile during the relevant time frame; Orso argues Louisiana.
1. The Difference Between Alabama and Louisiana Exemption Law.
The domicile issue arises because there is a significant difference between Alabama and Louisiana exemption law regarding the extent to which annuities are exempt from seizure (and therefore can be exempted within a bankruptcy case).
Alabama exemption law limits the total exemption of benefits payable to an annuitant to $250.00 per month, although the court may give due regard to the reasonable requirements of the judgment debtor and his family, if they are dependent upon him. Section 27-14-32 of the Alabama Code provides:
(a) The benefits, rights, privileges and options which under any annuity contract, heretofore or hereafter issued, are due or prospectively due the annuitant shall not be subject to execution, nor shall the annuitant be compelled to exercise any such rights, powers, or options, nor shall creditors be allowed to interfere with or terminate the contract, except:
* * * * * *
*414 (2) The total exemption of benefits presently due and payable to any annuitant periodically or at stated times under all annuity contracts under which he is an annuitant shall not at any time exceed $250.00 per month for the length of time represented by such installments, and such periodic payments in excess of $ 250.00 per month shall be subject to garnishment; (3) If the total benefits presently due and payable to any annuitant under all annuity contracts under which he is an annuitant shall at any time exceed payment at the rate of $ 250.00 per month, then the court may order such annuitant to pay to a judgment creditor or apply on the judgment, in installments, such portion of such excess benefits as to the court may appear just and proper, after due regard for the reasonable requirements of the judgment debtor and his family, if dependent upon him, as well as any payments required to be made by the annuitant to other creditors under prior court orders.
Alabama Code § 27-13-32 (1975).[19]
In contrast, Louisiana exemption law places no monetary cap on the exemption of proceeds of annuities, and provides as follows:
* * * * * *
B. The lawful beneficiary, assignee, or payee, including the annuitant's estate, of an annuity contract, heretofore or hereafter effected, shall be entitled to the proceeds and avails of the contract against the creditors and representatives of the annuitant or the person effecting the contract, or the estate of either, and against the heirs and legatees of either such person, saving the rights of forced heirs, and such proceeds and avails shall also be exempt from all liability for any debt of such beneficiary, payee, or assignee or estate, existing at the time the proceeds or avails are made available for his own use.
La. R.S. 22:647(B) (1995).
2. Is The Debtor's Domicile Louisiana or Alabama for Purposes of 11 U.S.C. § 522(b)(2)(A)?
As mentioned, § 522(b)(2)(A) sets forth a choice-of-law provision with regard to the applicable exemption law, providing that the state law applicable to the debtor's domicile can require utilization of state exemptions.
As the court makes the domicile determination, we bear in mind the following words of Justice Stone: "When one intends the facts to which the law attaches consequences, he must abide the consequences whether intended or not."[20] The conflict between Alabama and Louisiana exemption law well illustrates this admonition, at least with regard to the Debtor's choice of domicile.
A federal court must apply the choice-of-law rules of the state in which the court sits. Klaxon v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 1021, 85 L. Ed. 1477 (1941) (holding that the Erie doctrine applies to choice-of-law rules).[21] Accordingly, this court will apply Louisiana choice-of-law rules to decide whether Alabama law or Louisiana law determines the Debtor's domicile in the 180-day period immediately preceding the filing of his bankruptcy petition on December 24, 1994.[22]
According to Article 3518 of the Louisiana Civil Code, this court must look to the law of the forum, Louisiana, to determine the domicile of the Debtor, for the purposes of § 522(b)(2)(A). Article 3518 of the Louisiana Civil Code provides:
For the purposes of this Book [Book IV Conflict of Laws], the domicile of a person *415 is determined in accordance with the law of this state [Louisiana].
La. Civ.Code art. 3518 (1995).[23]
a. Determination of "Domicile."
Article 38 of the Louisiana Civil Code defines "domicile" as:
The domicile of each citizen is in the parish wherein he has his principal establishment. The principal establishment is that in which he makes his habitual residence; if he resides alternately in several places, and nearly as much in one as in another, and has not declared his intention in the manner hereafter prescribed, any one of the said places where he resides may be considered as his principal establishment, at the option of the persons whose interests are thereby affected.
La. Civ.Code art. 38 (1995).[24]
The term "domicile" is defined as the relation which the law creates between an individual and a particular locality or country, and is the legal conception of "home," being derived from the Latin domus, which means "home" or "dwelling house."[25] Domicile is the place where a person has his fixed, true, and permanent home and principle establishment, and to which, whenever he is absent, he has the intention of returning.[26]
b. Change of Domicile.
With regard to changing one's domicile, Articles 41-43 of the Louisiana Civil Code provide:
Art. 41. Change of domicile; residence and intent
A change of domicile from one parish to another is produced by the act of residing in another parish, combined with the intention of making one's principal establishment there.
Art. 42. Proof of intent by written declaration
This intention is provide by an express declaration of it before the recorders of the parishes, from which and to which he shall intend to remove. This declaration is made in writing, is signed by the party making it, and registered by the recorder.
Art. 43. Proof of intent in absence of declaration
In case this declaration is not made, the proof of this intention shall depend upon circumstances.
La. Civ.Code arts. 41-43 (1995).
One's domicile of origin continues *416 until another is acquired.[27] The party seeking to show a change of domicile must overcome the legal presumption that domicile has not been changed, by positive and satisfactory proof of the establishment of a new domicile as a matter of fact, with the intent to remain and to abandon the former domicile.[28] As long as reasonable doubt regarding a change of domicile remains, the presumption is not rebutted.[29] Moreover, the presumption that whenever a person has acquired a residence elsewhere and actually resides there, that is his domicile, is applicable where there is only one obvious place of residence, and where the person, while maintaining some ties with his former domicile, does not actually have a place to reside there.[30]
The determination of domicile involves proof of intent as well as of objective facts.[31] Intent is proven by the actual state of facts, and not what one declares them to be.[32] A "floating intention" to return to one's previous residence at some indefinite future date does not establish that one had the intent to retain one's domicile in the former state.[33] Rather, residence in fact and the intention to make the place of residence one's home, as disclosed by the entire course of conduct, are essential elements of domicile.[34]
Though facts exist which establish that Orso took up a temporary partial residence in Alabama, it is clear to this court that Canfield has not met her burden of proving that the Debtor changed his domicile from Louisiana to Alabama in March of 1994 or thereafter. She has failed to establish that during the 180-day period prior to the Debtor's filing of bankruptcy, Orso was domiciled in Alabama, or domiciled there for longer than at any other location.
Prior to his move to Alabama, the Debtor's domicile clearly was Baton Rouge, Louisiana, as this was the parish in which he had his "principal establishment," i.e., that in which he made his "habitual residence."[35] Indeed, although the Debtor was born in Alabama, he lived most of his life and grew up in Louisiana, and most, if not all, of his major life events occurred in Louisiana: he went to school in Louisiana, he made significant friendships in Louisiana, he married in Louisiana, the accident which permanently damaged his brain and caused him to be unable to formulate future plans or direction occurred in Louisiana, he separated and divorced in Louisiana, and, for a number of years (until just after the state court's ruling in favor of Canfield), he (along with help from a childhood friend, his mother, and (finally) a girlfriend) attempted to construct a world within which he could operate.
By moving to Alabama, did the Debtor change his domicile from Louisiana to Alabama with the intent to make his principal establishment in Alabama?[36] Because the Debtor did not expressly declare that he intended to make his principal establishment in Alabama,[37] the proof of his intent depends upon circumstances.[38]
The circumstances of the Debtor's life prior to the filing of this bankruptcy case clearly militate against this court finding that by moving to Alabama the Debtor changed his *417 domicile from Louisiana to Alabama, with the intent to make Alabama his principal establishment. Given the Debtor's I.Q. of less than seventy, his inability to concentrate, his memory deficits, and his "flight of ideas," it is impossible for this court to find that the Debtor actually intended to change his domicile to Alabama. As the Debtor's mother testified at the hearing on this matter, and as Dr. Tessier testified in his deposition,[39] since the accident the Debtor has been "flighty," choosing one day to do one thing, and the next day to do something entirely different, with seemingly no continuity to the Debtor's thoughts. Such characteristic "flight of ideas" hardly evidences a studied intention on the part of the Debtor to abandon Louisiana, the only "home" he ever had known, especially given the Debtor's virtual inability to function without structure.
Moreover, as the Debtor's mother stated in the § 341(a) meeting[40] and at trial, the Debtor moved to Alabama to visit his relatives and to escape from painful memories brought to the surface by the judicial proceedings against him in state court. This comment suggests that the Debtor's motive for moving was the remote hope that life would be better in Alabama that Alabama would be, as it were, a "vacation" from the stark realities of his shattered life in Louisiana, rather than an intention permanently to leave Louisiana and to establish his principal residence in Alabama. Moreover, that the Debtor opened a bank account in Alabama, obtained an Alabama driver's license, and transferred his car registration and car insurance to Alabama, evidences not an intent to establish his principal establishment in Alabama, but rather merely evidences that in order to function responsibly in that state and to pay his bills, he needed ready access to money and liability coverage for his vehicle.
The Debtor's continuing contacts with Louisiana also prove that he did not intend to make his principal establishment in Alabama. The Debtor returned to Louisiana every weekend to visit and stay with his childhood buddy Wayne, who lived in the very neighborhood in which the Debtor grew up. The Debtor occasionally dated women in Louisiana,[41] and finally settled into a serious, or at least longer lasting, relationship with a woman named Tammy, who he visited and with whom he stayed on the weekends. The Debtor also visited his brother every weekend in Louisiana, but his brother worked such long hours that it was difficult for the Debtor to spend much time with him. In addition, the Debtor received all medical care in Louisiana, got his glasses fixed at his old optometrist's office, continued to maintain his truck in Louisiana at the old mechanic's station, and maintained all his major bank accounts in Louisiana. In other words, the Debtor continued to return to Louisiana because the Debtor never really intended to leave Louisiana Louisiana was what he knew as "home," and given his inordinate need for structured daily living, he was desperate to cling to what was familiar to him in a world which, post-accident, suddenly was confusing, frustrating, and frightening. Finally, we cannot lose sight of the fact of the 1992 interdiction proceeding, which was conducted by a Louisiana state court and which has never been modified. The debtor's mother is domiciled in Louisiana. Clearly, the bulk of the Debtor's assets has always been in Louisiana.
There is no evidence of any sort of evolutionary process going on from which the *418 court could conclude that the Debtor was taking steps to obtain a more permanent connection with Alabama. As the court stated at the close of evidence presented on the domicile issue, what the Debtor came back to every weekend (and more) was a place five doors down from where he grew up, to a woman he might want to marry someday, to the familiar providers of services for himself and his possessions. He was like someone going off to college without the college. The drive to Alabama and the drive back was a structured activity he could do so was going to the gym in Alabama. Other than going to the gym, paying a few bills, visiting with family some, what the Debtor did in Alabama was get ready to come home (probably without much thought as to what might happen when Wayne might not have the time for him). The home that Louisiana presented afforded the Debtor the opportunity to venture out, but like a fly on a string.
For these reasons, the court therefore finds that the Debtor's domicile was Louisiana during the entirety of the 180 days prior to bankruptcy for the purpose of determining the exemption law applicable to him.[42]
II. The Louisiana Law of Exemptions And Annuities; Is Matter of Young The Haven Canfield Thinks It Is?
Canfield, who probably would have been satisfied with a finding of Alabama domicile (given the annuity limitation), now urges the application of Matter of Young, 806 F.2d 1303 (5th Cir.1987) as the controlling interpretation of the Louisiana exemption of annuity payments. She thereby urges that Louisiana is an even more fruitful ground for the objection, as the consequence of Louisiana domicile is no exemption at all. The Canfield position can be simply stated. Young involved payment of money generated by a tort settlement to a payee by means of annuity policies. Orso involves the payment of money generated by a tort settlement to a payee by means of annuity policies. Both payees subsequently filed chapter 7 bankruptcy. The Fifth Circuit concluded that the payments due Young were "actually" in the nature of "accounts receivable" as opposed to annuity payments or policies (having courageously pierced through the veil of what the annuity policies actually were to achieve the more important knowledge of the true nature of the annuity policies, that is that they were or represented accounts receivable, and were therefore (here is the step that this slow-footed court missed) clearly not exempt).[43] Likewise, says Canfield, the annuity policies, or the payments due therefrom to Orso, are clearly not exempt.
A. Matter of Young; An Analysis
1. The Decision
Matter of Young, 806 F.2d 1303 (5th Cir. 1987), is cited by Canfield for the proposition that the Debtor's Tort Settlement proceeds are merely accounts receivable which are property of the estate and are not exempt under La. R.S. 22:647. Indeed, Matter of Young, at first blush, might appear to be a formidable obstacle for the Debtor to overcome.
In Young, a Chapter 7 case, the Fifth Circuit affirmed the district and bankruptcy courts' judgments that attorney's fees payable to the injured party's attorney in the form of an annuity were not exempt under La. R.S. 22:647 and 20:33[44] as proceeds from *419 an "annuity," but remained part of the bankruptcy estate. The Court in Young was dealing with an underlying agreement on the part of the settling defendant (and, one supposes, the plaintiff-client) that the portion of the settlement amount payable as a contingency fee by the plaintiff-client to the attorney be carved out of the structured settlement to the client and, instead of flowing through an annuity to the injured party, be separately paid, through a separate annuity, to the lawyer. Rather than take the fee as a lump sum percentage of the client's award, the attorney became the annuitant under an annuity policy issued by a company of the settling party's choosing (probably subject to approval by the hurt person and lawyer). From the defendant's perspective there was no difference between the lawyer and the hurt person, though the initial obligor to the lawyer was the client whom the lawyer had represented in the prosecution of the personal injury action and settlement of the claim.
Subsequently the lawyer filed a Chapter 7 bankruptcy case. He then claimed his right to payments under the annuity contract as exempt under La. R.S. 30:33 and La. R.S. 22:647.[45]
With the only reference to Louisiana law being the reprinting of the exemption statutes at issue, the Court posed as its question: "Whether the present payments are exempt under 20:33 and/or 22:647 as proceeds from an `annuity' or are part of the estate as accounts receivable." 806 F.2d at 1306. Citing Black's Law Dictionary and a Texas bankruptcy case,[46] the Court concluded that "While the payments . . . are, strictly speaking, an `annuity', they are also accounts receivable." Id. Without revealing the source of its commission to do so, the Court designated its quest: "We must, therefore, pierce the veil of this arrangement to determine its true nature."[47]Id.
The Court relied upon a Pennsylvania state court decision. Commonwealth v. Beisel, 338 Pa. 519, 13 A.2d 419 (1940), as providing "some instructive words on the difference between an annuity and an account receivable." Id. at 1306. The Pennsylvania court is cited as concluding:
Its determining characteristic is that the annuitant has an interest only in the payments themselves and not in any principal fund or source from which they may be derived. The purchaser of an annuity surrenders *420 all right and title in and to the money he pays for it. On the other hand, where a debtor agrees to pay his creditor in installments at regular intervals, the debt or principal sum itself is due to the creditor although payable only in the manner agreed upon; it is an account receivable in which he has a property interest. Therefore, installment payments of a debt, or payments of interest on a debt, do not constitute an annuity.
Young, 806 F.2d at 1307. The court grounds its reliance upon the Beisel case upon its inability "to find any court that has identified the exact point at which an account receivable becomes an annuity deserving exemption under Louisiana law." Id. at 1306.[48]
On the basis of the characterization of its quest, the court, embracing the lower court's delineation between accounts receivable and annuities, has no difficulty reaching its conclusion.
It is the substance of the arrangement rather than the label affixed to it that determines whether the payments are exempt under the Louisiana statutes as proceeds from an annuity, or accounts receivable, and part of the bankruptcy estate.[49] The $155,196 that made up the principal of the "annuity" was part of the payment Debtor received for services rendered . . . in 1982. Young [the debtor], as creditor, elected to receive his fees in regular monthly payments over a fourteen year period. It appears, then, that the monthly payments made to Young represent nothing more than installment payments on debts to cover the attorney's fees owed [him]. Yet, if Young had accepted the total fees in 1982, paid taxes on the income and then purchased an annuity policy with the remainder, the payments clearly would be exempt, since he would have transferred his interest in the funds as consideration for the periodic payments he was to receive. The important factual distinction between this scenario and the present case was explained by the bankruptcy court in this case as follows:
In the present case, the Underwriters paid a single premium of $155,196.00 to Sullivan in consideration for the annuity policy which would pay the Underwriter's monthly obligation of $1,875.00 to the Debtor. The Debtor, however, retains an interest in the principal debt which the Underwriters owe him in monthly installments..... Thus the Debtor has an interest in not just the payments under the annuity, but in a larger sense also in the principal fund or source the installment debt owed him by the Underwriters just as if he had left the money with the Underwriters and agreed to accept payment in installments. [Emphasis added.]
Under the tort settlement agreement, as each monthly payment is made it reduces by a proportionate amount the underwriters' debt. Young, therefore, retains a right against the underwriters to the remaining principal until the debt is fully extinguished after fourteen years. Retaining such a right renders the so-called annuity, in substance, nothing more than an account receivable, and not exempt from the bankruptcy estate.
Id. at 1306-07 (emphasis supplied). According to the Court, then, because the debtor retained a claim against the party who had purchased the annuity policy, to the extent of the amounts yet unpaid by the annuity, the annuity and payments thereunder lose their character as annuity policy payments, and *421 are truly to be seen as accounts receivable, and thereby as non-exempt. (Also, the Court reveals something of an axe to grind with Young, for limiting his tax liability through the payment stream and at the same time, attempting to convert exempt property to non-exempt property (perhaps worth noting is the fact that two years elapsed between the issuance of the annuity policy and the chapter 7 petition)).
So, let's back up. The Court can find no case from Louisiana determining the point at which an annuity becomes an account receivable, so it must look to the decisions of other state courts. However, the only authority for the proposition that a contract which is an annuity might also and therefore in reality be an account receivable is this one other state court decision. This is circular bootstrapping: The Louisiana inquiry is the question of whether an annuity is in reality an account receivable ("It is the substance of the arrangement rather than the label affixed to it that determines whether the payments are exempt under the Louisiana statutes as proceeds from an annuity, or accounts receivable, and part of the bankruptcy estate." 806 F.2d at 1306), because a Pennsylvania state court has invoked such an inquiry in the past. Because there are no Louisiana cases that have opined on the question that the Court says they should have (because a Pennsylvania court did once), resort must be had, therefore, to the Pennsylvania case for its analytical approach in determining whether an annuity is an account receivable, because Louisiana law, having been directed by Pennsylvania law as to the ultimate question, must yield to Pennsylvania law as to how to get to the answer.
In other words, the Fifth Circuit, whose charge is the interpretation of Louisiana state law, concludes that the Louisiana courts would look to Pennsylvania law as providing the ultimate question and the reasoning by which it is answered, notwithstanding that not one Louisiana case or statute relating to statutory interpretation is mentioned, no Louisiana case or statute concerning the state law of exemptions is mentioned (except that the statutes upon which the debtor claimed his exemption are quoted, to show the statutory basis for the claimed exemption), and finally, no Louisiana case or statute is cited that would provide authority for the proposition that any other state law should be resorted to.[50]
It gets worse. When one looks behind the cited language of the Pennsylvania state case and obtains understanding of just what the court in Pennsylvania was dealing with, the Fifth Circuit's resort to the case for any reason whatsoever (much less as the be-all and end-all on a Louisiana exemption question) is inexplicable.
2. Commonwealth v. Beisel, The Law Of Pennsylvania, And Even A Few More Pennsylvania State Court Cases (A Lesson In Irrelevance)
The Beisel case involved two life insurance policies, the proceeds from which were payable to the decedent's beneficiary. Rather than obtaining the proceeds of the policies in lump sums, the beneficiary exercised an option contained within the policies to be paid a monthly payment, together with a contractual interest factor, until the proceeds were exhausted. The Secretary of Revenue assessed the payments under the State Personal Property Tax Act as taxable annuities. 338 Pa. at 520, 13 A.2d 419. The Court of Common Pleas reversed the Secretary, and the Commonwealth of Pennsylvania appealed to the Supreme Court. On appeal, the Commonwealth argued that, in substance, the agreement by the beneficiary to allow the insurance companies to hold the proceeds subject to the monthly obligations constituted annuity contracts, taxable under state law. The Supreme Court denied this interpretation within the context of the question of whether the contracts were taxable annuities under state law.
Under the state law at issue, Pa.Stat.Ann. 72 § 3244, a millage tax was imposed upon:
All personal property of the classes hereinafter enumerated, owned, held or possessed by any resident, whether such *422 personal property be owned, held or possessed by such resident in his own right, or as active trustee, agent, attorney-in-fact, or by any resident as trustee, agent or attorney-in-fact, jointly with one or more trustees, agents or attorneys-in-fact domiciled in another state where such personal property is held and managed in this Commonwealth, or in any other capacity, . . . and where such resident is entitled to receive all or any party of the income therefrom, is hereby made taxable, annually, for State purposes, at the rate of four mills on each dollar of the value thereof, as of a date to be fixed annually, in the manner provided in section five of this act, and no failure to assess or return the same shall discharge such owner or holder thereof from liability therefor; that is to say, All mortgages; all moneys owing by solvent debtors, whether by promissory note, or penal or single bill, bond or judgment; all articles of agreement and accounts bearing interest; . . . all other moneyed capital owing to individual citizens of the State; and the principal value of all annuities . . .
(footnotes omitted; emphasis supplied).
Though not expressly stated, the Secretary of Revenue was attempting to tax the proceeds of the policies under the "principal value of all annuities" section of the statute. The problem, from the Secretary of Revenue's standpoint, was that the proceeds of insurance policies were not subject to the tax imposed, 338 Pa. at 521, 13 A.2d 419, so it was apparently important to classify the proceeds differently, as payments from annuities, for example, from a taxability standpoint.[51] The court differs with the Commonwealth's analysis, which was that leaving the proceeds with the company was tantamount to having contracted for an annuity after the insurance proceeds became payable. The court focuses upon the absence of an annuity contract.
But the difference between the hypothetical and the actual case is that, in the former, defendant transfers her interest in and to the funds as consideration for the periodic payments which she is purchasing, whereas, in the latter, she retains ownership of, and interest in, the principal of the debt which is due to her, just as if she had left the money with the companies on deposit, and she merely agrees to accept payment thereof in installments. The form of the transaction is of vital importance in determining whether its intention is to pass title to the fund or obligation from which the payments emerge.
Id. at 522, 13 A.2d 419 (emphasis supplied).[52] Therefore, the question of whether the proceeds from the life insurance policies, voluntarily left on deposit with the insurance company, became the principal value of an annuity for personal property tax purposes was answered "no."
This conclusion is grounded upon the decision, Keiper v. United Zion Home, 108 Pa.Super. 28, 164 A. 367 (1933). In Keiper, the court was faced with a claim by Keiper's estate to funds "placed" by him with the United Zion Home, pursuant to a "paper" providing for semi-annual payments (of interest) to Keiper and the right of Keiper to *423 receive lump sum payments as needed for his maintenance. As of his death, the home had retained the $2,000 that Keiper had claimed entitlement to, and claimed that Keiper had retained no interest in the principal fund. The court concluded that the "paper" did not meet the form requirements of a gift, and was therefore faced with the argument that the "paper" constituted an annuity which had substituted for Keiper's ownership in the fund the obligation to make the called-for payments (only) during Keiper's lifetime.
The Court concludes that the "paper" was not an annuity contract, as follows:
It cannot be construed, from its terms, as an annuity contract, under which Keiper parted with the title and property in the money paid by him, in consideration of the semiannual payments made to him by the home during his life; for it contains no words evidencing an intention on Keiper's part to transfer the property in the fund to the home; and the conduct of the parties negatived any such construction, for, when he demanded $500 back out of the $2,500 which the home had received from him, it was paid, a course wholly inconsistent with an annuity contract.
164 A. at 368. The Keiper court interprets the contract, and provides the Beisel court with the fundamental component of the makeup of the annuity, under Pennsylvania law: purchase of an annuity contract causes the transfer of ownership or control of property in return for property of a different type, the right to receive the payments as provided by the annuity contract. The original sum of money is no longer under the control of the prior owner of the money, as the annuity issuer now has complete dominion and control over the dollars previously owned and controlled by the annuity purchaser, but owes the annuity payment stream as set forth in the contract. For the Beisel court, the difference is no more than the difference between having a right to a fund left on deposit, but agreeing to receive payments of that fund according to agreed terms (which would not constitute a transfer of the fund itself, the entirety of which would, for example, be payable to the payee's estate upon death). The court is suggesting only that the annuity is a particular type of property, like cash is particular, like a house is particular, like a promissory note is particular; and as such, for taxation purposes (and for residual ownership of the original fund purposes see Keiper), the matter of form is controlling.
However, for what it's worth, the Beisel court went on to find that the taxpayer had won a Pyrrhic victory, finding that the beneficiary's agreement to leave the money with the companies, subject to an interest and monthly payment obligation, changed the nature of the life insurance proceeds to an "account bearing interest", ". . . an investment which is taxable, irrespective of the source from which they were derived." Beisel, 338 Pa. at 523, 13 A.2d 419. Essentially, the distinction discerned by the court amounted to a distinction without difference, for the result the fund was taxable would have been the same, regardless of classification of the arrangement as an annuity or account bearing interest.[53] The court reversed the lower court, reinstating the assessments.
Subsequently, an apologetic Pennsylvania Supreme Court relied on Beisel to affirm an assessment made upon a fund of life insurance proceeds left with the insurance company pursuant to an option contained within the policy. In Commonwealth v. Myers, 348 Pa. 90, 34 A.2d 69 (1943), the court all but bemoaned the prior decision ("We have read with great interest the brief of appellant, and if this matter had not been passed upon by our Supreme Court, we might have been inclined to take the view and vacated." 348 Pa. at 92, 34 A.2d 69). In Myers the court makes clear that the import of classification as an account bearing interest in great measure interferes with the inner workings of policies of insurance, which had obtained a *424 newfound importance among the populace ("life insurance has grown very rapidly and today nearly every individual carries insurance in some form." 348 Pa. at 94, 34 A.2d 69). Notwithstanding the deleterious effect upon the interests of beneficiaries, the court was compelled, it said, to follow Beisel.
So, from all of this, what is to be gleaned? In the State of Pennsylvania, as of 1940, the Secretary of Revenue had attempted, on a number of occasions, to impose personal property millage tax on insurance proceeds held by insurance companies under the tax statute providing for such millage tax upon the principal value of annuities. As evidenced by the cited unpublished opinions (see footnote 51), these attempts had failed in situations where the beneficiary had no option under the policies but to "leave the money up" and receive a payment stream, with interest, from the company which had issued the policies and owed the proceeds. If this type of policy appears to the modernized to be a bit arcane, it was. The Pennsylvania courts recognize that the life insurance industry is emerging from its embryonic beginnings.
In connection with what might have been a new wrinkle within the developing insurance industry, policies providing that proceeds payable upon death could be voluntarily left with the insurance company to be paid out over time with interest. The Pennsylvania Secretary of Revenue attempted to carve an exception to the "proceeds are insurance if the beneficiary has no choice" line of cases. The Secretary, sticking with what had not up until then worked, asserted the "taxable as an annuity" approach upon proceeds voluntarily left with the insurance company, again to no avail. Why? As mentioned, there was no annuity contract. The proceeds dealt with in the Beisel case were not both an annuity and an account bearing interest. The Supreme Court, because of the framing of the issue by the Secretary, was faced with the question of whether otherwise non-taxable insurance proceeds changed in nature to a taxable annuity solely on the basis of this newly devised arrangement and without an annuity contract.
What is clear from the Beisel decision is that the question of whether the payment obligation constituted an annuity was a question that the court did not need to address. By finding that the obligation of the insurance company was taxable as an account bearing interest the court determined that, the entire value of the account formed the value upon which the tax was computed, which should not have differed from the capitalized value of the payment stream if found to be an annuity. The effect of the Beisel and Myers decisions was to limit the types of insurance proceeds payment methods that could escape personal property taxation.
The issue was whether a personal property tax statute was applicable to a fund of money. Three choices: (1) no, because the proceeds were payable as a policy of insurance; (2) yes, because the proceeds changed in nature, without an annuity contract, to an annuity; (3) yes, because the proceeds constituted an investment which constituted (under the Pennsylvania personal property tax statute) "an account bearing interest." The inquiry was made necessary because there was no annuity contract and because of prior jurisprudence allowing insurance proceeds to retain their tax-exempt status.
There was no issue of exemption from seizure. There was no statute approximating in scope or purpose the Louisiana exemption statute. There was no definition of account receivable referred to by the court other than the general proposition that an account receivable is an obligation to pay a debt so that the insurance company obligation could be classified as "an account bearing interest" under the personal property tax statute. Finally, given the outcome of Beisel, there is no doubt that the distinction between an annuity and account bearing interest was unnecessarily drawn; notwithstanding losing on the annuity issue, the Secretary's assessments were upheld on the basis of the account classification. Therefore, the annuity discussion is clearly dicta, unnecessarily explored by the Pennsylvania Supreme Court (probably as an attempt to prod the legislature into amendment, as Myers most certainly was).
*425 That nothing about the issues raised and dealt with by Beisel was mentioned by the Young court is difficult to understand. More difficult to understand is how a federal circuit court, in interpreting Louisiana law, can develop its charge from a Pennsylvania state court which dealt with an utterly unrelated issue in a way that it did not have to. Even more difficult to understand is how the Young court could fail to consider at least worth of mention Louisiana exemptions law, the Louisiana definition of accounts receivable, Louisiana law on the modes of basic statutory interpretation, and Louisiana law on annuities (though, as will be shown, such a focus would definitely have impeded progress on its charge).
Further, and maybe this means finally, it is this court's opinion that in addition to the court having erroneously resorted to Beisel for its ultimate conclusion and the analysis by which it could be reached, the Fifth Circuit misread Beisel as standing for the proposition that an annuity contract will not be an annuity contract if it also constitutes an account receivable. In fact, the Beisel court, if it was dealing with an actual annuity contract, would never ask the question. Because both would be taxable, one can envision the Beisel court concluding as follows: This Court need not determine whether the annuity contract loses its status as an annuity if it is also an account receivable (or is the mechanism by which an account receivable is to be paid), as either the annuity or the account bearing interest is subject to the millage tax under the statute. However, the conclusion that without an annuity contract an account receivable does not turn into an annuity does not require the conclusion that an annuity contract loses its status as an annuity because it is utilized as the method to satisfy an account receivable. What Beisel does say is that to constitute an annuity contract, the purchaser must transfer certain dollars (or a fund) to the seller (of the annuity contract) as a consideration for the annuity contract. If this is done, the purchaser transfers ownership of these dollars (or fund) and gets something else the annuity contract.
Without the purchase and sale of the annuity contract, the principal fund (the exact dollars) remains the property of the erstwhile "purchaser." Upon the death of the "purchaser" (more properly referred to as investor or depositor), the fund itself is part of the decedent's estate. See Keiper. Remarkably, as we shall see, this requirement that a fund be transferred to the seller of the annuity is a requirement of the Louisiana annuity. Clearly, under both Beisel and Louisiana law, if the purchaser of the annuity is someone different from the annuitant (or beneficiary, or payee), and the basis for the purchase of the annuity is an obligation to the annuitant (or beneficiary, or payee), the annuity does not evaporate or lose its nature on this account.
3. Back To Young For Further Discussion
We see that the Fifth Circuit assumes the need to choose between annuity and account receivable, though it can point to no Louisiana law directing it thus. If we look to the District Court opinion, 64 B.R. 611 (E.D.La. 1986), we see the source of this misconception. The District Court unabashedly makes up the inquiry. "However, before the court can determine whether the payments are subject to exemption under sec. 20:33 and/or sec. 22:647, it has to be determined whether the monthly payments are annuity payments or account receivables." 64 B.R. at 614. We have attempted to show that both Young courts presumed an inquiry that was not necessary. Let us go a bit further and look into the actual arrangement underlying Young to see if we can, with the Courts' own focus, set up the proper analysis.
Recall that Mr. Young was a lawyer, who chose to have his fee paid by means of an annuity policy. Now, the District Court at first blush could be seen as having found it important that Young retained his claim against his former clients in concluding that the substance of the transaction was an account receivable and not an annuity policy. "He has not relinquished his rights as a creditor to the sum owed by the Fanguys for services rendered. Therefore, since the debtor has not transferred his interest in and to the debt owed to him, the payment made in satisfaction of the debt amounts to an *426 account receivable." 64 B.R. at 615. However, closer reading of the case, and analysis of the Fifth Circuit's opinion, reveal that Young probably did not retain a claim against the former clients, but rather exchanged it for a claim against the underwriter who purchased the annuity policy by means of one lump sum payment. "Under the settlement agreement, as each monthly payment is made it reduces by a proportionate amount the underwriter's debt. Young, therefore, retains a right to the remaining principal until the debt is fully extinguished after fourteen years. Retaining such a right renders the so called annuity, in substance, nothing more than an account receivable and not exempt from the bankruptcy estate." Young, 806 F.2d at 1307.
So, the underwriter assumes the obligations of the defendants under the settlement agreement and, in accordance with the settlement agreement, purchases an annuity policy under which Young is the payee, with the underwriter being the owner of the annuity. Has Young relinquished his interest in anything? Well, it appears that Young has allowed an annuity to be purchased for him. As long as the annuity pays the sums so stated therein, Young has no recourse against anyone for the supposed debt. Both the district court and Fifth Circuit posit, bemoan, and reject the prospect of form over substance and firmly defend against capitulating to such niceties (as form).[54] However, is Young actually in any different position than if he had, himself purchased the annuity? This question can be approached from a couple of directions.
First, what if Mr. Young dies before the annuity policy pays out the payments due? His heirs do not want to wait for the remaining numbers of years and assert that, because the arrangement is nothing but an account receivable and Young is dead, the Young estate is now entitled to disregard the provisions of the annuity and be paid a lump sum equal to the remaining portion of the original purchase price of the annuity, along with an interest factor. If the annuity company will not so pay, the estate says, it will sue the underwriter (owner of the annuity) and leave the underwriter to sort out its claims, if any, against the company who issued the annuity. Based on the facts as recited, the heirs appear to lose, as what is owed is the payments as per the annuity. Can there be early resort to the underwriter? No. Resort to the client? No. What the succession gets, it appears, is the payment stream under an annuity policy (remember, the policy is owned by that underwriter), as the payment stream, itself, is what provided the value to Young. It would seem (and we will confirm this later when we look to Louisiana law) that the heirs have absolutely no right to the fund originally used to purchase the annuity. The estate's rights are limited by the policy.
Second, let us analyze what happens if the underwriter goes broke, files a liquidation under applicable state or federal law, and pays claims against it. Is there any doubt that Young dispenses with the filing of a claim against the underwriter? No. Even if a claim is filed, does Young receive anything on account of it? No. Finally, what if the annuity company quits paying, for whatever reason? It appears that Young would have at least two alternative courses of action. First, he probably has recourse against the annuity company, which, if the company has gone broke, would yield him little. However, he also has recourse against the underwriter who bought the annuity policy. His recourse is to require the underwriter either to obtain the money used to purchase the annuity and transfer it to him, or to require the underwriter to provide him a replacement for the remainder of the payment made to purchase the annuity.[55]
*427 There is another approach, that suggested by both Young Courts "Yet if Young had accepted the total fees in 1982, paid taxes on the income and then purchased an annuity policy with the remainder, the payments clearly would be exempt, since he would have transferred his interest in the funds as consideration for the periodic payments he was to receive." 806 F.2d at 1307 (citing 64 B.R. at 615). Superficially appealing. However, what the courts have done is carve out from the scope of exempt annuities any annuity purchased by an underwriter or agent on behalf of a client or annuitant, and has limited the concept of the exempt annuity to policies purchased directly by the annuitant. Why do we say this?
Think for a moment about how many annuity policies are purchased. Is it not conceivable that independent financial planners assist clients in the purchase of annuities? If so, what does the structure look like? In all likelihood, just like the Young arrangement, with minor modifications. Underwriters (the planners) discuss the various options, and if annuities are decided upon, take the client's money and with it purchase an annuity for the client. For this the planner is paid a fee by the client, and possibly also by the company issuing the annuity policy. So, the fund has gone from the client to the planner to the company issuing the annuity. Clearly, the client has relinquished control over the original dollars (known, in Young parlance, as the "fund"), as the funds have been used to purchase an annuity. Now, does the client retain any claim? What about a claim against the planner? Probably the client never thinks about this, but wouldn't it be possible that the client retains a claim against the planner, in the event the annuity issuer ceases to pay according to the policy? The planner has taken the fund, and has purchased an annuity, which is supposed to pay the client. If the issuer does not live up to the agreement, is the planner not responsible to the client to refund the fund? Maybe; maybe not, according to the arrangement.
Folding in another layer though, the Young courts are arguably saying that no payments or rights of an annuitant or beneficiary under annuity contracts will be exempt if the contract is purchased by a third person, if the third person has an obligation to the annuitant or beneficiary. We see the true limitations upon the exempt annuities imposed by the Young courts, through the use of following hypothetical illustrations:
1. Annuity purchased with client's money by an underwriter with the client as annuitant, and servicing a claim against the underwriter if the annuity company quits paying or goes broke. Not exempt, client retains claim against underwriter.
2. Husband uses community funds to purchase directly an annuity with wife as annuitant as part of agreement to partition community. Wife retains claim for one-half of community in the event annuity company fails to pay or goes broke. Not exempt; husband (and underwriter) remain liable for original claim.
3. Father purchases three annuities, one for each of his children, providing within a side agreement (with each) that, if the annuities fail to pay as required by the contracts or become insolvent, that annuitant will retain a claim against the father (and/or the father's estate) for a pro rata share of the value of the paying annuities. Not exempt. Retention of claim precludes exemption.
We need to stop here momentarily. This discussion of the incorrectness of the Young court's focus upon the claim against the Underwriter, reliance upon Beisel, indeed the four corners of its change (given that the facts included a contract found, actually, to be an annuity), is made necessary by Canfield's reliance upon it. Canfield rather joyously embraced the exclusion from coverage by (unlimited) La. R.S. 22:647(B), proclaiming that retention of a claim (any claim) against the Underwriter (Orso did under one; did not under the other) constitutes control of the fund used to purchase the annuity, as mandated by Young. However, this Court's conclusion does not require it to rule in favor of Orso by means of direct repudiation of Young, thereby requiring it to take the most frightening step of contradicting purported precedent. In fact, exclusion of the three above-mentioned examples from exempt status are not dictated by Young because the *428 claims retained are not, in reality, accounts receivable (as that term is defined within Louisiana law).[56] Recall that Young was an attorney, and the payments due under the annuities represented the payment of a preexisting claim which arose from services rendered. Therefore, the holding in Young is limited to situations wherein the claims retained by the beneficiary, payee, etc. against the underwriter are actually in the nature of claims for services rendered or goods purchased, or to claims that are "accounts receivable" as that term is defined/used in Louisiana law.
However, the Fifth Circuit's focus upon the claim, held by Young against the underwriter, makes it unclear to the world (see this proceeding, for example) whether it was the nature of the claim for services rendered, which causes it to be an account receivable of the lawyer (as the term is defined by state law) or the fact of the claim itself (recall that Beisel, upon which the Fifth Circuit relies, was not dealing with a claim that would fit the definition of account receivable under Louisiana law) that jettisoned Young's annuity from exempt status. If it is the fact of the claim, as opposed to the nature of the claim, then none of the annuities represented by the examples above could be exempt. In fact, only gratuitous annuities or self-settled annuities without any claim rights at all would qualify. In light of the unlimited exemption under the Louisiana statute, this, simply, cannot be.
What about Young? The only steps missing which distinguish Young from the foregoing examples are the initial transfer of the fund from the client to Young and the subsequent transfer from Young to the underwriter. Instead there was a constructive transfer from the client to Young and from Young to the underwriter. If these steps had actually, instead of constructively, been taken, the only difference would have been the tax consequences to Young; the residual rights against the underwriter would have looked exactly like they looked through-the-Young-looking-glass. In essence, then, the Courts have penalized Young for obtaining the tax benefit of stretching out the payment stream when the overall structure of the annuity arrangement, notwithstanding the suggestions to the contrary, is exactly like it would have been had Young received the fee in a lump sum and thereafter had an underwriter purchase the same annuity (less the taxed portion). All in all, therefore, the problem in Young was not the right against the underwriter, but the fact that the transfers, being constructive in nature, provided Young the tax advantage of not having to report the income as paid in one lump sum. For this Young was denied the exemption.
B. The Fifth Circuit Distinguishes Young By Means Of Shaky Grounds; Matter of Walden
In Matter of Walden, 12 F.3d 445 (5th Cir.1994), the Fifth Circuit purports to explain its reasoning in Young, as it struggles to find a way to distinguish it so as to be able to grant exempt status to a broader class of annuities than as suggested by Young. In Walden, the Fifth Circuit held that the creation of an annuity as a result of the tort settlement of litigation between an employer and a employee over a non-compete agreement (subsequently a Chapter 7 debtor) did not preclude the annuity from being exempt pursuant to a Texas exemption for "all money or benefits of any kind . . . to be paid or rendered to the insured or any beneficiary . . . under any plan or program of annuities in use by the employer." 12 F.3d at 449 (quoting Tex. Ins.Code art 21.22 (West Supp. 1994)). The litigation had arisen from the employment relationship and the employer's alleged breach of a noncompetition agreement, and the annuity payments represented the employer's obligations under the preexisting noncompetition agreement. The trustee, relying upon Young, had argued that the annuity was created pursuant to tort settlement of litigation and therefore was not a true "annuity," but merely an account receivable. *429 The Fifth Circuit distinguished Young on these grounds:[57]
Young is distinguishable in several respects. The most obvious distinction is that it dealt with Louisiana, not Texas, exemption statutes. Here, as noted, our interpretation is governed by Texas' well-settled policy of liberal construction. The litigation that was settled arose out of the employment relationship between GES [the employer] and Walden, including GES's alleged breach of the non-competition agreement. And, most important, the annuity payments claimed to be exempt are not "accounts receivable" for services already performed by Walden. Rather, the annuity was purchased by GES for the purpose of obtaining a release of the liens securing its continuing (future) obligation as well as to fund that obligation to pay Walden $ 4,000 per month in exchange for his continued (future) compliance with his agreement not to compete. [footnote omitted]. We conclude, therefore, that the tort settlement agreement, which resolved Walden's suit against GES and authorized GES to substitute an annuity for the collateral securing its continuing obligation under the non-competition agreement, does not preclude the annuity from being exempt under [the Texas exemption statute]. Although the substitution of the annuity for the collateral was made possible by the tort settlement agreement, the annuity payments represent GES's obligations under the pre-existing non-competition agreement, the validity of which was simply reaffirmed by the tort settlement agreement.
Walden, 12 F.3d at 449-50. Close examination of Walden, however calls into question the distinguishment analysis, revealing a Court that is most uncomfortable with either Young or Walden, as the inconsistency between the two cases precludes the Court from being comfortable with both. The Texas exemption statute is in fact limited in scope compared to the Louisiana exemption statute, requiring the annuity to be from an employer (and doubtless meant to cover retirement annuities). Even if this peculiarity is ignored, the distinguishment doesn't work. Though Walden's annuity was a reaffirmation of a non-competition agreement, clearly the annuity was, according to the Court's own words, given as collateral for the obligation under the non-competition agreement. This means that the principal obligation, the debt owed under the non-competition agreement, remained in force, secured by the annuity policy. This, of course, is but another way of saying that "as each monthly payment is made it reduces by a proportionate amount the underwriter's debt. Young (and as well, Walden), therefore, retains a right against the underwriters to the remaining principal until the debt is fully extinguished. . . ." 806 F.2d at 1307.
There can be no other conclusion. Walden is owed money (the purported distinction between debt owed for past acts and a debt owed for amounts that come due in the future is no distinction at all. While the obligation exists now, and covers future conduct, the payee is clearly not entitled to be paid the amounts due under the non-competition agreement until, on a monthly basis, he has not competed. Therefore, when each payment comes due, it is a payment on a debt for services not competing already rendered). The non-competition obligation is collateralized with an annuity. Every payment, made after a month of not competing, reduces the debt under the overall agreement. Failure of the annuity policy to pay exposes the obligor to pay the entirety of the obligation, as the collateral obligation is only ancillary to the principal obligation. As well, seen in this light, there can be no other conclusion than that the payments, due for *430 past services, are made by means of the annuity vehicle, though Walden retains control over the claim against both the other party to the non-competition agreement, and the underwriter who purchased the annuity contract for the obligor under the non-competition agreement.
In fact, then, Walden might have had even more control than Young of the claim, or fund. To have retained Walden's level of control, Young would have had to have maintained his claim against clients for the fees due in addition to the claim against the underwriter. We are not told that he did so.
The Court's holding must then rest on its observations concerning the liberalized interpretation of Texas' exemption laws, a curious distinction, since Louisiana's interpretation of its exemption laws was never discussed by the Young Court (and is not revealed in Walden, either). Had Louisiana law (any Louisiana law) been reviewed in Young or Walden, the Fifth Circuit would have seen that Louisiana case law is clear that the purpose underlying the Louisiana exemption statutes is to provide for the subsistence, welfare, and "fresh start" of the debtor, to the end that his or her family will not be destitute and so that the debtor will not become a charge on the state. Ward v. Turner, 150 B.R. 378 (E.D.La.1993), opinion after remand, 176 B.R. 424 (E.D.La.1994), appeal dismissed by Matter of Ward, 66 F.3d 322 (5th Cir.1995); In re Hendrick, 45 B.R. 965 (Bankr.M.D.La.1985). Moreover, in construing the exemption laws, the intention of the lawmakers must be carried out and given a broad and liberal interpretation conducive to the purpose of exemption, to the end that the obvious purpose of the statute not be frustrated. Young v. Geter, 185 La. 709, 170 So. 240 (La.1936), answers to certified questions conformed to, 170 So. 410 (La.App. 1936); Laurencic v. Jones, 180 So. 2d 803 (La.App. 4th Cir.1965); Mounger v. Ferrell, 11 So. 2d 56 (La.App.2d Cir.1942). Therefore, whenever a claim to exemption can be brought within the purpose and intent of the language of the statutes by a fair and reasonable interpretation, the exemption will be allowed. Young v. Geter, supra. Perhaps this is not Texas, but the primary distinction being Texas versus Louisiana does not appear to hold water.
What the Court has revealed in Walden is its discomfort with Young. We wish that instead of conjuring, it would have admitted such.
From here we move to the actual law at issue, that of Louisiana.
C. Louisiana Law on Exemptions and Annuities
1. The Statutes; Definition of "annuity" under Louisiana law.
Article 2793 of the Louisiana Civil Code defines an "annuity" as follows: "The contract of annuity is that by which one party delivers to another a sum of money, and agrees not to reclaim it so long as the receiver pays the rent agreed upon." La. Civ.Code art. 2793 (1995). Article 2794 provides: "This annuity may be either perpetual or for life." La. Civ.Code art. 2794 (1995). Article 2796 provides: "Constituted annuity[58] is essentially *431 redeemable. The parties may only agree that the same shall not be redeemed prior to a time which can not exceed ten years, or without having warned the creditor a time before, which they shall limit." La. Civ.Code art. 2796 (1995). Article 2797 provides: "The debtor of a constituted annuity may be compelled to redeem the same: 1. If he ceases fulfilling his obligation during three years. 2. If he does not give to the lender the securities promised by the contract." La. Civ.Code art. 2797 (1995). Article 2798 provides: "If the debtor should fail, or be in a state of insolvency, the capital of the constituted annuity becomes exigible; but only up to the amount at which it is rated, according to the order of contribution amongst the creditors." La. Civ.Code art. 2798 (1995).
There is no additional statutory definition, are no additional statutory explications to be found within the Louisiana statutes. Clearly, therefore, the Louisiana statutory law does not establish the distinction between an annuity and an annuity that is also an account receivable.
2. The Louisiana State Court Case Law on the Definition of Annuities
What have the Louisiana Courts and the Federal Courts interpreting Louisiana law had to say about annuities?
In Succession of Vidalat, 155 La. 1005, 99 So. 801 (1924), the Louisiana Supreme Court was faced with a claim in a succession proceeding by the ex-wife of the decedent, to which one of the primary heirs objected. The basis of the claim was a writing, executed at the time of the divorce of the decedent and claimant, whereby the ex-wife was to be paid seven dollars ($7.00) per month during the remainder of her life. Apparently the payments were made for a time, but ceased upon the remarriage of the ex-wife. Some 12 years passed before the demand. The Court threw out the claim, failing to find consideration and concluding, also, that even if a contract had existed, the rights thereunder had prescribed on the passage of 10 years from the last payment. Though no express argument is referred to, the Court adds: "Nor has the alleged obligation any of the elements that constitute the contract of annuity as defined by article 2793 of the Civil Code. There was neither property nor a sum of money turned over to Vidalat by his divorced wife, and therefore nothing upon which to base the payment of rent." Id., 99 So. at 802.
In Succession of Cotton, 172 La. 819, 135 So. 368, 370 (1931), the Louisiana Supreme Court dealt with a question of whether the terms of a will created inheritance tax consequences to be borne by the legatees. The will in question left the bulk of the testator's estate to a bank, to be held in trust for the purpose of paying to certain of the legatees payments out of the net income produced by the principal estate held by the bank. The legatees were assessed inheritance taxes based upon a valuation of the legacies according to a taxation statute then extant. According to the statute, "all property of every nature and kind included or embraced in any inheritance, legacy, or donation or gift made in contemplation of death . . ." unless exempted was subject to the tax. 135 So. at 824. The amount of the tax varied "with the . . . value of the inheritance, legacy, or donation . . ." Id. 135 So. at 823. The legatees argued that the statute was designed to apply only to physical property having a fixed value as of the death of the testator, and that the rights to receive payments was of speculative value, was only a part of income, and therefore not subject to levy. According to the court, "A right to income, to be earned, left to one by a will, is property, and therefore comes within the provisions of the statute." Id. 135 So. at 824. Further, says the Court, the statute "provides a specific method of fixing the value of a legacy or donation . . . which consists in whole or in part of an annuity. . . . The bequest of money to be earned from the whole of a testator's estate, payable monthly or quarterly for life, *432 may be regarded as an annuity." Id. (Emphasis added.)
The legatees argued that the language of Civil Code Article 2793 contemplated a different type of arrangement, and that the language of the Code provided the exclusive means of confecting an annuity. The Court, while acknowledging the argument and the definition of an annuity set forth in Article 2793, concludes: "However, this definition is, by no means, all-inclusive, and it is clear, from the context of section 23 of the act of 1921, that the legislature had no intention of being controlled by it, but used the word in a broader sense." Id. 135 So. at 370.
In Succession of Rabouin, 201 La. 227, 9 So. 2d 529 (1942), the Louisiana Supreme Court faced the question of whether contracts designated as "annuity policies" were annuities and therefore subject to the laws of forced heirship (i.e. were to be subject to the distribution limitations) or were insurance, and therefore not so subject (on the basis that the insurance proceeds payable did not arise until the death of the insured, and therefore were not to be seen as having entered the insured's estate unless payable thereto). The decedent left, among other things, two "annuity contracts" in connection with which the decedent was the annuitant, and a daughter was the beneficiary. Among the provisions of the policies was a surrender right, running in favor of the annuitant, which allowed the annuitant to surrender the annuities in return for the payment of the "cash surrender value," after the policies had been in force for at least two years (as long as the surrender was effected on or within 30 days after any payment due date). The policies contained a calculation method for determining the surrender value. 9 So.2d at 531. The court notes that there are no Louisiana state court cases on the question of whether an annuity is to be excluded from the estate as insurance, but after consulting other jurisdictions, concludes that there is a distinction between the two and that the annuity is subject to the laws of forced heirship. Perhaps foreshadowing the flight from Louisiana law we witnessed in Young, the court cites C.J.S. Annuities sec. 1, p. 1375, as authority for the proposition that "an annuity is generally understood as an agreement to pay a specified sum to the annuitant annually during life . . ." and is to be distinguished from the insurance policy as "the consideration for an annuity contract is not generally regarded as a premium and is usually covered by a single payment." Id.
The beneficiary of the annuities raised the argument that the contracts at issue did not fit the definition of annuity contained in Civil Code article 2793. Though not specifically stated, the argument must have asserted that the surrender right (referred to above) gave the annuitant rights in addition to those set forth in article 2793, causing the contracts to be neither for life nor perpetual, and gave the contracts (providing for the "surrender" in return for payment of cash surrender value), one of the primary trappings of whole life insurance policies. Notwithstanding the statutory language, the court concludes: "There is nothing in these articles forbidding the making of a contract of annuity on terms different from those mentioned in the articles. In the Succession of Cotton, 172 La. 819, 135 So. 368, 370, it was said that the definition of an annuity, in article 2793 of the Civil Code, was `by no means all inclusive.'" 9 So.2d at 531.[59]
At this point in our discussion we can offer a distillation of the Louisiana statutes and cases. First, the statutes imply the requirement of the transfer of a fund in return for the payment of "rent" but offer no indication of a limitation upon the mechanics of the transfer arrangement. That is, there is no statutory requirement that such a transfer cannot be a constructive one (i.e., client to underwriter for attorney and from underwriter to annuity company, with attorney retaining the right to receipt of rent). In *433 fact, the state Supreme Court has concluded, in the Succession of Cotton, that legatees who receive income beneficiary status vis a vis a testamentary trust have received annuities, and in the Succession of Rabouin, those contracts labeled "annuity policies," but which contained refund provisions (surrender for payment of "cash surrender value") limited only by the requirement that the policies be in effect for two (2) years, constituted annuities. The case law interpreting the annuities statutes have clearly found the actual language which would appear to provide restrictions upon contractual terms to be, at most, illustrative in nature, and have found arrangements which were apparently never contemplated by the statutes to be annuities. The State Supreme Court, in Succession of Vidalat, has distinguished an alleged liability grounded in a writing purporting, simply, to bind an obligor to the payment of a monthly sum from an annuity, on the basis that an annuity requires, initially, the transfer of a fund, from or upon which, rent can be paid.
It is clear, therefore, that the Louisiana law of annuities is rather expansive, certainly conferring annuity status upon agreements which do not comport with the statutory limitations. In fact, if there is a prevailing thread (see Cotton and Rabouin), it is that the Code requirements are illustrative that some sort of transfer of a fund need be made (see Vidalat), but that retention of control over the fund (which seems contrary to a fund having been transferred) can be controlled by the agreement, as opposed to the Civil Code articles.
3. The Fifth Circuit Speaks Again in In re Guidry; the Exemption Statutes are Analyzed in Matter of Allison
There are few, but among them are two Appellate Court decisions which together hold that Young misstates the law of Louisiana. Before we discuss these cases, we will discuss the most recent Fifth Circuit decision concerning annuities, In Re Guidry, 110 F.3d 1147 (5th Cir.1997).
In Guidry, the Court was faced with a non-bankruptcy claim of exemption (to stave off seizure) regarding a "variable annuity account" sought to be seized during its accumulation phase. Within the contract at issue, the "accumulation phase" was distinguished from the "annuity period." During the accumulation period, the purchaser/investor would deposit funds into the account which, through various such accounts, could be inserted at the direction of the purchaser (investor), with earnings having deferred taxation.
During the accumulation phase, the funds on deposit could be withdrawn, and the investment of the funds redirected by the investor. The seller, during the accumulation phase, provided account information services, effectuated trades, etc. At a moment in time designated in the policy, the policy was converted to its annuity phase, after which moment, and during which time, the seller of the policy owed annuity payments upon the fund, which were taxed as drawn. Prior to the annuity phase, there was no obligation to pay annuity or any other kind of payments, though there existed the obligation to honor withdrawal requests up until the annuity phase. It was only after the inception of the "annuity period" that the purchaser lost the rights of withdrawal, etc. having given the fund over to the company in return for the right to receive predetermined annuity payments.
The Court, citing to Civil Code article 2793, opines that "a fundamental characteristic of an annuity is the complete divestiture by the annuitant of all ownership interest in the principal fund." 110 F.3d at 1150. Citing a Louisiana appellate court case, the Court goes on further to limit the annuitant's interest to "the payments themselves and not in any principal fund or source from which they may be derived;" stating "an annuitant surrenders all right and title in and to the money he pays for it." Id. purportedly citing WellTech, Inc. v. Abadie, 666 So. 2d 1237 (La.App.5th Cir. 1996).[60] The Court concludes that the "variable *434 annuity" is not exempt, during the accumulation period, given the level of control maintained. Along the way, the Court attempts to work its way through the Louisiana statutes in response to the argument that retention of control should not exclude the contract at issue from annuity (and thus exempt) status, given the redemption rights referred to in the statutes previously mentioned herein. (See La. Civ.Code Arts. 2796, 2797, 2798, discussed supra). The Court limits the extent an annuity can provide for redemption to those set forth in the statutes the failure to pay rent and the dual redemption provisions of article 2797, and, though the Court does not attempt to explicate the concept of the "constituted annuity," it pretty well correctly analyzes the situations of the parties within the context of redemption rights, per the statute.[61] The ultimate conclusion of the Court is that, notwithstanding the redemption rights referred to, and
. . . even though article 2797 does not explicitly prohibit an annuitant from redeeming an annuity or from compelling redemption in circumstances other than those provided for in article 2793, we are not persuaded that, without further indication to the contrary, the redemption provision in article 2796 was intended to alter the basic principal that an annuitant, according to Louisiana's statutory definition, must relinquish at least some dominion and control over the account principle.
110 F.3d at 1152. Of course, one might ask whether "further indication to the contrary" might include a state Supreme Court case (see Succession of Rabouin, supra) wherein the court determined that contracts providing a redemption right (designated as a surrender right) whereby the policy could be surrendered after two (2) years from its effective date in return for payment (by the seller) of a cash surrender value, was an annuity. See also Succession of Cotton, supra (Definition of "annuity" in the statute is not "all-inclusive.").
Maybe, in fact, the Guidry court did know about these cases because, notwithstanding the degree to which the court purports to adhere to the statutory definition, to limit redemption rights to the statutory limitations, note its actual, final conclusion: the annuitant "must relinquish at least some dominion and control over the account principle." 110 F.3d at 1152. This court can abide by this conclusion, for the Civil Code definition of annuity does have as its distinguishing characteristic the transfer of the fund to the other party in return for the obligation to pay rent.
Also, a better approach to explaining the extent to which control or dominion over the fund is relinquished, which could have been used by the court, is to analyze the distinction between the annuity and the contract of rent under Civil Code articles 2779-2792. Under the contract of rent, an immovable (piece of real property) was sold, with the seller reserving the right to receive rent in payments or from fruits of the property sold. The property was sold in full ownership, except that "the purchaser under reservation *435 of rent is bound to preserve the thing in good condition that it may continue capable of producing wherewith to pay the rent." La. Civ.Code art. 2784. Also, the seller retained a mortgage on the property for the payment of rent, and as well, the rent obligation ran with the land and became the obligation of any successor owner under the terms of the contract. La. Civ.Code arts. 2787, 2791.
Under the annuity contract, while the annuitant retains a right to compel redemption under certain terms, and can reclaim the fund if the "receiver" fails to pay the rent agreed upon, in the event of insolvency of the debtor (the party owing the rent), the capital (or principle) is exigible (can be demanded or exacted). However, and the language is almost impenetrable, demand can be made against the fund, "only up to the amount at which it is rated, according to the order of contribution amongst the creditors." Art. 2798. In light of the particular requirement that the purchaser of immovable property subject to a reservation of rent preserve the property to pay the rent and own the property subject to a mortgage right securing payment of the rent, this annuity language must mean that the annuitant may claim only a share of the fund (a prorated share) according to the ratio of her claim to the total amount of claims of creditors. Read this way, the loss of dominion and control means that ownership of the fund has passed, and though the annuitant or payee has redemption rights and an underlying claim to the fund in the event of default in performance or insolvency, this claim is only that, a claim, and not a residual ownership interest that primes that of other creditors or, in fact, the debtor (seller).
In Guidry, it appears as though the funds invested were held in the investor/purchaser's account, from which they could be withdrawn at will. (It appears, therefore, that there was no transfer of ownership in the fund, so that the withdrawal rights, rather than a simple, unsecured claim against the company, remained a claim to the investor/depositor's funds.) According to our reading of the agreement, the company, until the annuity period, held the investor's money, which stayed the investor's money. Thus, the issue is whether, until the annuity period, there is any transfer whatsoever. If not, then the policy would not constitute an annuity even under Rabouin, as the surrender right in Rabouin was merely the right to surrender the policy for a claim equal to the cash surrender value of the policy itself. Payment of the surrender value would have been made with the company's funds. That is the difference. Rabouin may stand for the proposition that the Guidry court was obligated to discuss whether redemption rights less limited than those afforded under the statute are permissible (Guidry suggests "no," but in reality leaves much wiggling room). However, Rabouin does not disturb the basic notion that there must be a transfer of funds (the fund) to the party owing the annuity payments. In Guidry there was no such transfer as of the time of the seizure.
There is one other thing that could have been mentioned by the court in Guidry (because it would have been dispositive, in a paragraph). The reason that the "variable annuity" in Guidry was not an annuity contract during the accumulation period was that there was no obligation to pay rent to the annuitant. The contract was nothing more than an investment vehicle which afforded the annuitant investment choices for his money, up until the time the policy matured into an annuity. The name of the contract, the "Variable Annuity Account," is indicative of the tax-free savings account nature of the contract, at least during the accumulation phase. Without the obligation to pay rent, that whole side of the annuity equation was missing, so the arrangement could not have been an annuity, even under the relaxed Louisiana Supreme Court view of statutory construction in this area. Rather than focus on the level of control, then, the Fifth Circuit could have ended its inquiry with the conclusion that, without the rent obligation, the contract simply did not qualify as an annuity during the accumulation period.
In Matter of Allison v. Federal Deposit Insurance, 817 F. Supp. 630 (M.D.La.1993), the Court dealt with an attempted seizure of annuity policies by a creditor who had obtained a judgment in excess of ten million *436 dollars on May 31, 1991, and who was doubtless "concerned" that the debtors, between April 7, 1991, and June 24, 1991, had purchased some five million dollars worth of annuities and life insurance policies (and were, as of the attempted seizure, claiming them as exempt). The debtor intervened and claimed that the seizure was unlawful on the basis of the exemption of the annuities (and life insurance policies) afforded by La. R.S. 20:33(1) and 22:647(A)-(D).
The Court, undertaking to interpret Louisiana law, rejected the creditor's argument that the provisions of the statutes (which limit exemptions of life insurance policies and certain other retirement accounts, IRA's, etc., by excluding from the exemption contributions made during the year before seizure, and the cash value over the first $35,000) were applicable to annuity contracts. The Court held that the long-standing policy of exempting annuities evidenced by statutes overcame the argued possibility that the rather modern limitation (made a part of the statute in 1983) applied to annuities. Therefore, held the Court, the annuities purchased, though clearly purchased immediately around the issuance of the judgment to shield assets from seizure, were exempt under Louisiana law. This case actually ferrets out legislative intent, analyzes the language and history of statutes, and comes to a well reasoned opinion as to the law of Louisiana (which eschews any temptation that might have been felt to superimpose its own feelings as to what the law should have said). Of primary interest is the court's conclusion that there is no limitation upon the exemption of annuities contained within the annuity statutes, and its reading of the unbroken decades of legislative intent to afford an exemption for annuities that is wide of scope.
4. Matter Of Young Meets Its Demise In A Louisiana State Court.
One Louisiana state court has had the occasion to rule on the precise question by Young, twice in fact, and has politely renounced it each time. In WellTech, Inc. v. Abadie, 666 So. 2d 1237 (La.App.5th Cir. 1996), the Court was faced with an attempted seizure (by garnishment) of payments from annuity policies due an attorney. The annuity policies had been purchased by Intermediaries who had assumed the obligations due the attorney from several clients and/or defendants sued by the clients. The trial Court had enjoined the creditor, holding the payments to be exempt. On appeal, the creditor argued Young as dispositive, asserting that the payments from the annuities were "merely payments for services, and not qualified retirement planning strategies and, therefore, should not be exempt from seizure." 666 So.2d at 1240. The Court refers to Young and its rationale, even quoting extensively from the opinion in explication of the creditor's argument. In summation, the Court cites Young as concluding that "the arrangement was in the nature of an `account receivable,' because Young retained an interest in the principal until the debt was extinguished in fourteen years." Id. at 1240. The Court attempts to distinguish its factual findings from the Federal Fifth Circuit as follows:
. . . the amounts of attorneys fees owed to Abadie by his clients were used to purchase three annuities and a partial assignment of a fourth annuity. Abadie has no interest in the principal amounts, which were used for the purpose of purchasing the annuities. Abadie has only the right to collect the monthly payments from these annuities. Most importantly, the annuities do not have a set maturity; they are payable for life and not for a set term as in the Young case.[62] Finally, Abadie has released his clients from any further obligation for payment of attorney fees.
Id. at 1240-1241.
Responding to the creditor's argument that "these payments are in the nature of *437 accounts receivable, and to classify same as annuities creates a great loophole in the garnishment laws . . .," the Court flatly states: "However, if this is so, it is the legislature that created the loophole and it is up to the legislature, not the courts, to close it if such is their will." Id. at 1241. Further, and focusing on the actual language of the exemption statutes (which, by the way, make no mention of accounts receivable), the Court notes that the exemption statute:
. . . provides that ALL proceeds and payments under annuity plans shall be exempted from ALL liability, EXCEPT alimony and child support. Logic and rules of English grammar tell us that the word all is inclusive of every thing, other than that which is specifically excepted.[and that] If the legislature had intended for certain kinds of annuities to be exempt from seizure in instances other than to pay alimony and child support, then certainly it would have named them. . . . Obviously, the legislature did not do this, so we can conclude that the use of the word all means exactly that that all annuities are exempt from seizure.
Id. at 1241. (Emphasis in original). The Louisiana Court, then, goes much beyond its distinguishment of Young, concluding that Young, in embracing a distinction (between annuities and annuities that are also accounts receivable) that does not exist in Louisiana exemption law, espouses an analysis that must be rejected.[63]
The unsuccessful creditor petitioned the Louisiana Supreme Court for relief, which was in part granted. At 672 So. 2d 698 (La. 1996), the Supreme Court directed: "The decision of the court of appeals is vacated, and the case is remanded to the court of appeals to consider whether the obligations of the Intermediaries to Abadie are exempt from seizure by La. R.S. 13:3881(D)." On remand the Court understands its charge as requiring comment as to whether the actual obligations of the "Intermediaries" to Abadie, as opposed to the payments under the annuities, were exempt as annuities. WellTech, Inc. v. Abadie, 683 So. 2d 809 (La.App.5th Cir.1996). Apparently, at some point the creditor had filed separate garnishment petitions seeking to garnish the obligations of the purchasers of the annuities (the "Intermediaries"), who had assumed the obligations to make periodic payments to Abadie as part of the settlements by which the fees were generated. 683 So.2d at 810. Brief and specific mention of the relationship of the "Intermediaries" within the overall arrangement is warranted.
According to the Court, Abadie, the plaintiffs' lawyer in some four (4) lawsuits, effectuated settlements on behalf of his clients. As part of the settlements, the Intermediaries were to assume the obligations of the defendants to the plaintiffs and/or the plaintiffs' attorney, Abadie. With respect to the attorney's fees obligations, the Intermediaries were obligated to make specified monthly payments for the remainder of Abadie's life (in one settlement, a direct partial assignment of the Intermediary's obligation to the client was made to Abadie, resulting in an obligation to make periodic payments for a term, as opposed to for life). According to the Court,
Each contract further provides that each Intermediary is not required to set aside funds for Abadie, or to otherwise secure their obligation to him, and that Abadie has no right to accelerate, decelerate, increase or decrease the amount of any payment to be made under the agreement. Each Intermediary can meet its obligation by the purchase of an annuity, and that the obligee (Abadie) has no ownership of the annuity and no control over the annuity in any manner. The annuity contracts reflect that the Intermediary purchased an annuity, with a single premium, (undisclosed) and that said annuity was payable for life only. It is true that each Intermediary had assumed the obligation to pay attorney *438 fees to Abadie. It is equally true that, in order to meet these obligations, each Intermediary purchased an annuity which will pay to Abadie the amount owed, that being the set amount monthly for the remainder of Abadie's life (with exception of the Trufant Settlement, in which the Intermediary purchased one annuity to satisfy the obligation owed to the plaintiff, who assigned 40% of those annuity proceeds to Abadie). . . .
Id. at 811. In summation, the Abadie court holds, and reiterates,
. . . that the obligations of the Intermediaries, which are discharged by the annuity payments, should be and are properly included in the preliminary injunction which prohibits the seizure of the annuity payments. To hold otherwise would result in the seizure of the payments themselves, which, as observed above, is clearly prohibited by the Louisiana legislature. . . .
Id. at 812. The Abadie court, therefore, at least with respect to the annuity that is effectively for a term, is faced with exactly the fact situation of Young (though we have seen that the attempt by the State Court to distinguish Young based on the difference between an annuity for life and one for a term was long ago made unnecessary by the state Supreme Court).[64] The lawyer retains the original claim against the purchaser of the annuity, known as the "Underwriter" in Young and the "Intermediary" in Abadie, until all payments required by the terms of the annuity (which mimic the terms of the underlying settlement) are made. There is at least one actual annuity policy in each case, purchased with a lump sum single payment. In neither case does the lawyer own the policy nor have an interest other than as annuitant or payee. In neither case does the purchaser of the annuity make any special arrangements on behalf of the annuitant or payee to further secure the obligation represented by the annuity policy. In neither case does the annuitant or payee have any right of redemption, to surrender for cash value, or any interest whatsoever in the money used to purchase the annuity. There is no indication that either lawyer retained claims against the clients for fee obligations assumed by the Underwriter or the Intermediaries.
Notwithstanding the "similarities," the differences between the perspectives of the Courts is immense. To the Federal Fifth Circuit, the right to assert a claim against the Underwriter[65] is synonymous with retaining a right to the principal fund. To the State Fifth Circuit, this right is (properly we think) lagniappe, a not-to-be-utilized claim, which clearly does not give Abadie any rights in, to, or upon the fund used to purchase the annuity, which, upon issuance of the annuity, is replaced by the annuity.[66] As *439 pointed out by the Abadie Court, the lawyer retains no ownership, dominion, or control over the fund that made up the payment for the annuity, and with the possible exception of certain tax consequences arising from forestalling the receipt of the entire fee due,[67] is in a situation no different, with respect to the annuity contract, than if he had bought the annuity himself.
D. Should The Fifth Circuit Abandon Young? Can It?
1. The Setting
As the charge of this court is to interpret Louisiana law, so was the charge of the Fifth Circuit in Young. Canfield suggests that Young is the dispositive, binding precedent in the circuit, and that Young compels the decision that the payments due the Debtor, or the annuities under which he is the payee, are not exempt. Where are we now?
A Louisiana appellate court has held (twice) that Young is not correct. The State Supreme Court has not reviewed the second Abadie opinion, which reaffirms the first one and expands the "all annuities are exempt" conclusion to cover the pre-existing obligations which generated the purchase of the annuities (and which would not be finally satisfied until all payments under the annuities are made). Notwithstanding fervent, direct pleas within the Abadie opinions to the Louisiana legislature (and the holding of the Allison case-referred to above that notwithstanding the obvious diversion of assets into annuities immediately before and after issuance of judgment, the intention of the Louisiana legislature has historically been to exempt all annuities), that the holdings demonstrated inadvertent loopholes existing in the statute, there has been no legislative response. Even given all of this, is the Fifth Circuit bound by Young?
2. The Erie Charge
A federal court sitting in diversity (or, as was the case in Young, interpreting state law upon another basis), is bound to follow state substantive law on the issue presented. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). Absent a pronouncement by the state's highest court, the federal court must look elsewhere, mindful that "a federal court is not free to reject the state rule merely because it has not received the sanction of the highest court, even though it thinks the rule is unsound in principle or that another is preferable." West v. American Telephone and Telegraph Co., 311 U.S. 223, 236, 61 S. Ct. 179, 183, 85 L. Ed. 139 (1940). "Where an intermediate appellate state court rests its considered judgment upon the rule of law which it announces, that is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other data that the highest court of the state would decide otherwise." West, 311 U.S. at 237, 61 S.Ct. at 183. See Transcontinental Gas Pipe Line Corporation v. Transportation Insurance Co., 953 F.2d 985, 988 (5th Cir.1992) (". . . although we are not bound by state appellate court decisions, we will not disregard them `unless [we are] convinced by other persuasive data that the highest court of the state would decide otherwise.'" (Citations omitted));[68]Lavespere v. Niagara Machine *440 and Tool Works, Inc., 920 F.2d 259, 260 (5th Cir.1990) ("Under the Erie doctrine that state law is applicable in a federal diversity jurisdiction case, state intermediate appellate court decisions constitute indicia of state law even when decided after a federal court has rendered a contrary opinion if the federal judgment has not yet become final.[ft.nt.8].[69] Such decisions, if applicable, should, therefore, be followed absent a strong showing that the state supreme court would rule differently" (citations omitted)); Ladue v. Chevron, U.S.A., Inc., 920 F.2d 272, 274 (5th Cir.1991) ("We are therefore bound by an intermediate state appellate court decision only when we remain unconvinced `by other data that the highest court of the state would decide otherwise.'" (Citations omitted));[70]Exxon Company, U.S.A. v. Banque De Paris Et Des Pays-Bas, 889 F.2d 674, 675 (5th Cir.1989), cert. denied, 496 U.S. 943, 110 S. Ct. 3230, 110 L. Ed. 2d 676 (1990) ("A federal court sitting in diversity is bound to follow decisions of the state's intermediate appellate courts `unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.' There is, therefore, a working presumption that state intermediate court decisions represent accurate statements of state law" (citations omitted));[71]Green v. Walker, 910 F.2d 291, 294 (5th Cir.1990) ("The decision of an intermediate appellate state court guides, but does not necessarily control, a federal court's determination of the applicable state law"); *441 Taylor v. Jim Walter Corp., 731 F.2d 266, 267 (5th Cir.1984) ("We are bound by the decisions of the intermediate appellate court . . . absent a `strong showing' that the Louisiana Supreme Court would hold to the contrary. In view of these direct precedents, we must decline the plaintiffs' invitation to follow dicta in Day v. National U.S. Radiator Corp., 241 La. 288, 128 So. 2d 660, 666 (1961)" (citations omitted)); Birmingham Fire Insurance Company of Pennsylvania v. Winegardner and Hammons, Inc., 714 F.2d 548, 550 (5th Cir.1983) ("That the court which decided Miller is not the highest court of Texas does not free this court to disregard its holding. On the contrary: We consider ourselves Erie-bound to apply the law as it has been interpreted by the highest state court to rule on the matter . . . when the supreme court of a state has not spoken to a particular issue, the well established practice of this court is to follow the opinion of the highest court which has written on the matter"); Scarborough v. Northern Assurance Company of America, 718 F.2d 130, 136 (5th Cir.1983) ("Although Cooling and Templet are decisions of intermediate appellate courts, they are controlling, absent strong indication that the Supreme Court of Louisiana would have decided them differently"); Mott v. Mitsubishi International Corp., 636 F.2d 1073, 1074 (5th Cir.1981) ("A decision of the Court of Civil Appeals is controlling on questions of state law in this court, absent strong indication that the Texas Supreme Court would decide the issue differently"); see also, Bailey v. Southern Pacific Transportation Co., 613 F.2d 1385 (5th Cir.1980); Allen v. A.G. Edwards & Sons, Inc., 606 F.2d 84 (5th Cir.1979); Continental Grain Co. v. Martin, 536 F.2d 592 (5th Cir.1976), cert. denied, 429 U.S. 1024, 97 S. Ct. 643, 50 L. Ed. 2d 625 (1976); Thorington v. Cash, 494 F.2d 582 (5th Cir.1974).
3. Panel Opinion As Precedent
The general rule regarding the precedential value of a panel decision of the Fifth Circuit is that it must be followed by all subsequent panels unless and until it is reversed by the Court en banc, or until a superceding opinion of the U.S. Supreme Court. Narvaiz v. Johnson, 134 F.3d 688 (5th Cir.1998); Batts v. Tow-Motor Forklift Co., 978 F.2d 1386, 1393 n. 15 (5th Cir.1992) "[i]n this circuit, one panel may not overrule the decision, right or wrong, of a prior panel in the absence of en banc reconsideration or superseding decision of the Supreme Court" quoting Burlington N.R.R. Co. v. Brotherhood of Maintenance of Way Employees, 961 F.2d 86, 89 (5th Cir.1992), cert. denied, 506 U.S. 1071, 113 S. Ct. 1028, 122 L. Ed. 2d 173 (1993) (citations and internal quotations omitted); Albany Insurance Co. v. Kieu, 927 F.2d 882 (5th Cir.1991); U.S. v. Eckford, 910 F.2d 216 (5th Cir.1990); Hodge v. Seiler, 558 F.2d 284 (5th Cir.1977); Puckett v. Commissioner of Internal Revenue, 522 F.2d 1385 (5th Cir.1975); U.S. v. Lewis, 475 F.2d 571 (5th Cir.1972).
4. Panel Opinion As Precedent When Subsequent Intermediate State Appellate Court Opinions Establish That Prior Panel Opinion Incorrectly Interprets State Law
When sitting in diversity cases, the Fifth Circuit has held "that . . . we must follow subsequent state court decisions that are clearly contrary to one of our prior decisions." Floors Unlimited v. Fieldcrest Cannon, Inc., 55 F.3d 181, 185 (5th Cir.1995) (where two Texas court of appeal decisions issued subsequent to diversity decisions were clearly contrary to prior Fifth Circuit decisions, the prior decision(s) were "not a correct statement of Texas law and thus . . . no longer binding precedent in this Circuit" 55 F.3d at 185); Pruitt v. Levi Strauss & Co., 932 F.2d 458 (5th Cir.1991); Farnham v. Bristow Helicopters, Inc., 776 F.2d 535 (5th Cir.1985) (two Louisiana appeal court decisions, decided after the Fifth Circuit interpreted the Louisiana long-arm statute, required a finding that the prior decision should not be followed "In diversity cases, however, we are to follow subsequent state court decisions that are clearly contrary to a previous decision of this court." 776 F.2d at 537). See also, Broussard v. Southern Pacific Transportation Co., 665 F.2d 1387 (5th Cir.1982).
The Fifth Circuit, then, when faced by intermediate appellate court decisions that are clearly contrary to a prior Fifth Circuit *442 decision interpreting state law, has followed the guide of the intermediate courts as the law of the state and has abided the notion that a panel can conclude and hold that the prior decision, otherwise binding precedent, is no longer reflective of state law and therefore is not binding law in the circuit. These holdings comport with the prevailing understanding by the Fifth Circuit of its Erie- charge, as explained in West, that "Where an intermediate appellate state court rests its considered judgment upon the rule of law which it announces, that is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other data that the highest court of the state would decide otherwise." West, 311 U.S. at 237, 61 S.Ct. at 183. If the intermediate appellate decision meets this standard set forth in West, it matters not whether the federal court has previously decided what it believes the state law to be or concludes that its understanding of state law is preferable to that of the prior state appellate court. In each situation, previously decided case and difference of opinion as to what the state law is, the Federal Court must yield.[72] Without facing the question of whether this (an inferior) court is bound by decision of a Circuit panel that has subsequently been shown to incorrectly state the law of the state (by a clearly contrary intermediate state appellate court decision), we conclude that a Fifth Circuit panel, if faced with the factual situation and legal issues presented by Young, could conclude that it is not bound by Young, without the necessity of en banc review, on the basis of the two Abadie opinions. Next question. Would it?
5. Well, Would It?
Answer, in a word, yes. Recall the requirement set forth by West, supra, and the Fifth Circuit cases cited above, that the intermediate court opinions are binding, without convincing other data that the highest court would hold otherwise. Subsequent intermediate state court opinions are equally binding, if clearly contrary.
This court is satisfied that the Abadie opinions are clearly contrary to Young, notwithstanding the feeble purported attempt, within the first opinion, to distinguish it. As we have seen, the very facts upon which Young was supposedly distinguishable were the same as in Abadie (in fact, if the Abadie court erred, it was in reading Young carelessly, probably out of an abundance of politeness in its urge to distinguish). Recall, as well, that the Abadie court implored the Louisiana legislature to fix the statutory loophole which compelled the exemption of all annuities, and suggested that the result reached would be seen by the legislature as an inadvertent consequence of the statutory language. *443 Note that, notwithstanding these pleas (the concurrence in each opinion was written for the sole purpose of railing against the holding, as needing fixing, though being required by the law as written), the Louisiana legislature has not seen fit to amend the many exemption statutes by which annuities are exempted.[73]
Are there any other data by which the Fifth Circuit could be convinced that the Louisiana Supreme Court would hold otherwise than Abadie? Let us start with other decisions of the state courts. We have searched and searched, and have come up with only one Louisiana state court opinion touching on the issues raised by Abadie and Young. In Cashio v. Tollin, 686 So. 2d 1066 (La.App.5th Cir.1996), writ denied, 691 So. 2d 87 (La.1997), the same court which decided Abadie was faced with an attempted garnishment of what was alleged to be annuities, or the payments thereunder. The trial court had dismissed the garnishment pursuant to Abadie.[74] On appeal, the state 5th Circuit reversed, concluding that the dismissal of the garnishment had been tantamount to the issuance of a permanent injunction, without trial, but rather through a proceeding that mimicked a hearing on motion for summary judgment, with elements of a no-cause-of-action proceeding (which, in Louisiana procedure, cannot be combined).
The court was clear as to the basis, other than improper procedure, for its reversal and remand: "In the instant case there was no evidence as to the nature of the funds sought to be garnished." Id. at 1068. In other words, the parties objecting to the garnishment rested on the statements in pleadings that the instruments and funds payable thereunder were annuity policies or annuity payments, without producing evidence as to whether this was so. There is a statement within the opinion which could perhaps be grasped as datum in favor of adhering to Young as the way the Louisiana Supreme Court would rule, or, alternatively, that the Abadie decisions are not clearly contrary to Young. The court says, in support of its conclusion that the nature of the funds sought had not been subject to evidence. "In Young, supra, it was the substance of the arrangement and not the label which determined whether the payments were an annuity and subject to exemption. A mere label was insufficient to trigger the exempt status." Id. Why did this court say this?
Don't know. However, if anything is clear, it is that Young did not involve a mere label. The case involved an annuity that was also an account receivable, just as Abadie did. Let's look further. The opinion also has a couple of things to say about Abadie as it relates to Young and its holding. The creditor had cited Young for the proposition that an annuity, to qualify for exempt status must be purchased with tax exempt funds. To this the court replies, "However, in Young as in WellTech this issue was not reached. In both cases the issue was whether the funds were an annuity rather than accounts receivable." Id. Regarding the holding of WellTech v. Abadie, the court states "In WellTech . . . we held that periodic payments to an attorney constituted an annuity rather than an accounts [sic] receivable and as such were exempt." Id. at 1066-67.
What we see, therefore, is that the state court is satisfied that the contracts in Abadie were annuities, and therefore exempt, rather than merely accounts receivable. Further, it *444 is satisfied that Young dealt with the same legal issue. Finally, it believes that it is not enough to title an agreement an annuity to have it qualify for exempt status; the contract must also be an annuity. Unfortunately, it appears that the state court remains bent on being polite. Recall that the Fifth Circuit trumpeted its charge as determining when an annuity that is also an account receivable should, really, be called an account receivable rather than annuity, and determined that the right to go against the Underwriter jettisoned the annuity contract from exemption land. The exact same question yielded the opposite answer in Abadie. What Cashio in fact shows is how averse to the holding of Abadie the state court is (recall the concurrences). There will be no presumption that just because a contract says it is an annuity that it is, no presumption that because insurance companies are involved and have established payment obligations that they owe these pursuant to true annuity policies. From now on, the Fifth Circuit case Guidry (cited and discussed above) can stand for the proposition that the title of an instrument is not dispositive of its true nature; there need be no further mention of Young.
In sum, the state court correctly required proof of the nature of the contract. However, its mention of Young does not obviate the repudiation of Young which exists within the same opinion (but which exists full bore also by means of the Abadie holdings themselves). Cashio is not a datum suggesting a state Supreme Court disagreement with Abadie, and the politeness underlying the references to Young do not undermine the degree of actual disagreement shown for it.
Anything else other than what has been mentioned? Well, for one thing, it would not do for the Fifth Circuit to use the Young decision itself as a contrary datum. What, then, about the Louisiana modes of statutory construction that have been mentioned as having been referred to in a few Fifth Circuit cases as being of weight when making an Erie determination? Would this statutory interpretation analysis provide the Fifth Circuit with a mode by which it could free itself from the constraints of being bound by the holdings of Abadie?
Article 1 of the Louisiana Civil Code, reminding the Court of the primacy of legislation, provides that the "sources of law are legislation and custom,"[75] and Article 2 pronounces that "[l]egislation is a solemn expression of legislative will."[76] Therefore, the task before a court seeking to interpret a Louisiana statute is to determine the "legislative will" in promulgation of the statute (in this case La. R.S. 22:647 (1995)).
Article 9 of the Louisiana Civil Code instructs the Court as follows: "When a law is clear and unambiguous and its application does not lead to absurd consequences, the law shall be applied as written and no further interpretation may be made in search of the intent of the legislature."[77] Moreover, with regard to the meaning of words, Article 11 of the Louisiana Civil Code provides: "The words of a law must be given their generally prevailing meaning. Words of art and technical terms must be given their technical meaning when the law involves a technical matter." Acknowledging the possibility of linguistic frailty inherent in the legislative *445 process, the Civil Code allows for the situation where the Louisiana legislature is other than unambiguous in its solemn pronouncements.
Article 10 of the Civil Code reads as follows: "When the language of the law is susceptible of different meanings, it must be interpreted as having the meaning that best conforms to the purpose of the law." Article 12 of the Civil Code reads: "When the words of a law are ambiguous, their meaning must be sought by examining the context in which they occur and the text of the law as a whole." Finally, abiding by its faith in the notion that the law is to be read as an organic whole, the Civil Code provides in Article 13 as follows: "Laws on the same subject matter must be interpreted in reference to each other."
The charge to a court seeking to interpret Louisiana statutes, then, is to determine whether, in light of the generally prevailing meanings of the words of the statutes, these words are clear and unambiguous, and if so, whether giving them this effect would generate absurd consequences. If no absurd consequences would ensue, the court is bound to give legal effect to the prevailing meaning (and is not empowered to look further in divining legislative will). If the words are not clear and unambiguous, resort is necessary to the other interpretative tools and methods afforded under Louisiana law to assist the Court in divining the intent underlying this expression of legislative will.
Recall the words of the statute pursuant to which annuities, generally speaking, are exempt:
B. The lawful beneficiary, assignee, or payee, including the annuitant's estate, of an annuity contract, heretofore or hereafter effected, shall be entitled to the proceeds and avails of the contract against the creditors and representatives of the annuitant or the person effecting the contract, or the estate of either, and against the heirs and legatees of either such person, saving the rights of forced heirs, and such proceeds and avails shall also be exempt from all liability for any debt of such beneficiary, payee, or assignee or estate, existing at the time the proceeds or avails are made available for his own use.
La. R.S. 22:647(B) (1995).[78]
The statute, read plainly, exempts the proceeds and avails of the annuity contract. Period. There is no reference to the source of funds, except that the beneficiary, assignee, or payee's rights to the proceeds and avails shall be an entitlement against "the person effecting the contract, or the estate of either [the assignee, etc or the person effecting the contract], and the heirs and legatees of either such person, saving the rights of forced heirs." (This is the codification of the holding of Succession of Rabouin.) So, there is the prospect of a person other than the beneficiary, assignee, or payee purchasing the annuity (as there is of the purchaser being the same person in the event the beneficiary, etc. is the annuitant's estate, upon the annuitant's death). There is no limitation as to the nature or source of funds by which the annuity is purchased. There is no reference to limitation of the exemption on the ground that the beneficiary, assignee, or payee has a claim against the purchaser of *446 the annuity, or that if the annuity is an "account receivable."[79]
The statute applies: (1) whether or not the right to change the beneficiary is reserved or permitted in the policy or contract; (2) whether or not the policy or contract is made payable to the person whose life is insured, to his estate, or to the estate of an annuitant if the beneficiary, assignee, or payee shall predecease such person; (3) regardless of the source of the annuity; (4) whether or not the beneficiary, assignee, or payee is the owner of the annuity policy; (5) whether or not the beneficiary, assignee, or payee is the beneficiary of the annuity policy; (6) whether or not the payee himself or herself provided the "consideration" for the annuity policy; (7) whether or not the proceeds of the annuity policy are reasonably necessary for the livelihood of the beneficiary, assignee, or payee; and (8) whether or not the beneficiary, assignee, or payee has a right to pursue the fund or does not have such a right. Rather, La. R.S. 22:647 provides that the lawful beneficiary, assignee, or payee has the right to the proceeds of the annuity free and clear of the claims of creditors. Period. Also, no one with rights under any annuity can be compelled to exercise these rights by third parties.
As the Abadie court said, the statute exempts all annuities. "All" means all. Though the Court is tempted, resort to an acceptable dictionary for the definition of "all" will be resisted. Simply, simply, simply said, the Louisiana annuity exemption statute does not allow the Fifth Circuit or any other court charged with interpreting the law to make up, as the determining inquiry, whether the annuity at issue is, in reality, an account receivable, for the purpose of denying the exemption. At this point, recall, again, that Young dealt with an annuity that was also an account receivable, as opposed to Guidry, for example, that dealt with an account agreement that could not have been an annuity because there was no transfer of ownership of the money and no obligation to pay rent. As long as the issue remains focused, assume the annuity (which is in reality an annuity); does the law deny the exemption if it is also an account receivable? The answer is clear: The Louisiana statute granting the exemption, according to its terms, makes no distinction between annuities that are and annuities that are not, accounts receivable. The statute carries in it a refutation of Young.
There is no statutory basis for carving out annuities that are also accounts receivable, unless such a carve-out is first effected by the legislature. Clearly, the exemption statute provides no data upon which to conclude that the state Supreme Court would disagree with Abadie.
So, there is no contrary case law, and the statute cannot be seen as a datum contrary to the holding of Abadie. What else is there?
Well, nothing of relevance, given Louisiana's prohibition upon looking beyond the language of statutes. Unless the statute, if read literally, with the words given their ordinary meaning, would create absurd results or consequences. Does, then, La. R.S. 22:647(B), if read to exempt all annuities, lead to such? The Abadie court, while decrying the result, concluded in no uncertain terms that exemption of all annuities was not an absurd result or consequence. In Matter of Allison, supra, the court upheld the blanket exemption of all annuities at issue, though they had clearly been purchased with the immediate (and probably sole) objective in mind of placing the purchasing assets beyond the reach of creditors. The Bankruptcy Code expressly provides for the primacy of state law in matters of exemption of property and therefore upholds, in principle, the consequential diversity. What can be absurd about a state legislature deciding to exempt a broad class of assets? Nothing.
There is no data that would insulate the Fifth Circuit from reversing itself. Young, if met again, would fall.
III. Orso ain't Young; the Two are Distinguished.
*447 In Young, according to the court, the annuity was both an annuity AND an account receivable. Curiously, in Young, the Fifth Circuit did not cite Louisiana law as to the definition of account receivable (the definition source was Black's Law Dictionary). However, as luck would have it, the payment stream from the Young annuity was an account receivable under the Louisiana statutes.[80] Notwithstanding the foregoing attempt to show the incorrectness of Young, and the necessity of it being reversed if seen again by the Fifth Circuit, this court need not submit to the precedential "value" of the case, as it is factually distinguishable from this one.
On two grounds. First, this case does not involve an annuity that is also an "account receivable," as that term was and is defined in the law of Louisiana. Second, this case does not involve an attempt to defer taxes through the structuring of an otherwise taxable transaction into a deferred payment stream, whereby the taxability is limited to a payment-by-payment imposition.[81]
A. The Louisiana Definition of "Account Receivable;" Orso's Annuities Are Not
From 1983 through 1990, the definition of "account receivable," as found in the Louisiana Assignment of Accounts Receivable Act (the "Accounts Receivable Act"), was as follows:
§ 3101. Definitions
"Accounts receivable" or "account" means and includes all or any part of any indebtedness owing to the assignor in connection with all or any part of the assignor's business, profession, occupation, or undertaking, including but not limited to the sale of goods or the performance of services or the leasing of moveable property subject to the Louisiana Lease of Moveables Act. "Accounts receivable" or "account" shall not mean or include:
(a) Indebtedness due to or arising out of claims in tort.
La. R.S. 9:3101(1) (1991) (emphasis supplied).[82]
Few Louisiana courts have found it necessary to construe the meaning of "account receivable," given the definition set forth in 9:3101(1). The few courts that have construed the term, however, have focused on the requisite that the indebtedness constituting an account receivable must arise out of the sale of goods or the performance of services owed to the assignor in connection with the assignor's business, profession, occupation, or undertaking.[83]
*448 In 1993, the Fifth Circuit, in T-H New Orleans Limited Partnership v. Financial Security Assurance, Inc. (Matter of T-H New Orleans Limited Partnership), 10 F.3d 1099, cert. denied, 511 U.S. 1083, 114 S. Ct. 1833, 128 L. Ed. 2d 461 (1994), had the opportunity to focus on the definition of "account receivable" in 9:3101(1). The issue before the court was whether post-petition hotel revenues were "rent" for the purposes of § 552(b) of the Bankruptcy Code, or were "accounts receivable," within the meaning of 9:3101(1). The debtor contended that hotel revenues were "accounts receivable" under the Louisiana Accounts Receivable Act, arguing that hotel revenues were dependent upon and generated from the service aspect of the hotel, and, as such, were in the nature of accounts receivable. 10 F.3d at 1105-06.
The Fifth Circuit disagreed, because the definition of "account receivable" in 9:3101(1)(c) expressly excluded "[i]ndebtedness due to or arising out of the leasing of immoveable property," and also because the physical condition of the hotel and its location were more essential to the hotel's ability to generate revenue than were the services the hotel provided. Id. at 1106. In so holding, however, the Fifth Circuit did not disclaim the requirement of the "performance of services," as set forth in 9:3101(1). The Fifth Circuit merely found that the services rendered by the hotel did not generate the indebtedness. Therefore, in construing the term "accounts receivable," within the meaning of 9:3101(1), it continues to be appropriate to focus on, inter alia, services rendered.
So, we see that the Young annuity was, in fact, an "account receivable" under Louisiana law. According to the court, this fact distinguished the Young annuity from one entitled to exemption. As the Fifth Circuit was charged with interpreting Louisiana law, we must surmise that although the court did not see fit to cite Louisiana law on the question of whether the annuity was an account receivable, it must have known that the generalized definition of the term, found by the court in Black's Law Dictionary, comported with the one found within the state law the court was interpreting. Recalling that earlier in this opinion we have mentioned that the contractual arrangement* obligation dealt with in the Beisel case, used by the court as authority for its charge, its analytical method and its conclusion, would not constitute an account receivable under Louisiana law, it occurs to us that an explanation is perhaps due as to how we can conclude that the Fifth Circuit had Louisiana law in mind in its references to the term "accounts receivable."
An explanation is easy. The court could not have been using such a term with no thought as to what it meant under the law being interpreted. The court was correct that the Young annuity was in fact an "account receivable" under the law of Louisiana. The account receivable finding was pivotal to the court's overall conclusion (no exemption). Because of all this, the court's reference to and determination based upon the Pennsylvania state court decision is to be interpreted as the conclusion that IF AN OBLIGATION IS AN ACCOUNT RECEIVABLE UNDER APPLICABLE STATE LAW, THE CONTRACTUAL ARRANGEMENT IS NOT AN ANNUITY, REGARDLESS OF THE FACT THAT THE FORM OF THE OBLIGATION IS AN ANNUITY CONTRACT. (Emphasis supplied). This is not the same conclusion as that the court follows the state law of Pennsylvania, as to what an "account bearing interest" is, for purposes of determining whether a Louisiana contract is an annuity. Had the Fifth Circuit concluded that any obligation preceding the formation *449 of the annuity arrangement would preclude the formation of the annuity contract would preclude the annuity from being an annuity under Louisiana law, it could have done so, and would not have used the legally defined term, "account receivable."
Notwithstanding our conclusion that the court was incorrect in posing the account receivable/annuity distinction, we do not have an account receivable here. Simple juxtaposition of the Young arrangement will establish this.
The Young annuity arose as a result of the assumption, by the Underwriter, of the attorneys fees owed by the clients to Young. Therefore, unless the assumption of the indebtedness changed the nature of the indebtedness, the annuity contract was the mechanism for the payment of legal fees due, arising out of Young's having providing services as a lawyer to his clients. This type of obligation falls squarely within the definition of "account receivable."[84] Orso's annuities represent the method by which the settlement and compromise liability of the alleged tortfeasors was, after assumption by the Underwriter, to be paid to him. Therefore, unless assumption by the Underwriter changed the nature of the obligation assumed, the obligation falls squarely within the "[i]ndebtedness due to or arising out of claims in tort" exclusion from the definition of accounts receivable. This, of course makes sense.
Lawyers handle cases, lawyers represent clients, lawyers generate fees, lawyers send bills; this is the ordinary course of business for lawyers, where the lawyer operates his or her business, bills clients, receives money, and pays taxes. Lawyers, therefore, when conducting their business, are participating in commerce, through their contractual relations with their clients. The obligations of those who are represented, generated in the conduct of business are the accounts of the business, part of the capital structure of the business (to be found within the business's balance sheet). This type of business-generated account is commonly used in commerce to secure credit, leases, etc. This is an account receivable.
Look, however, at Orso. He went out in a car, got hit, and became a completely different person, one who was, is and will be unable to conduct any business. Certainly it cannot be said that the obligation underlying the annuities arose as a result of Orso providing goods or providing services. Clearly, the obligation did not arise as a result of the operation, by Orso, of his business, unless it can be said that operation of his business consisted of being blamed while driving his car, of being comatose for days, of emerging as a person whose brain no longer works like it did, of being rendered, in fact, someone else.
It can be said, with some degree of understatement, that there appear to be significant differences between depriving the obligee of an account receivable of the annuity-based exemption, and depriving the interdicted obligee of a tort claim of the annuity-based exemption (in fact, consider whether there is a better reason to establish an annuity with a beneficiary or payee being other than the purchaser, than to provide for someone horrifically injured who turns out to need interdiction for the balance of his life).[85]
*450 The Debtor's structured settlement is repayment for, in essence, the Debtor's life, because the Debtor as he was pre-accident no longer exists. All he, his family, and his friends are left with is the Debtor as he is post-accident: severely impaired and needing protection from himself. This is not what the Fifth Circuit was concerned with in Young, attorneys who turn their accounts receivable into annuity contracts so that the attorneys can protect the entirety of their business income from seizure from their creditors, and at the same time obtain tax relief because they receive a cash monthly payment stream.[86]
B. Federally-protected Tax Incentives 26 U.S.C. §§ 104 and 130; Orso Received No Inordinate Tax Benefits by Means of the Annuities
Recall the Fifth Circuit's chagrin at Young having structured the receipt of his fee so that he could avoid the imposition of full taxation of the entire fee amount by means of the annuity. What about Orso? Not the same situation. First of all, the Internal Revenue Code excepts from gross income amounts received on account of claims such as that held by Orso, so his accepting the structured annuities did not absolve him of any tax consequences that might otherwise attend receipt of a lump sum. Section 104(a)(2)[87] of the Code provides:
Section 104. Compensation for injuries or sickness.
(a) In general.Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include
* * * * * *
(2) the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness.
Is there any doubt that Orso's damages would have fit within this exclusion? No.
Also, the Internal Revenue Code provides a federally generated incentive to utilize the structured settlement/annuity vehicle, by reaffirming that periodic payments of moneys that would be excludable from gross income under 26 U.S.C. § 104 are also excludable, and by making certain that Intermediaries or Underwriters who participate in annuity-based structured settlements are protected from having to claim as gross income the amounts received to purchase annuities *451 to satisfy the obligations assumed from the tortfeasor to the victim. Section 130 of the Internal Revenue Code reads as follows:
Section 130. Certain personal injury liability assignments.
(a) In general.Any amount received for agreeing to a qualified assignment shall not be included in gross income to the extent that such amount does not exceed the aggregate cost of any qualified funding assets.
(b) Treatment of qualified funding asset. In the case of any qualified funding asset
(1) the basis of such asset shall be reduced by the amount excluded from gross income under subsection (a) by reason of the purchase of such asset, and
(2) any gain recognized on a disposition of such asset shall be treated as ordinary income.
(c) Qualified assignment.For purposes of this section, the term "qualified assignment" means any assignment of a liability to make periodic payments as damages (whether by suit or agreement) on account of personal injury or sickness (in a case involving physical injury or physical sickness)
(1) if the assignee assumes such liability from a person who is a party to the suit or agreement, and
(2) if
(A) such periodic payments are fixed and determinable as to amount and time of payment,
(B) such periodic payments cannot be accelerated, deferred, increased, or decreased by the recipient of such payments,
(C) the assignee's obligation on account of the personal injuries or sickness is no greater than the obligation of the person who assigned the liability, and
(D) such periodic payments are excludable from the gross income of the recipient under section 104(a)(2).
The determination for purposes of this chapter of when the recipient is treated as having received any payment with respect to which there has been a qualified assignment shall be made without regard to any provision of such assignment which grants the recipient rights as a creditor greater than those of a general creditor.
(d) Qualified funding asset.For purposes of this section, the term "qualified funding asset" means any annuity contract issued by a company licensed to do business as an insurance company under the laws of any State, or any obligation of the United States, if
(1) such annuity contract or obligation is used by the assignee to fund periodic payments under any qualified assignment,
(2) the periods of the payments under the annuity contract or obligation are reasonably related to the periodic payments under the qualified assignment, and the amount of any such payment under the contract or obligation does not exceed the periodic payment to which it relates,
(3) such annuity contract or obligation is designated by the taxpayer (in such manner as the Secretary shall by regulations prescribe) as being taken into account under this section with respect to such qualified assignment, and
(4) such annuity contract or obligation is purchased by the taxpayer not more than 60 days before the date of the qualified assignment and not later than 60 days after the date of such assignment.[88]
*452 Both the Liberty Mutual Annuity and the Western National Annuity were structured so as to fall within the protection of §§ 104 and 130 of the Internal Revenue Code, so that as broadly as possible, the proceeds of the annuities would be excluded from Orso's gross annual income for tax purposes, and the other parties could receive any benefits afforded by the Code.[89] (Of course, it is not this Court's responsibility to determine whether the Liberty Mutual Annuity and the Western National Annuity successfully fall, as a matter of law, within the confines of these provisions, although it appears that the annuities in fact are covered).
The fact that Orso and the other parties to the settlement chose to structure the settlement so as to fall within the confines of §§ 104 and 130 of the Tax Code, without Young, would be immaterial as regards the question of whether the proceeds of the Orso annuities are exempt under La. R.S. 22:647. However, given Young, it is necessary to mention that Orso avoided no taxation by accepting the annuities. In fact, he and the other parties did their best to comply with the Federal law expressly reflecting Congressional intent favoring the very arrangement agreed to. We cannot say that Mr. Young's annuity was so smiled upon. In fact, the Fifth Circuit is probably correct in its assertion that Young was able to defer taxation through the annuity, so that it was absolutely necessary that Young not receive the lump sum payment of his fees (from either his clients or the Underwriter). However, this is not the case with Orso, as there would have been no taxation difference had he purchased the annuities with the proceeds of a lump sum settlement. The damage settlement is not taxable. He defers nothing. So, while this court adheres to its suggestion that Young is incorrect, the taxation consequences avoided by Young, but inapplicable to Orso, further distinguish the two situations, and for this additional reason, render Young inapplicable, as precedent.
IV. Canfield's Confusion is the Confusion Engendered by Young; Her Cases are Shown to be Inapplicable to the Louisiana Statute.
Canfield has cited the court to the following cases for the proposition that Young mandates that the proceeds of the Orso annuities are merely accounts receivable and therefore are not exempt under La. R.S. 22:647: In re Rhinebolt, 131 B.R. 973 (Bankr.S.D.Ohio 1991); In re Johnson, 108 B.R. 240 (Bankr.D.N.D.1989); and In re Simon, 71 B.R. 65 (Bankr.N.D.Ohio 1987). As will be seen, however, in each of these cases the debtors claimed an exemption of the proceeds of annuities under statutes which are similar to La. R.S. 20:33 (dealing arguably with pensions, retirement annuities, and employer gratuity payments) and which differ significantly from La. R.S. 22:647, which is virtually unlimited in scope.
The Rhinebolt court, relying upon Young, held that an "annuity" which was part of a structured settlement agreement in a personal injury suit could not be claimed as exempt under an Ohio exemption for annuities, because the "annuity" was not in the nature of *453 future earnings, but was set up simply to provide a method by which to fund the settlement of the debtor's tort lawsuit. According to the court, the "annuity" appeared to be one in name only and in reality was more closely related to an account receivable. The Ohio exemption statute in In re Rhinebolt provided an exemption: (1) for a "person's right to receive payment under any pension, annuity, or similar plan or contract, . . . on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the person and of any of his dependents"; and (2) where the annuity "has been taken out for the benefit of, or made payable by change of the beneficiary, transfer, or assignment to, the spouse or children or any relative dependent upon such person, or any creditor." Rhinebolt, 131 B.R. at 975, 977 (quoting Ohio Revised Code § 2329.66(A)(10)(b) and (A)(6)(b)).
The Johnson court, relying upon Young, held that a structured settlement agreement represented installment payments on the underlying debt between the debtor and the insurer by way of the settlement agreement, and thus under North Dakota law was exempt only to the extent allowed for payments made on account of personal bodily injury, rather than for payments made pursuant to annuity policies. The exemption statute in Johnson provided that the proceeds of annuities were exempt, but grouped annuities under the heading "Pensions", along with life insurance policies, investment retirement accounts, Keogh's and simplified employee benefit plans. Johnson, 108 B.R. at 241.
In Simon, the court, relying upon Young, held that the Ohio statute exempting payments under a pension, annuity, or similar plan or contract on account of an illness, disability, death, age, or length or service, did not permit an exemption of an annuity which was used to fund a structured tort settlement. Simon, 71 B.R. at page 66.[90]
This court believes that Canfield's reliance on these cases is misplaced. In Young, it will be recalled, the attorney-debtor relied upon La. R.S. 20:33 and 22:647 for his proposition that the proceeds of his annuities were exempt. The Young court, however, did not engage in any statutory interpretation of these provisions, but rather engaged in a theoretical endeavor to determine the ephemeral distinction between annuities and accounts receivable. Therefore, Young has little, if any, precedential or persuasive value with regard to the statutory interpretation of either of these provisions.
Given the limited scope of the exemption statutes in Rhinebolt, Johnson, and Simon, this court believes that those courts relied unnecessarily on Young. The statutes in these cases are quite similar in scope to La. R.S. 20:33, which, unlike La. R.S. 22:647, can arguably be seen as limited to employer/employee pensions, retirement plans, gratuity payments, and retirement annuities-as well as IRA's. It is not surprising to this court that the Rhinebolt, Johnson, and Simon courts were reluctant to extend the protection of these statutes to the proceeds from annuities purchased pursuant to tort settlements. While Rhinebolt, Johnson, and Simon might be considered by this court were the Debtor claiming an exemption under La. R.S. 20:33, the Debtor has claimed an exemption under La. R.S. 22:647, not under 20:33. Therefore, this court deems the reasoning in Rhinebolt, Johnson, and Simon to be irrelevant to the proceeding before it.
*454 V. We Look for Help From Other Places and Find It; Matter of McCollam
A. The McCollam Decisions
The court finds intellectual comfort in the fact that it is not alone in limiting the effect of Young to annuities which also are accounts receivable, without annuity contracts. Indeed, the Eleventh Circuit and the Florida Supreme Court also have read Young similarly, and although the court is not bound by Eleventh Circuit precedent, the court will be so bold as to rely upon the Eleventh Circuit's jurisprudence as a "beacon" in the murky waters which the court has traversed thus far.
Therefore, the court will examine the Eleventh Circuit case, which is the culmination of an extended trip up, down and sideways within the appellate and certification process, and which thoughtfully considered the very issues now before the court. In doing so, the court will focus upon In re McCollam, 612 So. 2d 572 (1993) and In Re McCollam, 986 F.2d 436 (11th Cir.1993), which witness a labyrinth of procedural history from the Florida bankruptcy court, to the Eleventh Circuit, to the Florida Supreme Court, and back to the Eleventh Circuit. Perhaps the lessons of McCollam will shield this court, the Debtor and Canfield from a similar procedural history.
In McCollam, the issue was whether, as a matter of law, an annuity contract which was established in lieu of a creditor paying a debtor a lump sum presently owed was exempt from creditor claims in bankruptcy under the Florida statutory exemption provision. The McCollam case originated in bankruptcy court, which found the structured tort settlement to be exempt. In re McCollam, 110 B.R. 599 (Bankr.S.D.Fla.1990). The district court affirmed. 118 B.R. 129 (S.D.Fla.1990). The Eleventh Circuit certified the question to the Florida Supreme Court, 955 F.2d 678 (11th Cir.1992). The Florida Supreme Court held the annuity was exempt. 612 So. 2d 572 (Fla.1993). The Eleventh Circuit affirmed the district court's decision. based upon the Florida Supreme Court's decision. 986 F.2d 436 (11th Cir. 1993).
In the bankruptcy court decision, 110 B.R. 599 (Bankr.S.D.Fla.1990), a Chapter 7 debtor claimed Florida's statutory exemption for the "proceeds of annuity contracts issued to citizens or residents of the state," with regard to an annuity contract which had been purchased by Travelers Insurance Company ("Travelers") to provide payments in connection with a structured tort settlement for the debtor, who was the surviving child of an individual whose death provided the family members with a claim against the insurer. The Florida statute, like La. R.S. 22:647, was broad and unlimited and provided as follows:
The cash surrender values of life insurance policies issued upon the lives of citizens or residents of the state and the proceeds of annuity contracts issued to citizens or residents of the state, upon whatever form, shall not in any case be liable to attachment, garnishment or legal process in favor of any creditor of the person whose life is so insured or of any creditor of the person who is the beneficiary of such annuity contract, unless the insurance policy or annuity contract was effected for the benefit of such creditor.
Fla. Stat. Ann. § 222.14 (West 1990) (emphasis supplied). Thus, the only limitations set forth in the Florida statute were that: (1) an "annuity contract" must have been issued to the debtor; (2) the debtor was a resident of the state; and (3) the debtor was a beneficiary of the annuity contract.
The McCollam debtor was the beneficiary under the annuity contract. McCollam's objecting creditor had a claim against the debtor arising from an automobile accident that had occurred two years after the annuity contract had been established.
The McCollam bankruptcy court first noted the "important consideration," 110 B.R. at 600, that there was no reliance by the objecting creditor or any other creditor on existing funds of the debtor which were placed beyond the reach of creditors by the purchase of the annuity. The court then relied favorably upon In re Benedict, 88 B.R. 387 (Bankr.M.D.Fla.1988), in which it was held that annuities issued pursuant to the terms of a structured injury tort settlement agreement in favor of the debtor's husband could *455 be claimed as exempt by the debtor under the Florida statute, even though the debtor was not designated as owner of the policy. The McCollam court noted that Benedict was "exactly on point," id. at 601, and found that although McCollam did not own the annuity, it was McCollam who had the right to receive the annuity payments and to change beneficiaries, which were the direct benefits provided by the annuity.
The McCollam bankruptcy court also distinguished Young on the following grounds:
I am convinced from the fact of the humanitarian loss for which the annuity compensates this debtor that there can be no suggestion of fraud or any improper conduct by the debtor to avoid creditors in establishing the annuity. Therefore, the policy argument set forth in the objector's Brief which compares the debtor's annuity to an annuity purchased to pay off a lottery debt or a lawyer's fee is totally unrelated to the facts here. The debtor is not an attorney collecting an account receivable and therefore In re Young, cited by the creditor, is not applicable to the facts before me.
Id. (citation and footnote omitted). Finally, the bankruptcy court rejected the creditor's argument that the annuity contract was motivated by tax considerations. The court found that such considerations had "no bearing on the debtor's entitlement to claim the statutory exemption," id., given the well-established principle that exemption statutes should be liberally construed in favor of the debtor so that the debtor and his or her family will not become public wards.
The district court affirmed the bankruptcy court and held that the debtor's annuity contract was exempt property under the Florida exemption statute. 118 B.R. 129 (S.D.Fla. 1990). The court found that a "strict reading" of the Florida statute, id. at 130, accompanied by the court's review of the facts, compelled the court's holding that the annuity contract issued to the debtor pursuant to the tort settlement was an "annuity contract" within the meaning of the Florida statute.[91] In so holding, the court rejected the arguments of the creditor that the debtor was merely a third-party beneficiary who had no property interest in the annuity, that the annuity obligation itself was not claimed to be exempt under bankruptcy law because the obligation was secured by an annuity owned by Travelers, and that the debtor was merely investing in a personal injury tort settlement which was a tax shelter. Id. at 131.
The Eleventh Circuit, rather than ruling on the issue before it, certified the following issue to the Florida Supreme Court:
WHETHER AS A MATTER OF LAW, AN ANNUITY CONTRACT WHICH IS ESTABLISHED IN LIEU OF A CREDITOR PAYING A DEBTOR A LUMP SUM PRESENTLY OWED IS EXEMPT FROM CREDITOR CLAIMS IN BANKRUPTCY UNDER FLA. STAT. § 222.14.
955 F.2d 678, 681 (11th Cir.1992). In giving its reasons for certification, the court stated:
The Florida statute, on its face, appears to exempt all annuity contracts from creditor claims in bankruptcy, regardless of the underlying obligations that the contracts represent. Appellant, however, presents a viable argument against such a literal interpretation of this statute. He argues that allowance of the exemption at issue here "leads the debtor to gloss over an asset: her claim against Travelers." Appellant reasons that without the existence of the original debt owed by Travelers to McCollam [the debtor], there never would have been an annuity. The annuity, he continues, is merely a means to secure a steady stream of payments of a debt. Appellant emphasizes that while the debtor listed the annuity as an exempt asset, she did not list the debt from Travelers among her assets. He concludes that the debt owed to the debtor by Travelers is non-exempt property of McCollam's bankrupt estate. The fact that an annuity provides the schedule of payments for that debt does not, he argues, mean that the debt, the annuity, and the payments thereunder are exempt from the claims of general *456 unsecured creditors of the debtor's bankrupt estate. The bankruptcy court's opinion in In re Vincent R. Benedict, on which the district court relied in this case, is factually similar to this case. . . . A Florida court may find the reasoning of the court in In re Benedict unpersuasive. Appellant states that the annuity paid by Travelers to McCollam is, in substance, a tort settlement of a debt, merely structured as a stream of payments. The case is similar, in this respect, to Matter of Young,. . . . Having found no Florida court decision that speaks to the issue in this case, we determine that it is appropriate for the highest court of Florida to determine whether the Florida Legislature intended that Ms. McCollam and others similarly situated have lifetime exemptions from levy or garnishment under this circumstance. That is, is it appropriate for the highest court of Florida to determine whether the intent of the legislature is to exempt from the claims of creditors in bankruptcy annuities in the nature of retirement instruments, or all debts structured as annuities, including those that derive from personal injury tort settlements.
McCollam, 955 F.2d at 680-81 (footnotes and citation omitted). The Eleventh Circuit affirmed the district court's holding, 986 F.2d 436 (11th Cir.1993), based upon the opinion of the Supreme Court of Florida, 612 So. 2d 572 (Fla.1993), which was appended to the Eleventh Circuit's affirming opinion. In its opinion, the Florida Supreme Court first noted the rule of statutory interpretation that "when the language of a statute is clear and unambiguous and conveys a clear meaning, the statute must be given its plain and ordinary meaning," 612 So.2d at 573, and further stated that the Court would "not go beyond the plain and ordinary meaning of the words used in the statute unless an unreasonable or ridiculous conclusion would result from a failure to do so." Id.
The Court then focused on the language of the Florida statute which provided that "proceeds of annuity contracts . . . upon whatever form, shall not in any case be liable to attachment, garnishment or legal process in favor of any creditor." Id. The Court interpreted this provision as clearly exempting all annuity contracts from creditor claims, and then focused on the meaning of "annuity contracts" as used in the statute. Id. at 573-74. Noting that the Florida legislature had not defined this term in this provision, the Court looked to the definition of annuities in other Florida statutes, other cases from different jurisdictions (including a case which relied upon In re Talbert), and Black's Law Dictionary. Using these definitions "as a guide to the plain and ordinary meaning of annuity,"[92] 612 So.2d at 574, the Court found that the contract at issue was an annuity and therefore the contract was exempt under the Florida exemption statute from creditor claims. In so holding, the Court noted that "had the legislature intended to limit the exemption to particular annuity contracts, it would have included such restrictive language when the statute was amended to include annuity contracts."[93]Id.
*457 B. After McCollam, in In re Solomon; the Eleventh Circuit Speaks to the Importance of the Annuity Contract
In In re Solomon, 95 F.3d 1076 (11th Cir.1996), the Eleventh Circuit revisited its McCollam decision, through a perspective of different facts.
Solomon, the debtor, had settled a tort suit pre-petition with Union Mutual, which provided that Union Mutual would pay, over time, a stream of payments and a final lump sum. As well, Union Mutual agreed to pay Solomon's attorney's fees. To secure the payment obligations of the settlement agreement, Union Mutual was required to purchase an annuity and did so from Transamerica Annuity Service Corporation. Unlike Young and Orso, Solomon had no interest whatsoever in, to, or upon the annuity. Rather, Union Mutual was both the owner and the payee of the annuity.
Solomon subsequently filed bankruptcy, claiming the annuity contract and the payment streams under the settlement agreement as exempt under the Florida statute exempting proceeds of annuity contracts.
The bankruptcy court had denied the exemption, finding that Solomon had no interest in the annuity contract. 166 B.R. 998 (Bankr.S.D.Fla.1994). On appeal to the district court, Solomon argued that the court should focus not on the annuity that Union Mutual, the insurer, had purchased from Transamerica, but rather on the tort settlement agreement itself between Solomon and Union Mutual. 186 B.R. 535 (S.D.Fla.1995). Accordingly, the issue before the district court was whether the tort settlement agreement itself constituted an annuity contract which fell within the protection of the Florida statute.
The district court concluded that pursuant to the "broad definitions of annuity utilized in McCollam," 186 B.R. at 537, and given the "irrelevance of the purpose and source of funds," id., at 538, the structured tort settlement agreement in fact was an annuity.[94] The court reasoned that the agreement was a contract pursuant to which Union Mutual paid Solomon monthly payments of a fixed sum for a term of ten years, and that Solomon was "the beneficiary trying to exempt the proceeds from the reach of his creditors." Id. at 537. Therefore, the court found that the settlement agreement itself constituted an annuity under the Florida statute. Believing that it was following McCollam, the district court concluded that the proceeds of the settlement agreement in Solomon constituted the proceeds of an annuity contract which were exempt under the Florida statute. Because the payment of attorney's fees, however, was separate and distinct under the settlement agreement and the agreement did not specify a time for payment of the fees, the court found that such fees warranted separate treatment and were not exempt.
The Eleventh Circuit reversed the district court, in part, holding that the payments/payment obligations under the settlement agreement were not proceeds of an annuity contract. 95 F.3d at 1078. In so holding, the court says
We recognize that the Florida Supreme Court has broadly defined [the applicable *458 statute] to include "all annuity contracts," stating that "had the legislature intended to limit the exemption to particular annuity contracts, it would have included such restricted language . . ." But the statute dos not shield all debts on "`accounts receivable' structured to resemble annuities from a debtor's bankrupt estate. We read McCollam to require the existence of an actual annuity contract before a series of payments may be exempt. . . . "
Id. (citations omitted; emphasis in original).[95]
The Eleventh Circuit shows us, through Solomon, the correctness of McCollam, the incorrectness of Young, and the correctness of Abadie and this Court. In fact, we can go back to the early Louisiana annuity cases and, as well, back to Beisel (if we want to) to tie the annuity/exemption analysis together. Perhaps Abadie, McCollam, and this Court generate holdings that might appear to deprive creditors of real money (that looks like it's) just sitting there. However, clearly there are inherent in the analyses a set of limiting principles that preclude a parade of "semblances."
First, and last, there must be an annuity contract that constitutes, under applicable state law, an annuity. While the term "annuity" is perhaps somewhat elusive (see, for example, Succession of Rabouin, supra, concluding that the limitations on redemption or surrender within Louisiana's statutes are not exclusive of other arrangements), there are some bedrock components: (1) a fund; (2) transfer of the fund (as opposed to release of all claims, etc., except to the right to be paid pursuant to the annuity contract); (3) limitation of control over the fund used to purchase the annuity, as the annuity has been exchanged for the fund, itself; (4) an obligation to make payments (of rent) on the basis of receipt of the fund, for life, in perpetuity, or for a term; (5) an interest, as beneficiary, or payee, of the proceeds of the annuity contract held by the person claiming the exemption.
What will not qualify, and if the Fifth Circuit had been looking closely at Beisel, it would have seen this, is a contract that resembles an annuity in that it provides, simply (on only), for payments of an obligation over time. There was no annuity contract in Beisel. No annuity contract in Solomon. Remember, there was no annuity contract in Succession of Vidalat. The problem with Young, as pointed out by Abadie, by McCollam, and finally, by this Court, is that Young involved an actual annuity contract, one which was issued with Young as payee, beneficiary, annuitant upon the payment by the Underwriter of a purchase price of some $155,000. A fund was transferred, over which, upon which, and to which Young had no ownership, dominion, or control, and upon which rent payments were to be made to Young. The annuity, however, emanated from an account receivable due Young. This is where the Young courts (bankruptcy, district, and Fifth Circuit) got lost. Eschewing analysis of Louisiana law for an overly general reading of Beisel, they made the unfortunate misstep of forgetting that an account receivable without an annuity contract cannot be an annuity, as an annuity is a particular type of contract. An account, a contractual obligation, a tort claim, a promissory note, an account receivable, depository agreements, all generate types of rights arising from different types of obligations, many of which can involve payment agreements providing for payments over time. However, none of these constitutes an annuity contract; therefore none of these, without somehow undergoing a fundamental change, can be an annuity.
We read McCollam and Solomon as cogent compatriots of Abadie. These are opinions authored by judges who are satisfied that if they were able to write the exemption statutes the exemption of annuities would be much narrower, but who, to their (near) chagrin, are duty bound to read and apply the statutes as written.
*459 VI. Conclusion
We have attempted to cover a lot of ground. We are dealing, as was the Fifth Circuit in Young, with a state statute providing an unlimited exemption of payments and proceeds of annuities to beneficiaries, payees, and assignees. We have attempted to hash out the Louisiana law of annuities in light of Young because there needs to be a re-thinking, by the Fifth Circuit, of its confusion-producing suggestion that retention of a claim against an underwriter or purchaser of an annuity is equivalent to maintaining control over the fund used to purchase the annuity.
Of course, we have read the Young court as at most suggesting such a thing, given the extent to which Louisiana law is in conflict with such a suggestion. As a result, Young is interpreted as limited to claims which are truly "accounts receivable" as the term has been and is defined and used in Louisiana.
The distinction between Orso's claim and Young's is one which is material, only, it seems to us, not relevant to the correct legal analysis of whether an annuity is exempt.[96] But, and this is it, here we leave it.
Appendix 1
WEST'S LOUISIANA STATUTES ANNOTATED
LOUISIANA REVISED STATUTES
TITLE 22. INSURANCE
CHAPTER 1. INSURANCE CODE
PART XIV. THE INSURANCE CONTRACT
§ 647. Exemption of proceeds; life, endowment, annuity
A. (1) The lawful beneficiary, assignee, or payee, including the insured's estate, of a life insurance policy or endowment policy, heretofore or hereafter effected shall be entitled to the proceeds and avails of the policy against the creditors and representatives of the insured and of the person effecting the policy or the estate of either, and against the heirs and legatees of either such person, and such proceeds and avails shall also be exempt from all liability for any debt of such beneficiary, payee, or assignee or estate, existing at the time the proceeds or avails are made available for his own use. For purposes of this Subsection, the proceeds and avails of the policy include the cash surrender value of the policy.
(2) The exemption authorized in Subsection (A)(1) from seizure under any writ, mandate, or process issued by any court of competent jurisdiction, including any bankruptcy proceedings, shall not apply to that portion of the cash surrender value, or loan value of any life insurance policy, endowment policy, or annuity contract payable upon surrender during the lifetime of the insured or annuitant which exceeds the sum of thirty-five thousand dollars if such policy or contract was issued within nine months of issuance of such writ, mandate, or process or the filing of a voluntary or involuntary bankruptcy proceeding under the United States Code. However, an insurer shall be liable only for such amounts that exceed the thirty-five thousand dollar exemption which are in the insurer's possession at the time the insurer receives, at its home office, written notice by or on behalf of a creditor of claims being made against such value or interest with specification of the amount claimed. The insurer shall have no obligation to determine the validity or the accuracy of the amount of the claim and shall be relieved of further liability of any kind with respect to the monies paid upon such request of a creditor. An insurer shall be entitled to be paid by preference and priority over the claim of any such seizing creditor the balance of any bona fide loan to such insured or owner which is secured by such interest or value in such policy or contract.
*460 B. The lawful beneficiary, assignee, or payee, including the annuitant's estate, of an annuity contract, heretofore or hereafter effected, shall be entitled to the proceeds and avails of the contract against the creditors and representatives of the annuitant or the person effecting the contract, or the estate of either, and against the heirs and legatees of either such person, saving the rights of forced heirs, and such proceeds and avails shall also be exempt from all liability for any debt of such beneficiary, payee, or assignee or estate, existing at the time the proceeds or avails are made available for his own use.
C. The lawful beneficiary designated in an Education Assistance Account depositor's agreement to receive account funds in the event of the account owner's death, including the account owner's estate, of the funds contained in an Education Assistance Account established pursuant to R.S. 17:3095, heretofore or hereafter effected, shall be entitled to the proceeds and avails of the Education Assistance account against the creditors and representatives of the account owner or the person effecting the account, or the estate of either, and against the heirs and legatees of either such person, saving the rights of forced heirs, and such proceeds and avails shall also be exempt from all liability for any debt of such beneficiary or estate existing at the time the proceeds and avails are made available for his own use.
D. The provisions of Subsections A, B, and C of this Section shall apply:
(1) Whether or not the right to change the beneficiary is reserved or permitted in the policy, contract, or Education Assistance Account depositor's agreement; or
(2) Whether or not the policy, contract, or Education Assistance Account depositor's agreement is made payable to the person whose life is insured, to his estate or to the estate of an annuitant or to the estate of an Education Assistance Account owner if the beneficiary, assignee or payee shall predecease such person; except, that this Subsection shall not be construed so as to defeat any policy or contract provision which provides for disposition of proceeds in the event the beneficiary, assignee, or payee shall predecease the insured, annuitant, or Education Assistance Account owner.
E. No person shall be compelled to exercise any rights, powers, options, or privileges under any such policy, contract, or Education Assistance Account depositor's agreement.
F. There shall be excepted from the provisions of this Section a debt secured by a pledge of a policy, any rights under such policy that may have been assigned, and any advance payments made on or against such policy.
NOTES
[1] As will be shown, this dispute is one which makes a difference, given the disparity of exemption treatment of annuities within the two states' laws.
[2] In Young, the Fifth Circuit held that attorney's fees arising out of a debtor-attorney's representation of an injured party, payable through an annuity, were a non-exempt account receivable, rather than an annuity exempt under Louisiana law.
[3] In his deposition on February 9, 1994, Dr. Tessier testified that this statement in his letter of August 18, 1992, was incorrect in that the Debtor did admit to having been in an accident, but could not relate how long he had been in a coma. See Deposition of Dr. Tessier, at 30.
[4] See Deposition of Dr. Tessier, at 16.
[5] See July 10, 1992, deposition of Richard P. Strobach, M.D., at 11.
[6] See Deposition of Dr. Strobach, at 11.
[7] See Deposition of Dr. Strobach, at 11, 12, 14.
[8] See Deposition of Dr. Strobach, at 17.
[9] See Deposition of Dr. Strobach, at 23.
[10] See Deposition of Dr. Strobach, at 28-29.
[11] See Deposition of Dr. Strobach, at 29.
[12] See Deposition of Dr. Strobach, at 39-41.
[13] The Debtor's appeal of the July 7, 1994, state-court judgement against him has been stayed pending resolution of the exemption and dischargeability issues. Neither the Debtor nor Canfield has presented to this court the question of the finality of the state court judgment, which curiously is a combination judgment for past due arrears under the Amended Settlement of Community Agreement and for injunctive relief ordering the Debtor to comply with the remaining payment obligations under the Amended Settlement of Community Agreement. Perhaps this form of relief is an appropriate response to the fact that the Amended Settlement of Community Agreement does not have an acceleration clause regarding the Debtor's obligations to Canfield; perhaps not.
[14] January 26, 1995, § 341(a) meeting of creditors, at 26-27.
[15] See 11 U.S.C. § 541(a)(1) (1995). All citations of statutes are to the Bankruptcy Code, unless otherwise indicated.
[16] Section 522(b) provides in pertinent part:
(b) Notwithstanding section 541 of this title [Title 11], an individual debtor may exempt from property of the estate the property listed in either paragraph (1) or, in the alternative, paragraph (2) of this section. . . . Such property is
(1) property that is specified under subsection (d) of this section, unless the State law that is applicable to the debtor under paragraph (2)(A) of this subsection specifically does not so authorize; or, in the alternative, (2)(A) any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor's domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place.
* * * * * *
11 U.S.C. § 522(b)(2)(A).
[17] Section 522(d)(11)(D) provides an exemption for "[t]he debtor's right to receive, or property that is traceable to . . . a payment, not to exceed $ 15,000, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent," and section 522(d)(11)(E) provides an exemption for "[t]he debtor's right to receive, or property that is traceable to . . . a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor." See In re Ziegler, 156 B.R. 151 (Bankr. W.D.Pa.1993) (Chapter 7 debtor claimed personal injury settlement proceeds, in the form of a lump-sum payment and monthly payments pursuant to an annuity contract, as exempt under § 522(d)(11)(D) and (d)(11)(E); court held: (1) the debtor was entitled to the § 522(d)(11)(D) exemption to be paid from the annuity contract; but (2) the debtor was not entitled to the § 522(d)(11)(E) exemption because the annuity contract did not represent "compensation of loss of future earnings," in that the debtor returned to work within a month following his personal injury accident and the debtor had suffered no impairment in his earning ability as a result of the accident). See also In re Smith, 179 B.R. 437, 446 n. 4 (Bankr.E.D.Pa.1995) (finding that the debtor's annuity was akin to future earnings, for purposes of § 522(d)(11)(E)).
[18] Alabama Code § 6-10-11 provides:
In cases instituted under the provisions of Title 11 of the United States Code entitled "Bankruptcy," there shall be exempt from the property of the estate of an individual debtor only that property and income which is exempt under the laws of the state of Alabama and under federal laws other than subsection (d) of Section 522 of said Title 11 of the United States Code.
Alabama Code § 6-10-11 (1995).
Similarly, La. R.S. 13:3881(B)(1) provides: In cases instituted under the provisions of Title 11 of the United States Code, entitled "Bankruptcy," there shall be exempt from the property of the estate of an individual debtor only that property and income which is exempt under the laws of the state of Louisiana and under federal laws other than Subsection (d) of Section 522 of said Title 11 of the United States Code.
La. R.S. 13:3881(B)(1) (West Supp.1995).
[19] See In re Dees, 155 B.R. 238 (Bankr.S.D.Ala. 1992) (court stated that the use of the word "may" in § 27-13-32(a)(3) of the Alabama Code indicated the discretion of the Court to determine whether annuity benefits in excess of $250.00 per month should be garnished or be available for the support of the debtor and his or her family, noting that Alabama courts have not published opinions providing guidance on the application of this provision).
[20] State of Texas v. State of Florida, 306 U.S. 398, 425, 59 S. Ct. 563, 576, 83 L. Ed. 817 (1939).
[21] Section 522(b) does not prescribe a federal analysis of domicile. In fact, mention of domicile within the bankruptcy scheme is slight, not being defined in the Code (see § 101), it is only briefly mentioned with § 109 (who can be a debtor) and is referred to as one of the grounds of determining a proper venue for a bankruptcy case (see 28 U.S.C. § 1408).
[22] See generally, Joseph Dainow, Conflict of Laws: Domicile, 11 La. L.Rev. 141 (1951).
[23] Comments (a) and (b) to Article 3518 offer discussion of this Article.
(a) Purpose of this Article. This Article designates the law under which domicile is to be determined. . . .
(b) Domicile determined according to the law of the forum. This Article provides that the place where a person, natural or juridical, is domiciled is to be determined according to Louisiana law (see, e.g., La. Civ.Code Arts. 38-46 (1870)), even in cases where that person is ultimately found to be domiciled in another state. This provision is consistent with present jurisprudence as well as with the principle that characterization is normally conducted in accordance with the law of the forum. See, e.g., Restatement Second, Conflict of Laws, § 13.
[24] Observe that the clause "if he resides alternately in several places, and nearly as much in one as in another, and has not declared his intention in the manner hereafter prescribed, any one of the said places where he resides may be considered as his principal establishment, at the option of the persons whose interests are thereby affected," provides an option for procedural purposes only, such as with regard to whether jurisdiction or venue is proper. This option does not provide a choice for substantive, choice-of-law purposes. See, e.g., Wogan v. Folse, 156 La. 393, 100 So. 540 (La.1924).
[25] See Shreveport Long Leaf Lumber Co. v. Wilson, 38 F. Supp. 629 (W.D.La.1941).
[26] Id. Black's Law Dictionary defines "domicile" similarly:
That place where a man has his true, fixed, and permanent home and principal establishment, and to which whenever he is absent he has the intention of returning. . . . The permanent residence of a person or the place to which he intends to return even though he may actually reside elsewhere. A person may have more than one residence but only one domicile. . . . The established, fixed, permanent, or ordinary dwellingplace or place of residence of a person, as distinguished from his temporary and transient, though actual, place of residence. It is his legal residence, as distinguished from his temporary place of abode; or his home, as distinguished from a place to which business or pleasure may temporarily call him.
Black's Law Dictionary 435 (5th ed. 1979).
[27] See Texana Oil & Refining Co. v. Belchic, 150 La. 88, 90 So. 522 (1922); George v. George, 143 La. 1032, 79 So. 832 (1918); Ballard v. Puleston, 113 La. 235, 36 So. 951 (1904).
[28] See Sheets v. Sheets, 612 So. 2d 842 (La.Ct. App. 1st Cir.1992).
[29] See LaFleur v. Seaboard Fire & Marine Insurance Co., 296 So. 2d 860 (La.Ct.App.3rd Cir. 1974), writ ref'd, 300 So. 2d 185 (La. 1974).
[30] See In re Kennedy, 357 So. 2d 905 (La.Ct. App.2d Cir.1978).
[31] See Burke v. Mass. Bonding & Ins. Co., 19 So. 2d 647 (La.Ct.App. 1st Cir.1944), aff'd, 209 La. 495, 24 So. 2d 875 (La. 1946).
[32] See Successions of Rhea, 227 La. 214, 78 So. 2d 838, 844 (1955).
[33] Id.
[34] See Stine v. Moore, 213 F.2d 446, 448 (5th Cir. 1954).
[35] See La. Civ.Code art. 38.
[36] See La. Civ.Code art. 41.
[37] See La. Civ.Code art. 42.
[38] See La. Civ.Code art. 43.
[39] See Deposition of Dr. Tessier, at 16.
[40] January 26, 1995, § 341(a) meeting of creditors, at 26-27. Due to the interdiction of the Debtor, his mother (his curator) testified as or for the Debtor at the meeting of creditors, without objection from anyone.
[41] The Debtor's mother testified at trial, however, that none of the Debtor's relationships with women were serious because the Debtor's ability to relate to others had been seriously impaired as a result of the accident. Because of his impaired relational ability, the Debtor jumped from one relationship to another without much thought.
Dr. Strobach also testified in his deposition that the Debtor's ability to relate to others had been severely impaired, and that although the Debtor's "girlfriends" made the Debtor smile and look happy, his cognitive deficits due to the brain damage itself would not have improved, despite his smile and his happy demeanor. See Deposition of Dr. Strobach Deposition, at 10, 16, 18-19. Dr. Tessier similarly testified in his deposition that the Debtor had a "flight of ideas." See Deposition of Dr. Tessier, at 11.
[42] Because of this conclusion, it is unnecessary to investigate whether, if Alabama law applied, Canfield would be able to take advantage of the generally applicable exemption limitation of § 27-14-32 of the Alabama Code or whether, given Orso's inability to care for himself, now or ever, and the advancing age of his parents (curator and undercurator), the court would use its discretion to ignore the cap, as provided in § 27-14-32(3).
[43] As we shall see, the Louisiana state court which has dealt with this precise question acknowledges that exemption of this type of annuity might create an undesirable loophole (depending, of course, upon one's perspective), but that courts are to interpret the law as written, not to carve out artificial distinctions that might feel better.
[44] In La. R.S. 20:33, Louisiana sets forth an additional exemption of annuity policies or plans, which arguably limits the claim of exemption for annuities to those emanating from an employment plan.
The following shall be exempt from all liability for any debt except alimony and child support: (1) All pensions, all proceeds of and payments under annuity policies or plans, all individual retirement accounts, all Keogh plans, all simplified employee pension plans, and all other plans qualified under Sections 401 or 408 of the Internal Revenue Code. However, an individual retirement account, Keogh plan, simplified employee pension plan, or other qualified plan is only exempt to the extent that contributions thereto were exempt from federal income taxation at the time of contribution, plus interest or dividends that have accrued thereon. No contribution shall be exempt if made less that one calendar year from the date of filing for bankruptcy, whether voluntary or involuntarily, or less than one calendar year from the date writs of seizure are filed against such account or plan.
(2) All gratuitous payments made by employers to their employees or former employees, or to the widow, or heirs, or beneficiaries of their employees or former employees, whether such payments are made in consideration of the length of service rendered by the employee, his age, death, or otherwise.
La. R.S. 20:33 (1995).
Similarly, La. R.S. 3881 sets forth Louisiana's general exemptions from seizure. Subsection (D) of this provision mirrors La. R.S. 20:33 and provides as follows:
D. (1) The following shall be exempt from all liability for any debt except alimony and child support: all pensions, all proceeds of and payments under annuity policies or plans, all individual retirement accounts, all Keogh plans, all simplified employee pension plans, and all other plans qualified under Sections 401 or 408 of the Internal Revenue Code. However, an individual retirement account, Keogh plan, simplified employee pension plan, or other qualified plan is only exempt to the extent that contributions thereto were exempt from federal income taxation at the time of contribution, plus interest or dividends that have accrued thereon.
(2) No contribution shall be exempt if made less than one calendar year from the date of filing for bankruptcy, whether voluntary or involuntary, or less than one calendar year from the date writs of seizure are filed against such account or plan.
La. R.S. 13:3881(D).
[45] Orso does not claim an exemption under La. R.S. 20:33, only under 20:647.
[46] In re Howerton, 21 B.R. 621, 623 (Bankr. N.D.Tex.1982).
[47] This description is curious in light of the Court's prior pronouncement that the payments were an annuity and also accounts receivable.
[48] In using this inability to find such state law explanation as the reason for resorting to an interpretation of the personal property tax statute of Pennsylvania, the court ignores the possibility that there need not be such an explanation, for exemption purposes, if an account receivable changes form by being deposited pursuant to an annuity contract. Further, the fact that there is no Louisiana authority on the issue posed by the court conceivably is a reflection upon the relevance (or lack of relevance) of the issue, itself.
[49] This Court has looked in vain for Louisiana authority as to this proposition, presumed by the court. Of course, one could argue that while the snappy recitation sounds like the espousal of a penetrating legal proposition, it could be that the court is saying nothing more that "calling a giraffe a duck does not make a giraffe a duck." Now, while this may be true, is it also true that a giraffe who is, in fact, a giraffe, but who is also a wallflower (at parties) is truly a wallflower, and no longer a giraffe?
[50] Why are no Louisiana statutes or cases mentioned? Other than that there are none which remotely stand for the proposition that the court must determine what it says it must determine, we have no idea.
[51] Some minor amendments have immaterially affected the statute since 1940. The importance, to the Secretary of Revenue, of reclassifying the proceeds, as well as the taxable objective under the Personal Property Tax Act, is evidenced by a prior lower court decision, Appeal of Duvall, 33 Dall. & C. 238, 86 P.L.S.1939. In this case a beneficiary had no option under the policy but to surrender the policy of insurance and thereafter take a monthly income for the balance of her life (and, if she died prior to her life expectance, the balance of the fund would be paid to others). The court held that the payments were made under a policy of insurance as opposed to an annuity and, therefore, that the capitalized value was not subject to the personal property tax. See also, Com. v. Benshoff, 44 Pa. D. & C. 630, 90 P.L.J. 145, 55 York 205 (1942).
In light of the argument raised by the Secretary in Beisel, as seen through the spectrum of these decisions, the tax statute functioned to impose a millage tax upon the discounted principal value of the annuity payment stream, if the right to receive payments could be classified as an "annuity."
[52] Remember, this is the case which establishes (for no other case has referred to) that it "is the substance of the arrangement rather than the label affixed to it that determines whether the payments are exempt under the Louisiana statutes."
[53] The cases referred to within footnote 51 above would limit the applicability of Beisel to situations where the beneficiary voluntarily exercised an option to leave the proceeds with the company in return for an agreed-upon monthly payment obligation (with the principal bearing interest), as opposed to being forced by the terms of the policy to take the insurance proceeds through a payment stream.
[54] This resoluteness is curious, in light of the references to the Beisel court's preoccupation with the form of the arrangement: "The form of the transaction is crucial in determining whether payments are annuities and exempt under Louisiana statutes or account receivables and part of the bankruptcy estate. See Beisel, 13 A.2d at 421." 64 B.R. at 615. Of course, as mentioned some 130 times so far, Beisel did not deal with exemption issues.
[55] As will be shown, this right tracks, exactly, the Civil Code's provisions regarding the rights of a person to whom an annuity is payable, and as well, tracks the Civil Code understanding of the basic structure of an annuity arrangement.
[56] See discussion, infra. We think the Fifth Circuit is bound by the definition of "accounts receivable" under Louisiana law if it, improbably, would retain adherence to Young. As mentioned, Young does not refer to Louisiana law on this score, but we have concluded that in using the term "account receivable" it was using it within the context of its Louisiana definition.
[57] The court also distinguished Daniels v. Pecan Valley Ranch, Inc., 831 S.W.2d 372 (Tex.Ct.App.-San Antonio 1992), cert. denied, 508 U.S. 965, 113 S. Ct. 2944, 124 L. Ed. 2d 692 (1993), which held that payments made pursuant to an annuity contract issued by an insurance company to a personal injury victim, in settlement of a personal injury claim, were not exempt from garnishment by the victim's creditors, on the ground that "[t]hat case involved a personal injury structured settlement annuity that the annuitant claimed was exempt from garnishment. . . . The annuitant did not contend that it was an annuity as contemplated by [the Texas exemption statute]." Walden, 12 F.3d at 450 n. 9.
[58] The term "constituted annuity" is not defined. The "annuity" is dealt with in "Title X Of Rents and Annuities." While the annuity is conceptually seen as the rent of money, the Civil Code also refers to the rent of land a contract whereby a seller transfers title to land to one who holds as owner, but who owes back to the seller, as rent, either a sum of money or some quantity of fruits of the land. Such contracts were, by statute, perpetual, and essentially redeemable (otherwise the contract was one of lease). See La. Civ.Code arts. 2778, 2779, 2780, 2788. The same essentially redeemable language is used in terms of the "constituted annuity." Redactor comment refers to the Code Napoleon. art. 1911 (1804) as the source authority for Article 2796. This provision read: "Annuity constituted in perpetuity is essentially redeemable." Also, Civil Code Article 2800, dealing with interest, mentions "The interest of the sums lent and arrears of constituted and life annuity . . ." This provision seems to delineate between the perpetual (or constituted) and life annuity. However, the redactor's comment to Article 2793 refers to Civ. Code art. 33 of the Code of 1808, the source of the present article, as having read: "Interest may be stipulated in consideration of a stock or fund of money which the lender agrees not to ask. In such a case the loan goes by the appellation of constitution of an annuity or rent charge." So, statutorily it is unclear whether the term "constituted annuity" and the statutes employing it are limited to the perpetual annuity or are applicable to both forms of annuity referred to. Resolution of this interpretative problem is not necessary here, as redemption rights are not at issue. Also, as will be shown, the jurisprudence has not limited the possible forms of the annuity to the two mentioned by statute, has not attempted to discern whether redemption rights are limited to the perpetual annuity, and has, in fact, blessed as an annuity a contract having as its only limitation upon redemption (surrender for cash value) that the policy be in effect for two years.
[59] In another case dealing with the definition of annuity, In re Talbert, 15 B.R. 536 (Bankr. W.D.La.1981), the court held that an IRA was not an annuity under La. R.S. 20:33, adopting the definition of annuity cited in Succession of Rabouin an annuity is an "agreement to pay a specified sum to the annuitant annually during his life." (Of course, the "annuities" dealt with in Rabouin contained the right to surrender for the cash value after two years).
[60] While perhaps not relevant, the Fifth Circuit in Guidry was not really citing to a Louisiana State Court's opinion. The state court, where referred to by Guidry, was in actuality referring to the argument of a creditor who had cited Young in its attempt to seize a lawyer's rights in, to, and upon annuity policies. Referring to this argument, the state court had acknowledged the "analysis of Young" (upon which the creditor had relied), pointing to the part of the opinion cited by the creditor wherein the Young court was citing to the Pennsylvania state court. In fact, as will be seen, the Abadie Court very politely departs from Young and concludes that the lawyer's rights to annuity payments emanating (the same way Mr. Young's did) from a series of personal injury settlements were exempt. This court is somewhat chagrined at being told by a Federal Court, whose charge is to "`attempt to predict state law, not to create or modify it . . .'" Guidry, 110 F.3d at 1149 (citations deleted), that it is citing a Louisiana state Court's interpretation of Louisiana's state law, when in fact it is citing a state court referring to the federal Fifth Circuit's citation of and to a Pennsylvania state Court interpreting Pennsylvania law, which was used by the Fifth Circuit in Young, as authority for its own creation of Louisiana's state law without any reference whatsoever to Louisiana's state law on the issue faced. Use of this type of circular analysis provides unlimited opportunity for a Federal Court to create or modify state law and seems particularly distasteful when the state court opinion referred to holds differently from Young.
[61] The right to redeem is broken into two components, the right to demand redemption (which is held by the annuitant, or one to whom the rent is payable, also referred to as creditor) and the right to redeem (held by the party to whom the fund was transferred and who owes the rent, also referred to as the debtor, or seller).
[62] Though this factor was cited by the Court as the most important one, in fact, one of the payment streams, the one whereby the client assigned a share of the client's annuity to Abadie was for a term less than life. See WellTech, Inc. v. Abadie, 683 So. 2d 809, 811 (La.App.5th Cir. 1996). Also, as to whether the annuity must be at least for life, at least with respect to redemption or surrender rights, see Succession of Rabouin, supra. See also Article 2796, supra.
Yiannopoulos, 2 La. Civil Law Treatise 3rd § 150 (1991): "Rents of land are perpetual but redeemable, whereas annuities may be stipulated for a designated term, for life, or in perpetuity."
[63] The concurring opinion shares Young's distaste for exempting the annuity payments, in no uncertain terms. However, rather than act on such, memorializing as law mere distaste for outcome, the concurring opinion bemoans and yet affirms the Court's job interpreting law as written. "Such a scheme or plan needs to be addressed by the legislature, otherwise anyone who is owed a substantial sum of money or obtains an award or judgment can have the proceeds placed out of reach of his creditors." Id. at 1241 (emphasis supplied).
[64] There is one immaterial difference between the two fact patterns. In Young, the lump sum purchase price payment for the annuity was known, in Abadie the payments were undisclosed.
[65] Remember, there is absolutely no reason to believe that Young retained a claim against his former clients; the Court in Young only says that he retained a claim on account of his claim against the former clients, which of course he did as a result of the assumption of this claim by the Underwriter. The Abadie Court attempts to distinguish Young on the ground that Abadie retained no claim against the clients themselves, an attempted distinction thought necessary, perhaps, because of the following language in the Young opinion, "It appears, then, that the monthly payments made to Young represent nothing more than installment payments on debts to cover the fees owed to Young by the Fanguys." 806 F.2d at 1307. However, close reading of the opinion makes clear that some $155,196 was paid to the Underwriter, which was "part of the payment debtor received for services rendered on behalf of the Fanguy family . . ." Id. As such, and upon the continual references to the retention of a claim against the Underwriter, it is clear that the Court was referring to the debts of the Underwriter, incurred as part of the overall settlement, to cover the debts formerly owed by the clients to the lawyer. In sum (again), there was no claim retained by Young against his former clients, upon which to base a distinction between the Young and Abadie situations.
[66] On the question of whether retention of the claim equates to retention of ownership, dominion, or control of the fund used to purchase the annuity, or, in fact, whether retention of the claim has any effect at all, the Abadie court says "At this time, each Intermediary has discharged its obligation to pay monthly through the annuity payment it would be only as a result of some future occurrence that the Intermediaries might again become responsible for payments to Abadie." 683 So.2d at 811.
[67] This court wonders why the Federal Fifth Circuit had such a problem with Young not paying taxes upon the entirety of the fee due as it came due. Recall, there was a tradeoff made by Mr. Young. For not paying the taxes, he did not get the money! Not only that, but as long as the annuity payments were made, he could not get the money! In fact, we know the money the initial payment for the annuity was, initially, paid. However, not to Young, who would receive his fee over a period of fourteen (14) years, with each payment to him being taxable.
[68] As was mentioned in Transcontinental Gas Pipe Line Corporation, at 953 F.2d 988, concerning the precedential value of case law in Louisiana, "The concept of stare decisis is foreign to the Civil Law, including Louisiana. Therefore, in cases such as this [where there is no State Supreme Court or U.S. Supreme Court decision on the question presented] we are guided by decisions rendered by the Louisiana appellate courts, particularly when numerous decisions are in accord on a given issue the so-called jurisprudence constant but we are not strictly bound by them." Another case focusing on the Civilian aversion to case law precedent is Shelp v. National Surety Corporation, 333 F.2d 431 (5th Cir.1964). In this case the court was faced with an intermediate appellate court decision which was contrary to the principle announced in many other Louisiana cases, including some emanating from the Supreme Court. The court, undertaking its charge from West, concludes that there is extensive data upon which to conclude that the state Supreme Court would hold differently from the appellate court decision which had decided the precise legal issue presented. One such item was that the highest court had granted review of the supposedly dispositive intermediate court decision, only to have the case dismissed by agreement of the parties. Also, as the court points out at Ft. nt. 30, "The Court of Appeal admitted that if it followed the decisions of the Supreme Court `it would be compelled to insert and add the word doors to the last paragraph of article 2716 . . .'" The Fifth Circuit, rather than rely purely on the maneuvering room allowed a federal court by West, suggests that the federal court is not bound by the court decisions of a Louisiana intermediate court if it disagrees with its interpretation of the law which is the "solemn expression of legislative will" in Louisiana. See, La. Civ.Code art. 1 (1995). Curiously, the appellate court had utilized its own version of abhorrence of stare decisis, preferring to interpret the statute at issue as unambiguous, and therefore as not admitting of resort to Supreme Court "principles" of interpretation.
[69] The Lavespere court, in footnote 8, cites to Exxon Co., U.S.A. v. Banque de Paris et des Pays-Bas, 488 U.S. 920, 109 S. Ct. 299, 102 L. Ed. 2d 319 (1988) (mem.). As shown below (see ft. note 71), the Exxon case was remanded to the Fifth Circuit by this cited Supreme Court opinion on the basis of a Texas state court case decided after the Fifth Circuit's opinion. This sentence in Lavespere is subject to misconstruction, if taken to be a limitation upon circumstances under which the Fifth Circuit is to look to subsequently decided intermediate state appellate court decisions regarding state law. Clearly, if understood in context, the Lavespere Court is referring to the obligation to look to subsequently decided state court cases which clearly conflict even with the case already decided, if the decision is not final (for example, if a party brings the subsequently decided state court case to the Court's attention by means of request for rehearing, or rehearing en banc or the matter is remanded, a la Exxon, by the Supreme Court). The Court is not suggesting that it is only in situations where the 5th Circuit decision is not final that subsequently decided state court decisions are to be followed. See discussion above.
[70] To this court the phrasing, though superficially adhering to the West directive, seems to imply that the party seeking to rely upon the intermediate appellate court decision bears the burden of rebutting something like a reverse presumption, that the highest court would reverse, and could be read as also requiring that party to bear the burden of persuasion on the question "why would the high court not reverse?" This seems out of sync. See next footnote, referring to an opinion written by the author of Ladue, wherein the court adopted a "working presumption that state intermediate court decisions represent accurate statements of state law." This is a far throw from the Ladue proposition not bound unless convinced that this court wouldn't act differently.
[71] This case had a winding history, which, when looked at, sheds light upon the obligation of a federal court sitting in diversity to consider the decisions of intermediary state courts. The original opinion in Exxon, which is found at 828 F.2d 1121 (5th Cir.1987), was vacated, and remanded by the U.S. Supreme Court, at 488 U.S. 920, 109 S. Ct. 299, 102 L. Ed. 2d 319 (1988) (Mem). The order of remand order requires "further consideration in light of Kerr Construction Co. v. Plains National Bank, 753 S.W.2d 181 (Tex.App. Amarillo 1987, writ denied)." On remand, the court certified the state law question presented to the Texas Supreme Court. See 867 F.2d 1524 (5th Cir.1989), which declined to answer it. The final opinion emanates from this espoused presumption, and follows the intermediate court opinion.
[72] Because of this court's ultimate conclusion, that the matter before it presents a factually and legally distinct case from that of Young, it need not wrestle with the question of whether the Young case is binding on this bankruptcy court. It should be clear by this juncture that we believe that if faced with the Young case again, the Fifth Circuit would be bound not to follow Young. However, we have spent time sufficient to provide us with the answer to whether it is possible that inferior courts in the circuit can deem the subsequently shown-to-be-wrong state law decision to be non-binding.
In Kerr v. Smith Petroleum, 909 F. Supp. 421 (E.D.La.1995), the court was faced with a motion for reconsideration based upon a state court decision subsequent to that of the up until then controlling 5th Circuit decision. According to the mover, the district court should have granted reconsideration, on the ground that the prior 5th Circuit case had been, effectively, overruled. Citing Lavespere, the district court concludes as follows: "The ruling in Melancon v. Amoco Production Co., 834 F.2d 1238, 1248 (5th Cir.1988) [the prior 5th Circuit decision] has long since been final, and the Court finds that the facts of this case make it legally indistinguishable from Melancon. Hence, this Court is bound to follow Melancon, whether Phillips Petroleum Company v. Liberty Services, Inc., 657 So. 2d 405 (La.App. Cir.1995) [the state court decision decided subsequently] agrees with the Fifth Circuit or not. Moreover, [mover] has not shown and the Court's independent review has not revealed that the Fifth Circuit has reconsidered its decision in Melancon based upon Phillips or any other case, including but not limited to any ruling by the Louisiana Supreme Court." Id. at 426-427. According to the court, then, the "not final" language provides, at least to lower courts, a fundamental precondition to a lower court deciding that a prior Circuit decision is no longer binding. Of course, it may be that the Kerr court is saying nothing other than if a 5th Circuit opinion is not final (i.e. that mandate has not issued) it is not precedent; if it is, it is. It is sufficient to say that this court is satisfied to be satisfied that Young is distinguishable.
[73] In fact, the legislature, in 1997, did amend the exemption statute pursuant to which the exemption here primarily rests, La. R.S. 22:647. However, the annuity exemption provisions were not touched. We cite the West Electronic Pocketpart reference to the legislative history of the statute:
Acts 1997, No. 1416, S 2 inserted a new subsec. C, relating to Education Assistance Accounts; redesignated former subsecs. C, D, and E as subsecs. D, E, and F; substituted, in the introductory clause of subsec. D, "Subsections A, B, and C" for "Sub-section A and B"; inserted, in pars. D(1) and D(2), and in subsec. E, "or Education Assistance Account depositor's agreement" following "contract", with attendant punctuation adjustment; inserted, in par. D(2), following "annuitant", "or to the estate of an Education Assistance Account owner", and substituted, in the same sentence, "this Subsection" for "this Sub-section."
The amendments effected no change whatsoever to subsection (B), which contains the general annuity exemption.
[74] We have throughout this opinion referred to the Welltech v. Abadie as Abadie. The state court refers to it as WellTech.
[75] La. Civ.Code art. 1 (1995).
[76] La. Civ.Code art. 2 (1995).
[77] This version of the Code provision emanates from an earlier and more pointedly colorful directive, found primarily in Article 13 of the Civil Code of 1870: "When a law is clear and free from all ambiguity, the letter of it is not to be disregarded, under the pretext of pursuing its spirit." Also, on the primacy of the "plain meaning rule" within the ambit of federal statutory construction, see generally, U.S. v. American Trucking Associations, 310 U.S. 534, 543, 60 S. Ct. 1059, 1063, 84 L. Ed. 1345, 1350-51 (1940); Sutton v. United States, 819 F.2d 1289, 1292 (5th Cir.1987); Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S. Ct. 2051, 2056, 64 L. Ed. 2d 766 (1980); Garcia v. United States, 469 U.S. 70, 75, 105 S. Ct. 479, 482, 83 L. Ed. 2d 472 (1984); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756, 95 S. Ct. 1917, 1935, 44 L. Ed. 2d 539 (1975). On the plain meaning rule with regard to Bankruptcy Code interpretation, see Patterson v. Shumate, 504 U.S. 753, 757-60, 112 S. Ct. 2242, 2246-47, 119 L. Ed. 2d 519 (1992); Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S. Ct. 1644, 118 L. Ed. 2d 280 (1992); Union Bank v. Wolas, 502 U.S. 151, 154-60, 112 S. Ct. 527, 529-33, 116 L. Ed. 2d 514 (1991).
[78] See also, La. R.S. 22:647(C) and (D) (1995), which (as of the inception of this bankruptcy case) read:
(C) The provisions of Sub-section A and B of this section shall apply:
(1) Whether or not the right to change the beneficiary is reserved or permitted in the policy or contract; or
(2) Whether or not the policy or contract is made payable to the person whose life is insured, to his estate or to the estate of the annuitant if the beneficiary, assignee or payee shall predecease such person; except, that this Sub-section shall not be construed so as to defeat any policy or contract provision which provides for disposition of proceeds in the event the beneficiary, assignee or payee shall predecease the insured or annuitant.
(D) No person shall be compelled to exercise any rights, powers, options or privileges under any such policy or contract.
As mentioned above, Section 647 was amended in 1997, without affecting the extent to which annuities are exempt. In fact, the exemptions afforded were expanded to include Education Assistance Account depositor agreements. The full version of the section, as it now reads, is attached to this opinion as Appendix 1.
[79] As that term is/was defined by the law of Louisiana, or as that term was defined by the Supreme Court of Pennsylvania (which, as we shall see, is different from the Louisiana definition).
[80] Curiously, the Beisel case, relied upon as establishing that an annuity which is also an account receivable cannot be an annuity, dealt with a contractual arrangement/obligation that was not an annuity contract (see discussion above), and, as well, that would not have been classifiable as an "account receivable" under Louisiana law (see discussion below).
[81] We do not wish to be read as, in fact, believing these distinctions to have legal significance under the law of Louisiana as it is properly read, that all annuities are exempt. These distinctions, however, take us outside the ambit of Young, in the event our un-researched issue whether a lower court is bound by a circuit decision that has been clearly contradicted by subsequent state cases would be resolved in favor of our being bound.
[82] As will be discussed infra, the Louisiana Assignment of Accounts Receivable was in effect when Young was rendered. The Accounts Receivable Act also applies to the Liberty Mutual Annuity and the Western National Annuity, as they were purchased pursuant to the Tort Settlement in September, 1989, when the Accounts Receivable Act was still in effect. Section 3101 of the Act, defining "accounts receivable" and "account." was repealed effective July 1, 1989, but the effective date of such repeal was delayed until January 1, 1990.
On January 1, 1990, Article 9 (entitled "Secured Transactions") of the Uniform Commercial Code replaced the Accounts Receivable Act. Section 9-106 of Article 9 is strikingly similar to La. R.S. 9:3101 in the emphasis upon services rendered, and provides as follows:
"Account" means any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper, whether or not it has been earned by performance. * * *
La. R.S. 10:9-106 (1993) (emphasis supplied). The similar focus in La. R.S. 9:3101 and 10:9-106 upon "services rendered" strongly suggests that the Louisiana legislature intended to retain this component of the definition of "accounts receivable" or "account" in 10:9-106 and also suggests the importance of this component to the definition.
[83] See, e.g., In re Leblanc & Associates, 77 B.R. 539 (Bankr.W.D.La.1987) (architectural work performed by the debtor clearly fell within the definition of "accounts receivable" in La. R.S. 9:3101, which defined "accounts receivable" and "account" to include indebtedness for the performance of professional services); In re RDR Systems Development, Inc., 57 B.R. 540 (Bankr. M.D.La.1986) (debtor's assignment of accounts receivable was effective with regard to sums due under a contract to debtor, as La. R.S. 9:3101 defines "account receivable" to mean any indebtedness due to or arising out of the sale of goods or the performance of services); Associates Financial Services, Inc. v. McClendon, 367 So. 2d 91 (La.App. 4th Cir. 1979) (between an employee and an employer, there was no "account," within the meaning of 9:3101, because there was no indebtedness arising out of the assignor's business or undertaking, and therefore an employee's assignment of his future wages to the bank was not an assignment of accounts receivable); Bossier Bank & Trust Co. v. Natchitoches Development Co., 272 So. 2d 731 (La.App. 3rd Cir.1973) (indebtedness owed by contractor to subcontractor constituted an "account receivable," arising out of a business or profession, within the meaning of La. R.S. 9:3101).
[84] The obligation underlying the Young annuity would have also qualified as an "open account" under La. R.S. 9:2781, which provides for attorneys fees for collection of "open accounts" in default. The definition of "`Open Account' includes any account for which a part or all of the balance is past due, whether or not the account reflects one or more transactions and whether or not at the time of the contracting the parties expected future transactions. `Open Account' shall include debts incurred for professional services, including but not limited to, legal and medical services . . ." La. R.S. 9:2781(C).
[85] What about the argument that because Louisiana does not exempt tort settlements, that annuities arising from tort settlements are, likewise, non-exempt? First, the annuity exemption statute places no limitation upon the source of funds used to purchase the annuity. Second, and this is a variation on this court's response to the Young court's aversion to Young deferring taxation of his feea variation, because as we shall see, Orso avoided no taxation by means of the annuitya tort victim who receives his settlement by means of an annuity, gives up the right to collect the claim in one lump sum, to do with what he might wish. Recall a basic law of nature: Annuities are not a "fundamental component of the earth, which preexist humankind." Annuities are made, by people, through the use of money, almost always non-exempt money, which is paid to someone who thereafter owes the annuity obligation. The annuity, once effective, is exempt. It is nonsensical to reason that one cannot have an exemption for an annuity because it is derived from a non-exempt asset. Looked at closely, the argument that the non-exempt status of tort recoveries precludes exemption through annuities is, nonsensically, nothing other than a recasting of the "got to start exempt to stay exempt" argument.
[86] Canfield has suggested that the annuity-funding mechanism is solely for the benefit of the tortfeasors, rather than for the benefit of Orso, and that the distinction between lawyer account receivable and tort victim's annuity is one without a difference. Without suggesting that this court understands this argument, it is clear that while the structured settlement might, at first blush, give the impression that the tortfeasor has "gotten away" with a reduced liability, if the tort victim is properly represented, the payment stream should approximate the discounted value of the claim. A settlement like Orso's really helps people like Orso, who, given their post-tort condition, have no business being put in charge of huge sums of money, which are huge (or would be if paid in lump sum) because of the extent of damage, and are to be used to support the hurt person for his life. Remember, the evidence has conclusively established that a structured settlement for Orso was necessary, for the recovery to be counted on for Orso's future, because the Debtor was rendered incapable of handling his affairs, much less, large sums of money. Even with the structured settlement, the Debtor often spent all of his money before his next monthly payment was due, thus requiring his interdiction and the appointment of his mother as his limited curatrix.
[87] The United States Supreme Court recently reaffirmed the policy of excluding income received on account of personal injuries from tax liability under § 104 of the Internal Revenue Code. In Commissioner v. Schleier, 515 U.S. 323, 115 S. Ct. 2159, 132 L. Ed. 2d 294 (1995), the Court reversed the Fifth Circuit and established a new test for exclusion of income under § 104(a)(2), holding that to establish excludability, a taxpayer must show that the underlying cause of action is based upon tort or tort-like rights, and that damages were received on account of personal injuries or sickness.
[88] The legislative history of the sections corroborates this court's interpretation of the basis for the law. According to the Senate Report.
Reasons for Change
Despite several revenue rulings that indicate that the Internal Revenue Service considers that periodic payments as personal injury damages are excludable from the gross income of the recipient, the Committee believes it would be helpful to taxpayers to provide statutory certainty in the area. Likewise, the Committee believes that a person who undertakes an assignment of the liability for such payments from the person originally liable should not include amounts received for doing so in gross income to the extent that those amounts are used merely to purchase certain types of property to specifically cover the liability.
Explanation of Provision
The Bill specifically provides that the Code section 104 exclusion from gross income of damages for personal injuries or sickness applies whether the damages are paid as lump sums or as periodic payments. This provision is intended to codify, rather than change, present law. Thus, the periodic payments of personal injury damages are still excludable from income only if the recipient taxpayer is not in constructive receipt of or does not have the current economic benefit of the sum required to produce the periodic payments. See Rev. Rul. 79-220 and Rev. Rul. 77-230.
The Bill also adds a new section to the Code providing that, under certain circumstances, an amount received for agreeing to undertake an assignment of a liability to make periodic payments of personal injury damages is not included in gross income. Specifically, any amount so received will not be included in gross income to the extent it is used to purchase an annuity contract of a life insurance company . . .
S.Rep. No. 646, 97th Cong., 2nd Sess. (1982).
[89] In fact, the Liberty Mutual Agreement between the Debtor and Cook Construction/Liberty Mutual provided that Cook Construction or Liberty Mutual had the right to "fund Periodic Payments [to the Debtor] by purchasing a `qualified funding asset.' within the meaning of Section 130(d) of the Internal Revenue Code, in the form of an annuity payments."
[90] See also, Matter of Wommack, 80 B.R. 578 (Bankr.M.D.Ga.1987). In this case, a Chapter 13 debtor claimed his one-half interest in an annuity based upon a structured settlement for the wrongful death of the debtor's minor son; the Georgia statute exempted the debtor's right to receive payments "under a pension, an annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor." Id. at 579 (quoting § 44-13-100(a)(2)(E) of the Georgia Code). The court, noting that "the test for exemptibility focuses on the terms and restrictions governing the administration of the plan or contract, rather than the source of the funds in the account," id. at 580 (emphasis supplied), rejected the trustee's argument that the settlement award was not equivalent to future wages. The court reasoned that under the terms of the annuity, the debtor had no right to withdraw funds beyond the present monthly allotment and could not cash in the annuity. Therefore, the court held that the annuity was in nature of future earnings, and because the annuity had been issued in consideration of the debtor's age, the annuity qualified for exemption under the Georgia statute.
[91] The court also noted that "[t]he annuity itself is not what is exempted" by the Florida statute, but rather "[t]he proceeds from the annuity contracts, because they are paid directly to a beneficiary who, is a Florida resident, are protected from exemption." 118 B.R. at 131.
[92] We have done something of the same thing, but have focused on the Louisiana Civil Code articles defining annuity.
[93] In a dissent in which two other justices concurred, Justice McDonald of the Florida Supreme Court argued that the term "annuity contract" was elusive and ambiguous, but that such ambiguity was resolved by the legislative history of the Florida statute. Justice McDonald found that, in his opinion, the legislative history of the provision suggested that the Florida legislature intended to expand the scope of this provision to the same extent that it had expanded the insurance code's definition of "life insurance," and that the only annuity contracts exempt under the provision were those that involved the insurance of human lives. He also stated:
Interpreting the statute to exempt the glorified account receivable in the instant case violates the legislature's intent and unjustly deprives LeCroy [the creditor] of what he is legally entitled to under federal and state bankruptcy law. Legislative intent aside, while the payments McCollam claims to be exempt may technically be proceeds of an "annuity contract," they are, in substance, a structured account receivable. The substance of the arrangement, rather than the label affixed to it, determines whether the payments are exempt as proceeds from an annuity, or an account receivable, and part of the bankruptcy estate. See In re Young . . .; see also Beisel [the Pennsylvania Supreme Court case cited in Young]. . . . Thus, even assuming that [the Florida statute] is plain on its face and applicable to the proceeds of annuity contracts, I would hold that Travelers Insurance Company's monthly payments to McCollam merely constitute installment payments on an account receivable, not an annuity contract within the scope of the statute.
McCollam, 986 F.2d at 439.
[94] The court therefore declined to follow In re Pizzi, 153 B.R. 357 (Bankr.S.D.Fla.1993). In Pizzi, the court held that the debtor's lottery winnings were not exempt under the Florida statute, and cautioned that the Florida Supreme Court's McCollam decision:
. . . should not be extended further to enable debtors to exempt payment streams that are not payments under an actual annuity contract. . . . [Unlike McCollam,] [h]ere, the income stream flowing directly to the Debtor is not an annuity at all. The monies are prize winnings stemming from the winning of the lottery. . . . The only annuity contract here is the annuity purchased by the State of Connecticut for its benefit and . . . the Debtor is not a beneficiary of that contract. . . . [Nevertheless,] [a]s [the Florida statute] now reads and as it has been interpreted by the Florida Supreme Court [in McCollam], the payment of lottery winnings, litigation settlements and other obligations through the vehicle of an annuity could allow debtors to successfully exempt the payments in a bankruptcy case.
Pizzi, 153 B.R. at 362-63.
[95] The court cites In re Conner, 172 B.R. 119, 121 (Bankr.M.D.Fla.1994), wherein the court stated (rather common-sensibly) "if all that is required to establish an annuity contract is a stream of payments over time, all installment contracts would qualify as an annuity and that is clearly not what the McCollam decision requires." See also In re Dillon, 166 B.R. 766, 769 (Bankr.S.D.Fla.1994).
[96] By the way, what type of claim did Orso really retain against ONE of the underwriters? None really. His lawyer has been paid; he has received a portion of the money. Does anyone even know who the underwriter is? What it is worth? How Orso would go about prosecuting his claim? NO. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1864307/ | 560 So. 2d 465 (1990)
BERNARD LUMBER COMPANY, INC.
v.
LANIER-GERVAIS CORPORATION, Lanier O. Juneau, and the Louisiana Guaranty Association Fund.
No. CA 89 0196.
Court of Appeal of Louisiana, First Circuit.
April 10, 1990.
Diana L. Rachal, New Orleans, for plaintiff-appellant.
*466 Jay Kern/Tracy Bishop, New Orleans, for defendant-appellee La. Guar. Ass'n Fund.
John I. Hulse, IV, New Orleans, for defendant-appellee Lanier O. Juneau.
Before CARTER, SAVOIE and ALFORD, JJ.
ALFORD, Judge.
The plaintiff, Bernard Lumber Company, Inc. (Bernard), appeals the judgment rendered in favor of the defendant, Louisiana Insurance Guaranty Association (LIGA), granting LIGA's exception urging lack of subject matter jurisdiction and dismissing Bernard's suit against LIGA with prejudice.
BACKGROUND
The defendant, Lanier-Gervais Corporation (Lanier), as general contractor, entered into a contract with the United States Navy, as owner, for the construction of certain immovable improvements at Alvin Callendar Naval Base in Belle Chasse, Louisiana. In connection with this contract, Lanier, as principal, and Integrity Insurance Company (Integrity), as surety, executed a payment bond in favor of the United States as required under 40 U.S.C. § 270a, et seq. (the Miller Act).
Representatives of both Lanier and Integrity signed in their respective capacities on a standard form provided by the government for use when a payment bond is required under the Miller Act for the protection of persons supplying labor and material. Thereafter, Bernard allegedly supplied Lanier with $14,910.90 worth of supplies and materials which were used on the Belle Chasse project in the fall of 1986, but were not paid for. In the spring of 1987, Integrity became an insolvent insurer and was placed in liquidation in New Jersey.
After making demands for payment on Lanier and on LIGA as the party responsible for the insolvent surety, Bernard filed the instant suit against both Lanier, Lanier O. Juneau, and LIGA on October 1, 1987. LIGA filed an exception urging the district court's lack of subject matter jurisdiction against LIGA. LIGA contended that the Miller Act required that all suits against sureties on bonds executed in compliance with the Miller Act must be filed in federal district court and that since LIGA had stepped into the shoes of the insolvent surety in accordance with state law, the suit against LIGA had to be filed in federal district court. The trial court agreed with LIGA's contentions and dismissed the suit against LIGA, with prejudice and at plaintiff's cost. Bernard then perfected this devolutive appeal, alleging that the trial court erred in determining that the Miller Act was the exclusive remedy available to Bernard against LIGA.
DISCUSSION
It is well settled jurisprudentially that the rights created by the Miller Act are federal in nature and scope. F.D. Rich Co., Inc. v. United States for the Use of Industrial Lumber Co., Inc., 417 U.S. 116, 94 S. Ct. 2157, 40 L. Ed. 2d 703 (1974); United States for Use and Benefit of Harvey Gulf International Marine, Inc. v. Maryland Casualty Company, 573 F.2d 245 (5th Cir.1978). Federal district courts have exclusive jurisdiction over suits against sureties on payment bonds under the Miller Act. 40 U.S.C. § 270a(a), 270b(b);[1]United *467 States Fidelity and Guaranty Company v. Hendry Corporation, 391 F.2d 13 (5th Cir.1968), cert. denied, 393 U.S. 978, 89 S. Ct. 446, 21 L. Ed. 2d 439 (1968); Koppers Company v. Continental Casualty Company, 337 F.2d 499 (8th Cir.1964); General Equipment, Inc. v. United States Fidelity and Guaranty Insurance Company, 292 So. 2d 806 (La.App. 1st Cir.1974); American Creosote Works, Inc. v. Caltoman Contractors, Inc., 160 So. 2d 310 (La.App. 4th Cir.1964).
It is equally well settled that LIGA became obligated under the Insurance Guaranty Association Act for claims asserted against Integrity's Miller Act bond after Integrity became an insolvent insurer and was placed in liquidation on March 24, 1987. La.R.S. 22:1375 et seq. Under La. R.S. 22:1382(1)(b), LIGA shall be deemed the insurer and shall have all "rights, duties and obligations of the insolvent insurer as if the insurer had not been insolvent." Thus, in effect, LIGA steps into Integrity's shoes as the surety on the Miller Act bond.
Bernard claims that LIGA is obligated to Bernard independently of a Miller Act claim. However, it is apparent that, even though Bernard did not request relief under the Miller Act, the only basis for assertion of a claim against LIGA is on Integrity's payment bond executed on a form which specifically makes reference to the Miller Act. Bernard's petition clearly sets forth the three substantive elements of a Miller Act claim: the supplier supplied materials, the supplier was not paid and the supplier intended the materials to be used on the Navy's project. The substantive allegations of the petition, not references to the Miller Act, determine whether the petition sets forth a claim under the Miller Act. United States for the Use and Benefit of Canion v. Randall & Blake, 817 F.2d 1188 (5th Cir.1987).
While the Miller Act is not the exclusive remedy available to suppliers in some cases, it is the exclusive remedy available to a supplier against a surety (or the surety's guarantor in this case) on a Miller Act payment bond. General Equipment, 292 So.2d at 807; American Creosote, 160 So.2d at 312.
We note that the trial court dismissed Bernard's suit with prejudice. Dismissal with prejudice serves as an absolute dismissal of plaintiff's case and precludes plaintiff from filing another suit on the same cause of action. La.C.C.P. art. 1673. A dismissal with prejudice is patently incorrect when the plaintiff has erred solely by filing his suit in a court which does not have subject matter jurisdiction. An appellate court shall render any judgment which is just, legal and proper upon the record on appeal. La.C.C.P. art. 2164. Therefore, we amend the trial court's judgment to read "without prejudice."
CONCLUSION
For the foregoing reasons, we amend the judgment of the trial court in part to read "without prejudice." We affirm the judgment in all other respects. Costs of this appeal are to be borne by Bernard.
AMENDED IN PART AND AS AMENDED, AFFIRMED.
NOTES
[1] 40 U.S.C. § 270a(a) provides, in pertinent part:
Before any contract, exceeding $25,000 in amount, for the construction, alteration, or repair of any public building or public work of the United States is awarded to any person, such person shall furnish to the United States the following bonds, which shall become binding upon the award of the contract to such person, who is hereinafter designated as "contractor":
. . . .
(2) A payment bond with a surety or sureties satisfactory to such officer for the protection of all persons supplying labor and material in the prosecution of the work provided for in said contract for the use of each such person....
40 U.S.C. § 270b(b) provides:
(b) Every suit instituted under this section shall be brought in the name of the United States for the use of the person suing, in the United States District Court for any district in which the contract was to be performed and executed and not elsewhere, irrespective of the amount in controversy in such suit, but no such suit shall be commenced after the expiration of one year after the day on which the last of the labor was performed or material was supplied by him. The United States shall not be liable for the payment of any costs or expenses of any such suit. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2355868/ | 946 A.2d 1266 (2008)
108 Conn.App. 93
William GONZALEZ
v.
COMMISSIONER OF CORRECTION.
No. 28002.
Appellate Court of Connecticut.
Argued March 26, 2008.
Decided May 27, 2008.
Robert J. McKay, special public defender, for the appellant (petitioner).
Nancy L. Chupak, assistant state's attorney, with whom, on the brief, were Matthew C. Gedansky, state's attorney, and Kelly A. Masi, assistant state's attorney, for the appellee (respondent).
FLYNN, C.J., BEACH and BORDEN, Js.
FLYNN, C.J.
The petitioner, William Gonzalez, appeals from the judgment of the habeas court dismissing his petition for a writ of habeas corpus. The court granted the petition for certification to appeal to this court. On appeal, the petitioner claims that the court improperly dismissed his petition. We affirm the judgment of the habeas court.
After a comprehensive plea canvass by the sentencing court, the petitioner pleaded guilty under the Alford doctrine[1] to one count of assault in the first degree in violation of General Statutes § 53a-59(a)(4), one count of racketeering in violation of General Statutes § 53-395 and ten counts of sale of narcotics in violation of General Statutes § 21a-277(a). On August *1267 15, 1995, he received a sentence of ten years imprisonment on the ten counts of sale of narcotics, a concurrent ten years of imprisonment on the count of racketeering and a consecutive eighteen years of imprisonment on the count of assault in the first degree for a total effective sentence of twenty-eight years incarceration. If the petitioner had not accepted a negotiated plea agreement and had gone to trial and received the maximum sentence for each of his crimes, he would have been exposed to a total effective sentence of 190 years, with a sixty year mandatory minimum sentence. The petitioner filed no direct appeal from his judgment of conviction but filed an amended habeas petition alleging ineffective assistance of his counsel, special public defender John Hyde, who negotiated the petitioner's Alford plea.
At the habeas hearing, the petitioner admitted his involvement in ten separate sales of narcotics to an undercover police officer.[2] He claimed, however, that he had two female witnesses who would vouch that he was not involved in the assault. The habeas court did not find this claim credible because these alleged witnesses were never brought to the attention of counsel or the police, nor were they brought before the habeas court to testify.
For a petitioner to prevail on a claim that he was denied the effective assistance of counsel while he entered a guilty plea, he must prove both that his counsel's performance was deficient in that it fell below an objective standard of reasonableness and that he actually was prejudiced in that, but for counsel's ineffective assistance, the petitioner would not have pleaded guilty. See Hill v. Lockhart, 474 U.S. 52, 59, 106 S. Ct. 366, 88 L. Ed. 2d 203 (1985), Copas v. Commissioner of Correction, 234 Conn. 139, 154-57, 662 A.2d 718 (1995); see also Strickland v. Washington, 466 U.S. 668, 687, 104 S. Ct. 2052, 80 L. Ed. 2d 674 (1984).
The petitioner headed a drug selling ring in Rockville, and the assault for which he was convicted occurred when the petitioner, accompanied by at least six confederates, beat an individual who had become indebted to the petitioner. Although all of the petitioner's associates joined him in beating and kicking the victim, once the victim had been knocked off his feet, it was the petitioner who administered a particularly brutal beating using a metal car ramp of the kind used to elevate automobiles. Several of his fellow members of the narcotics ring who were present and a passing motorist gave the police statements describing the petitioner beating the victim over the head with the ramp, shouting: "You die." The victim of this brutal assault suffered a depressed skull fracture, collapsed lung, dislocation of fingers on one hand and numerous lacerations to the face and head.
After a careful review of the record, we conclude that the habeas court properly determined that the petitioner failed to show that his attorney's performance was ineffective. The court made the following findings of fact, all of which are fully supported by the record. The petitioner's attorney had years of experience negotiating pleas. The evidence against the petitioner was overwhelming on all of the charges to which he pleaded guilty. His attorney made a thorough investigation of the case, visited the crime scene and followed *1268 through on all potential witnesses of which he was made aware by the petitioner on his own investigation. The petitioner did not make his counsel aware of these purported female witnesses, nor did he present them to the habeas court. Counsel engaged two experts to assist in negotiating a favorable plea. One of them, Dr. James O'Brien, provided counsel with both information and opinion, which convinced the prosecuting authority to treat the petitioner more favorably as a drug-dependent person.
The petitioner has since developed the habeas equivalent of buyer's remorse regarding a plea he freely accepted, and he now claims that there are witnesses whom he failed to produce at his habeas trial. This, however, does not alter the fact that he received both a fair and favorable total effective sentence. This is particularly so in light of his exposure to a potential total effective sentence of 190 years for the assault, racketeering and multiple narcotics offenses.
The judgment is affirmed.
In this opinion the other judges concurred,
NOTES
[1] See North Carolina v. Alford, 400 U.S. 25, 91 S. Ct. 160, 27 L. Ed. 2d 162 (1970).
[2] The state points out in its appellate brief that these ten counts alone, without Hyde's intervention to reduce them to sale of narcotics by a drug-dependant person, each carried a mandatory minimum sentence of five years imprisonment and a maximum term of twenty years imprisonment, for a total mandatory minimum sentence of fifty years and a total maximum sentence of 100 years imprisonment. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1101142/ | 702 So. 2d 727 (1997)
Bettie SMITH, Plaintiff-Appellee,
v.
OUACHITA PARISH SCHOOL BOARD and Lanny Johnson, Superintendent, Defendants-Appellants.
No. 29873-CA.
Court of Appeal of Louisiana, Second Circuit.
September 24, 1997.
*729 Noah, Smith & Newman by Todd G. Newman, Monroe, for Defendants-Appellants.
Kidd-Culpepper by Paul Henry Kidd, Monroe, for Plaintiff-Appellee.
Before MARVIN, C.J., and WILLIAMS and GASKINS, JJ.
MARVIN, Chief Judge.
In this action arising out of the defendant school board's alleged demotion of Bettie Smith, a tenured teacher who served as a guidance counselor, the Board appeals a judgment awarding Ms. Smith $25,000 in damages, plus lost wages, medical specials and attorney's fees. The Board complains of the trial court's findings that the Board intentionally inflicted emotional distress and failed to afford due process rights to Ms. Smith, contrary to the provisions of La. R.S. 17:444 and 42 U.S.C. § 1983. Answering the appeal, Ms. Smith seeks to increase the general damage award.
The issues are whether Ms. Smith was "promoted" from a "lower [salaried] position" to "a higher [salaried] position" of guidance counselor in accord with La. R.S. 17:444 and whether Ms. Smith had a "property right" entitling her to due process before the Board could remove her from the guidance counselor position.
We affirm the judgment.
FACTS
Employed by the Board in the Ouachita Parish school system since 1969, Ms. Smith was a tenured teacher of business courses through the 1986-87 school year, with a master's degree and 30 graduate hours in secondary guidance and counseling. In September 1987, the Board assigned Ms. Smith to the position of guidance counselor at Calhoun High School (later named West Ouachita High School) from West Monroe High School.
During her first two school years as a guidance counselor at WOHS [1987-88, 1988-89], her principal, Johnny Hines, gave Ms. Smith "Satisfactory" remarks on his observations and evaluations the Board required. During the 1989-90 school year Principal Hines, on March 14, 1990, gave Ms. Smith a "grade" of "Needs Improvement" in four categories on his formal observation. Two months later, however, Principal Hines evaluated and graded Ms. Smith as "Satisfactory" in all categories.
Because Ms. Smith had been given the "Needs Improvement" ratings in the March 1990 observation, Hines was required to place Ms. Smith in a "Professional Assistance Program," near the end of that school year on May 28, 1990.
After the beginning of the 1990-1991 school year and apparently not recognizing the significance of the legislature's amendment of La. R.S. 17:444(B) in 1985, Hines became concerned that Smith might gain "tenure" as a guidance counselor. That amendment precluded such a possibility. Hines then met with Ouachita Parish School Superintendent Dr. Neal Lane Johnson to discuss his concerns and to recommend that Ms. Smith be transferred elsewhere.
In his letter of September 27, 1990, Dr. Johnson informed Ms. Smith that upon Principal Hines's recommendation, she was being removed from WOHS and was to report to WMHS to set up a program teaching business skills to students with particular needs. Ms. Smith promptly responded by letter to Principal Hines invoking the grievance procedure adopted by the Board. Hines then responded that he would not reconsider his recommendation. On October 5, 1990, Smith formally wrote to Dr. Johnson to "appeal" his decision of September 27. On October 9, 1990, the Board voted to approve or ratify Ms. Smith's transfer to West Monroe. By letter of October 9, 1990, Dr. Johnson informed her that the original decision would stand.
Because the Board and Dr. Johnson had formally "acted" on Ms. Smith's objection or appeal to them of her transfer a month or so after the 1990-91 school year began, no appropriate business course position was then available at WMHS for Ms. Smith. The WMHS principal assigned Ms. Smith in October 1990 to teach or serve in special education at WMHS, an area in which she was not trained. She spent the remainder of the *730 fall semester, 1990, in that assignment. At the beginning of the second semester early in 1991, Ms. Smith was temporarily assigned to teach four business English classes and one English class. This assignment endured for about a week because the regularly assigned teacher returned to her position and students apparently voiced their preference for another teacher. Ms. Smith was then moved to the Professional Development Center, where she was assigned to help physically disabled students adapt to a workplace environment. Smith accompanied a student with cerebral palsy named "Wendy," who, under Ms. Smith's supervision, performed menial tasks for State Farm Insurance and a cricket farm.
On May 13, 1991, Smith admitted herself into Charter Hospital in Jackson, Mississippi for treatment of depression, discharging herself on May 22, 1991, as she said, to care for her family. Smith then returned to the Professional Development Center to finish the semester. In the 1991-92 school year, Ms. Smith was assigned and taught business classes at WMHS. Ms. Smith requested and obtained a sabbatical leave during the fall semester of 1992, returning to teach the spring semester of 1993. Ms. Smith moved to Dallas during the next school year (1993-94) and eventually became head counselor at a Dallas-area high school.
In Ms. Smith's action, filed August 13, 1991 and tried on four days in April 1995, the trial court awarded her $25,000 in general damages, $19,440 in attorney's fees, $11,854 in medical expenses, $2,587 in lost wages and benefits, and $1,050 in medical deposition costs.
We shall address the Board's arguments that: (i) La. R.S. 17:444 does not apply to Ms. Smith's 1987 transfer to the guidance counselor position; (ii) Smith's due process rights were not violated; (iii) La. R.S. 17:391.5 applies to this case, and its provisions were substantially met; (iv) the Board did not intentionally inflict emotional distress upon Smith; (v) if any damages are due, Smith is entitled only to three, and not to four, weeks of lost wages and benefits; (vi) if any attorney's fees are due, then the amount awarded is excessive; and (vii) medical expenses and costs of the medical depositions should not be assessed against the Board because it was not proven that the medical expenses were the result of the Board's actions.
DISCUSSION
R.S. 17:444 Promotion
The trial court found that the 1987 transfer of Ms. Smith from a teaching position at WMHS to a guidance counselor position at Calhoun (WOHS) was a promotion under La. R.S. 17:444 of the Teacher Tenure Law, La. R.S. 17:441-446. Enacted to protect educators from political reprisals, the tenure law is to be liberally construed in a teacher's favor. Rousselle v. Plaquemines Parish School Board, 93-1916 (La.2/28/94), 633 So. 2d 1235, 1241.
La. R.S. 17:444 initially provided that teachers could acquire tenure in their promoted positions. However, in response to the disappearance of promotional positions as a result of the actual elimination of the position or the closing of schools for economic reasons, La. R.S. 17:444 was amended in 1985 by the addition of Subsection B. Rousselle at 1242. As a result of the 1985 amendment, teachers promoted to positions of higher salary after August 1, 1985 cannot become tenured in the promoted position. See Rousselle, supra. In 1987, the law provided in pertinent part:
§ 444. Promotions to and employment into positions of higher salary and tenure
* * * * * *
B. (1) Whenever a teacher who has acquired permanent status, as set forth in R.S. 17:442, in a parish or city school system is promoted by the employing school board by moving such teacher from a position of lower salary to one of higher salary, such teacher shall not gain permanent status in the position to which he is promoted, but shall retain permanent status acquired as a teacher, pursuant to R.S. 17:442.
(2) Where a teacher has not completed the probationary period for teachers as required by R.S. 17:442, and is promoted to a higher position, the probationary period *731 as a teacher shall continue to run and at the end of such three year probationary period the teacher shall automatically acquire permanent status in the previously held position of teacher.
(3) The employment provided for in this Section shall be for a term of not less than two nor more than four years, and said term shall be specified in a written contract, which shall contain performance objectives. The board and the employee may enter into subsequent contracts for such employment. Not less than sixty days prior to the termination of such a contract, the superintendent shall notify the employee of termination of employment under such contract, or in lieu thereof the board and the employee may negotiate and enter into a contract for subsequent employment....
La. R.S. 17:444, as amended by Acts 1985, No. 988.
As a tenured teacher, Ms. Smith's 1987 assignment as a guidance counselor should be considered under Subsection B(1). Subsection B(2) applies to probationary teachers. The issue then becomes whether Ms. Smith's assignment is a promotion to a "higher position" or to a position of "higher salary." In our opinion, the trial court correctly reasoned that the statute uses the terms "higher position" and "higher salary" interchangeably. Pasqua v. Lafourche Parish School Board, 408 So. 2d 438 (La.App. 1st Cir.1981).
The Pasqua court generally concluded that La. R.S. 17:444 [now subsection A] used the terms "lower position" and "higher position" in reference to salary. Pasqua read the "moving such teacher from a position of lower salary to one of higher salary" language of A(1) in conjunction with the "higher position" language used in A(2). The language the Pasqua court focused on in A(1) appears verbatim in the amended subsection B(1). While the language examined in A(2) is not identical to the language of the amended B(2), there is a reference to "higher position" in B(2). Expanding the meaning of "salary" in B(1) to include "position" is also consistent with the principle of liberal construction of the Tenure Law in favor of teachers.
If we should limit the application of the statute exclusively to a situation where a tenured teacher is promoted to a position of "higher salary," as the Board suggests, we would reach the absurd result that a probationary teacher, but not a tenured teacher, would be able to claim benefit of the statute solely by being promoted or assigned to a "higher position," without being given a "higher salary." § 444 B(2) Consequently, we find no error in the trial court's interpreting, in the context of this record, that the term "higher salary" as used in La. R.S. 17:444 B(1) is synonymous with the term "higher position." La. R.S. 1:3-4.
The position of guidance counselor has been found to be a "higher" position than that of a teacher. Pardue v. Livingston Parish School Board, 251 So. 2d 833 (La.App. 1st Cir.1971). There the court held that moving a guidance counselor to a position teaching English was a demotion, reasoning that the position of guidance counselor has a higher professional standing because guidance counselors have greater minimum education requirements.
Here the trial court emphasized the testimony of Dr. Frank Hoffman, personnel director for Ouachita Parish schools. Dr. Hoffman conceded that while a counselor is not considered to be an administrator, a teacher may consider it desirable to become a guidance counselor, with the required special certification. In that context the conclusion is not clearly wrong that Smith was promoted to a higher position when she was assigned to the position of guidance counselor in 1987.
Likewise, the conclusion is not clearly wrong that Smith was paid a "higher salary" in the position of guidance counselor. The term "salary" has been broadly interpreted to include on-campus housing and free meals. Pizzolato v. State Through Board of Elementary and Secondary Education, 452 So. 2d 264 (La.App. 1st Cir.1984). Guidance counselors in the Ouachita Parish school system are paid more on an annual basis than teachers with the same level of education and years of experience. The Board attempts to explain that the difference in annual pay results from guidance counselors being required *732 to work an additional two weeks per year, while the basis of the annual pay of each position is the same. The Pardue finding that an English teacher and a guidance counselor received the same salary despite the counselor receiving additional compensation for extra work was based on the reasoning that Livingston Parish counselors and teachers each received the same pay from local and state sources, while compensation for the additional work performed by Livingston Parish guidance counselors came from a federally-funded program.
School systems routinely compensate personnel in non-teaching positions for additional work by using a statutory formula that involves multiplying a teacher's salary by a particular index. For example, La. R.S. 17:421.5 sets forth the minimum salaries for superintendents, principals, assistant principals, and other certified or licensed school personnel. The statute provides that if these employees receive a salary provided through the minimum foundation program formula, then they "shall receive a minimum salary equal to an additional one-ninth for each additional month employed beyond nine based on the salary he would receive as a teacher paid under the provisions of the minimum salary schedule for teachers." Other courts have disregarded whether the base salary of a teacher is a critical factor in determining if a salary in one position is higher or lower than that of another position. The Pasqua court, for example, found that there was a transfer to a position of lower salary because the salary received by an assistant principal at a junior high school was calculated by multiplying a teacher's salary by an index of 1.21, while an index of 1.16 was used for assistant principals at elementary schools.
Similarly, in Brooks v. Orleans Parish School Board, 550 So. 2d 1267 (La.App. 4th Cir.1989), writ denied, Brooks v. Orleans Parish School Board, 553 So. 2d 466 (La. 1989), the court concluded that Basic Skills Strategists transferred to the position of Basic Skills Specialist were paid a lesser salary because they now worked four fewer weeks per year, even though they received the same base pay and pay supplement. Here Ms. Smith received a higher salary as guidance counselor than as a teacher because she received more on an annual basis than if she had remained a teacher. The mere fact that the basic salary rate for a teacher was used as a factor in calculating the salary for a guidance counselor is of no legal significance.
Written Contract
Having concluded Ms. Smith was promoted within the context of La. R.S. 17:444, we agree with the trial court that the Board failed to contract with her and to set forth performance standards for her position in writing as required by Subsection B(3). This provision required a written contract for a term of not less than two nor more than four years, and allows subsequent contracts to be negotiated.
The trial court assumed that Ms. Smith would have received an initial contract (1987-88, 1988-89) of at least two years, the statutory minimum. This initial contract would have ended before the 1989-90 contract began. Principal Hines testified that as late as September 7, 1990, he planned to keep Ms. Smith as a guidance counselor. We note that Ms. Smith had received satisfactory evaluations from Principal Hines during her first two years as guidance counselor. This record allows the conclusion that Ms. Smith would have been offered and would have accepted a new contract at the end of the 1988-89 school year for a term of at least the minimum two years (or perhaps three years, the midpoint between the minimum and the four-year maximum, as reasoned by the trial court). The trial court acknowledged that it was speculating on the term because of the absence of evidence of the Board's actual practice of contracting in writing as the statute requires.
In Burns v. Monroe City School Board, 577 So. 2d 1205 (La.App. 2d Cir.1991), writ denied, Burns v. Monroe City Board, 581 So. 2d 683 (La. 1991), writ denied, Burns v. Monroe City School Board, 581 So. 2d 686 (La. 1991), this court found that a supervisor was entitled to remain in her position for an additional two years because of the "reconduction" of her original contract which was for a two-year term. Here there is no such original contract to "guide" us or the trial *733 court. Here the trial court could only assume that plaintiff's initial contract would have been for the minimum two years.
A new, renewal, or second contract, of course, would have been for two to four years as the statute mandates. Because Ms. Smith served as a guidance counselor during the school years 1987-88, 1988-89 and 1989-90, she was in her third year when her next to last observation in March 1990 by Principal Hines was "Needs Improvement." When "removed" by the Board in October 1990, Ms. Smith would have then been working under a second contract. The trial court reasoned that the second contract would have likely been for a mid-range three years (1989, 1990 and 1991 school years). A second contract of whatever duration (two to four years) began in 1989. This second contract in effect in October 1990 could only have been terminated in compliance with La. R.S. 17:444.
A second contract beginning in the 1989 school year would have been subject to amendments of La. R.S. 17:444, which in Subsection B(3)(c) provide that:
The board and the employee may enter into subsequent contracts for such employment. Not less than sixty days prior to the termination of such a contract, the superintendent shall notify the employee of termination of employment under such contract, or in lieu thereof the board and the employee may negotiate and enter into a contract for subsequent employment. If any person so employed shall be found incompetent or inefficient or shall fail to fulfill the terms and performance objectives of his contract during the term of his employment, he shall be removable for such cause by the board; provided, however, that any person so removed shall have the right to written charges, notice of hearings, and a fair hearing before the board. If the person so removed had previously acquired regular and permanent status as a teacher, he shall retain the permanent status previously acquired as a teacher; and should he be removed by the board from his position in the manner hereinabove set forth, or should his contract not be renewed, he shall be returned to his former position as a teacher, or one paying the same salary as his former position as a teacher.
La. R.S. 17:444, as amended by Acts 1988, Nos. 228 and 900. Our emphasis.
We determine that the failure of the Board to prepare and execute a written contract with Ms. Smith for at least the required minimum term (two years 1987-88 and 1988-89 and two years 1989-90 and 1990-91) should not deprive Ms. Smith of the protection of La. R.S. 17:444 B(3)(c) that she be "removable for cause" and in the "manner" emphasized in the statute.
Ms. Smith had no "terms and performance objectives" set forth in a written contract as contemplated by the statute. Ms. Smith attempted, without success, to invoke the Board's grievance procedure by complaining to Principal Hines and "appealing" to Superintendent Johnson. On October 9, 1990, the Board "approved" the transfer of which she earlier complained before she could exercise her right to a hearing before the Board. A hearing by the Board after the Board approves an action or transfer runs contrary to the pronounced principle that "the only meaningful opportunity to invoke the discretion of the decision maker is likely to be before the [action] takes effect." Cleveland Board of Education v. Loudermill, 470 U.S. 532, 105 S. Ct. 1487, 84 L. Ed. 2d 494 (1985). Our brackets and emphasis.
Under the circumstances of this record, we must agree with the trial court that even if Ms. Smith should have pursued a Board hearing after October 9, 1990, the Board still lacked cause for her removal because the Board did not obtain a written contract obligating her to specific "performance objectives" or remove her in the "manner" the statute directs. § 444 B(3).
The Board argues that it was sufficient that it substantially complied with the grievance procedures outlined in its "Personnel Accountability Plan," citing McKenzie v. Webster Parish School Board, 26,713 (La. App.2d Cir. 4/5/95), 653 So. 2d 215. In McKenzie, the only procedures that the school board failed to strictly comply with when not renewing a probationary teacher's contract concerned the use of a particular *734 professional assistance form and a deadline for improvement. McKenzie concerned whether the Webster school board complied with its system of evaluation required by La.R.S. 17:391.5. Here the concern is whether the Ouachita school board complied with the Teacher Tenure Law.[1]
The Board mistakenly attempts to rely upon substantial compliance with its grievance procedure to circumvent the mandate of La. R.S. 17:444. La. R.S. 17:444 required a hearing before the board, while the fourth level in the grievance procedure gives the school board discretion whether to hold a hearing.[2] La. R.S. 17:444 required the Board to follow the statutory mandates before it approved Ms. Smith's transfer from her guidance counselor position. We must agree with the trial court that the Board wrongly demoted Ms. Smith, contrary to La. R.S. 17:444.
Due Process
Because Ms. Smith's statutory rights were violated does not automatically mean that her constitutional rights were likewise violated. See Franceski v. Plaquemines Parish School Board, 772 F.2d 197, 200 (5th Cir.1985). Ms. Smith must prove that she possessed a property interest in the guidance counselor position as a predicate to a due process claim. A property interest in government employment may arise from state law or out of contract. See Cabrol v. Town of Youngsville, 106 F.3d 101, 105 (5th Cir.1997). La.R.S. 17:444's requirement that the Board employ Ms. Smith by a written contract of at least two years vests Ms. Smith with the required property interest. We recognize Ms. Smith had no expectation of continued or indefinite employment as a guidance counselor, but only a "property interest" during the term of the written contract(s) the statute required.
The essential requirement of due process is that a deprivation of property must be preceded by notice and opportunity for a hearing. Loudermill, supra. Thus, due process required that the hearing provided in La. R.S. 17:444 B(3)(c) occur before the Board could demote or transfer Ms. Smith for cause. The Board approved Ms. Smith's transfer-demotion on October 9, 1990, after her objections to her principal and the superintendent were made in an attempt to invoke the grievance procedure. Again we agree with the trial court: Ms. Smith was not afforded due process when she was demoted and transferred without the benefit of notice and hearing as required by the statute.
Ms. Smith's cause of action lies under 42 U.S.C. § 1983, which reads in pertinent part:
Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State ... 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 proceedings for redress.
We cannot agree with the Board's argument that it is not liable under § 1983 because it did not violate Smith's constitutional rights.
Intentional Infliction of Emotional Distress
The elements for a claim of intentional infliction of emotional distress were set forth in White v. Monsanto Co., 585 So. 2d 1205 (La.1991). Ms. Smith must prove that the conduct of the Board was extreme and outrageous, that the emotional distress she suffered was severe, and that the Board desired to inflict severe emotional distress or knew that severe emotional distress would be certain or substantially certain to result from *735 its conduct. Conduct is considered extreme and outrageous when it goes beyond all possible bounds of decency and is regarded as being atrocious and utterly intolerable in a civilized community. White at 1209.
The trial court found that three acts by the Board were sufficient to meet the requirements stated in White. The first of these acts was Ms. Smith's wrongful demotion and transfer in violation of her due process rights. Taylor v. State, 617 So. 2d 1198 (La.App. 3d Cir.1993), writ denied, Taylor v. State, 620 So. 2d 875 (La. 1993). Taylor involved a police officer who improperly investigated Taylor in response to a civil action filed against the officer by Taylor. The trooper's abuse of process was found to be extreme and outrageous because he failed to comply with proper procedures and acted for an ulterior purpose. This ulterior purpose is "similar to the concept of `malice,' but is a much more demanding test which would not be met by a showing of lack of knowledge or other technical types of malice, but which is only met when the [defendant] is acting for a specific purpose not authorized by law." Taylor at 1205.
This record does not allow the conclusion that the Board acted with such an ulterior purpose or malicious motive. Indeed, the Board seemed to violate Ms. Smith's due process rights out of ignorance, or lack of knowledge, of the law. Principal Hines was mistakenly concerned in September 1990 that Ms. Smith would acquire tenure as a guidance counselor. Even though we agree that the Board violated Ms. Smith's statutory and due process rights and caused her emotional and psychological distress by demoting her in the manner described, this Board's conduct was neither extreme nor outrageous.
The second act that the trial court found to be an intentional infliction of emotional distress was the placement of Ms. Smith in the special education area at WMHS in October 1990. Ms. Smith was given an assignment of writing a program for special education students, but she stopped working on this when she learned that the program had already been developed. Ms. Smith then spent most of her time sitting in her room writing notes and reading the Bible and the newspaper. Ms. Smith felt as if she was being tortured, and she described herself as feeling depressed, embarrassed and ashamed. Ms. Smith did not voice an objection to being placed there, however, and she knew that this would be a temporary assignment until a proper teaching position became available. Ms. Smith also never complained to anyone about not having anything to do. While Ms. Smith may have subjectively felt humiliated and unproductive, a reasonable person, viewed in hindsight and objectively, who truly wanted to remedy such a situation, would have complained or at least sought more meaningful or additional assignments.
The third act found to constitute intentional infliction of emotional distress was when Ms. Smith was removed from the business English classes in the spring of 1991 and assigned to the Professional Development Center. Ms. Smith was aware at the onset that her assignment to the Professional Development Center would be temporary. Again she did not express opposition or seek more subjectively meaningful assignments when she learned that she would be working with special education students for Betty Gardner, the job placement coordinator. Ms. Smith supervised special education student "Wendy" who removed staples and microfilmed documents at State Farm and placed bait in containers at the cricket farm. Besides working with Wendy, Ms. Smith also assisted Gardner with office duties. Ms. Smith described this as the most humiliating experience. The record shows that many other teachers were doing the same special education work that Ms. Smith was performing, negating any suggestion that Ms. Smith was being "singled out" for intentional punishment.
Hoffman acknowledged that Ms. Smith was placed in jobs that were not the best situation for her. While we agree that the Board may have taken better advantage of Ms. Smith's education and experience, this does not mean that the Board's conduct was extreme and outrageous.
Employers enjoy some reasonable latitude when dealing with employees. Although an *736 employer is in a position to take advantage of his or its authority, "disciplinary action and conflict in a pressure-packed workplace environment, although calculated to cause some degree of mental anguish, is not ordinarily actionable." White at 1210. Nothing done by the Board after Ms. Smith's demotion can be reasonably characterized as being atrocious, utterly intolerable in a civilized society, or beyond all possible bounds of decency. The Board was simply trying to place Ms. Smith in positions it felt were suitable until Ms. Smith could return to regularly teaching business courses. All teaching positions appropriate for Ms. Smith had been made to others before October 9, 1990, when the Board acted. Ms. Smith was regularly assigned to teach business courses in the next school year.
Conduct in the workplace far more egregious than that experienced by Ms. Smith has been found not to be extreme and outrageous. Because employees are expected to respect the authority of their supervisors, an employee may be entitled to a greater degree of protection from a supervisor than a stranger could expect. White at 1210. White was unable to recover despite suffering an anxiety attack after a supervisor verbally berated her and two other employees for a minute. The same result was reached in another case even though a male supervisor constantly yelled at a female worker, cursed her, called her demeaning names such as "dumb" and "stupid," would go into violent rages, and made disparaging comments about her appearance. See Beaudoin v. Hartford Accident & Indemnity Company, 594 So. 2d 1049 (La.App. 3d Cir.1992), writ denied, 598 So. 2d 356.
Maggio v. St. Francis Medical Center, Inc., 391 So. 2d 948 (La.App. 2d Cir.1980), cited by Ms. Smith, is distinguished because it concerned a summary judgment. There, a nun who was chief administrator at a hospital was accused of demoting plaintiff to a menial position and moving his office to a secluded area, among other allegations. We reversed the summary judgment, because viewing plaintiff's allegations in the light most favorable to him, the allegations met the requirements of an intentional act, an exception to the exclusive remedy under the workman's compensation law. We did not, however, analyze the merits of Maggio's claim against his employer for intentional infliction of emotional distress.
Either viewed in isolation or as a pattern, the acts by the Board which are complained of do not rise to the level of being extreme and outrageous, nor permit the finding that the Board intended to inflict severe emotional distress on Ms. Smith. In order for liability to attach, "conduct must be intended or calculated to cause severe emotional distress and not just some lesser degree of fright, humiliation, embarrassment, worry, or the like." White at 1210; our emphasis. When Ms. Smith testified about how she felt in these various situations, she consistently stated that she felt embarrassed and humiliated. Although the failure to have a musician's symphony contract renewed was embarrassing and humiliating for the musician, a summary judgment was properly granted because these actions fell far short of the requirements for intentional infliction of emotional distress. Kosmala v. Paul, 93-2117 (La.App. 1st Cir. 10/7/94), 644 So. 2d 856.
The emotional distress suffered must be to an extent that no reasonable person could be expected to endure it. White at 1210. When Ms. Smith checked into Charter Hospital, her chief complaint was depression. This record shows that Ms. Smith suffered from depression before she was demoted in October 1990. Ms. Smith was examined at Charter Hospital by Dr. George Ladner, a board-qualified psychiatrist. Dr. Ladner did not have any reason to doubt Ms. Smith's belief that job stress was the cause of the major depression that hospitalized her. Dr. Ladner opined that Ms. Smith's depression was caused by a change to something that Ms. Smith did not want to do and her inability to adjust. He also found that Ms. Smith was somewhat schizoid.
Dr. Ladner consulted with Dr. Charlton Stanley, who is board-certified in both counseling psychology and forensic psychology. After performing a battery of tests on Ms. Smith, Dr. Stanley diagnosed Ms. Smith as suffering from major depression that appeared very close to being psychotic depression. *737 While Dr. Stanley did not doubt that the demotion aggravated or made her depression worse, he thought that it was most likely caused by something that took place well before her demotion. Ms. Smith did not seek any out-patient treatment after she left Charter, even though she was aware that it was available.
The Board did not engage in extreme and outrageous conduct, nor did the Board desire to inflict severe emotional distress or know that such distress was certain or substantially certain to result from its actions, even though it "intended" to demote or remove Ms. Smith. Notwithstanding this conclusion, we recognize that recovery for negligent infliction of emotional distress has been allowed in cases involving the "especial likelihood of genuine and serious mental distress, arising from the special circumstances, which serves as a guarantee that the claim is not spurious." Moresi v. State Through Dept. of Wildlife and Fisheries, 567 So. 2d 1081, 1096 (La.1990). There is a concern that fraudulent claims will arise if liability is imposed for merely negligent conduct that results in mental distress without accompanying physical injury. Cases cited in Moresi that have met these legal criteria have included the performance of an unauthorized autopsy, the accidental burning of a corpse trapped in wreckage, a funeral home unlawfully retaining a body until payment for services, the exposure of remains from a car crashing into a cemetery, and a car hitting a home. The Moresi plaintiffs did not recover because their mental disturbance was not found to be severe. The emotional distress suffered by Ms. Smith, however, can easily be characterized as genuine and serious, requiring hospitalization and treatment. She was ultimately diagnosed as suffering from major depression after enduring the results of the Board's actions for many months.
The basis of liability for negligent infliction of emotional distress in Ms. Smith's circumstances is La. C.C. art. 2315. Whether a defendant's conduct is a cause-in-fact of a plaintiff's injury is the initial inquiry in any negligence action. Weaver v. Valley Elec. Membership Corp., 615 So. 2d 1375, 1382 (La.App. 2d Cir.1993). The conduct of the Board was a cause-in-fact of Ms. Smith's depression. If the Board had not wrongfully removed Ms. Smith from her guidance counselor position contrary to the requirements of La. R.S. 17:444 and then placed her in various non-teaching positions, Ms. Smith would not have been humiliated, embarrassed and ashamed to such an extent that she would seek psychiatric help. La. R.S. 17:444 imposed a duty on the Board to employ Ms. Smith by a written contract and to only remove her from her promoted position in accord with that statute. The Board breached this duty by not following the mandates of La. R.S. 17:444 when failing to contract with, and when later demoting, Ms. Smith. The issue then becomes whether the risk of the harm suffered by Ms. Smith was within the scope of protection afforded by the duty that is urged.
When La. R.S. 17:444 was amended in 1985 to prevent the acquisition of tenure in promoted positions, promoted teachers were not entirely stripped of all protection. After 1985, a promoted teacher would not have the protections against removal offered by La. R.S. 17:443 in a promoted position. Instead, the promoted teacher would have contractual rights and obligations (stated terms and objectives), and statutory protection (removal only for cause and with the benefit of notice and a hearing). La. R.S. 17:444 was later amended in 1991 to provide the conditions under which school boards may decline to offer a "new" contract. In doing this, the legislature "returned a semblance of job protection to competent tenured teachers employed under promotional contracts when their promotional jobs continue in existence." Rousselle at 1243.
The motivation behind the enactment of the Teacher Tenure Law was to prevent arbitrary removal of teachers and to require strict adherence with statutory requirements before removal. Such arbitrary removal is capable of being accomplished through indirect as well as direct means, such as by placing a teacher in a position to which he is unaccustomed. State ex rel. Bass v. Vernon Parish School Board, 194 So. 74 (La.App. 1st Cir.1940).
*738 The trial court suspected that the conduct of the Board may have been evidence of an intent to encourage Ms. Smith's premature departure from the Ouachita Parish school system. Ms. Smith was twice placed in situations for which she had no experience, and both times she was isolated from the center of academic activity. She perceived that she became a sort of curiosity at WMHS, believing that other teachers wanted to see the teacher who was paid to do nothing. She was ordered to accompany a handicapped student and watch that student perform monotonous tasks. This conduct by the Board falls within the arbitrary treatment of a promoted teacher that La. R.S. 17:444 condemns.
The Board argues that it was unable to place Ms. Smith in an appropriate teaching position because she was demoted after the beginning of the 1990-91 school year. The timing of Ms. Smith's demotion was chosen by the Board. In any event, Ms. Smith was given an appropriate, but temporary, teaching assignment at the beginning of the Spring semester of 1991. We can agree that Ms. Smith's employment conditions after her October 1990 demotion placed great stress on her already fragile psyche. She avoided social contact as result of the embarrassment that she felt. She began to have headaches, had trouble sleeping and became forgetful. The quality of life for her two young daughters suffered as Ms. Smith's depression caused her to neglect them. She wisely sought professional help.
Damages, Attorney Fees
Ms. Smith continued working for the Board for two years after she was removed from the guidance counselor position. Ms. Smith was transferred in October 1990 after school began. Whether she was paid for the first extra week she worked in the 1990-1991 school year is not established one way or the other in this record. The trial court based its lost wages award on four weeks, at $646.89 per week. The Board alternatively contends that if Ms. Smith is entitled to recover lost wages, she should recover only three weeks wages, arguing that she was paid for the first week before school began in 1990. The payroll record in this case is not for the 1990-91 school year, but the 1989-90 school year. No witness testified that she was paid for the first week in the 1990-91 school year. Under these circumstances, we cannot find the trial court clearly wrong in this respect.
Ms. Smith is entitled to recover reasonable attorney's fees under 42 U.S.C. § 1988. The Board contends that the award of $19,440.00 in attorney's fees is excessive. An award of attorney's fees pursuant to 42 U.S.C. § 1988 is only to be disturbed upon a showing of abuse of discretion. Associated Builders & Contractors of Louisiana, Inc. v. Orleans Parish School Board, 919 F.2d 374 (5th Cir.1990). The Board does not dispute the number of hours Ms. Smith's counsel worked on the case. Instead, the Board argues that the hourly rate of $135 approved by the court is excessive, especially in light of the fact that Ms. Smith had a contingency fee contract with her attorney. While the existence of a contingency fee contract is a factor in determining the reasonableness of an award, the mere fact that there is one does not impose a ceiling or cap on the amount of fees awarded. Blanchard v. Bergeron, 489 U.S. 87, 109 S. Ct. 939, 103 L. Ed. 2d 67 (1989). We find no abuse of the trial court's discretion in the attorney's fee award.
In awarding $25,000 in general damages, the trial court made one award for all causes of action that had merit, rather than an amount for each theory of recovery.[3] The trial court cited Easterling v. Monroe City School Board, 27,795 (La.App.2d Cir. 1/24/96), 666 So. 2d 1279, to support its award. Easterling was awarded $31,250 in damages after the defendants were found guilty of negligence and intentional infliction of emotional *739 distress. Taylor, supra, was also cited by the trial court. Like Easterling, Taylor was successful in asserting her claim of intentional infliction of emotional distress, but her $500,000 award for past, present, and future anxiety and distress was reduced to $40,000.
An award of $15,000 was made to the driver and each passenger for negligent infliction of emotional distress suffered as a result of an automobile accident in Doucet v. Champagne, 94-1631 (La.App. 1st Cir. 4/7/95), 657 So. 2d 92.[4] In French v. Ochsner Clinic, 200 So. 2d 371 (La.App. 4th Cir.1967), $1,500 was awarded to a widow after an unauthorized autopsy was performed on her husband. One thing apparent about the above-cited cases and other cases involving this sort of claim is that in most cases the actionable conduct was but a single incident, or at best it occurred over a short-span of time. The same is not true with regards to Ms. Smith as she remained in these positions from early October to the middle of May, when she sought treatment. Thus, for seven months Smith was placed in situations that exacerbated her distress.
Whether intentionally or unintentionally inflicted, the duration of the emotional distress of Ms. Smith warrants a fair and just award. While we do not increase the award as urged by appellee, we cannot say that the trial court abused its discretion in awarding $25,000 general damages.
DECREE
At the cost of the Board, the judgment is AFFIRMED.
NOTES
[1] In Gaulden v. Lincoln Parish School Board, 554 So. 2d 152 (La.App. 2d Cir.1989), writ denied, Gaulden v. Lincoln Parish School Board, 559 So. 2d 126 (La.1990), the court held that when a teacher's competency is at issue, La. R.S. 17:391.5 needs to be complied with before dismissal proceedings begin under La.R.S. 17:442.
[2] Fourth level: If the grievance is not resolved, the grievant may, no later than five (5) school days after receipt of the Superintendent's decision, request a review by the Board ... The Board shall review the grievance and shall, at the option of the Board, hold a hearing with the grievant ... If the Board decides not to hold a hearing ... Compare § 444 B(3) quoted above.
[3] Compensatory damages including general damages for emotional and mental distress are recoverable under § 1983. Varnado v. Department of Employment and Training, 95-0787 (La. App. 1st Cir. 6/28/96), 687 So. 2d 1013. Varnado, an administrative hearing officer, and his secretary were awarded $90,000 and $60,000 respectively for lost wages, pain and suffering, and emotional and mental distress. After being terminated, the plaintiffs filed a § 1983 action based on unconstitutional searches of their offices.
[4] Other awards in Doucet included: $2,000,000 to one passenger for future medical expenses, $110,000 and $260,000 in loss of earning capacity to the two passengers, $300,000 to driver for past and future pain, suffering, and mental anguish, and $1,500,000 to one passenger for past and future pain, suffering, and mental anguish. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1196652/ | 28 Cal. 3d 603 (1980)
620 P.2d 628
170 Cal. Rptr. 42
DAVID A. HOINES, Plaintiff and Appellant,
v.
BARNEY'S CLUB, INC., et al., Defendants and Respondents.
Docket No. S.F. 24060.
Supreme Court of California.
December 22, 1980.
*605 COUNSEL
David A. Hoines, in pro. per., and James Moore King for Plaintiff and Appellant.
Joseph Posner, John J. Hartford and Theresa L. Pfeiffer as Amici Curiae on behalf of Plaintiff and Appellant.
Yale W. Rohlff, Dane Durham and Owen, Melbye & Rohlff for Defendants and Respondents.
OPINION
CLARK, J.
Plaintiff appeals from judgment for defendant Nevada corporations and others following jury trial limited to defendants' affirmative defense that plaintiff had, for consideration, released defendants from all claims asserted in the complaint. As will appear, we affirm the judgment.
Plaintiff was arrested on a charge of disturbing the peace by employees or agents of defendant corporations in South Lake Tahoe, Nevada. He was incarcerated in the local Douglas County jail for approximately two hours before being released on $25 bail.
On the following morning before time for his arraignment plaintiff appeared at the district attorney's office and discussed the charge and the circumstances of his arrest with Assistant District Attorney William Crowell. Plaintiff indicated he wished to file a criminal complaint against defendant South Tahoe Nugget Club.[1] After talking with *606 plaintiff and agents of defendants, Crowell told plaintiff he would oppose issuance of a complaint as he believed probable cause had existed for plaintiff's arrest. Plaintiff elected to abandon his effort for issuance of a complaint.
Crowell then stated he would be inclined to dismiss the charge against plaintiff if plaintiff would sign a release of all claims against other parties involved in the arrest, including the County of Douglas and the State of Nevada. Crowell later testified the primary factor inducing him to propose a dismissal was a concern expressed by plaintiff that the pending charge might result in an adverse effect upon plaintiff's qualification for admission to the California bar following completion of law school studies. Crowell also testified that the likely penalty upon conviction of disturbing the peace would be a $25 fine, that he did not "understand why we would have to go to a jury trial for a twenty-five dollar matter," that because he felt there was probable cause for plaintiff's arrest it would be unfair to fail to provide to the concerned parties protection against a civil action for false arrest, and that recommendation of dismissal was conditioned on execution of a release by plaintiff.
Plaintiff agreed to execute a release in exchange for the dismissal recommendation. There is no evidence his consent was not freely and voluntarily given. He testified that he was not required to enter into a release, although it was apparent, if he "didn't sign it, I was going to be prosecuted," that he was not coerced aside from his awareness of probable prosecution, and that Crowell "seemed to be a decent sort of guy [who] was probably doing what he felt was the best thing."
A release was drafted and signed by plaintiff. It purports to release defendants and others from "all claims ... growing out of ... the arrest of the under signed."[2] The $25 bail money was returned to plaintiff and the pending charge was dismissed in open court upon Crowell's recommendation.
In the instant action, alleged against defendant corporations as doing business in California, plaintiff seeks damages, including punitive damages, on theories of assault, battery, false imprisonment, malicious prosecution and intentional infliction of emotional distress. In addition *607 to denying allegations of the complaint, defendant corporations alleged affirmative defenses, including the defense "[t]hat prior to the institution of the lawsuit and for valid consideration, plaintiff did, in writing, release these answering defendants from any and all claims allegedly set forth in plaintiff's complaint...." Defendants' motion for separate trial on such affirmative defense was granted. (Code Civ. Proc., § 597.) The sole issue tried was the validity of the release, plaintiff contending it to be void for policy reasons.[3] The jury, impliedly finding the release to be valid, returned a verdict for defendants. The court denied plaintiff's motions for judgment notwithstanding the verdict and, in the alternative, for a new trial. Plaintiff appeals from the judgment and from the order denying the motion for judgment notwithstanding the verdict.
(1a) The sole issue presented for review is the validity of the release signed by plaintiff. He contends that an agreement between a prosecutor and a criminal defendant to dismiss a criminal charge in exchange for defendant's waiver of civil action rights against those responsible for his arrest is contrary to public policy regardless of the prosecutor's motives.
In support of his contention plaintiff relies in part on MacDonald v. Musick (9th Cir.1970) 425 F.2d 373. In that case the petitioner was arrested by state officers for driving under the influence of alcohol. After a trial date was set the prosecutor moved to dismiss the charge. The court asked if petitioner would stipulate to probable cause for arrest and when he refused the prosecutor withdrew his motion for dismissal. On the date set for trial the prosecutor sought and was granted leave to amend the complaint to allege a second count charging resisting arrest. Petitioner was eventually acquitted in the state court of drunk driving but found guilty of resisting arrest.
In the federal action brought on petition for writ of habeas corpus, the Ninth Circuit noted petitioner had claimed in the state court that his arrest was unlawful, that he had a right to resist such arrest, and that as a result of resisting he was beaten by police. Without expressing a view as to the merits of petitioner's claims, the court stated that based on the substance of such claims, petitioner also "had a claim to a federal right under the Civil Rights Act, 42 U.S.C. § 1983." (Id., at p. 377.) The Ninth Circuit concluded on strong record evidence that the charge *608 of resisting arrest was introduced "as the bludgeon behind the attempt" to defeat a "possible civil action" which might be brought by the petitioner. (Id., at pp. 375, 377.)[4] Such deprivation of a right of access to the courts was deemed a denial of due process, "giving rise to a cause of action under the Civil Rights Act." (Id., at p. 377.)
MacDonald, of course, is not in point. The issue here is the validity of a release. In MacDonald no release or its equivalent[5] was in issue as the accused in that case elected to be prosecuted. While MacDonald deals with the propriety of the prosecutor's conduct, a matter at issue in the instant case, plaintiff is not aided by the holding in MacDonald. There the prosecutor used the "bludgeon" of new criminal charges in an effort to coerce a stipulation of probable cause and, in fact, prosecuted the accused on such charges only because there was no stipulation. The Ninth Circuit deemed the prosecutor's improper motivations to constitute coercive tactics denying due process of law.
In the instant case the prosecutor engaged in no coercive conduct. The undisputed evidence is that there were no improper motivations in proposing the release and dismissal. In fact, the evidence is that the motivating concerns for the release and dismissal were plaintiff's welfare as a future candidate for admission to the California State Bar, the state's lack of a keen interest in pursuing a jury trial on a misdemeanor charge although there was probable cause therefor, and fairness to other concerned parties who had acted on such probable cause. There were, moreover, no denials of due process for reasons other than coercion. Plaintiff, knowledgeable in criminal legal matters, signed the release knowing full well its import, meaning and effect. He was at liberty on *609 minimal bail and had the right to trial at his option. He exercised a free will in electing to release all parties from potential civil damages in order to avoid a trial exposing him to criminal liability involving the very issues he now raises. The transaction reflects that plaintiff acted freely and voluntarily. If duplicity were involved in the transaction, it was not on the part of the prosecutor. The facts are thus entirely different from those in MacDonald.
Plaintiff also relies on dicta in Leonard v. City of Los Angeles (1973) 31 Cal. App. 3d 473 [107 Cal. Rptr. 378]. However, the holding in that case supports the judgment herein and appears to be the only California case dealing with the issue. The court in Leonard held that a voluntary stipulation of probable cause entered into by an accused is admissible to foreclose relief in a civil action for false imprisonment and malicious prosecution. Plaintiff relies on the court's further dicta that: "[if] the stipulation had been made in consideration of the dismissal of the criminal charge, a different situation than here exists might arise. Thus, if made in return for a promise to dismiss, such stipulation could be treated as a contract and subject to a determination whether such promise contravened public policy." (Id.)[6]
The Leonard dicta raises the central issue. Deeming there to have been a promise or understanding that the prosecutor would move to dismiss the criminal charges if plaintiff would execute the release waiving his right to pursue civil actions arising out of the circumstances attending his arrest, is such a release a nullity because the promise or understanding contravenes public policy?
We note first that the public policy issue is not the precise issue presented in MacDonald. Relief in that case was predicated on coercive tactics resulting in a denial of due process. As has been demonstrated, the prosecutor's conduct was free of coercive tactics and, as will be *610 seen, the prosecutor's conduct was motivated by objectives consistent with public policy.
The public policy which plaintiff claims to have been contravened is expressed in Penal Code section 153: "Every person who, having knowledge of the actual commission of a crime, takes money or property of another, or any gratuity or reward, or any engagement, or promise thereof ... except in the cases provided for by law, in which crimes may be compromised by leave of court,..." is guilty of a crime.
Section 153 provides punishment for the common law crime of compounding a crime. (Stats. 1976, ch. 1139, § 125, p. 5095.) (2) "The elements of compounding may be described as (1) knowledge of commission of the original crime; (2) an agreement not to report or prosecute that crime; and (3) the receipt of consideration." (Compounding Crimes: Time for Enforcement? (1975) 27 Hastings L.J. 175, 177; see also, Bowyer v. Burgess (1960) 54 Cal. 2d 97, 100 [4 Cal. Rptr. 521, 351 P.2d 793].) No claim is made that the prosecutor in the instant case personally received any consideration for moving to dismiss charges pending against plaintiff. So far as research discloses the crime may be committed only by a person including accomplices receiving consideration pursuant to agreement to frustrate prosecution for criminal conduct. On no occasion has a prosecutor motivated by what he reasonably deemed to be in the interests of justice been held to have compounded a crime by promising to dismiss a charge in consideration of an accused's release of civil liabilities or stipulation of probable cause. Certainly such practices have been engaged in routinely by California prosecutors and accommodated by California courts.[7] (1b) We do not deem these practices contrary to the public policy expressed in Penal Code section 153.
*611 Plaintiff finally contends that because the Legislature has limited the circumstances pursuant to which a criminal charge may be compromised and the instant circumstances are not included therein the arrangements for release in this case are contrary to public policy. Plaintiff relies on Penal Code section 1379, stating that no "public offense can be compromised ... except as provided" in Penal Code sections 1377 and 1378. Those sections provide for the limited circumstances where a person, injured by a misdemeanant, can assert a civil claim. (§ 1377.) If the injured person in such an instance appears in criminal proceedings and acknowledges he has received satisfaction for his injuries, the court may stay such proceedings and discharge the defendant in accordance with procedures set out in section 1378. The prosecutor has no role in the dismissal procedures.
If section 1379 is accorded the broad prohibition suggested by plaintiff, a prosecutor would be required to proceed against all persons claimed on probable cause to have committed a public offense, except as otherwise provided in sections 1377 and 1378. Such strict application of those sections would preclude a prosecutor from making a judgment either for purely subjective reasons or as the result of discussions which might have been initiated by an arrestee not to file a formal charge against or prosecute the arrestee. However, a prosecutor is vested with the obligation and authority to make those judgments. In both People v. Tenorio (1970) 3 Cal. 3d 89 [89 Cal. Rptr. 249, 473 P.2d 993] and Esteybar v. Municipal Court (1971) 5 Cal. 3d 119 [95 Cal. Rptr. 524, 485 P.2d 1140], this court struck down under the separation of powers doctrine legislative attempts to subject an exercise of judicial power to prosecutorial concurrence. (3) But in both cases it was recognized that the prosecutor as a representative of the executive is vested with discretion to forego prosecution in the first instance. (People v. Tenorio, supra, 3 Cal. 3d 89, 94; Esteybar v. Municipal Court, supra, 5 Cal. 3d 119, 127.) "Thus, Esteybar and Tenorio stand as clear and explicit authority for the proposition that the decision of when and against whom criminal proceedings are to be instituted is one to be made by the executive, to wit, the district attorney." (People v. Municipal Court (1972) 27 Cal. App. 3d 193, 204 [103 Cal. Rptr. 645, 66 A.L.R.3d *612 717].) (1c) It follows that the prohibition of Penal Code section 1379 must be limited to the situation dealt with in sections 1377 and 1378, thereby rendering exclusive those procedures by which misdemeanor charges may be dismissed in the case of civil injuries to the victim of the criminal act. This does not preclude prosecutorial initiative to refrain from charging or moving to dismiss in other proper cases.
In examining public policy considerations bearing on the release-dismissal transaction in the instant case, we are influenced and guided by policy considerations bearing on plea bargaining transactions. While there are clear differences between the two transactions, in a broad sense they serve the same purpose and are affected by the same public policy. In each transaction an accused is confronted with a criminal charge, circumstances exist which in the state's view do not require seeking imposition of the full penalty of the law, the accused does not wish to assert his innocence of wrongdoing so as to hazard a more severe penalty should he not prevail at trial, and the state's interests would not be served by a time consuming trial.
The net effect of both a release-dismissal and a plea bargaining transaction is to relieve the state of prosecuting while imposing upon the accused some lesser disability than he might otherwise anticipate. In the plea bargaining transaction the accused is subjected to a known but lesser criminal sanction which he has elected to accept under the circumstances. In the release-dismissal transaction the accused escapes criminal sanctions altogether but is subjected to a civil disability which he has elected to accept under the circumstances. In neither case is there any compulsion preventing the accused from standing his ground and asserting his right to be free from all disabilities, both criminal and civil.
There is one obvious but not fundamental difference between the two transactions. Because a release-dismissal transaction normally concerns itself with lesser acts of criminal conduct, the state may reasonably elect to forego the imposition of any criminal proceedings or sanctions. However, in doing so it must protect those who because the charges are to be dismissed might be improperly exposed to claims of civil liabilities due to their involvement in apprehending the accused. In requiring a release from the accused but only by his free and voluntary election the state accomplishes both the imposition of the bargained-for disability and protection of those it reasonably deems to *613 be innocently involved. This, however, is not a significant departure from what is achieved in a plea bargaining transaction.
Because we are unable to discern any policy ground for distinguishing between a properly conducted plea bargaining transaction and a properly conducted release-dismissal transaction, if one is deemed to serve the public policy then the other must also. This court has embraced in unequivocal language plea bargaining as a matter of public policy. "Plea bargaining has become an accepted practice in American criminal procedure, `an integral part of the administration of justice in the United States.' [Citation.], `essential to the expeditious and fair administration of justice.' [Citation.] `The great majority of criminal cases are disposed of by pleas of guilty, and a substantial number of these pleas are the result of prior dealings between the prosecutor and the defendant or his attorney.' [Citation.] ... [¶] Both the state and the defendant may profit from a plea bargain. The benefit to the defendant from a lessened punishment does not need elaboration; the benefit to the state lies in the savings in costs of trial, the increased efficiency of the procedure, and the further flexibility of the criminal process. Numerous courts, commissions and writers have recognized that the plea bargain has become indispensable to the efficient administration of criminal justice.... [¶] Plea bargaining also permits the courts to treat the defendant as an individual, to analyze his emotional and physical characteristics, and to adapt the punishment to the facts of the particular offense." (People v. West (1970) 3 Cal. 3d 595, 604, 605 [91 Cal. Rptr. 385, 477 P.2d 409].)
After examining all ramifications of plea bargaining and noting its approval by the United States Supreme Court in appropriate circumstances (Brady v. United States (1970) 397 U.S. 742, 755 [25 L. Ed. 2d 747, 760, 90 S. Ct. 1463]), the West court stated in conclusion: "... we reiterate our conviction that the plea bargain plays a vital role in our system of criminal procedure ..." (People v. West, supra, 3 Cal. 3d 595, 613.)
Many of the bases stated in West as reasons for giving judicial approval to plea bargaining are equally applicable in support of the validity of the release-dismissal transaction as conducted in this case. Surely we cannot embrace a proper plea bargaining transaction while rejecting a proper release-dismissal transaction as against public policy. (4) We conclude that the time honored practice of discharging misdemeanants on condition of a release of civil liabilities or stipulation of *614 probable cause for arrest, does not contravene public policy when the prosecutor acts in the interests of justice.
The judgment is affirmed.
Mosk, J., Richardson, J., and Manuel, J., concurred.
TOBRINER, J.
I respectfully dissent. The majority assert that a prosecutor who has in the first instance decided to dismiss a prosecution in the interest of justice, may nevertheless properly thereafter refuse to dismiss the charges until the defendant agrees to release civil claims against a third party. The majority then hold that the release, although signed under threat of an unjustified criminal prosecution, does not offend public policy. In my opinion the prosecutor, in deciding whether to maintain or dismiss a criminal proceeding, should strictly pursue the public interest: I think it improper for him to agree to dismiss charges only if the defendant will execute an agreement for the benefit of a private party. The dismissal-release agreement may deny the victim of a false arrest legal redress for his injury and may conceal such tortious conduct from judicial scrutiny.
The prosecutor has broad discretion to decide whether or not prosecution of an alleged crime will serve the public interest. (See People v. Tenorio (1970) 3 Cal. 3d 89 [89 Cal. Rptr. 249, 473 P.2d 993]; Esteybar v. Municipal Court (1971) 5 Cal. 3d 119 [95 Cal. Rptr. 524, 485 P.2d 1140].) He may, and should, consider a wide range of factors that bear on the merits of prosecution the nature of the offense, the nature and severity of the sanctions that will be imposed upon conviction, the personal circumstances of the accused, the expense of prosecution and congestion in the courts.[1] No authority, however, permits him to consider *615 the personal or private advantages that might accrue to himself or to third parties from the exercise of his power.[2]
This case amply demonstrates that the prosecutor's consideration of third party interests operates to undermine the legitimate objectives of discretion. By his own testimony, the district attorney had determined, for legitimate reasons, that the misdemeanor charges against plaintiff should be dismissed.[3] Having reached that decision, the district attorney's plain duty was to dismiss the charges.[4] Instead, he threatened to proceed with the prosecution a prosecution that apparently did not advance the public interest and that would needlessly consume judicial resources unless plaintiff would accommodate Barney's Club by signing a release of all civil claims against the club.[5]
The decision of the Court of Appeals for the Ninth Circuit in MacDonald v. Musick (1970) 425 F.2d 373, demonstrates that a prosecutor abuses his discretion in threatening to maintain criminal charges unless a defendant will agree to waive his right to sue for false arrest. In MacDonald a criminal defendant had refused to stipulate to probable cause *616 for arrest[6] in return for dismissal of drunk driving charges. Following this refusal the prosecutor filed an additional charge of resisting arrest. Upon his conviction on the latter charge, MacDonald filed, and the court granted, a petition for habeas corpus. The court condemned the prosecutor's attempt to condition the dismissal on a stipulation to probable cause, reasoning that the prosecutor improperly exercised his discretion and observing that the Canons of Ethics "have long prohibited the misuse of the criminal process by an attorney to gain advantage for his client in a civil case." (425 F.2d at p. 376.) (See ABA Code of Prof. Responsibility.(1969) DR 7-105, EC 7-21.) The court thus granted habeas corpus relief on the grounds that the attempt to condition the dismissal on a stipulation to probable cause interfered with defendant's assertion, by civil action, of his federal and state civil rights to resist an unlawful arrest. (425 F.2d at p. 377.)
The heart of the offense in MacDonald, as here, was the initial use of the prosecutor's power with the intent to foreclose a civil action. "It is no part of the proper duty of a prosecutor to use a criminal prosecution to forestall a civil proceeding by the defendant against policemen, even where the civil case arises from the events that are also the basis for the criminal charge. We do not mean that a prosecutor cannot present such a criminal charge. What he cannot do is condition a voluntary dismissal of a charge upon a stipulation by the defendant that is designed to forestall the latter's civil case.... Nor can the prosecutor, because of failure to obtain the demanded stipulation, then introduce another charge in the hope of defeating the possible civil action of the defendant." (425 F.2d at p. 375, italics added.) Thus, the court indicated that, while the addition of the second charge was improper, the initial attempt to obtain a stipulation in return for dismissal was equally improper.
The majority incorrectly seek to distinguish MacDonald on the theory that the present plaintiff "voluntarily" agreed to the release. The threat to maintain a criminal prosecution is, however, necessarily coercive. An innocent defendant may well prefer to surrender his right to redress for false arrest rather than undergo the risk, expense, and inconvenience *617 of a criminal trial.[7] Thus if the threat of prosecution is improper because, as in this case, the prosecutor had determined that the interest of justice does not require prosecution the arrestee's submission to that threat does not render the bargain voluntary.[8]
Another federal court of appeals decision, Boyd v. Adams (7th Cir.1975) 513 F.2d 83, makes clear the involuntary character of a release of civil claims brought about by the threat of criminal prosecution. In that case the plaintiff executed a release in return for dismissal of charges of disorderly conduct and resisting a police officer. Plaintiff was not in custody when she executed the release and no evidence indicates that the prosecutor engaged in overtly coercive conduct.[9] Plaintiff testified, however, that she feared conviction and a possible jail sentence. The court held the release void, finding that it did not establish a knowing waiver of plaintiff's rights because plaintiff executed it under inherently coercive circumstances.
I conclude that the MacDonald decision is on point. Its ringing denunciation of agreements that "condition a voluntary dismissal of a charge upon a stipulation by defendant that is designed to forestall the latter's civil case" (425 F.2d at p. 375) should guide this court in the resolution of the present case.
The essential defect in such agreements, apart from their coercive nature, is that they do not achieve any legitimate function of the criminal process. That defect distinguishes the dismissal-release transaction from plea bargaining, in which the state benefits by saving the expense of trial and expediting the disposition of the criminal case. (See People v. West (1970) 3 Cal. 3d 595, 604 [91 Cal. Rptr. 385, 477 P.2d 409].) The present agreement is a particularly egregious example, since, in this case, unlike MacDonald and Boyd v. Adams, the state does not even *618 benefit by avoiding civil liability. The instant transaction benefited only Barney's Club, a private party who obtained a bar to civil liability without risk or expense. Indeed, the prosecutor actually threatened to incur needless state expenditure for an unnecessary criminal trial in order to coerce plaintiff to agree to the release.
Implicitly recognizing that a dismissal-release agreement that served solely private interests might offend public policy, the majority suggest that such agreements serve the public interest by protecting those who "might be improperly exposed to claims of civil liabilities due to their involvement in apprehending the accused." (maj. opn., ante, at p. 612.) (Italics added.) The words "improperly exposed" call for careful scrutiny because the state obviously has no interest in barring meritorious actions for false arrest. The majority opinion appears to assume, however, that in the present case, and in all dismissal-release transactions, the persons effecting the arrest are "improperly exposed" to civil liability; it does not recognize that the threat of criminal prosecution might induce the arrestee to surrender a meritorious cause of action.
While some potential actions for false arrest are improper, it is not the function of the prosecutor to decide whether a potential civil suit has merit. He is neither judge nor jury; he hears no evidence; his decision is not subject to judicial review. To permit him to use the heavy threat of criminal prosecution to induce potential plaintiffs to waive their right of action presents too great a risk that he will use the power to bar meritorious cases, leaving the victims of unlawful arrest without civil redress and concealing misconduct by the arresting party from judicial scrutiny.[10]
Judge Bazelon called attention to this danger in Dixon v. District of Columbia (D.C. Cir.1968) 394 F.2d 966. In that case defendant tacitly agreed not to file a police misconduct charge in return for a nolle prosequi. *619 When defendant nevertheless filed the misconduct charge, the prosecutor reopened proceedings on the original traffic offense. The court held the prosecution illegal, reasoning that, although the charges were arguably sound, the courts "... may not become the `enforcers' of these odious agreements." (394 F.2d at p. 969.) The evil of such agreements, Judge Bazelon asserted, is not that proper charges may be dropped, but that they "suppress complaints against police misconduct which should be thoroughly aired in a free society. And they tempt the prosecutor to trump up charges for use in bargaining for suppression of the complaint. The danger of concocted charges is particularly great because complaints against the police usually arise in connection with arrests for extremely vague offenses such as disorderly conduct or resisting arrest (fn. omitted)." (Ibid.)
The spectre of concealed misconduct by private security forces is equally disturbing. Private security guards are an increasingly significant element in our system of control of crime, and they are heavily relied upon for crime prevention in the private sector. (Harrigan & Sundance, Private Police in California: A Legislative Proposal (1974) 5 Golden Gate L.Rev. 115, 116-117.) Private security guards perform functions similar to those of the public police; yet studies have shown that persons employed in this capacity are often less qualified than those serving as public police officers. Private security guards, moreover, are frequently poorly trained and supervised, and subject to less stringent internal review procedures, than are the public police. (Id., at pp. 119-129.) This court has expressed concern that searches by private security forces present a "particularly serious threat to privacy" (Stapleton v. Superior Court (1968) 70 Cal. 2d 97, 100, fn. 3 [73 Cal. Rptr. 575, 447 P.2d 967]); we have recently held that searches by private security guards are subject to constitutional proscriptions. (People v. Zelinski (1979) 24 Cal. 3d 357 [155 Cal. Rptr. 575, 594 P.2d 1000].) Yet the majority now encourage public prosecutors routinely to protect such private personnel from civil actions that could serve to uncover patterns of abuse.
That danger is not obviated by this prosecutor's good faith belief that defendant's guards had acted with probable cause. The prosecutor's investigation of the alleged misconduct was limited to a telephone conversation with an employee of Barney's Club and can scarcely be deemed conclusive. While the prosecutor acted within his proper discretion in declining to file criminal charges against Barney's Club, he had, as discussed above, no discretion to dispose of a civil claim against the *620 club. On the contrary, the civil remedy is a significant mechanism for exposing and determining abuses of power; when the public prosecutor declines to pursue a charge of misconduct, he should be particularly sensitive to the need to preserve the alternative civil remedy.[11]
The district attorney properly exercised his discretion in reaching his original decision to dismiss the charges against plaintiff and, in so doing, would have served the best interests of the system of criminal justice. The salutary effect of that decision was seriously undermined by the district attorney's insistence that plaintiff surrender a valuable property right in return for the dismissal of charges. The prosecutor could not properly exact a penalty from plaintiff or use the criminal process to forestall plaintiff's civil action against Barney's Club. Such conduct is a dangerous and unwarranted extension of the plea bargain concept and it should not be condoned by this court.
Bird, C.J., and Newman, J., concurred.
NOTES
[1] At this time plaintiff identified himself as a law student at a California law school. He was then a college graduate with a major field of study in criminal law and the administration of justice. He had worked for two years as a reserve officer for the police department of a major California city.
[2] The parties do not dispute that if plaintiff is bound by the release it effectively negates liability on the part of all defendants from all claims alleged in the complaint.
[3] The circumstances of plaintiff's arrest and probable cause therefor are not placed in issue.
[4] Some of the trial court record upon which the circuit court relied in assessing motivation for asserting the resisting-arrest charges is stated by the circuit court as follows: "At the hearing of the motion for leave to file an amended complaint ... there were a number of stipulations. [Petitioner] proposed to call as witnesses six deputies in the District Attorney's office. The prosecutor stipulated: `It is so stipulated that all these Deputies indicated either displeasure with the case or that it was a weak case or that they would not care to prosecute it.' It was further stipulated that one deputy said: `It appears that the police department [is prejudiced] against this defendant and are out to get him,' or words to that effect...."
[5] A release such as plaintiff executed in the instant case serves essentially the same purpose as would a stipulation of probable cause as proposed in MacDonald. Each has been used to acknowledge the waiver or lack of grounds for any civil litigation arising out of an arrest. Although the release may be and generally is stated in terms foreclosing broad areas of potential civil liability, a stipulation that an arrest was proper likewise dissolves such potential liabilities.
[6] The court's dicta is somewhat ambiguous in view of the court's recognition that "the stipulation undoubtedly was solicited and made in order to foreclose the very type of civil suit with which we are here involved" (id., at p. 477), and that the stipulation was entered into by the accused only "`after consulting his attorney and being informed of the consequences'" (id., at p. 475), following which the criminal complaint was dismissed. The strong implication that the dismissal was in consideration of the stipulation contemplates a contract requiring the prosecutor to move for dismissal. If so, the Court of Appeal obviously did not deem that contract to "contravene public policy." Although the court speaks in its dicta of a "promise to dismiss" a promise only the trial court could make (id., at pp. 477-478) no reason appears for distinguishing on public policy grounds such promise from a promise to move to dismiss.
[7] The following is an enlightening excerpt from the dissenting opinion of Justice James B. Scott when this case was before the Court of Appeal, First District, Division Three: "Municipal court judges for many years have been accustomed to dismissing minor misdemeanor cases on motion of the district attorney upon assurance that law enforcement officers, public agencies or private parties will not be subjected to civil litigation by the criminal defendant. This occurs not infrequently in shoplifting cases, disturbances involving husbands and wives, and a myriad of other disturbance situations. Often, the arrest and temporary detention of a person pending posting of bail or the releasing of the individual on his own recognizance is sufficient to defuse an otherwise volatile situation, to the end that further criminal prosecution is unnecessary and undesirable. Further prosecution in many cases would cause embarrassment in employment, unnecessary matrimonial hostility or, as in the instant case, a possible thwarting of a future career. The reasons are multitudinous for the district attorney not to want to pursue the prosecution of a person arrested with probable cause for a minor public offense, in the best interest not only of society but of the individual involved. At the same time, it is reasonable to seek to protect the arresting officer or the complaining individual from the burden of civil litigation arising out of the incident. [¶] If this tool is taken away from the district attorney, their options will be much more limited and there will be a likelihood that many cases which otherwise would have been dismissed will be prosecuted, to the detriment of society as well as the victim and the defendant."
[1] See American Bar Association Standards Relating to the Prosecution Function (Approved Draft 1971) (hereafter ABA Standards), standard 3.9(b): "The prosecutor is not obliged to present all charges which the evidence might support. The prosecutor may in some circumstances and for good cause consistent with the public interest decline to prosecute, notwithstanding that evidence exists which would support a conviction. Illustrative of the factors which the prosecutor may properly consider in exercising his discretion are: (i) the prosecutor's reasonable doubt that the accused is in fact guilty; (ii) the extent of the harm caused by the offense; (iii) the disproportion of the authorized punishment in relation to the particular offense or the offender; (iv) possible improper motives of the complainant; (v) prolonged nonenforcement of a statute, with community acquiescence; (vi) reluctance of the victim to testify; (vii) cooperation of the accused in the apprehension or conviction of others; (viii) availability and likelihood of prosecution by another jurisdiction."
It is noteworthy that none of these factors relates to private third party interests.
See also National District Attorneys Association, National Prosecution Standards (1977) sections 9.1, 9.2 and 9.3.
[2] See, e.g., ABA Standards, supra, standard 3.9 (c): "In making the decision to prosecute, the prosecutor should give no weight to the personal or political advantages or disadvantages which might be involved or to a desire to enhance his record of convictions."
For a general discussion of prosecutorial discretion and the need for more rigorous structuring and review of the exercise of trial discretion, see Davis, Administrative Law Treatise (1979, 2d ed.) at pp. 216-304.
[3] On direct examination as a defense witness, the district attorney testified that "[h]e [plaintiff] advised me that one of the reasons why he would like to have the charges against him dismissed was that he was a law student and that he felt that the charges against him would have an adverse effect upon his being qualified to take the Bar exam in the state of California." Asked if plaintiff's concern about the bar was a factor in his ultimate decision to dismiss the charges, the district attorney stated that "was primarily the only factor that I went on." He also explained that "... I didn't understand why we would have to go to a jury trial for a $25 matter."
[4] Conversely, if the district attorney had concluded that the public interest required prosecution, he should have proceeded. It is equally as improper to dismiss charges in exchange for a release of civil claims when prosecution is warranted, as to do so when prosecution is unwarranted.
[5] On cross-examination the district attorney explained that he "... would have dismissed the charges if Mr. Hoines would sign a release, but I wanted it understood that there was a criminal action pending against him.... The only reason why I didn't go in right at that time and request an outright dismissal had nothing to do with whether I thought the case was good or bad. It was just whether or not Mr. Hoines had submitted his release at that time."
[6] As the majority explain (ante, p. 608, fn. 5), a stipulation to probable cause serves the same function as a release of civil liability: that is, when lack of probable cause for an arrest is an essential element of the tort of false arrest (Whaley v. Kirby (1962) 208 Cal. App. 2d 232 [25 Cal. Rptr. 50]), such a stipulation effectively forecloses a civil action for false arrest.
[7] The plaintiff in this case was particularly concerned about the impact of a criminal record upon his admissibility to the bar; that concern added to the coerciveness inherent in the situation.
[8] The majority attempt to distinguish MacDonald on the ground that the parties did not agree to a release or stipulation in that case. The issue in MacDonald did not turn on a release or stipulation only because the defendant in that case refused to accede to the bargain offered by the prosecutor. The reasoning of MacDonald, in condemning the prosecutor for attempting to bar defendant's right to institute a civil action, leaves little doubt that the court would have found any such release or stipulation contrary to public policy.
[9] In fact, the release discussions were initiated by plaintiff's attorney. The court found this fact irrelevant in light of the inherently coercive circumstances. So long as the release practice is common, the court reasoned, a defense attorney will be obligated to explore that alternative, rendering it irrelevant who initiates the discussion.
[10] Alert to the danger posed by agreements to conceal wrongful conduct, the Legislature has provided in Penal Code section 153 that any person who, "having knowledge of the actual commission of a crime, takes money or property of another, or any gratuity or reward, or any engagement or promise thereof, upon any agreement or understanding to compound or conceal such crime, or to abstain from any prosecution thereof" is himself guilty of a crime. The dismissal-release transaction in the present case may violate that section; although the majority find the section inapplicable because the prosecutor did not personally profit from the release (maj. opn., ante, at p. 610), at least one commentator has indicated that a person may be guilty of compounding a crime although the consideration for that act accrues to a third party. (See Compounding Crimes: Time for Enforcement? (1975) 27 Hastings L.J. 175, 178 and cases there cited.)
[11] Compare Safer v. Superior Court (1975) 15 Cal. 3d 230, 238 [124 Cal. Rptr. 174, 540 P.2d 14]: "The absence of any statute empowering the district attorney to appear in private litigation such as the instant case demonstrates, moreover, legislative awareness that our legal system has long depended upon the self-interested actions of parties to pursue a dispute to its conclusion, or to decide, alternatively, that further time-consuming litigation serves no one's best interests [fn. omitted]. Thus the district attorney's intrusion into this arena of conflicting private interests serves neither the public interest nor the statutory intent." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1247329/ | 767 P.2d 171 (1989)
Harry WEISBROD, Appellant (Plaintiff),
v.
Nancy ELY, Appellee (Defendant).
No. 88-24.
Supreme Court of Wyoming.
January 10, 1989.
*172 Bret F. King of King & King, Jackson, for appellant.
David R. Hansen, Jackson, for appellee.
Before CARDINE, C.J., THOMAS and MACY, JJ., and GUTHRIE and BROWN[*], JJ., Ret.
CARDINE, Chief Justice.
This was an action by appellant Harry Weisbrod seeking a judicial winding up and termination of a partnership, appointment of a receiver, and a formal accounting. After a bench trial, the court found the value of Weisbrod's interest in the partnership *173 to be $1,511 and entered a judgment against appellee Nancy Ely, his former partner, for that amount plus interest. Weisbrod now appeals from that judgment and raises the following issues:
"1. Whether the District Court was correct in its refusal to order a winding up and termination of the partnership affairs.
"2. Whether the District Court was correct in its refusal to grant Appellant post-dissolution profits of the partnership.
"3. Whether the District Court was correct in its refusal to grant Appellant a formal accounting of the partnership affairs.
"4. Whether the District Court was correct in its finding that Appellant was not wrongfully excluded by Appellee from participating in the winding up and termination of the partnership.
"5. Whether the District Court was correct in valuing Appellant's interest in the partnership as of December 31, 1984, to be $1,511.00."
We affirm.
FACTS
In the spring of 1981, Weisbrod and Ely executed a written partnership agreement forming a partnership to conduct a property management business. Under the agreement the parties were to share in profits and losses in proportion to their ownership interests. Weisbrod initially contributed $2,000 and Ely $8,233 for ownership interests of 20% and 80%, respectively. The partnership later bought a truck for approximately $3,400. Each partner paid one-half the cost of the truck.
The agreement provided that Ely was to be the sole managing partner. As such, Ely conducted the day-to-day business of the firm, while Weisbrod's role was limited to sharing of profits and losses. The partnership continued in business under the agreement until late 1984 when Ely informed Weisbrod that the partnership would terminate on December 31, 1984, and that she would continue the business on her own. Weisbrod objected, indicating that he wished to continue the partnership. At that time, there was no discussion or agreement concerning winding up or termination of the partnership.
In January of 1985, Ely offered to buy Weisbrod's 20% share in the partnership for $993.30 and tendered to him a check in that amount. Weisbrod rejected the offer, indicating that he considered the $933.30 offer inadequate. Each party obtained a separate appraisal of the value of the partnership as of December 31, 1984. Weisbrod's appraisal valued the partnership at $22,000. Ely's appraisal showed a value of $5,305.
In February 1985, Ely tendered a check for $1,511 as payment for Weisbrod's 20% partnership interest. Weisbrod rejected the $1,511 check and countered with an offer to sell his 20% for $3,000, or, in the alternative, to purchase Ely's 80% for $3,794. Ely responded by reoffering $1,511, which she characterized as her final offer. In late March 1985, Weisbrod reiterated his offer to purchase Ely's share for $3,794, revoked his offer to sell for $3,000, and offered to sell for $4,000.
Following the failure of the parties to agree on the value of the partnership, this litigation was commenced by Weisbrod in January of 1986. Ely continued to operate the business from December 1984 to the time of trial with Weisbrod's consent. At trial, both parties introduced conflicting evidence concerning the value of the partnership. The court found the value of Weisbrod's share in the partnership to be $1,511 and entered a judgment in favor of Weisbrod for that amount, plus interest for the period of January 1, 1985, until date of judgment.
DISCUSSION
The partnership agreement covered dissolution by mutual agreement of the partners and by retirement or death of a partner. It did not provide a method for resolving the dispute that arose when Ely unilaterally sought to terminate the partnership and continue the business. Thus, we look to Wyoming's codification of the Uniform *174 Partnership Act, W.S. XX-XX-XXX through XX-XX-XXX, which provides the applicable rule: "Dissolution is caused * * * [b]y the express will of any partner when no definite term or particular undertaking is specified." W.S. XX-XX-XXX(a)(i)(B). By summary judgment prior to trial, the court found that dissolution occurred on December 31, 1984.
Dissolution of a partnership is defined as "the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business." W.S. XX-XX-XXX. Dissolution is the first of three stages in the ending of a partnership. The next two stages are winding up and termination. Simpson v. Kistler Inv. Co., 713 P.2d 751 (Wyo. 1986). Winding up is the process of settling partnership affairs after dissolution. Matter of Trust Estate of Schaefer, 91 Wis. 2d 360, 283 N.W.2d 410 (Ct.App. 1979); Uniform Partnership Act § 29, 6 U.L.A. 364 (comment) (1969). Termination is the point in time when all the partnership affairs are wound up. Thickman v. Schunk, 391 P.2d 939 (Wyo. 1964); W.S. XX-XX-XXX.
Generally, winding up encompasses the liquidation of partnership assets, collection and payment of debts, and distribution of the surplus to the partners. Gibson v. Deuth, 270 N.W.2d 632 (Iowa 1978). Liquidation of assets, however, is not the only option following dissolution. The partnership business may be continued with the consent of the outgoing partner. Neither party here contests the finding by the trial court that Ely continued the business with Weisbrod's consent after dissolution.
The parties agreed that W.S. XX-XX-XXX determines the rights of Weisbrod, and the trial court relied on the statute to render its decision; therefore W.S. XX-XX-XXX became the law of the case. See Caldwell v. Yamaha Motor Co., Ltd., 648 P.2d 519 (Wyo. 1982). We do not decide whether W.S. XX-XX-XXX applies to a partner who is excluded from the partnership by unilateral dissolution pursuant to W.S. XX-XX-XXX(a)(i)(B), as that question is not presented. W.S. XX-XX-XXX provides in relevant part that when a business is continued, an outgoing partner
"may have the value of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with interest, or, at his option * * *, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership * * *."
I
In his first argument, Weisbrod claims error by the trial court because it did not appoint a receiver to take control of the partnership assets to conduct the winding up and termination of the business. He contends this constitutes a "refusal" by the court to wind up and terminate the partnership, despite the court's order for Ely to pay him the value of his share of the partnership.
Weisbrod misconstrues the effect of the trial court's disposition. In this case, winding up was completed when the court determined the amount due Weisbrod under W.S. XX-XX-XXX and entered judgment ordering that amount be paid. Upon completion of winding up, the partnership was terminated. W.S. XX-XX-XXX provides that any partner, for cause shown, may obtain winding up by the court. Appointment of a receiver is not required by W.S. XX-XX-XXX, but is within the discretion of the trial court, controlled by the circumstances of each case. Barrett v. Green River & Rock Springs Live Stock Co., 28 Wyo. 379, 205 P. 742 (1922).
A matter which is left to the discretion of the trial court will not be disturbed on appeal in the absence of a demonstrated abuse of discretion. Urich v. Fox, 687 P.2d 893 (Wyo. 1984). We have defined judicial discretion as
"a composite of many things, among which are conclusions drawn from objective criteria; it means a sound judgment exercised with regard to what is right under the circumstances and without doing so arbitrarily or capriciously." Martin *175 v. State, 720 P.2d 894, 897 (Wyo. 1986).
Under the circumstances presented here, we find no abuse of discretion in the court not appointing a receiver.
II
Weisbrod argues that he is entitled to a 20% share of the profits earned by the business during the period between dissolution and trial. He bases this claim on the language of W.S. XX-XX-XXX, which allows an outgoing partner to chose between
"an amount equal to the value of his interest in the dissolved partnership with interest, or, at his option * * *, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership."
The trial court found no post-dissolution profits attributable to Weisbrod's rights in the partnership property. It determined that the profits were attributable to the personal services of Ely.
The testimony at trial indicated that the initial contributions of capital by the partners were used to acquire furniture and fixtures for the office of the business. Later contributions financed the purchase of a truck. These items of personal property were used by the business after dissolution and were the assets which were the basis of the valuation of Weisbrod's interest in the partnership. The issue presented, then, is the amount of profits that can be attributed to the use of Weisbrod's right in this property. Several cases from other states have dealt with the "profits attributable" language of § 42 of the Uniform Partnership Act, which is equivalent to W.S. XX-XX-XXX. The majority position, which we adopt, is that when profits earned after dissolution and before a final accounting are attributable in part to the personal skill or services of a partner, it is a factor to be considered in apportioning the shares of the partners. Essay v. Essay, 175 Neb. 730, 123 N.W.2d 648 (1963); Hilgendorf v. Denson, 341 So. 2d 549 (Fla. App. 1977); Schoeller v. Schoeller, 497 S.W.2d 860 (Mo. Ct. App. 1973); Timmermann v. Timmermann, 272 Or. 613, 538 P.2d 1254 (1975); Bracht v. Connell, 313 Pa. 397, 170 A. 297 (1933). The court should determine the fair value of such services by considering the nature of the work, the time spent, and the skill involved. Bracht, supra.
It is undisputed that Weisbrod did not contribute services to the partnership. The evidence presented established that Ely conducted all of the business, provided all services, and profits earned were attributable to her labor rather than to the existence of office furniture. The business of property management in this case differs from businesses involving sale of goods and materials. In the latter case, an outgoing partner who has invested in inventory would be entitled to his proportionate share of any profits derived from their subsequent sale. In contrast, in a service business all that is sold to produce income are the services of the firm here, the property management services of Ely. We conclude that it was not error for the trial court to find that there were no post-dissolution profits attributable to the property rights of Weisbrod.
Weisbrod also argues that he is not required to elect whether to receive profits in lieu of interest until after valuation of his interest and the profits attributable to it. We agree with the proposition that the right of election under W.S. XX-XX-XXX is not a meaningful right unless the outgoing partner knows the value of his respective choices. Moseley v. Moseley, 196 F.2d 663 (9th Cir.1952); Lange v. Bartlett, 121 Wis. 2d 599, 360 N.W.2d 702 (1984). The trial court in this case entered a final judgment which awarded Weisbrod interest without allowing an opportunity for election between interest and profits. After Ely was compensated for her services, there were no post-dissolution profits attributable to Weisbrod's interest. In light of the trial court's finding that there were no profits in which Weisbrod could share, the failure to provide for election between profits and interest was harmless error. We will not reverse in the absence of a showing of prejudice to substantial rights *176 of appellant. Anderson v. Bauer, 681 P.2d 1316 (Wyo. 1984).
III
In his third argument, Weisbrod contends that the district court refused to grant him a formal accounting and that this refusal was error. He bases this contention on W.S. XX-XX-XXX, which provides, inter alia, that a partner has a right to a formal account when he has been wrongfully excluded from the partnership or when a partner is accountable as a fiduciary under the provisions of W.S. XX-XX-XXX. It is not necessary to consider the possible application of W.S. XX-XX-XXX in this instance because the right to an account described therein is merely supplemental to the right to an account under W.S. XX-XX-XXX.
W.S. XX-XX-XXX provides:
"The right to an account of his interest shall accrue to any partner, or his legal representative, as against the winding up partners or the surviving partners or the person or the partnership continuing the business, at the date of dissolution, in the absence of an agreement to the contrary."
Under this statute, Weisbrod's right to an accounting accrued when the partnership was dissolved. That there was a right to an accounting, however, does not establish that an accounting was refused.
In the context of a partnership dissolution, an accounting is an action to determine the rights and liabilities of the partners. "An accounting generally imports an adjustment of the dealings or accounts of the parties." Fitzpatrick v. Rogan, 28 Wyo. 231, 247, 203 P. 245, 250 (1922). The effect of this litigation was an accounting in the trial court. The major issues were determination of Weisbrod's interest in the partnership and his right to profits. The parties introduced into evidence the income and expense statements of the partnership for all the relevant years, conflicting appraisals of the value of the business, and testimony concerning the business affairs of the partnership. While Weisbrod disagrees with the findings of the court based upon that evidence, we find no basis to hold that he was denied his right to "an account of his interest" granted by W.S. XX-XX-XXX.
Weisbrod appears to argue that the procedure used was not correct, as witnessed by his insistence that a "formal" accounting is required. He does not present his interpretation of what a formal accounting consists of, but his argument suggests that it is something other than a proceeding conducted by the district judge. While the district court may appoint a master as defined in Rule 53(a), W.R.C.P. to conduct an accounting, it is not required to do so. Such action is within the discretion of the court, to be taken after consideration of the complexity of the issue and the potential expense and delay a reference to a master might involve. See Adventures in Good Eating, Inc. v. Best Places to Eat, Inc., 131 F.2d 809 (7th Cir.1942). Given the relatively simple nature of the accounting here, we find no abuse of discretion.
IV
In Weisbrod's fourth argument, he disagrees with the trial court's finding that he was not wrongfully excluded from participation in the winding up of the partnership. He argues that Ely's actions contravened a section of the partnership agreement dealing with dissolution by mutual agreement, and "the provisions of the Uniform Partnership Act." He continues by stating that "[t]he evidence has clearly shown" that he was prevented from participating in the winding up and termination of the business.
This perfunctory argument does not rise to the level of cogent argument supported by pertinent authority, which we have stated many times is a requirement for consideration by this court. Kipp v. Brown, 750 P.2d 1338 (Wyo. 1988). Further, vague references to the Uniform Partnership Act and "the evidence" do not comply with Rule 5.01, W.R.A.P., which states that the argument section of a brief shall contain "citations to the authorities, statutes and parts of the record relied on." Rule 5.01(4), W.R.A.P. Therefore, we decline to *177 consider this contention. Rule 1.02, W.R.A.P.
V
In Weisbrod's fifth and final argument, he asserts error in the trial court's valuation of his interest in the partnership. His assertion is based on a claim of conflict between an oral statement made by the judge during trial and written findings made by the court in its final judgment. He also contends that the appraisal introduced by Ely was not properly calculated. When an inconsistency exists, express written findings will supersede informal oral remarks made from the bench. Gill Mortuary v. Sutoris, Inc., 207 Kan. 557, 485 P.2d 1377 (1971); Newton v. State Road Comm'n, 23 Utah 2d 350, 463 P.2d 565 (1970); cf. McAteer v. Stewart, 696 P.2d 72 (Wyo. 1985) (written order takes precedence over prior oral order).
The value of Weisbrod's interest in the partnership is a question of fact. When reviewing a factual issue on appeal, we accept the evidence of the prevailing party as true, leaving out entirely the evidence presented in conflict therewith, giving every favorable inference which may be fairly and reasonably drawn from the prevailing party's evidence. Pancratz Company, Inc. v. Kloefkorn-Ballard Constr./Dev., Inc., 720 P.2d 906 (Wyo. 1986). Although judgment was granted in favor of Weisbrod, the court had accepted Ely's appraisal of the value of the partnership, and she was the prevailing party on this issue. Anderson v. Foothill Industrial Bank, 674 P.2d 232 (Wyo. 1984). While there was conflicting evidence presented at trial, the evidence presented by Ely supported the finding of the trial court. The trial court's findings are presumed correct and will not be disturbed on appeal unless they are inconsistent with the evidence, clearly erroneous, or contrary to the great weight of the evidence. Pancratz, supra. We find no error in the value determined by the trial court.
The judgment of the trial court is affirmed.
NOTES
[*] Retired June 30, 1988. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1149167/ | 708 So. 2d 1140 (1998)
James SIMS
v.
WACKENHUT HEALTH SERVICES, INC., Wackenhut Corrections Corporation, State of Louisiana Through the Department of Public Safety and Corrections, Carrol Guinn, M.D., and E. Michael Hageman.
No. 97 CW 1147.
Court of Appeal of Louisiana, First Circuit.
February 20, 1998.
Joseph T. Dalrymple and Eugene A. Ledet, Jr., Alexandria, for Plaintiff/Relator James Sims.
Michael T. LaPlace, Baton Rouge, LA.
Andre' Charles Castaing, Baton Rouge, for Defendant/Respondent State of Louisiana Through the Department of Public Safety and Corrections.
Hunter W. Lundy and Samuel B. Gabb, Lake Charles, for Defendant/Respondent Wachenhut Corrections Corporation.
Before CARTER and FITZSIMMONS, JJ., and REMY CHIASSON, J. Pro Tem.[1]
FITZSIMMONS, Judge.
This action involves a suit for damages by James Sims, a former prisoner. He asserts that he was denied proper medical treatment while incarcerated at a prison facility operated by the Wackenhut Corrections Corporation. When the suit was filed, relator was in custody. Subsequently he was granted parole, and he was released from custody. In the writ application before the court, relator seeks review of an order issued by a commissioner at the 19th Judicial District Court, *1141 which stayed the proceedings. The commissioner determined that relator was required to exhaust his administrative remedies before proceeding with the suit, and she issued a stay order to allow relator sixty days in which to file an amended grievance. At relator's request, the commissioner, thereafter, stayed the implementation of the administrative ruling pending Mr. Sims' writ application to this court. This court granted certiorari to review the commissioner's action.
Facts
Mr. Sims was a diabetic inmate. On November 17, 1993, he wrote a letter to the warden at the Wackenhut Corrections Corporation. He alleged inadequate treatment by the attending physician and inadequate care at the Wackenhut Corrections Corporation infirmary. He sought administrative relief to prevent the loss of his foot. Mr. Sims received no response whatsoever. On January 1, 1994, a transmetatarsal amputation of relator's foot was performed. Mr. Sims was, thereafter, transferred to Avoyelles Correctional Center.
On February 15, 1994, Mr. Sims sent a different letter to Dr. Quyen Tran at Avoyelles Correctional Center, requesting a transfer to Huey P. Long Hospital for improved treatment. Relator simultaneously transmitted a separate letter to the warden's office at the correctional center, imploring the warden to transfer him to a better equipped hospital, where he could receive adequate medical assistance. He received no response to any of his letters. Subsequently, in March, 1994, Mr. Sims' left leg was amputated.
On November 22, 1994, relator sued the State of Louisiana through the Department of Public Safety and Corrections, Wackenhut Health Services, Inc., Wackenhut Corrections Corporation, Carrol Guinn, M.D. (the treating physician at the infirmary), and E. Michael Hageman, M.D. (the medical director). According to the petition, while in custody, relator walked long distances twice daily to receive insulin injections for the treatment of diabetes. As a result of this walking, he developed sores on his feet which, allegedly because of inadequate medical care and the failure of prison officials to provide the treatment ordered by the doctors, eventually resulted in the initial amputation of part of his left foot in January, 1994. It was asserted that continued inadequate treatment, including a disregard of a physician's recommendation that relator be transferred to a different hospital facility, caused the ultimate amputation of his left leg in March, 1994.
The Department of Public Safety and Corrections filed a peremptory exception of abandonment, claiming the suit should be dismissed because the prisoner failed to properly pursue his administrative remedies under the Corrections Administrative Remedy Procedure Act before filing the suit. La. R.S. 15:1171-15:1177. The department initially alleged the prisoner did not initiate the grievance procedure. In a supplemental memorandum submitted in support of the exception, the department conceded that a letter written to the warden by Mr. Sims, which was received on February 16, 1994, was sufficient to be viewed as a request for administrative remedy.
After hearing argument on the department's exception, the commissioner issued a stay order. The commissioner determined that, because relator's discharge from custody occurred after the suit was filed, he was required to exhaust his administrative remedies before proceeding any further with the suit. The commissioner ordered the department to process the amended request for administrative relief to the Secretary of the Department of Public Safety and Corrections, at the third step of the administrative review process
Exhaustion of Administrative Remedies
The Department of Public Safety and Corrections operates according to rules and regulations that it promulgated pursuant to the Administrative Procedure Act[2]. Title 22, *1142 "Corrections, Criminal Justice and Law Enforcement," Part 1, Chapter 3, section 325 of the departmental regulations addresses the administrative remedy procedure for inmates, or offenders. That section expressly states in sub-section (G), in pertinent part:
"The requests shall be screened in the unit head's office, and, if appropriate for handling through the administrative remedy procedure, shall be forwarded to the staff member who could best afford relief ... [.] The unit head's office will send notice to the offender via Form ARP-1 that his request is either being processed, or is being rejected, as per the screening process. The first step respondent will respond to the offender within 15 days from the date the request is referred to the first level respondent by the unit head.... The unit head shall see to it that the offender receives his response in writing within 25 days of receipt of the request for second step review." (Emphasis supplied.)
The procedures set out in the Corrections Administrative Remedy Procedure Act provide the exclusive remedy available to inmates to preserve a cause of action against the department or its employees, including a claim for monetary relief. La. R.S. 15:1171 & 15:1172; Blackwell v. Louisiana Department of Public Safety & Corrections, 96-0954, 96-0955, pp. 5-7 (La.App. 1st Cir. 2/14/97); 690 So. 2d 137, 140-41, writ denied, 97-1158 (La.9/5/97), 700 So. 2d 507. A state court is precluded from entertaining an offender's complaint which falls under the purview of the administrative remedy procedure until the offender has exhausted the remedies provided to him by the procedure. If an offender fails to timely pursue administrative remedies through the procedure established by the statute, any petition he files must be dismissed. If at the time the petition is filed the process has not yet been completed, the court is required to stay the proceedings for ninety days to allow completion of the procedure and exhaustion of the remedies. La. R.S. 15:1172(B).
The Department of Public Safety and Corrections failed to follow its own explicit guidelines requiring that it advise Mr. Sims that his request was being processed, or that it was being denied. The department was utterly remiss in its handling of the regulations that it had written and instituted. Not one of the prescribed internal administrative regulations for processing offenders' requests was implemented. It is, therefore, fatuous for the department to argue that it denied relator's request. Between the time of Mr. Sims' first request for preventive assistance and his subsequent two letters, his foot was partially amputated. His leg was then amputated after he received no indication from the administration regarding his latter written attempts for assistance. It is ludicrous for the department to now attempt to penalize an inmate for his failure to proceed pursuant to the very bureaucratic channels that were failing him in his attempts for communication, while his leg proceeded to be amputated in stages.
Moreover, it is erroneous for the department to assert that the time delays have expired because relator failed to proceed to the third step within the regulatory ninety day time limit imposed by the department. A reading of a pertinent portion of that section indicates that the "[t]ime limits begin on the date the request is assigned to a staff member for a first step response." (Emphasis supplied.) 22 La. Reg. 325(H)(1) (1991). There is no indication that the matter was ever assigned to a staff member; therefore, there is no evidence to substantiate that the administratively imposed ninety day period ever commenced.
If the department did not follow its own procedural requirements, any questions regarding the completion of the three step process should, a fortiori, be strictly interpreted against it. The department drafted the administrative remedy procedure. The department's blatant failure to follow its own procedural rules and regulations should not be manipulated to accrue to its benefit. It is, moreover, unconscionable to demand that relator continue to pursue heretofore hollow administrative remedies, when the system has defaulted[3]. By failing to respond on all *1143 three attempts of the relator, the department has produced a very confusing procedural status that it is now trying to exploit. It is particularly egregious to demand that a layman inmate be bound by departmental deadlines that have become blurred due to the inaction of the department. In eschewing its own remedial process, the department has effectively precluded the offender from proceeding to the next step. Under these factual circumstances, the administrative remedies have been pursued by the offender to the fullest extent possible under the circumstances. They are no longer applicable to relator. The next step in the remedial process would be to seek a legal remedy in court, as the relator has done. The relator has, thus, not failed to timely pursue his administrative remedies. The exception of abandonment brought by respondents is unfounded.
Accordingly, the commissioner's orders to stay the proceedings to pursue the third step of the administrative remedy process and to file an amended request for administrative relief are vacated. The exception of abandonment is denied.
STAY ORDER AND ORDER FOR AMENDED ADMINISTRATIVE REQUEST VACATED; EXCEPTION OF ABANDONMENT DENIED.
REMY CHIASSON, J. Pro Tem., concurs, and assigns reasons.
REMY CHIASSON, Judge Pro Tem., concurring.
I concur in the result for the following reasons:
The Corrections Administrative Remedy Procedure Act provides a time limit for administrative action to wit:
§ 325 H. Deadlines and Time Limits:
1. No more than 90 days from initiation to completion of the process shall elapse, unless an extension has been granted. Absent such an extension, expiration of response time limits shall entitled the offender to move on to the next step in the process. Time limits begin on the date the request is assigned to a staff member for a first step response. (Emphasis Added)
According to Subsection (D) of § 325 the "[i]nitiation of the [p]rocess ... shall commence the day the unit head refers the request to a staff member for the first step." Subsection (E) also provides that "[a]t every stage of decision and review, offenders will be provided written answers that explain the information gathered or the reasons for the decision reached and a statement of any provision for further review, along with simple directions for obtaining such review."
The department never initiated the process by appropriately referring the requests of the relator and effectively foreclosed any opportunity for relator to pursue his administrative remedy. Under these circumstances I believe that the relator has completed his process of administrative review and is now in a posture to proceed with his suit in the nineteenth judicial district court.
NOTES
[1] Judge Remy Chiasson, retired, is serving as judge pro tempore by special appointment of the Louisiana Supreme Court.
[2] Statutory authority for the administrative remedy procedure adopted by the Department of Public Safety and Corrections is located in La. R.S. 15:1171; the dictates of 42 U.S.C. § 1997, "Civil Rights of Institutionalized Persons Act" (CRIPA); and Part 40 of Title 28, Code of Federal Regulations.
[3] This matter is factually distinctive from the particulars in Green v. State, 96-0781 (La.App. 1st Cir. 5/9/97); 693 So. 2d 1317; writ not considered, 97-1563 (La.10/3/97); 701 So. 2d 189, in which the inmate failed to initiate any administrative remedies whatsoever before proceeding to court. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1452811/ | 474 P.2d 772 (1970)
STATE of Oregon, Respondent,
v.
Ronald Lee ROBBINS, Appellant.
Court of Appeals of Oregon, Department 1.
Argued and Submitted September 23, 1970.
Decided October 2, 1970.
*773 Harold M. Sliger, Klamath Falls, argued the cause and filed the brief for appellant.
Jacob B. Tanzer, Sol. Gen., Salem, argued the cause for respondent. With him on the brief was Lee Johnson, Atty. Gen., Salem.
Before SCHWAB, C.J., and FOLEY and FORT, JJ.
SCHWAB, Chief Judge.
Upon trial by jury the defendant was convicted of negligent homicide as the result of having driven a motor vehicle in a grossly negligent manner. ORS 163.091. He contends that the trial court erred (1) in failing to sustain the defendant's motion for a mistrial following the testimony of police officers concerning intoxicating liquor seized from the automobile before a hearing was held on the defendant's motion to suppress evidence of the liquor; (2) in failing to sustain the defendant's motion to suppress the evidence of the liquor; and (3) in failing to sustain the defendant's motion to strike testimony concerning the seized liquor.
On June 21, 1969, the defendant's car crashed into an on-coming car, killing two of the three occupants of the on-coming car. Police officers investigating the crash saw beer cans on the back seat of the defendant's car. They seized 12 full, and four empty, 12-ounce cans.
Although it was agreed that a pre-trial hearing on the defendant's motion to suppress the beer cans would be held, no such hearing was held. The beer cans were never offered in evidence. However, the officers who had been at the scene of the accident testified regarding the beer cans they had seen and the odor of beer they smelled in the car while seizing the cans.
No objection was made when the officers testified about the beer cans and the odor. Later, the defendant requested a mistrial on the grounds that this testimony should have been suppressed. The judge held a hearing in his chambers and denied the motion.[1]
*774 Even assuming the motion for mistrial was timely, the trial judge ruled correctly. Evidence of a crime in plain view from a place where an officer is entitled to be is subject to seizure. State v. Brown, Or. App., 89 Adv.Sh. 741, 461 P.2d 836 (1969); State v. Johnson, 232 Or. 118, 374 P.2d 481 (1962). No warrant is necessary to validate a seizure of the evidence when, in order to avoid its loss, the evidence is taken from a motor vehicle disabled on a public highway. Cf. State v. Edwards, Or. App., 90 Adv.Sh. 1745, 471 P.2d 843 (1970). Since the car was properly entered, the evidence was admissible.
Affirmed.
NOTES
[1] No prejudicial error resulted from the failure of the court to hold a pre-trial hearing on the defendant's motion to suppress. Neither the full nor the empty beer cans were introduced into evidence, and no objection was made to the failure of the court to hold the hearing. There is some indication that this evidence mysteriously disappeared prior to trial. In any event, the record is not clear as to why a pre-trial hearing on the motion to suppress was not held. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1452818/ | 700 F. Supp. 460 (1988)
ALLEGHANY CORPORATION, Plaintiff,
v.
Earl R. POMEROY, Commissioner of Insurance of the State of North Dakota, Defendant.
and
The St. Paul Companies, Inc., and St. Paul Insurance Company of North Dakota, Intervening Defendants.
Civ. No. A1-88-096.
United States District Court, D. North Dakota, Southwestern Division.
October 31, 1988.
H. Patrick Wier and Harlan G. Fuglesten, Fargo, N.D., Thomas Tinkham, Richard Bond and Leslie J. Anderson, Minneapolis, Minn., for plaintiff.
Merle T. Pederson, Bismarck, N.D., for Pomeroy.
Patrick Durick, Joel W. Gilbertson and David E. Reich, Bismarck, N.D., and James A. McDermott, James A. Strain, Eric R. Moy, Peter J. Rusthoven and David Hamilton, Indianapolis, Ind., for amici curiae.
Thomas O. Smith, Bismarck, N.D., for St. Paul Companies.
*461 MEMORANDUM AND ORDER
CONMY, Chief Judge.
The essential facts necessary to resolve the present suit are not disputed by the parties. Those facts, as stated in this court's previous decision, are as follows:
Alleghany Corporation is a Delaware corporation with its headquarters in New York. Its common stock is listed and traded on the New York Stock Exchange. Alleghany, through its subsidiaries, is engaged in the sale and underwriting of title insurance and in the property and casualty insurance business.
St. Paul Companies, Inc. is incorporated under the laws of the state of Minnesota with its headquarters located in St. Paul, Minnesota and is an insurance holding company for one of the largest groups of property-liability insurance underwriters in the United States. Through its subsidiaries it is engaged in investment banking, insurance, and reinsurance brokerage activities. St. Paul Companies, Inc. wholly owns St. Paul Fire and Marine Insurance Company, a Minnesota corporation with its home office in St. Paul, Minnesota, which in turn wholly owns the St. Paul Insurance Company of North Dakota. St. Paul Insurance Company of North Dakota is a North Dakota corporation with its offices located in Fargo, North Dakota, and is a writer of professional liability insurance for physicians in North Dakota.
In July, 1987, Alleghany began to purchase common stock of St. Paul Companies, Inc. According to Alleghany it currently owns directly or through its subsidiaries approximately 9.2 percent of about 46,301,857 shares of outstanding common stock of St. Paul Companies, Inc. Alleghany seeks to acquire up to 20% of the stock.
In order to acquire the additional stock, however, Alleghany, pursuant to Minnesota's Insurance Holding Company Act, was required to obtain prior approval from the Commissioner of the Minnesota Department of Commerce. The Insurance Holding Company Act provides that the Commissioner of Commerce must give his approval for acquisition of control of a domestic insurer so long as the acquisition does not cause a material change in St. Paul Companies' business which would be unfair to policyholders or not in the public interest.
On November 19, 1987, Alleghany filed an Amended Form A pursuant to section 60D.02 of the Minnesota Insurance Holding Company Act proposing to acquire up to 20% of the stock of St. Paul Companies, Inc. On January 11, 1988, a Deputy Commissioner of the Minnesota Department of Commerce gave Alleghany approval to acquire up to and including 20% of the common stock of the St. Paul Companies, Inc. The Deputy Commissioner determined that Alleghany's plans and proposals were not unfair and unreasonable to the policyholders of the Insurers and that they were not contrary to the public interest within the meaning of the Insurance Holding Company Act. The decision of the Deputy Commissioner is currently under review in the Minnesota courts.
Like Minnesota, eight other states, including North Dakota, required Alleghany to obtain approval for the acquisition of more than 10% of the stock of St. Paul Companies, Inc. pursuant to similar Insurance Holding Company Acts because St. Paul Companies, Inc. had a wholly owned subsidiary in each of those states.[1] In North Dakota, the Act forbids any person from acquiring control of a domestic insurer unless the person files a disclosure statement *462 as required by the Act and the acquisition has been approved by the commissioner. N.D.Cent.Code § 26.1-10-03 (Cum. Supp.1987). For purposes of the North Dakota Act a domestic insurer includes any person in control of a domestic insurance company. Id. Further, control is presumed to exist if any person, directly or indirectly, owns, or otherwise controls, ten percent or more of the voting securities. N.D.Cent.Code § 26.1-10-01(1) (Cum.Supp. 1987). Consequently, Alleghany was required to obtain approval from the North Dakota Insurance Commissioner before any further acquisitions could be made because St. Paul Insurance Company of North Dakota is a wholly owned subsidiary of the St. Paul Fire & Marine Insurance Company, which is wholly owned by the St. Paul Companies, Inc. Thus on November 23, 1987, Alleghany filed with the Commissioner its proposal to acquire up to 20% of the stock of the St. Paul Companies, Inc. pursuant to section 26.1-10-03 of the North Dakota Century Code. On March 29, 1988, the Insurance Commissioner ordered that Alleghany could not proceed with its proposed acquisition. Contrary to the findings of Minnesota (the state of domicile for St. Paul Companies, Inc.) the Insurance Commissioner of North Dakota concluded that the 20% acquisition was not in the best interest of the public nor in the interest of the policyholders.
Thereafter Alleghany filed the present action in federal district court seeking declaratory and injunctive relief. Specifically Alleghany seeks to have section 26.1-10-03 of the Insurance Holding Company Act declared invalid and unenforceable and to enjoin the Defendant from invoking said section. Alleghany contends that the North Dakota Act, specifically section 26.1-10-03, violates the Commerce, Supremacy, and Due Process Clauses of the United States Constitution. As indicated in this court's order dated August 11th, 698 F. Supp. 809, the issues raised in this case are ideally suited for resolution by summary judgment. Accordingly, the parties have filed cross motions for summary judgment. Several of the parties have also requested oral argument on the motions. Having been literally inundated with voluminous briefs on the issues, however, the court fails to see what else could be said at oral argument which was not covered in the briefs. The court finds that oral argument will not aid the court in its determination and resolution of the issues presented for review. Accordingly, the requests for oral argument are denied.
Alleghany contends that section 26.1-10-03(1) of the North Dakota Century Code violates the Commerce Clause because it prevents it from purchasing ten percent or more of common stock of an out-of-state insurance holding company from willing sellers in interstate commerce without receiving approval from the North Dakota Insurance Commissioner. It asserts that the North Dakota Act directly regulates interstate commerce in securities and imposes a burden on interstate commerce that is clearly excessive in comparison with its putative benefits in the state of North Dakota. The Defendants argue that the actions of the State have been authorized by the Congress and are therefore invulnerable to constitutional attack under the Commerce Clause.
The Commerce Clause provides that "Congress shall have Power ... to regulate Commerce ... among the several States." U.S. Const. Art. I, § 8, cl. 3. The Court has held that the Commerce Clause contains an implied limitation on the power of the States to interfere with or impose burdens on interstate commerce. See Western & Southern Life Insurance Company v. State Board of Equalization of California, 451 U.S. 648, 101 S. Ct. 2070, 68 L. Ed. 2d 514 (1981). Congress may, however, confer upon the States the ability to restrict interstate commerce. Id. Thus if Congress authorizes that the States may freely regulate an area of interstate commerce, any action taken by the State within the scope of that authorization is invulnerable to Commerce Clause challenge. Id. at 653, 101 S.Ct. at 2075; Northeast Bancorp, Inc. v. Board of Governors, 472 U.S. 159, 105 S. Ct. 2545, 86 L. Ed. 2d 112 (1985).
The Defendants contend that in the instant case the Commerce Clause is not *463 applicable since Congress has removed all Commerce Clause limitations on the State's authority to tax and regulate the business of insurance with the passage of the McCarran-Ferguson Act. The Act provides in relevant part:
Declaration of Policy. The Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States.
(a). State regulation. The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.
(b). Federal regulation. No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance....
15 U.S.C. §§ 1011, 1012. The McCarran-Ferguson Act was Congress' response to the Court's decision in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S. Ct. 1162, 88 L. Ed. 1440 (1944), wherein the Court held for the first time that insurance is subject to the Commerce Clause. Prior to the South-Eastern decision the Court had held that the "issuing of a policy of insurance is not a transaction of commerce." Paul v. Virginia, 8 Wall 168, 19 L. Ed. 357 (1869); Hooper v. California, 155 U.S. 648, 15 S. Ct. 207, 39 L. Ed. 297 (1895). Congress reacted quickly to the South-Eastern decision due to concerns it had over the effect the decision would have on what had become traditional state regulations of insurance. Securities & Exchange Commission v. National Securities Inc., 393 U.S. 453, 458, 89 S. Ct. 564, 567, 21 L. Ed. 2d 668 (1969) citing Prudential Insurance Co. v. Benjamin, 328 U.S. 408, 429, 66 S. Ct. 1142, 1154, 90 L. Ed. 1342 (1946).
The Defendants contend that the McCarran-Ferguson Act eliminated all Commerce Clause limitations on the States power to regulate and tax the business of insurance companies whether or not those affairs were related to the "business of insurance." Alleghany's position is that the Act provides protection only to those state laws which regulate the "business of insurance" and does not apply to other aspects of an insurance company.
The legislative history indicates that Congress had two major objectives in mind in enacting the Act. Congress' primary concern was to "declare that the continued regulation and taxation by the several States of the business of insurance is in the public interest."[2] (emphasis added). Hence, the Act was Congress' attempt to assure that the activities of insurance companies in dealing with their policyholders would remain subject to the existing and future state systems for regulating and taxing the "business of insurance." Securities & Exchange Commission, 393 U.S. at 459, 89 S.Ct. at 568. This objective was accomplished under sections 1011 and 1012(a) of title 15 of the United States Code. Congress' secondary objective in the wake of the South-Eastern decision was to protect the cooperative ratemaking efforts because of the widespread view that it was very difficult to underwrite risks in an informed and responsible way without intra-industry cooperation. Group Life & Health Insurance Company v. Royal Drug Company, 440 U.S. 205, 218, 221, 99 S. Ct. 1067, 1076, 1078, 59 L. Ed. 2d 261 (1979). Consequently, Congress excluded application of the anti-trust laws to the business of insurance so long as it was regulated by state law. See 15 U.S.C. § 1012(b).
The Defendants contend the phrase "business of insurance" applies only in the context of the anti-trust provision of the Act. The Defendants cite several Supreme Court cases for the proposition that states *464 are free to regulate the business of insurance and the business of the insurance companies without any Commerce Clause limitation. In Group Life & Health Insurance Company v. Royal Drug Company the Court stated, "[t]he McCarran-Ferguson Act operates to assure that the States are free to regulate insurance companies without fear of Commerce Clause attack." Royal Drug, 440 U.S. 205, 218-19 n. 18, 99 S. Ct. 1067, 1076-77 n. 18 (1979). The Court further stated, "the McCarran-Ferguson Act freed the States to continue to regulate and tax the business of insurance companies, in spite of the Commerce Clause. It did not, however, exempt the business of insurance companies from the anti-trust laws. It exempted only `the business of insurance.'" Id. Read in a vacuum it would appear that the Defendants position is supported by the above language. But when considered in light of the legislative history, the plain language of the statute, and language from this and other Supreme Court's cases; this court finds that only the "business of insurance" is invulnerable to Commerce Clause attack.
In Securities & Exchange Commission the question before the Court was whether an Arizona statute was enacted for the purpose of regulating the business of insurance within the meaning of the McCarran-Ferguson Act. Securities & Exchange Commission, supra, 393 U.S. at 457, 89 S.Ct. at 567. Construing the application of the Act to the insurance industry, the Court stated:
The statute did not purport to make the States supreme in regulating all activities of insurance companies; its language refers not to the persons or companies who are subject to state regulation, but to laws "regulating the business of insurance." Insurance companies may do many things which are subject to paramount federal regulation; only when they are engaged in the "business of insurance" does the statute apply.
Id. at 459-60, 89 S.Ct. at 568-69. Certainly Congress intended the McCarran-Ferguson Act to restore state taxing and regulatory power over the business of insurance, but it did not intend to give the states unlimited power over the business of insurance companies. With the passage of the Act, Congress gave the states the authority to regulate and tax only the "business of insurance." Western & Southern Life Ins. Co. v. State Board of Equalization, 451 U.S. 648, 653, 101 S. Ct. 2070, 2075, 68 L. Ed. 2d 514 (1981). Accordingly, when a state activity is aimed at regulating the business of insurance it is invulnerable to Commerce Clause challenges, but where the activity regulates in an area other than the "business of insurance" the McCarran-Ferguson Act does not shield it from the Commerce Clause despite the fact that the law applies to insurance companies. Such a conclusion is also supported by the plain language of the Act itself. Sections 1011 and 1012(a) expressly refer to the "business of insurance" and not to other activities of the insurance companies.
Regardless, the Defendants assert that the North Dakota Holding Company Act does fall with the ambit of the McCarran-Ferguson Act because, it "undoubtedly regulates the `business of insurance.'" The Defendants contend that the North Dakota Statute relates to the business of insurance because it focuses on the relationship between the insurance company and the policyholder. They insist that the North Dakota Act protects the policyholders interests by guaranteeing that the financial condition of the acquiring party will not jeopardize the financial condition of the insurance company, and that the plans and proposals of the acquiring party are not unfair to the policyholders, and that the competence, experience, and integrity of the acquiring party will not jeopardize the interests of the policyholders. Alleghany on the other hand argues that the North Dakota Act is not aimed at the business of insurance but rather regulates securities transactions outside the scope of the McCarran-Ferguson Act.
In considering whether a state regulation is aimed at regulating the business of insurance, the Supreme Court stated:
Congress was concerned with the type of state regulation that centers around the *465 contract of insurance, the transaction Paul v. Virginia held was not "commerce." The relationship between insurer and insured, the type of policy which could be issued, its reliability, interpretation, and enforcement these were the core of the "business of insurance." Undoubtedly, other activities of insurance companies relate so closely to their status as reliable insurers that they to must be placed in the same class. But whatever the exact scope of the statutory term, it is clear where the focus was it was on the relationship between the insurance company and the policyholder. Statutes aimed at protecting or regulating this relationship, directly or indirectly are laws regulating the "business of insurance."
Securities & Exchange Commission, supra, 393 U.S. at 460, 89 S.Ct. at 568. Under the Defendants' analysis of Court's language as stated above, any statute which may provide some benefit to the policyholders of an insured is necessarily the business of insurance. Even the most absurd regulation could withstand constitutional attack if some benefit could be found to inure to the policyholders if the court were to accept the Defendants' rationale. Every business decision made by an insurance company has some impact on its reliability, its ratemaking, and its status as a reliable insurer and would thus fall within the meaning of the business of insurance. Royal Drug, 440 U.S. at 216, 99 S.Ct. at 1075. The Court rejected such a broad interpretation in Royal Drug wherein Blue Shield offered policies entitling insured persons to purchase prescription drugs for $2 from any pharmacy participating in a Pharmacy Agreement. Id. If policyholders purchased prescription drugs from a nonparticipating pharmacy they would have to pay more than would be required if purchased from a participating pharmacy. Id. at 209, 99 S.Ct. at 1072. The Court concluded that while the Agreements may inure to the benefit of the policyholder in the form of lower premiums because they allow Blue Shield to minimize costs and maximize profits, they do not constitute the business of insurance. Id. at 214, 99 S.Ct. at 1074.
The legislative history of the Act indicates that Congress intended a significantly more limited application of the phrase. The Act was intended to restore to the states the regulatory and taxing power that they enjoyed prior to the South-Eastern decision. Securities & Exchange Commission, 393 U.S. at 459, 89 S.Ct. at 568. Prior to South-Eastern the states had the power and were not restrained by the Commerce Clause to regulate and tax the activities of foreign insurance companies which sell policies within their boundaries even though the execution of those policies involved communication of information and movement of persons, moneys, and papers in interstate commerce. South-Eastern, 322 U.S. at 534, 64 S.Ct. at 1164. Congress sought to give credence to the state systems for regulating the contract of insurance, the type of policy, its reliability, and enforcement; but did not intend to give the states unlimited power over all activities of insurance companies. Securities & Exchange Commission, 393 U.S. at 459-60, 89 S.Ct. at 568-69.
The Court has recently recognized three important criteria relevant in determining whether an activity is the business of insurance as that term is intended in the McCarren-Ferguson Act. First, whether the practice has the effect of transferring or spreading a policyholder's risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry. Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129, 102 S. Ct. 3002, 3008, 73 L. Ed. 2d 647 (1982). These factors are not limited to anti-trust cases as suggested by the Defendants. Gordon v. U.S. Dept. of Treasury, 846 F.2d 272 (4th Cir.1988).
The statute at issue here certainly does not entail any transferring or spreading of risk from the policyholder to the insured. As stated by the Court, "[t]he transfer of risk from insured to insurer is effected by means of the contract between the parties *466 the insurance policy and that transfer is complete at the time that the contract is entered." Id., 458 U.S. at 130, 102 S.Ct. at 3009. The regulation at issue here is not related to the underwriting of those risks but is an attempt to control stock ownership. The obligation of St. Paul under the insurance policies is separate from the issue of who is in control. Guaranteeing that credible and reliable management are in control of the insurance companies does not constitute the spreading and underwriting of policyholders' risk as articulated in Royal Drug and Pireno.
Analyzing the statute under the second Pireno criteria, the area being regulated is not an integral part of the policy relationship between the insurer and the insured. The focus of the second criteria is the contract between the insurer and the insured including the type of policy, its reliability, interpretation, and enforcement. See Royal Drug, 440 U.S. at 215-16, 99 S.Ct. at 1075-76. The policyholder is only concerned with whether his claim is going to be paid, not who is controlling the direction of the company. See Pireno, 458 U.S. at 132, 102 S.Ct. at 3010. Whether the claim will be paid or not is dependent on the terms and conditions of the insurance contract and its enforcement.
Finally, the challenged regulation is not limited to entities within the insurance industry. The regulation has a profound effect on investors and stockholders who own stock or seek to own stock in an insurance company. It restricts the ability of a stockholder out-of-state from selling his/her interest to a willing purchaser if the purchase would give the purchaser more than 10% control of the company without the prior approval of the insurance commissioner. The regulation does not go to the "core of the business of insurance" as envisioned by the Congress in enacting the McCarran-Ferguson Act and by the Supreme Court in its interpretation of the Act.
Based on the foregoing section 26.1-10-03 of the North Dakota Century Code does not satisfy any of the criteria developed to ascertain if the statute regulates the business of insurance. Accordingly, the North Dakota statute is not invulnerable to the Commerce Clause. Not every exercise of state power which has an impact on interstate commerce, however, is invalid. The Commerce Clause permits incidental regulation of interstate commerce by the states if the burden on interstate commerce is not excessive in relation to the local interests served. Pike v. Bruce Church, Inc., 397 U.S. 137, 90 S. Ct. 844, 25 L. Ed. 2d 174 (1970). A direct regulation of interstate commerce, however, is absolutely prohibited.
In Edgar v. MITE Corp. the Court summarized the state of law regarding direct regulations of interstate commerce as follows:
"[A] state statute which by its necessary operation directly interferes with or burdens [interstate] commerce is a prohibited regulation and invalid, regardless of the purpose with which it was enacted." The Commerce Clause also precludes the application of a state statute to commerce that takes place wholly outside of the State's borders, whether or not the commerce has effects within the State.... "[A]ny attempt `directly' to assert extraterritorial jurisdiction over persons or property would offend sister States and exceed the inherent limits of the State's power."
Edgar v. MITE Corp., 457 U.S. 624, 642-43, 102 S. Ct. 2629, 2640-41, 73 L. Ed. 2d 269 (1982) (citations omitted). In Edgar the Illinois Business Take-Over Act was being challenged. Edgar, 457 U.S. at 634, 102 S.Ct. at 2636. The statute at issue required a tender offeror to notify the Secretary of State and a target company of its intent to make a tender offer and the material terms of the offer 20 business days before the offer became effective. Id. at 634, 102 S.Ct. at 2636. During the 20 period the offeror was prohibited from communicating with the shareholders of the target. Id. at 635, 102 S.Ct. at 2637. The Court concluded that the offer for a publicly held corporation was subject to the Commerce Clause since the means to communicate it was through the mails or other means of interstate commerce and the transaction itself would possibly entail interstate commerce. Id. at 641, 102 S.Ct. at *467 2640. Unless one complied with the Illinois Act, however, it prevented the offeror from making its offer and concluding interstate transactions, not only with Illinois stockholders, but with stockholders living in other states and having no connection with Illinois. Id. at 642, 102 S.Ct. at 2640. The Court concluded that because the Illinois Act purported to regulate directly and to interdict interstate commerce, including commerce wholly outside the State, it was invalid. Id. at 643, 102 S.Ct. at 2641.
This court finds the Edgar decision controlling since it is directly analogous with the present case. Under the North Dakota Act the insurance commissioner has the authority to restrain Alleghany from purchasing additional shares of stock in St. Paul Companies, Inc. This authority exists despite the fact that Alleghany, a Delaware corporation, has received authority from the Commissioner of the Minnesota Department of Commerce to acquire up to and including 20% of the common stock of St. Paul Companies, Inc., a Minnesota corporation. The Act is applicable even if none of the shareholders of St. Paul are citizens of the State of North Dakota. This court sees the statute as purely economic protectionism of those currently in control of the insurance company. After a careful review of the statute and its effect on interstate commerce the court finds that it violates the Commerce Clause as a direct regulation on interstate commerce because of its extraterritorial effects. Since the court finds that the North Dakota statute violates the Commerce Clause, it is not necessary to resolve the Supremacy and Due Process issues raised by Alleghany.
The court hereby DECLARES that section 26.1-10-03(1) of the North Dakota Century Code is an unconstitutional violation of the commerce clause as it presently exists. Accordingly, it is ORDERED that the North Dakota Insurance Commissioner is enjoined from precluding Alleghany from going ahead with its proposed acquisition of St. Paul Companies, Inc. stock.
NOTES
[1] Forty-seven (47) states have enacted some type of Insurance Holding Company Act patterned on the Model Insurance Holding Company Systems Regulatory Act. Including the domicile state of Minnesota, Alleghany was required to obtain approval from nine states in order to acquire more than 10% of the stock of St. Paul Companies, due to subsidiaries that St. Paul Companies had in the eight other states. These other states include North Dakota, California, Indiana, Nebraska, New York, Texas, Wisconsin, and Delaware. An application for approval was also filed with Illinois, but later withdrawn due to an Illinois statute which provides an exemption in cases in which the holding company whose securities are being purchased is "subject to requirements in the jurisdiction of its domicile which are substantially similar to those contained" in Illinois.
[2] S.Rep. No. 20, 79th Cong., 1st Sess., 1-2 (1945); H.R.Rep. No. 143, 79th Cong., 1st Sess., 2-3 (1945) reprinted in 1945 U.S.Code Cong. & Admin.News 670, 671-72. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1452812/ | 3 Cal. 3d 166 (1970)
474 P.2d 683
89 Cal. Rptr. 731
LAWRENCE EDWARD LOCKRIDGE et al., Petitioners,
v.
THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; THE PEOPLE, Real Party in Interest.
Docket No. L.A. 29729.
Supreme Court of California. In Bank.
September 29, 1970.
*168 COUNSEL
Harvey A. Schneider, Max Solomon and Burton Marks for Petitioners.
No appearance for Respondent.
Evelle J. Younger, District Attorney, Harry Wood and Eugene D. Tavris, Deputy District Attorneys, for Real Party in Interest.
OPINION
WRIGHT, C.J.
Petitioners seek a writ of mandate to compel the Superior Court of Los Angeles County to grant their motion pursuant to section 1538.5 of the Penal Code to suppress testimony as "fruit" of an illegal search.
At the hearing on petitioners' motion, the People and petitioners stipulated to the following facts: "That a gun was recovered pursuant to a search warrant in October 1967, that the serial number of the gun led the police to the sheriff's arrest report at the Lennox sheriff's station which contained the signed statements of the victims of a robbery which had taken place in March of 1965; that as a result of finding that sheriff's report the police interviewed the said robbery victims [Mr. and Mrs. Pesce] and showed the victims photographs including the photograph of each defendant and at that time the robbery victims identified the photographs of the defendants as being photographs of the perpetrators of the robbery and that robbery charges were thereafter filed against the defendants and that a preliminary hearing regarding those robbery charges was had after the robbery victims made a courtroom identification of the defendants. Further, the People stipulate that the search warrant was held by the court [in a prior proceeding (see Lockridge v. Superior Court (1969) 275 Cal. App. 2d 612 [80 Cal. Rptr. 223])] to be legally insufficient and therefore the gun in question had been seized pursuant to an illegal search and seizure."
Deputy Sheriff Pia testified that the Pesce robbery had been investigated in March 1965. In August 1965 the case had been removed from the current or active files, designated "inactive"[1] and placed in the inactive files, where it would remain unless new facts were found which reactivated the case. There had been no active investigation in this case for over two *169 years until the Los Angeles Police Department contacted Deputy Sheriff Pia and informed him that the department had two suspects in custody who might have committed the crime.
Petitioners contend that but for the illegal search and seizure the police would not have connected them with the Pesce robbery and that the testimony of the victims is, therefore, the product of the illegal search and seizure.
(1) At the outset this court is faced with a procedural question. Although the People originally raised the question at the hearing before the superior court, apparently both the People and petitioners now assume that Penal Code section 1538.5 affords the proper procedure by which to determine the admissibility of the Pesces' testimony. Section 1538.5, subdivision (a) provides in part: "A defendant may move ... to suppress as evidence any tangible or intangible thing obtained as a result of" an illegal search or seizure. When testimonial evidence is obtained as a result of an illegal search it is "intangible" evidence within the meaning of this provision. (See People v. Superior Court (1969) 70 Cal. 2d 123, 128 [74 Cal. Rptr. 294, 449 P.2d 230]; People v. Coyle (1969) 2 Cal. App. 3d 60, 64 [83 Cal. Rptr. 924] (tape recording); People v. Superior Court (1970) 3 Cal. App. 3d 476, 483 [83 Cal. Rptr. 771] (confession).) Accordingly, petitioners may properly seek to suppress the Pesces' testimony in this proceeding.
(2) In the present case the illegally seized tangible evidence has been suppressed, but "The essence of a provision forbidding the acquisition of evidence in a certain way is that not merely evidence so acquired shall not be used before the court but that it shall not be used at all. Of course this does not mean that the facts thus obtained become sacred and inaccessible. If knowledge of them is gained from an independent source they may be proved like any others, but the knowledge gained by the Government's own wrong cannot be used in the way proposed." (Silverthorne Lumber Co. v. United States (1920) 251 U.S. 385, 392 [64 L. Ed. 319, 321, 40 S. Ct. 182, 24 A.L.R. 1426]; Wong Sun v. United States (1963) 371 U.S. 471, 485 [9 L. Ed. 2d 441, 453, 83 S. Ct. 407].)
In determining when knowledge is deemed to be gained by the government's own wrong, the court in Wong Sun stated: "We need not hold that all evidence is `fruit of the poisonous tree' simply because it would not have come to light but for the illegal actions of the police. Rather, the more apt question in such a case is `whether, granting establishment of the primary illegality, the evidence to which instant objection is made has been come at by exploitation of that illegality or instead by means sufficiently *170 distinguishable to be purged of the primary taint.' ..." (371 U.S. at pp. 487-488 [9 L.Ed.2d at p. 455].)
(3) In accord with the foregoing principles, this court has consistently held that the testimony of a witness who was discovered by the exploitation of illegal police conduct is not admissible. (People v. Quicke (1969) 71 Cal. 2d 502, 521-522 [78 Cal. Rptr. 683, 455 P.2d 787]; People v. Mickelson (1963) 59 Cal. 2d 448, 449-450 [30 Cal. Rptr. 18, 380 P.2d 658]; People v. Schaumloffel (1959) 53 Cal. 2d 96, 100-103 [346 P.2d 393]; Accord, Williams v. United States (5th Cir.1967) 382 F.2d 48; United States v. Tane (2d Cir.1964) 329 F.2d 848, 853; People v. Martin (1942) 382 Ill. 192, 200 [46 N.E.2d 997, 1002]; People v. Albea (1954) 2 Ill. 2d 317, 322 [118 N.E.2d 277, 41 A.L.R. 2d 895]; McLindon v. United States (1964) 329 F.2d 238, 241 [117 App.D.C. 283]; Contra, Smith v. United States (1963) 324 F.2d 879, 881 [117 App.D.C. 1]; see also, Note (1955) 30 N.Y.U.L.Rev. 1121.) If, however, a witness becomes known to the police by means independent of the illegal conduct his testimony is admissible. (See People v. Stoner (1967) 65 Cal. 2d 595, 602 [55 Cal. Rptr. 897, 422 P.2d 585]; State v. O'Bremski (1968) 70 Wash. 2d 425, 428-430 [423 P.2d 530] (police knew existence and identity of witness and were in fact searching for her when they illegally entered the defendant's apartment and found her).) Moreover, even if the witness was discovered as a result of illegal police conduct, his testimony is admissible if he would have been discovered in the normal course of a lawfully conducted investigation. (People v. Ditson (1962) 57 Cal. 2d 415, 443-444 [20 Cal. Rptr. 165, 369 P.2d 714]; Wayne v. United States (1963) 318 F.2d 205, 209 [115 App.D.C. 234]; Somer v. United States (2d Cir.1943) 138 F.2d 790, 792; cf. People v. Stoner, supra, 65 Cal. 2d 595, 602-603, fn. 3, see also R. Maguire, How to Unpoison the Fruit, the Fourth Amendment and the Exclusionary Rule (1964) 55 J. Crim. L., C. & P.S. 307, 314-317.)
(4) In the present case, the Pesces became available as witnesses against petitioners as a result of the Pesces' and petitioners' connection with the illegally seized gun. Moreover, there is no evidence that without the lead supplied by the gun, the police investigation of petitioners would have led them to the robbery report or suggested to them that petitioners might be guilty of the Pesce robbery. Nevertheless, we do not believe that the police connection of petitioners to the Pesce robbery through the illegal discovery of the gun is sufficient to characterize the Pesces' testimony as "come at by exploitation of that illegality." (Wong Sun v. United States, supra, 371 U.S. 471, 488 [9 L. Ed. 2d 441, 455].)
The Pesces were already known to the police as the victims of an *171 unsolved robbery. Their gun was found as the result of a search conducted pursuant to a search warrant which was subsequently determined to be legally insufficient and was made during the course of a police investigation of totally unrelated crimes. That search was not directed toward the discovery of witnesses such as the Pesces. (Cf. People v. Schaumloffel, supra, 53 Cal. 2d 96, 100-103.) It did not result in the discovery of witnesses at its scene who would otherwise never have been known to the police. (Cf. People v. Mickelson, supra, 59 Cal. 2d 448, 449-450.) It did not lead to the Pesces as the source of further evidence of the crimes the police were investigating. (Cf. People v. Quicke, supra, 71 Cal. 2d 502, 521-522.) Instead, it was pure happenstance that during an investigation of other crimes, the police came across the gun taken in the Pesce robbery. The purpose of the exclusionary rule is to deter unlawful police conduct. (Mapp v. Ohio (1961) 367 U.S. 643, 651-653 [6 L. Ed. 2d 1081, 1087-1088, 81 S. Ct. 1684]; Linkletter v. Walker (1965) 381 U.S. 618, 636 [14 L. Ed. 2d 601, 612 [85 S. Ct. 1731]; People v. Cahan (1955) 44 Cal. 2d 434, 447-450 [282 P.2d 905, 50 A.L.R. 2d 513].) In the present case, that purpose was adequately served by suppressing the gun and the evidence of the other crimes that the police were seeking. That purpose would not be further advanced by suppressing the testimony of the known victims of the Pesce robbery; testimony that unquestionably would have been admissible to establish petitioners' guilt of that crime, but for the chance disclosure of their connection therewith during a wholly unrelated police investigation.
The alternative writ heretofore issued is discharged. The petition for a peremptory writ of mandate is denied.
McComb, J., Mosk, J., and Burke, J., concurred.
PETERS, J.
I dissent.
The majority concede as they must that "the Pesces became available as witnesses against petitioners as a result of the Pesces' and petitioners' connection with the illegally seized gun. Moreover, there is no evidence that without the lead supplied by the gun, the police investigation of petitioners would have led them to the robbery report or suggested to them that petitioners might be guilty of the Pesce robbery." Thus the majority concede the direct, immediate, and necessary causal connection between the unlawful conduct and the testimony secured.[1]
*172 Notwithstanding the direct, immediate, and necessary causal connection between the unlawful police conduct and the testimony sought to be suppressed, the majority conclude that the testimony will be admissible. The majority rely upon the fact that the officers in conducting the unlawful search were not seeking evidence to connect petitioners with the Pesce robbery and claim that the purposes of the exclusionary rule are adequately served by suppression of the gun and would not be further advanced by suppression of the testimony. Neither of the matters relied upon by the majority furnish a valid basis for refusal to apply the exclusionary rule to the testimony sought to be suppressed.
The majority have forgotten the long and bitter lesson of history which led to the adoption of the exclusionary rule in order to protect rights guaranteed by the Fourth and Fourteenth Amendments. This court in People v. Cahan, 44 Cal. 2d 434 [282 P.2d 905, 50 A.L.R. 2d 513], and the United States Supreme Court in Mapp v. Ohio, 367 U.S. 643 [6 L. Ed. 2d 1081, 81 S. Ct. 1684], adopted the exclusionary rule only after a lengthy experience with the results of the admission of illegally obtained evidence and the fruits of such evidence. That experience had taught that there was no effective sanction to prevent overzealous law enforcement officials from engaging in unlawful searches and seizures in violation of the constitutional guarantees and that to permit admission of the evidence furnished an incentive for officials to violate the constitutional guarantees of all citizens. (See, e.g., Mapp v. Ohio, supra, 367 U.S. 643, 670 [6 L. Ed. 2d 1081, 1098] [Douglas, J., concurring]; People v. Cahan, supra, 44 Cal. 2d 434, 449.)
To make the constitutional guarantees meaningful the exclusionary rule was adopted. It was adopted not to vindicate the constitutional rights of lawbreakers, but to protect the constitutional rights of all citizens, especially the innocent, in the only way those rights could be effectively protected, by removing the incentive of officials to engage in unlawful searches and seizures. "By denying any profit from the unconstitutional methods of law enforcement, it is to be anticipated that law enforcement officials will have no incentive to engage in such methods." (People v. Moore, 69 Cal. 2d 674, 682 [72 Cal. Rptr. 800, 446 P.2d 800].)
It was recognized that by the adoption of the exclusionary rule some criminals would go free because they could not be convicted without evidence obtained by violation of our constitutional guarantees. It was also *173 recognized that other criminals might go free because, although the evidence necessary to convict might have been obtained by lawful means, it was not. (People v. Cahan, supra, 44 Cal. 2d 434, 438, 449.) We pointed out, however, that when the constitutional provisions were adopted "the choice was made that all the people, guilty and innocent alike, should be secure from unreasonable police intrusions, even though some criminals should escape," and that "it would be manifestly impossible to protect the rights of the innocent if the police were permitted to justify unreasonable searches and seizures on the ground that they assumed their victims were criminals." (People v. Cahan, supra, 44 Cal. 2d 434, 438-439.) We adopted the rule excluding evidence secured by unlawful searches and seizures "because other remedies have completely failed to secure compliance with the constitutional provisions on the part of police officers...." (Id., at p. 445.)
Once we restore any profit to the unlawful search or seizure, as the majority do today, we furnish an incentive for law enforcement officials to engage in unconstitutional methods of law enforcement, and the danger of the use of such methods extends to the citizenry generally, including the innocent. In order for the exclusionary rule to be effective in deterring unconstitutional searches and seizures, it is not enough to remove some of the profit of such searches and seizures; all of the profit must be removed, for law enforcement officials, faced with a situation which permits any gain from the unlawful conduct, however remote, are furnished an incentive to violate the constitutional guarantees. It is for these reasons that we must exclude not only the evidence unlawfully seized but also the "fruits" of such evidence. (Wong Sun v. United States, supra, 371 U.S. 471, 484-487 [9 L. Ed. 2d 441, 452-455].)
In other words, no compromise can be permitted in the enforcement of the exclusionary rule where the compromise will permit profit from the unlawful conduct, and denying part of the profit, but not all, will frustrate the entire purpose of the exclusionary rule. For these reasons, I cannot agree with majority conclusions that the purpose of the exclusionary rule to deter unlawful police conduct is adequately served by suppressing the gun and that the suppression of the testimony would not further advance the purpose of the exclusionary rule. In my view, unless we suppress all of the evidence obtained as a direct, immediate, and necessary result of the unlawful police conduct, we furnish an incentive to violate the constitutional guarantees, and suppression of the gun alone without suppression also of the evidence obtained as a direct, immediate and necessary result of the unlawful seizure of the gun, does not adequately serve the purpose of the exclusionary rule but defeats it.
*174 Nor can I agree that the fact that the police were not searching for the gun or other evidence relating to the Pesce robbery should somehow render the evidence admissible. The general search has long been condemned. (Aday v. Superior Court, 55 Cal. 2d 789, 796 [13 Cal. Rptr. 415, 362 P.2d 47]; People v. Berger, 44 Cal. 2d 459, 461 [282 P.2d 509]; People v. Mayen, 188 Cal. 237, 242 [205 P. 435, 24 A.L.R. 1383]; Entick v. Carrington (1765) 19 Howell's State Trials 1029.) Where a search is made pursuant to a warrant which is lawful in part but unlawful for overbreadth in other parts, seizure of property pursuant to the lawful part of the warrant is lawful, but the property seized pursuant to the overly broad part must be suppressed. (Aday v. Superior Court, supra, 55 Cal. 2d 789, 796-797.) The majority today tell us that where the search is in all respects invalid the fruits of the search as to matters sought will be suppressed but the fruits of matters not specifically sought will be admissible. In other words the wrongful act of the officer of unlawfully searching when coupled with the further wrongful search for matters for which there is no reason whatsoever to search somehow permits use of the fruits of the wrongful conduct. There is more than a bit of truth in the ancient saying that two wrongs do not make a right, and common sense dictates that the prosecution should not be in better position because the officer unlawfully entered and then engaged in a general search and seizure than it would be if the officer had unlawfully entered and engaged in a specific search. Moreover, and perhaps more importantly, the majority's position in granting significance to the fact that the officers were not searching for the gun can only have the effect of providing an incentive for law enforcement officials, particularly members of the robbery detail, who entered unlawfully or have failed to find the evidence or contraband sought, to expand their search in the hope of finding evidence to connect the victim of the search with some other offense. Providing such incentive is contrary to the policy against general searches and subverts the purpose of the exclusionary rule to deter unlawful searches and seizures.
Finally, I must call attention to the fact that the decision of the majority today relates not so much to searches where law enforcement officials have probable cause to believe the victim of the search guilty of crime but to searches where there is no such probable cause. Where there is probable cause, law enforcement officials will often be deterred from unlawful conduct from a fear of jeopardizing their right to obtain evidence which could be lawfully seized. No such fear ordinarily prevents an officer from searching when there is no probable cause but only rumor or speculation and he knows that the evidence, if it exists, may not be lawfully seized. It is the latter type search, the search of the presumed innocent, which the *175 courts should most zealously discourage, but the impact of today's decision of the majority is to provide an incentive for the speculative and general search.
I would issue mandate.
Tobriner, J., and Sullivan, J., concurred.
Petitioners' application for a rehearing was denied October 28, 1970. Peters, J., Tobriner, J., and Sullivan, J., were of the opinion that the petition should be granted.
NOTES
[1] A case is designated "inactive" when all pertinent points have been thoroughly investigated.
[1] Because the causation is direct, immediate, and necessary, cases of independent lawful causation (see People v. Stoner, 65 Cal. 2d 595, 602 [55 Cal. Rptr. 897, 422 P.2d 585]), where unlawful conduct was not necessary (People v. Ditson, 57 Cal. 2d 415, 443-444 [20 Cal. Rptr. 165, 369 P.2d 714]), or where the causation has become attenuated (Wong Sun v. United States, 371 U.S. 471, 487-488 [9 L. Ed. 2d 441, 455-456, 83 S. Ct. 407]), are not controlling. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1851378/ | 685 So. 2d 281 (1996)
Marshall WINN, Plaintiff-Appellant,
v.
CITY OF ALEXANDRIA, et al, Defendants-Appellees.
No. 96-492.
Court of Appeal of Louisiana, Third Circuit.
November 20, 1996.
*282 Fred Andrew Pharis, Alexandria, for Marshall Winn.
Albin Alexandre Provosty, Alexandria, for City of Alexandria et al.
Robert Lewis Bussey, Assistant District Attorney, for Rapides Parish District Attorney.
Before SAUNDERS, SULLIVAN and GREMILLION, JJ.
SAUNDERS, Judge.
Plaintiff seeks damages for his allegedly wrongful arrest. The trial court rendered judgment in favor of defendants. We affirm.
FACTUAL BACKGROUND
At approximately 10:00 a.m. on Sunday, February 12, 1989, Marshall Winn was at his father's house on Henry Street in Pineville, Louisiana, when he was called by his sister, Linda Winn. Linda asked Marshall to go with her to visit their mother's grave. She told Marshall that she would purchase flowers while Marshall was in transit to her apartment.
After purchasing the flowers, Linda arrived at her apartment. Marshall arrived shortly after his sister did and approached the door of his sister's apartment unnoticed by any witnesses. Upon walking up to his sister's kitchen door, Marshall testified that he heard sounds inside the apartment that alerted him. At this point, Marshall tried to break into the apartment to get to his sister and while doing so, Linda began to scream. Linda's screams awoke three witnesses: Monya McMichael, Kelly Redmond, and Peter Pekeyzer, who were in another duplex apartment house and then began to observe from their own viewpoint the events that occurred.
Marshall testified that as he fought desperately to enter the apartment, he caught a glimpse of his sister being restrained by a knife-wielding assailant. Marshall described the altercation that continued and testified that the assailant held him at bay at the door and wounded him with stab wounds to the neck, the mouth and the right hand, before the assailant fatally wounded Linda. Next, Marshall stated that the assailant turned away and he was unaware of where the man had gone because he was interested only in helping his sister.
According to Marshall and another witness, Linda Haynes, Marshall immediately helped Linda to his truck and brought her to St. Francis Cabrini Hospital. However, before Marshall and Linda reached the truck, Linda Haynes was able to ask Linda what happened and she replied, "I was attacked."
Following the incident, the first Alexandria Police Department officer on the scene, Tommy Thompson, talked to residents of the apartment complex and then went to the hospital. There, the officer got a description from Marshall Winn of the assailant that allegedly wounded him and killed his sister.
However, after other officers arrived at the scene and were able to interview several witnesses, nothing was gathered to corroborate the story Marshall Winn told the police. Instead, the witnesses stated that as the white male continued to beat on the door, *283 Linda continued to scream and fight to keep the door closed. Thus, as viewed by the witnesses, it appeared that the white male, i.e., Marshall Winn, and his sister were struggling with one another. Additionally, although the witnesses could not definitively confirm that Marshall was the perpetrator, they consistently held that the events that occurred looked more like Linda was preventing Marshall from entering the apartment rather than confirming Marshall's account of what took place.
Based upon the independent investigation of the police that did not indicate the presence of a third party on the premises, and on the statements given by four witnesses, Officer Ethel Queen, the detective assigned to investigate the death of Linda Winn, assisted by the District Attorney's Office, presented an affidavit to a judge in order to obtain an arrest warrant.
Mr. Winn, plaintiff in the current civil proceeding, was arrested by the Alexandria Police Department on February 14, 1989, pursuant to an arrest warrant signed by the trial judge on the basis of evidence obtained by Detectives Queen and Kenneth McCall tending to establish that plaintiff had murdered Linda Winn, his sister. He was released on bond the same day.
After a Rapides Parish grand jury returned a "no true bill" on April 19, 1989, Mr. Winn sued the City of Alexandria, Chief of Police Glen Beard, and Detective Kenneth McCall on February 14, 1990, asserting claims of malicious prosecution and false arrest. Following trial, judgment was rendered July 14, 1995, denying all of plaintiff's claims.
In this appeal, plaintiff seeks reversal of the civil judgment, urging three different legal theories which we take up consecutively: false arrest, malicious prosecution, and general negligence.
I. FALSE ARREST
Plaintiff's first theory seeks damages for false arrest, a theory which, technically speaking, does not avail itself in this case.
The distinction between actions for false imprisonment and those for a malicious prosecution are far apart. In a false imprisonment, the arrest is made either without any legal process or warrant, or under a warrant null upon its face. In a malicious prosecution, the proceedings are had in pursuance of legal process, maliciously and wrongfully obtained. DeBouchel v. Koss Const. Co., Inc., 177 La. 841, 149 So. 496. Lord Mansfield says, in noting the difference between false imprisonment and malicious prosecution, that: "* * * The wrongdoer in making the unlawful arrest or causing it to be made, takes the law in his own hands and acts without a warrant from a court or magistrate while the man who instigates a malicious prosecution puts the machinery of criminal law into operation, causing a warrant to issue and the arrest under the warrant." Johnstone v. Sutton, 1 Term Reports 544 (Eng.), 1 English Ruling Cases 765; DeBouchel v. Koss Const. Co., Inc. supra.
Barfield v. Marron, 222 La. 210, 62 So. 2d 276, 280 (1952).
Therefore, while an action for malicious prosecution may be brought where an individual is aggrieved by the consequences that flow from the governing authority's having obtained a facially valid arrest warrant, the same cannot be said of a claim for false arrest or imprisonment, even where a peace officer's statements giving rise to an arrest warrant are proven to be untrue. Edmond v. Hairford, 539 So. 2d 815 (La.App. 3 Cir. 1989); Touchton v. Kroger Co., 512 So. 2d 520 (La.App. 3 Cir.1987).
In this case, plaintiff was arrested in a criminal proceeding in which peace officers had obtained facially lawful warrants. Therefore, plaintiff cannot prevail on his action for false arrest or imprisonment. See O'Conner v. Hammond Police Dept., 439 So. 2d 558 (La.App. 1 Cir.1983).[1] The success *284 of this case must turn on plaintiff's remaining alternate theories of malicious prosecution or general negligence, which we address in turn.
II. MALICIOUS PROSECUTION
A civil action for malicious prosecution requires the concurrence of the following elements: (1) the commencement or continuance of a criminal proceeding; (2) its legal causation by the present defendant against plaintiff, who was defendant in the original (criminal) proceeding; (3) its bona fide termination in favor of the present (civil) plaintiff; (4) the absence of probable cause for such proceeding; (5) the presence of malice therein; and (6) damages. Miller v. East Baton Rouge Parish Sheriff's Dept., 511 So. 2d 446 (La.1987); Jones v. Soileau, 448 So. 2d 1268 (La.1984); Hibernia Nat. Bank v. Bolleter, 390 So. 2d 842 (La.1980); Johnson v. Pearce, 313 So. 2d 812 (La.1975); Robinson v. Goudchaux's, 307 So. 2d 287 (La.1975); Eusant v. Unity Industrial Life Ins., 195 La. 347, 196 So. 554 (1940).
In this case, there was no question of the presence of the first three factors. Plaintiff was arrested by officers of the Alexandria Police Department, whose officers included those named defendants in the present civil suit, and the grand jury refused to indict plaintiff. Finding probable cause for plaintiff's arrest and retention and no malice on the officers' parts, the trial court concluded that plaintiff's civil case failed and entered judgment in favor of defendants, pretermitting the question of damages.
Our review requires that we examine the trial court's findings of probable cause and malice, the two most important elements of the six. Miller, 511 So. 2d 446. This review is governed by the manifest error standard of appellate review. Id.
It is well settled that a court of appeal may not set aside a trial court's or a jury's finding of fact in the absence of "manifest error" or unless it is "clearly wrong," and where there is a conflict in the testimony, reasonable evaluations of credibility and reasonable inferences of fact should not be disturbed upon review, even though the appellate court may feel that its own evaluations and inferences are as reasonable. Arceneaux v. Domingue, 365 So. 2d 1330, 1333 (La.1978); Canter v. Koehring, 283 So. 2d 716, 724 (La.1973). See also, Sevier v. United States Fidelity & Guaranty Co., 497 So. 2d 1380, 1383 (La.1986); West v. Bayou Vista Manor, Inc., 371 So. 2d 1146, 1150 (La. 1979); Davis v. Owen, 368 So. 2d 1052, 1056 (La. 1979); Cadiere v. West Gibson Products Co., 364 So. 2d 998, 999 (La. 1978); A. Tate, "Manifest Error" Further observations on appellate review of facts in Louisiana civil cases, 22 La.L.Rev. 605, 611 (1962). The appellate review of fact is not completed by reading so much of the record as will reveal a reasonable factual basis for the finding in the trial court, but if the trial court or jury findings are reasonable in light of the record reviewed in its entirety, the court of appeal may not reverse even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the fact finder's choice between them cannot be manifestly erroneous or clearly wrong. Arceneaux, supra at 1333, Watson v. State Farm Fire & Casualty Ins. Co., 469 So. 2d 967 (La.1985).
Rosell v. ESCO, 549 So. 2d 840, 844 (La.1989).
The trial court found in favor of defendants on the malicious prosecution charges advanced by plaintiff. Initially, the trial court concluded that, as a matter of law, plaintiff was required to demonstrate that the officers lacked probable cause to arrest him, which he failed to do. Second, the trial court concluded that even if defendants were required to exculpate themselves, they succeeded in doing so at trial. Thus, according to the trial court, defendants were absolved of liability regardless of who bore the burden of persuasion.
On appeal, plaintiff maintains that the trial court erred in its initial determination and we agree. As was stated in Robinson v. *285 Rhodes, 300 So. 2d 249, 251 (La.App. 2 Cir.), writ refused, 303 So. 2d 178 (La.1974):
The burden ... is ordinarily upon the plaintiff to prove both malice and the absence of probable cause. But the authorities have firmly established the rule that where a committing magistrate, without a trial, has discharged the accused, or the prosecuting officer has dismissed the charge, or where a grand jury has returned a no bill, there is a presumption of want of probable cause with the result that, in a suit for malicious prosecution based on that discharge, the burden of showing that he acted on probable cause and without malice is upon the defendant.
(Emphasis added.)
Therefore, were it not for the trial court's alternate conclusion that defendants' case was sufficient to rebut the Robinson presumption, its conclusion would be deserving of little deference and we would be required to review the record de novo. "Where a finding of fact is interdicted because of some legal error implicit in the fact finding process or when a mistake of law forecloses any finding of fact, and where the record is otherwise complete, the appellate court should, if it can, render judgment on the record." Ragas v. Argonaut Southwest Ins. Co., 388 So. 2d 707, 708 (La.1980).
However, here the trial court further observed that defendants were innocent of malicious prosecution even if it had been their obligation to exonerate themselves given the presumption set forth above in Robinson, 300 So. 2d 249. After reviewing the record in its entirety, we conclude that the trial court did not manifestly err in its conclusion. For the reasons set forth in the two subsections which follow, the evidence supports the conclusions that (1) defendants had successfully proven that probable cause existed for Mr. Winn's arrest and detention, and (2) malice played no part in the investigating or arresting officers' motives.[2]
(i) Probable Cause
Probable cause for arrest exists when facts and circumstances within the knowledge of the arresting officers and of which he has reasonable and trustworthy information are sufficient to justify a man of average caution in the belief that the person to be arrested has committed an offense or is committing an offense. Beck v. Ohio, 379 U.S. 89, 85 S. Ct. 223, 13 L. Ed. 2d 142 (1964); State v. Raheem, 464 So. 2d 293 (La.1985); State v. Arceneaux, 425 So. 2d 740 (La.1983); State v. Johnson, 422 So. 2d 1125 (La.1982).
The appearances must be such as to lead a reasonable person to set the criminal process in motion; unfounded suspicion and conjecture will not suffice. Prosser & Keeton, at p. 876. See Johnson v. Pearce, 313 So. 2d 812 (La.1975); Whittington v. Gibson Discount, 296 So. 2d 375 (La.App. 2d Cir.1974). Verification may be required to establish probable cause where the source of the information seems unworthy, or where further information about a serious charge would be readily available. Prosser & Keeton, at p. 877. See State v. Raheem, 464 So. 2d 293 (La.1985); Cf. Plassan v. Louisiana Lottery Co., 34 La. Ann. 246 (1882). The reputation of the accused, his opportunity to offer explanation, and the need for prompt action, if any, are all factors in determining whether unverified information furnishes probable cause. Prosser & Keeton, at p. 877. See Hibernia Nat. Bank v. Bolleter, 390 So. 2d 842 (La.1980); Jefferson v. S.S. Kresge Co., 344 So. 2d 1118 (La.App. 3d Cir.1977); Hardin v. Barker's of Monroe, Inc., 336 So. 2d 1031 (La.App. 2d Cir.1976).
Miller, 511 So.2d at 452-53.
Applying these precepts, as the trial court, we conclude that Officers Queen and McCall acted with probable cause. First and foremost, all of the witnesses near the scene of the homicide who could see and hear plaintiff and hear his sister's screams were left with the impressions that Mr. Winn was *286 acting in a violent and hostile manner during Linda's assault. Although their positions did not enable them to actually see the assault, they could hear the victim's desperate screams, which left the impression that the victim considered plaintiff to be a grave threat and not the rescuer he claimed to have been.[3] The validity of these witnesses' statements were uncontradicted by neutral observers or by a subsequent physical inspection of the premises. Consequently, we conclude that probable cause existed at the time of plaintiff's arrest, notwithstanding the fact that plaintiff would one day be absolved of the horrendous homicide of his sister. We do so notwithstanding Officer Queen's failure to apprise the district attorney and/or the trial judge that Mr. Winn had actually given the assailant's description to Officer Thompson and indicated that the perpetrator was a man of a race other than his own. (The officer's affidavit contained Mr. Winn's denial of the charges, but neglected to mention that the accused had allegedly seen the attacker.) We find that the warrant could have been issued even had the trial court been apprised of plaintiff's claims, since the witnesses huddled nearby indicated that, as much as they strained to listen to the melee, they could detect the presence of no such third party. While it would appear that the court should have been better apprised of plaintiff's more specific contention, on the strength of the evidence and lack of malicious intent, we conclude that this shortcoming of Officer Queen's affidavit is not controlling. Absolute certainty of conviction is not the benchmark by which probable cause is determined, and we decline to go so far.
A trial court's determination of probable cause is entitled to significant deference by this court. State v. Ogden [391 So. 2d 434 (La.1980)], above; United States v. Middleton, 599 F.2d 1349 (5th Cir.1979). This is true even when, as here, the officers in good faith omitted relevant facts from the affidavit presented to the issuing magistrate. The affidavit supporting issuance of a search warrant must be construed nontechnically and in a common sense fashion. United States v. Ventresca, 380 U.S. 102, 85 S. Ct. 741, 13 L. Ed. 2d 684 (1965). The probable cause standard recognizes that a degree of uncertainty may exist, since probable cause is not proof beyond a reasonable doubt. State v. Guidry, 388 So. 2d 797 (La.1980). The facts need not eliminate all possible innocent explanations in order to support a finding of probable cause. See State v. Abadie [390 So. 2d 517 (La.1980)], above; State v. Phillips, 347 So. 2d 206 (La.1977).
State v. Lehnen, 403 So. 2d 683, 687 (La.1981) (emphasis ours).
We also affirm the trial court's finding of probable cause, notwithstanding plaintiff's complaint that had Officer Coutee sooner questioned Frederick Sanders, an ex-convict neighbor roughly fitting the description given by plaintiff of his sister's assailant, the officer would have sooner heard Sanders relate that decedent, while attempting to ward off her assailant, declared "[d]on't stab me, Mister," language unlikely to have been addressed to a sibling such as plaintiff. According to plaintiff, any probable cause that might have existed before this evidence would have been dissolved because of it, as the authorities would have then known that plaintiff was not their man. Even if we could overlook the irony of plaintiff's sudden placement of faith in ex-con Sanders, who plaintiff initially claimed to have resembled his sister's murderer, we cannot overlook the mountain of inculpatory evidence or the need for prompt action attributable to the severity of the crime and seemingly positive identification of Mr. Winn. As we have observed elsewhere, the need for prompt action is a critical factor in determining whether unverified information furnishes probable cause for an arrest here. In this case, the apparent need for plaintiff's arrest was justified not only by the severity of the crime but by information which was verified in quadruplicate by four reliable witnesses. Given these circumstances, it would not appear unreasonable for authorities to have waited two days to question Sanders.
*287 In light of the foregoing, we uphold the trial court's conclusion that defendants had probable cause to arrest Mr. Winn for the murder of his sister.
(ii) Malice
We turn next to plaintiff's contention that law enforcement personnel acted maliciously in presenting and maintaining the case against him, malice being another element in a suit for malicious prosecution.
However, malice does not submit readily to definition. Green, Judge and Jury 347 (1930); Griswold v. Horne, 19 Ariz. 56, 165 P. 318 (1917). See 54 C.J.S. Malicious Prosecution section 41 (1948); Sanders v. Daniel Intern. Corp., 682 S.W.2d 803 (Mo. 1984). It means something more than the fictitious "malice in law" which has been developed in defamation cases as a cloak for strict liability. There must be malice in fact. Prosser & Keeton, at p. 882. Any feeling of hatred, animosity, or ill will toward the plaintiff, of course amounts to malice. Harper, James and Gray section 4.6 at p. 443. See Barrios v. Yoars, 184 So. 212 (La.App.1938); Girot v. Graham, 41 La. Ann.511, 6 So. 815 (1889). But it is not essential to prove ill will. Malice is found when the defendant uses the prosecution for the purpose of obtaining any private advantage, for instance, as a means to extort money, to collect a debt, to recover property, to compel performance of a contract, to "tie up the mouths" of witnesses in another action, or as an experiment to discover who might have committed the crime. Prosser & Keeton, at p. 883; Harper, James and Gray section 4.6 at p. 445 n. 8. See Jones v. Soileau, supra; Hibernia Nat. Bank v. Bolleter, supra; Johnson v. Ebberts, 11 F. 129 (C.C.Or.1880); Glover v. Fleming, 36 Md.App. 381, 373 A.2d 981 (1977). Malice may also be inferred from the lack of probable cause or inferred from a finding that the defendant acted in reckless disregard of the other person's rights. Jones v. Soileau, supra; Hibernia Nat. Bank v. Bolleter, supra; Johnson v. Pearce, supra; Brown v. United States, 653 F.2d 196 (5th Cir.1981), cert den. 456 U.S. 925, 102 S. Ct. 1970, 72 L. Ed. 2d 440 (1982). See Spencer v. Burglass, 337 So. 2d 596 (La.App. 4th Cir.1976); Carter v. Catfish Cabin, 316 So. 2d 517 (La.App. 2d Cir.1975).
Miller, 511 So.2d at 453.
Marshall contends that, considering the misrepresentations made to the witnesses and to the judge by employees of the City of Alexandria, malice is present. Also, Marshall contends that Officer Queen's failure to interview Frederick Sanders, who fit the description Marshall had given to the police as the assailant, constituted maliciousness on the part of Officer Queen and the Alexandria Police Department.
However, after considering all of the evidence presented by both sides, the trial court could detect no hatred or ill will by the officers. Neither can we. Plaintiff argued that the witnesses were tainted by information received from the Alexandria Police Department which prejudiced the witnesses against him and led them to mistakenly identify him, but the record does not support this contention. Instead, the record reveals that Redmond emphasized with certainty the belief that Marshall Winn was the murderer and testified that the initial affidavit taken contained incorrect statements. Further, during the course of Linda Haynes' deposition, when presented with both her Alexandria Police Department statement and an initial affidavit, she testified that no police officer had ever told her that they thought Marshall Winn committed the crime, rather she insisted that it was her belief that Marshall was the perpetrator of the crime. More importantly, Monya McMichael, the only eyewitness to appear and testify live at trial, denied that the Alexandria Police Department did anything to influence her statement.
Plaintiff's second contention lacks merit as well. As the trial court noted, while it is true that further investigation might have turned up other possible suspects or exculpatory evidence, this has no bearing on whether probable cause existed at the time of the arrest. Clearly, the evidence gathered by independent investigation and the statements of four eyewitnesses identifying Marshall at the scene of the crime led the officers of the *288 Alexandria Police Department to establish probable cause for the arrest of Mr. Winn.
In light of the above, like the trial court, we conclude that a preponderance of the evidence suggests that the arresting officers were motivated by the largely uncontradicted accounts of disinterested eyewitnesses and the severity of the offense, and not the malice plaintiff alleges. At a minimum, we conclude that the trial court was not manifestly erroneous in accepting defendants' version of events over plaintiff's version.
Having found that probable cause existed to arrest and detain plaintiff, and that no malice on the parts of law enforcement personnel existed, we find no merit to plaintiff's first assigned error concerning plaintiff's malicious prosecution claim. Therefore, we turn to plaintiff's last argument which is grounded in general negligence principles.
III. GROSS NEGLIGENCE
La.Civ.Code art. 2315 states as follows:
Every act whatever of man that causes damage to another obliges him by whose fault it happened to repair it.
Damages may include loss of consortium, service, and society, and shall be recoverable by the same respective categories of persons who would have had a cause of action for wrongful death of an injured person.
Louisiana courts use a duty-risk analysis to determine whether liability exists under this provision. As the Louisiana Supreme Court writes in Mart v. Hill, 505 So. 2d 1120, 1122 (La.1987):
We have characterized "duty-risk" analysis as the process to be employed in determining whether liability exists under the facts of a given case. In making the requisite analysis four questions are to be considered:
(1) Was the conduct in question a causein-fact of the resulting harm?
(2) What, if any, duties were owed by the respective parties?
(3) Were the requisite duties breached?
(4) Was the risk, and harm caused, within the scope of protection afforded by the duty breached?
Pierre v. Allstate Insurance Company, 257 La. 471, 242 So. 2d 821 (1970); Shelton v. Aetna Casualty and Surety Co., 334 So. 2d 406 (La.1976); Hill v. Lundin and Associates, Inc., 260 La. 542, 256 So. 2d 620 (1972).
In the context of an action like this one:
The jurisprudence of the state recognizes a civil cause of action, based on fault under C.C. 2315, in favor of one "whose liberty has been interfered with in an unwarranted manner." F. Stone, 12 La.Civil Law Treatise, Tort Doctrine, Secs. 200-01, at 264-66 (1977). Like any other delict under C.C. 2315, such an "interference" must be based on fault of the defendant which causes the damage complained of in order for the plaintiff to recover. In Graf v. McCrory Corp., 368 So. 2d 1217, 1218 (La.App.1979) (Lemmon, J.), the defendant refused to drop criminal charges unless the plaintiff would release it from civil liability. The court emphasized that the unreasonableness of the defendant's actions under these circumstances is the key to determining fault in a malicious prosecution case just as in any other case based on C.C. 2315-16.
Jones, 448 So.2d at 1271 (emphasis added, note omitted).
As a general proposition, ... public policy requires that all persons shall fully resort to the courts for redress of wrongs, and the law protects them when they act in good faith upon reasonable grounds in commencing either a civil or criminal proceeding. Robinson v. Goudchaux's, supra. This principle has particular relevance to public officials who are charged by law with the enforcement of laws designed to protect the public at large. Only the grossest negligence or arbitrary and capricious conduct on their part will support a claim of malicious prosecution.
Johnson, 313 So.2d at 816 (emphasis added).
In the alternative, plaintiff claims that at a minimum, the inaction and omissions by the officers of the Alexandria Police Department constituted negligence. First, plaintiff argues that the omissions by Officer Queen when she presented the affidavit to the judge *289 in order to obtain an arrest warrant, and the officer's failure to investigate Frederick Sanders prior to his arrest, is tantamount to negligence. However, as previously stated, we have determined that even had the judge been apprised of the omitted facts, probable cause existed based upon the statements of the four witnesses and the independent investigation by the department which did not indicate the presence of a third party in the apartment of Linda Winn. Furthermore, Officer Queen was not required by law to investigate Sanders thoroughly before obtaining an arrest warrant because there was sufficient evidence indicating that plaintiff was the perpetrator of the crime, despite his contentions to the contrary. In short, neither did Officer Queen nor any other officer in the department breach a duty owed to Mr. Winn, rather, the defendants' actions, under the circumstances, were reasonable.
Thus, we find no manifest error in the trial court's conclusion that defendants are innocent of negligence. The record suggests that in arresting Mr. Winn, defendants merely sought to effectuate society's ends, not their own, and had probable cause to do so. Cf. Edmond v. Hairford, 539 So. 2d 815 (La.App. 3 Cir.1989), where defendant trumped up charges for personal reasons.
There being no negligence on defendants' part, we find no merit to plaintiff's contentions that the trial court erred in concluding otherwise.
DECREE
In light of the foregoing, the judgment of the trial court is affirmed and plaintiff's claim to damages is denied, at plaintiff's cost.
AFFIRMED.
NOTES
[1] The distinction between the two remedies is largely inconsequential in view of the liberal rules embodied in our Code of Civil Procedure. See, e.g., La.Code Civ.P. art. 862; Gremillion v. Rapides Parish Police Jury, 430 So. 2d 1362 (La. App. 3 Cir.), writs denied, 435 So. 2d 426, 440 (La. 1983). See also, First South Prod. Credit Ass'n v. Georgia-Pacific, 585 So. 2d 545 (La. 1991). Therefore, had plaintiff failed to present malicious prosecution as an alternate theory, he would not have been penalized, provided his pleadings included the appropriate factual charges.
[2] Indeed, so strong is the evidence that the same conclusion would be ordained even under a de novo standard of appellate review. Therefore, under either standard of review, we hold that defendants, by a preponderance of the evidence, have both proven probable cause and disproved their malice.
[3] According to these witnesses, Mr. Winn was yelling and screaming when he picked up a chair to force entry into the home of the victim; to them, it appeared that Linda Winn did not want to let plaintiff into her home. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2376431/ | 55 F. Supp. 2d 1070 (1999)
PLAYBOY ENTERPRISES, INC., Plaintiff,
v.
NETSCAPE COMMUNICATIONS CORP., Defendant.
Playboy Enterprises, Inc., Plaintiff,
v.
Excite, Inc., Defendant.
Nos. SA CV 99-320 AHS EEX, SA CV 99-321 AHX EEX.
United States District Court, C.D. California, Southern Division.
June 24, 1999.
*1071 Barry Felder, Henry J. Silberberg, Brown Raysman Millstein Felder & Steiner, Los Angeles, CA, Jeffrey D. Neuburger, Catherine M. McGrath, Matthew D. Moren, Brown Raysman Millstein Felder & Steiner, New York, NY, for plaintiff.
Jeffrey K. Riffer, Stanley M. Gibson, Jim D. Bauch, Jeffer Mangals Butler & Marmaro, Los Angeles, CA, for defendants.
*1072 ORDER (1)DENYING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION; (2) GRANTING DEFENDANTS' REQUEST FOR JUDICIAL NOTICE; (3) ISSUING FINDINGS OF FACT AND CONCLUSIONS OF LAW
STOTLER, District Judge.
I.
PROCEDURAL BACKGROUND
On April 15, 1999, plaintiff Playboy Enterprises, Inc. ("PEI") filed a Motion for Preliminary Injunction against defendant Netscape Communications Corp. and against defendant Excite, Inc. On May 10, 1999, defendants filed a joint opposition. PEI filed its reply on May 17, 1999. The Court heard oral argument on the motion on May 24, 1999. At the end of the hearing, the Court took the matter under advisement, and ordered the parties to lodge proposed Findings of Fact and Conclusions of Law. Plaintiff lodged its proposed Findings on June 1, 1999; defendants lodged theirs on June 8, 1999. The Court has considered all of the parties' submissions, as well as arguments presented at the hearing.
II.
FACTUAL BACKGROUND
Defendants operate search engines on the Internet.[1] When a person searches for a particular topic in either search engine, the search engine compiles a list of sites matching or related to the user's search terms, and then posts the list of sites, known as "search results."
Defendants sell advertising space on the search result pages. Known as "banner ads," the advertisements are commonly found at the top of the screen. The ads themselves are often animated and whimsical, and designed to entice the Internet user to "click here." If the user does click on the ad, she is transported to the web site of the advertiser.
As with other media, advertisers seek to maximize the efficacy of their ads by targeting consumers matching a certain demographic profile. Savvy web site operators accommodate the advertisers by "keying" ads to search terms entered by users. That is, instead of posting ads in a random rotation, defendants program their servers to link a pre-selected set of banner ads to certain "key" search terms. Defendants market this context-sensitive advertising ability as a value-added service and charge a premium.
Defendants key various adult entertainment ads to a group of over 450 terms related to adult entertainment, including the terms "playboy" and "playmate." Plaintiff contends that inclusion of those terms violates plaintiff's trademarks rights in those words.
III.
PARTIES' CONTENTIONS
Plaintiff has a trademark on "Playboy ®" and "Playmate ®." Plaintiff contends that defendants are infringing and diluting its trademarks (1) by marketing and selling the group of over 450 words, including "playboy" and "playmate," to advertisers, (2) by programming the banner ads to run in response to the search terms "playboy" and "playmate" (i.e., "keying"), and (3) by actually displaying the banner ad on the search results page. As a result, plaintiff contends, Internet users are diverted from plaintiff's official web site and web sites sponsored or approved by plaintiff, which generally will be listed as search results, to other adult entertainment web sites. Plaintiff further argues that defendants intend to divert the users to the non-PEI sites. Plaintiff does not contend, however, *1073 that defendants infringe or dilute the marks when defendants' search engines generate a list of Web sites related to "playboy" or "playmate."
Defendants respond that while plaintiff may have a trademark on "Playboy ®" and "Playmate ®," defendants do not actually "use" the trademarks qua trademarks. Moreover, even if defendants do use the trademarks, defendants argue that a trademark does not confer an absolute property right on all uses of the protected terms, and that defendants' use of the terms is permitted. Finally, defendants dispute that they have any intent to divert users from clicking on search results (such as PEI's sites) to clicking on banner ads.
IV.
DISCUSSION
A. Legal Standard for Preliminary Injunction
In order for plaintiff to obtain a preliminary injunction, it "must show either (1) a combination of probable success on the merits and a possibility of irreparable harm, or (2) the existence of serious questions on the merits and the balance of hardships weighing heavily in its favor." PEI v. Welles, 7 F. Supp. 2d 1098, 1099 (S.D.Cal.1998), aff'd without opinion, 162 F.3d 1169, 1998 WL 750954 (9th Cir.1998).
B. Law and The Internet
"The Internet is `a unique and wholly new medium of worldwide human communication.'" Reno v. ACLU, 521 U.S. 844, 117 S. Ct. 2329, 2334, 138 L. Ed. 2d 874 (1997) (citation omitted). The parties and the Court are conversant with the workings of the Internet, as well as with the constantly expanding body of law that seeks to craft a legal contour for it. The Court is mindful of the difficulty of applying well-established doctrines to what can only be described as an amorphous situs of information, anonymous messenger of communication, and seemingly endless stream of commerce. Indeed, the very vastness, and manipulability, of the Internet forms the mainspring of plaintiff's lawsuit.
C. Trademark Use
Integral to plaintiff's success on the merits of its case, on either the infringement or dilution theory, is a showing that defendants use plaintiff's trademarks in commerce. See Memorandum of Points & Authorities [Excite], pg. 13 (e.g., "Excite is deriving substantial and direct revenue by selling banner advertisements keyed to the PEI marks"); Memorandum of Points and Authorities [Netscape], pg. 14 (same). Plaintiff does not so show. Rather, plaintiff can only contend that the use of the words "playboy" and "playmate," as keywords or search terms, is equivalent to the use of the trademarks "Playboy ®" and "Playmate ®." However, it is undisputed that an Internet user cannot conduct a search using the trademark form of the words, i.e., Playboy ® and Playmate ®. Rather, the user enters the generic word "playboy" or "playmate." It is also undisputed that the words "playboy" and "playmate" are English words in their own right, and that there exist other trademarks on the words wholly unrelated to PEI. Thus, whether the user is looking for goods and services covered by PEI's trademarks or something altogether unrelated to PEI is anybody's guess. Plaintiff guesses that most users searching the Web for "playboy" and "playmate" are indeed looking for PEI sites, goods and services. Based on that theory, plaintiff argues that since defendants also speculate that users searching for "playboy" and "playmate" are looking for things related to Playboy ® and Playmate ®, defendants use the trademarks when they key competing adult entertainment goods and services to the generic "playboy" and "playmate."
Plaintiff has not shown that defendants use the terms in their trademark form, i.e., Playboy ® and Playmate ®, when marketing *1074 to advertisers or in the algorithm that effectuates the keying of the ads to the keywords. Thus, plaintiff's argument that defendants "use" plaintiff's trademarks falls short.
D. Trademark Infringement and Dilution
Even if use of the generic "playboy" and "playmate" were construed to be use the trademark terms Playboy ® d Playmate®, plaintiff still must show that the use violates trademark law. Plaintiff has asserted two theories, trademark infringement and trademark dilution.
1. Infringement
"The core element of trademark infringement is the likelihood of confusion, i.e., whether the similarity of the marks is likely to confuse customers about the source of the products." Official Airline Guides, Inc. v. Goss, 6 F.3d 1385, 1391 (9th Cir.1993). Assuming arguendo that defendants' use of "playboy" and "playmate" is use of plaintiff's marks, plaintiff must still show that confusion is likely to result from that use. Plaintiff has not so shown.
Rather, plaintiff relies on the recent case from the Court of Appeals for the Ninth Circuit, Brookfield Communications, Inc. v. West Coast Entertainment Corp., 174 F.3d 1036, 1062-64 (9th Cir. 1999), for the proposition that defendants cause "initial interest confusion" by the use of the words "playboy" and "playmate." Initial interest confusion, as coined by the Ninth Circuit, is a brand of confusion particularly applicable to the Internet. Generally speaking, initial interest confusion may result when a user conducts a search using a trademark term and the results of the search include web sites not sponsored by the holder of the trademark search term, but rather of competitors. Id. The Ninth Circuit reasoned that the user may be diverted to an un-sponsored site, and only realize that she has been diverted upon arriving at the competitor's site. Once there, however, even though the user knows she is not in the site initially sought, she may stay. In that way, the competitor has captured the trademark holder's potential visitors or customers. Id.
Brookfield is distinguishable from this case, and where applicable, supportive of defendants' position.
First, the trademark at issue in Brookfield was not an English word in its own right. In Brookfield, the Court compared Brookfield's trademark "MovieBuff" with competitor West Coast's use of the domain name "moviebuff.com," and found them to be "essentially identical" despite the differences in capitalization, which the Court considered "inconsequential in light of the fact that Web addresses are not capssensitive..." Id. at 1054. However, the Court held that West Coast could use the term "Movie Buff" (or, presumably, "movie buff") with the space, as such is the "proper term for the `motion picture enthusiast'.... It cannot, however, omit the space." Id. at 1065. On the other hand, "[i]n light of the fact that it is not a word in the English language, when the term `MovieBuff' is employed, it is used to refer to Brookfield's products and services, rather than to mean `motion picture enthusiast.'" Id. at 1065.
As English words, "playboy" and "playmate" cannot be said to suggest sponsorship or endorsement of either the web sites that appear as search results (as in Brookfield) or the banner ads that adorn the search results page. Although the trademark terms and the English language words are undisputedly identical, which, presumably, leads plaintiff to believe that the use of the English words is akin to use of the trademarks, the holder of a trademark may not remove a word from the English language merely by acquiring trademark rights in it. Id.
Second, the use by defendant of plaintiff's trademark in Brookfield was more suspect because the parties compete in the same market as online providers of film *1075 industry information. See Id., at 1056-57 ("[n]ot only are they not non-competitors, the competitive proximity of their products is actually quite high"). The Ninth Circuit analogized the capture of unsuspecting Internet users by a competitor to highways and billboards:
Suppose West Coast's competitor ... puts up a billboard on a highway reading "West Coast Video: 2 miles ahead at Exit 7" where West Coast is really located at Exit 8 but Blockbuster is located at Exit 7. Customers looking for West Coast's store will pull off at Exit 7 and drive around looking for it. Unable to locate West, Coast, but seeing the Blockbuster store right by the highway entrance, they may simply rent there.
Brookfield, at 1064. Although the customer is not confused as to where she ultimately rents a video, Blockbuster has misappropriated West Coast's goodwill through causing initial consumer confusion. Id. The customer has been captured by the competitor in much the same way that defendant in Brookfield captures Internet users looking for plaintiff's web site.
Here, the analogy is quite unlike that of a devious placement of a road sign bearing false information. This case presents a scenario more akin to a driver pulling off the freeway in response to a sign that reads "Fast Food Burgers" to find a well-known fast food burger restaurant, next to which stands a billboard that reads: "Better Burgers: 1 Block Further." The driver, previously enticed by the prospect of a burger from the well-known restaurant, now decides she wants to explore other burger options. Assuming that the same entity owns the land on which both the burger restaurant and the competitor's billboard stand, should that entity be liable to the burger restaurant for diverting the driver? That is the rule PEI contends the Court should adopt.
2. Dilution
Trademark dilution is defined as "the lessening of the capacity of a famous mark to identify and distinguish goods or services." 15 U.S.C. § 1127. However, dilution is "not intended to serve as a mere fallback protection for trademark owners unable to prove trademark infringement." I.P. Lund Trading ApS v. Kohler Co., 163 F.3d 27, 48 (1st Cir.1998).
To establish dilution, plaintiff must show that "(1) [defendants have] made use of a junior mark sufficiently similar to the famous mark to evoke in a relevant universe of consumers a mental association of the two that (2) has caused (3) actual economic harm to the famous mark's economic value by lessening its former selling power as an advertising agent for its goods and services." Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Utah Div'n of Travel Dev., 170 F.3d 449, 459 (4th Cir.1999). Dilution generally occurs through the blurring of a famous mark or tarnishment of the mark, but is not limited to these categories. See Panavision Int'l, L.P. v. Toeppen, 141 F.3d 1316, 1326 (9th Cir.1998). Plaintiff has not shown blurring of its marks, which would occur if defendants used the marks to identify defendants' goods or services. Id. at 1326 n. 7. First, as discussed supra, plaintiff has not shown that defendant use its marks Playboy ® and Playmate ®. Further, plaintiff has not presented any evidence that defendants' use of the words "playboy" and "playmate" causes any severance of the association between plaintiff and its marks Playboy ® and Playmate ®, much less in the minds of Internet users.
Plaintiff has also failed to show tarnishment, which occurs when a famous mark is associated improperly with an inferior or offensive product or service. Id. at 1326 n. 7. Plaintiff contends that because the content of the banner ads is more sexually explicit that PEI's content, PEI's marks are being tarnished. Again, plaintiff's argument is based on the incorrect assumption that defendants use plaintiff's marks, rather than the generic words "playboy" and "playmate." But even if the defendants *1076 could be said to use plaintiff's marks, plaintiff would still be required to show that associating marks admittedly famous for adult entertainment with other purveyors of adult entertainment somehow harms plaintiff's marks. Whether PEI is a cut above the rest, as it contends, is undercut by the fact that PEI's marks are associated with other purveyors of adult entertainment in other marketing channels, as defendants' exhibits graphically establish. Adoption of plaintiff's tarnishment would secure near-monopoly control of the placement of plaintiff's marks and the associated goods and services on the Internet, where, arguably, "placement" is a nebulous concept. A greater showing of harm is required.
V.
CONCLUSION
Accordingly, and for the foregoing reasons, the plaintiff's motion is denied. The Court hereby adopts and issues the parties' proposed Findings of Fact and Conclusions of Law, as modified, appended hereto. The Court grants defendants' Request for Judicial Notice.
IT IS SO ORDERED.
IT IS FURTHER ORDERED that the Clerk shall serve a copy of this Order on counsel for all parties in this action.
I.
FINDINGS OF FACT
A. PEI and its Trademarks
1. PEI is a leading publisher of adult entertainment in a variety of media forms and uses its Playboy ® and Playmate ® marks in connection with numerous products and services. PEI's magazine publications include Playboy ® MAGAZINE, which has been published since 1953 and is read by approximately 10 million people per month, as well as PEI's specialty magazines, including, but not limited to, Playboy Presents: Video Playmates, Playboy's Calendar Playmate, Playboy's International Playmates, Playboy's Playmate Review, Playboy's Playmates in the Spotlight, and Playboy's Playmates of the Year. Each of PEI's magazines is marketed and distributed in interstate commerce and Playboy ® MAGAZINE is marketed and distributed internationally in 17 international editions. Declaration of Martha Lindeman, dated April 13, 1999, and submitted in support of PEI's motion to enjoin Excite ("Lindeman Decl. [Excite]") ¶ 2.
2. PEI has made substantial investments to promote its goods and services. In fiscal year 1997, PEI spent approximately $46,500,000 in advertising. That same year, PEI recorded $296,623,000 in net sales for various goods and services under the PEI Marks. Id. at ¶ 3.
3. PEI uses its Playboy ®and Playmate ® marks in connection with a direct marketing business, including the Playboy Catalog, cable and direct-to-home satellite television programming, videocassettes, CD-ROMS, its free Web site at www.playboy.com and its subscription-based Web site at http://cyber.playboy.com. Id. at ¶ 4.
4. PEI first registered its Playboy ® mark with the United States Patent and Trademark Office on December 28, 1954, under Registration No. 0600018, in connection with monthly magazines. Id. at ¶ 6.
5. PEI first registered its Playmate ® mark with the United States Patent and Trademark Office on September 26, 1961, under Registration No. 0721987, in connection with calendars. Id.
6. Thereafter, PEI registered its Playboy ® and Playmate ® marks in connection with numerous additional goods and services. Both the Playboy ® and Playmate ® marks are also registered in selected states. Each registration is valid and subsisting. Furthermore, both marks are incontestable under 15 U.S.C. § 1065 in connection with a wide variety of goods and services. Id.
*1077 7. Because of the duration and extent of PEI's advertising, use and publicity of the trademarks Playboy ® and Playmate ®, these trademarks have acquired significant recognition and goodwill worldwide, have become inherently distinctive and have acquired secondary meaning. This worldwide recognition has made both Playboy ® and Playmate ® famous marks which the public associates with PEI's adult entertainment goods and services. Further, consumers worldwide associate the Playboy ® and Playmate ® marks with PEI and are aware that PEI creates Playboy ® and Playmate ® products and services. Id. at ¶ 7.
8. Internet users logging onto the PEI Web site can, among other things, subscribe to PEI's flagship publication Playboy ®, view selected Playmate ® images and send comments and suggestions to PEI via "e-mail," PEI's electronic mail service. PEI's Web sites also include some of PEI's copyrighted images, other magazine content, upcoming Playmate ® appearances, and catalog items for sale. The Playboy Cyber Club, a subscription-only Web site, contains Playmate ® homepages and video clips. Id. at ¶ 4.
9. PEI's site at http:/www.playboy.com receives approximately 6.5 million visits and generates approximately 74.8 million impressions per month. Id.
B. Excite's and Netscape's Search Engine Services
10. Defendant Excite, Inc. ("Excite") operates a portal site on the World Wide Web that offers users the ability to, among other things, search the Internet using Excite's search engine. See Carpenter Decl., ¶¶ 2-3.
11. Defendant Netscape Communications Corp. ("Netscape") operates Netcenter, a World Wide Web portal that offers users the ability to, among other things, search the Internet using a Netscape search engine, which is co-branded with Excite and programmed by Excite. See Beckwith Decl., ¶¶ 2-3.
12. Because the Internet contains an almost infinite number of Web pages, Internet search engines provide a critical tool for Internet users. Without search engines, Internet users would be unable to locate all but the most obvious Web sites. See Carpenter Decl., ¶ 5.
13. Search engines generally use algorithms to assess the relevance of Web sites to a search query by, among other things, looking at the words used on the site. Web pages that contain the list of Web sites generated by a search engine are called the "search results pages." Soffer Decl. [Excite] ¶ 22. Some search engines look in particular for words that are invisible to the user but are nonetheless embedded in the site's software code so that the site will be picked up by search engines. Such words are called metatags. Soffer Decl. [Excite] ¶ 22; Declaration of John S. Naumann, dated May 14, 1999 ("Naumann Decl.") ¶ 9.
14. Although this case is about the use of computer technology on the Internet, and although it is about an Excite product that is made possible by an Internet user's use of the Excite search engine, the case is not literally about search engines or the use of metatags by Web sites seeking to be picked up by a search engine.
C. Banner Advertisements
15. Many web sites, including those operated by Excite, Netscape, and PEI, contain advertisements known as "banner ads." See McKinley Decl., ¶ 3.
16. An Internet user who executes a search using Excite's or Netscape's search engine is presented with a Search Results page containing a variety of information, including a list of search results, recommended sites, and one or more banner advertisements. See R. Naumann Decl., ¶¶ 3-29.
17. The advertising product at issue here is Excite's "banner ad" product. A banner ad is an advertisement that *1078 stretches across the top and sometimes the bottom of a Web page which contains a link to the sponsor's Web site. Id. at ¶ 16; Naumann Decl. ¶ 4. A user clicking on the ad will be brought to the advertiser's Web site. Soffer Decl. [Excite] ¶¶ 25, 36.
18. Some banner advertisements on Excite and Netscape are programmed to appear on the search results pages in a random or "general" rotation that is completely unrelated to the search query typed by the user. Other banner advertisements are programmed to be displayed only in response to specific search queries. For example, Honda might prefer that its banner advertisements be displayed only when a user had typed in a search query related to automobiles or cars but not when the user had typed in search terms related to gardening. See McKinley Decl., ¶ 4.
19. Regardless of whether a banner advertisement is displayed as part of the random "general" rotation or displayed in response to the user's search query, there is no difference in the appearance of the banner advertisement that is displayed to the user or its placement on the search results page. See McKinley Decl., ¶ 5.
20. In May 1998, Excite and Netscape began selling advertising inventory for banner advertisements to be displayed in response to a pre-selected package of search queries to advertisers that operate adult entertainment Web sites. The words "playboy" and "playmate" are two of the words in this package of over 450 words. If an Excite or Netscape user enters one of the over 450 words in this package, then the search results page will display a banner advertisement from one of these advertisers. Because there are several advertisers which purchased banner advertisements triggered by the search queries in this package, the banner advertisements from the various advertisers are displayed on a rotating basis. See McKinley Decl., ¶ 11.
21. Excite and Netscape sell banner advertisements on a "per impression" basis, i.e., Excite and Netscape receive advertising revenue from displaying a banner advertisement, regardless of whether or not an Internet user "clicks" on the banner advertisement. See McKinley Decl., ¶ 7.
D. Search Results Pages
22. The search results pages displayed on Excite and Netscape in response to a user's search for "playboy" or "playmate" contain a variety of information, including links to PEI's web sites, a list of search results, suggested search modifications, recommended web sites, news articles related to the search term, and one or more banner advertisements. See R. Naumann Decl., ¶¶ 3-29, and Exhs. 1, 3, 4, 6 thereto.
23. A user of Excite or Netscape who seeks PEI's official web sites can easily find them on the Search Results pages for "playboy" and "playmate." See Id.
24. The banner advertisements on the Search Results pages do not contain the words "playboy" or "playmate," nor do these advertisements claim or suggest that PEI is the source, sponsor, or affiliate of the advertisers', their web sites, or their goods or services. See Id.
E. Excite and Netscape Do Not Use The Words "Playboy" or "Playmate" To Identify Goods or Services, Or To Suggest Sponsorship By Or Affiliation With PEI
25. Excite and Netscape are not competitors of PEI; Excite and Netscape offer Web portal services, while PEI publishes adult entertainment. See Carpenter Decl., ¶¶ 2-3; Beckwith Decl, ¶¶ 2-3; Lindeman Decl., ¶ 2. Indeed, at oral argument, PEI admitted that it was not a search engine. See Transcript of May 24, 1999 Hearing at p. 33.
26. Excite and Netscape do not use the words "playboy" or "playmate" to identify any goods or services. See R. Naumann Decl., ¶¶ 6, 9, 10, 16, 21-23, 29 and Exhs. 1, 3, 4, 6 thereto.
*1079 27. Excite and Netscape do not use PEI's "bunny" logo or any stylized lettering used by PEI. See Id.
28. PEI's trademarks are not search terms. Only words are search terms (and an Internet user cannot not even search "Playboy ®" or "Playmate ®"). See R. Naumann Decl. ¶¶ 80-83.
F. Entities Other Than PEI Own Trademarks Containing the Words "Playboy" or "Playmate"
29. A number of entities other than PEI own federal and/or state registered trademarks containing the word "playboy" or a form thereof.[3]See Bauch Decl., ¶¶ 3-4, Exh. 1 thereto.
30. For example, "Playboy" is a registered federal and North Carolina trademark of W.E. Bailey & Son., Inc. for fresh yams and sweet potatoes, a registered West Virginia trademark of the Carolina Manufacturing Company, Inc. for handkerchiefs, and a registered Illinois trademark of Steven & Stanley Zavislak for soft drinks and carbonated waters. "The Penthouse Playboys" is a registered Illinois trademark of Patrick J. Michaels for musical recordings, performance, and promotion. See Id.
31. A number of entities other than PEI own federal and/or state registered trademarks containing the word "playmate" or a form thereof. See Id., ¶ 5, Exh. 1.
32. For example, "Love Hate Playmate" is a registered federal trademark of Lynn Drexler for adult dolls. "Playmate" is a registered federal trademark of Igloo Products Corp. for beverage coolers and portable ice and/or food containers, a registered federal trademark of Agway, Inc. for grass seed, and a registered Arizona trademark of Bashas Liquor Stores for cocktail mixes. "Playmates" is a registered federal trademark of the Mohawk Carpet Corp. for carpets, a registered federal trademark of Playmate Holdings Ltd. for preschool toys, a registered federal trademark of Playmates World-Wide, Inc. for toy cars, and a registered Colorado trademark of Alan Stajcar for a striptease company. "Children's Playmate Magazine" is a registered federal trademark of Benjamin Franklin Literary & Medical Society, Inc. for a children's magazine. See Id.
G. There Is No Evidence Of Confusion
33. PEI has presented no evidence of confusion.
34. PEI has not presented a consumer survey of likelihood of confusion, despite having (a) significant financial resources to pay for such a survey (in fiscal 1997, PEI had approximately $300 million in net sales and spent almost $50 million in advertising), see Lindeman Decl., ¶ 3, and (b) plenty of time to conduct such a survey, see Marhull Decl., ¶ 1 (PEI hired expert witness in November 1998, but did not move for preliminary injunction until April 1999).
35. Neither Excite nor Netscape have received any complaints or comments from consumers who believed that a banner advertisement on the Excite or Netscape search results page was a PEI advertisement or was somehow endorsed by, sponsored by or affiliated with PEI. See Beckwith Decl., ¶¶ 8-9; Gross Decl. ¶¶ 3-5.
36. Neither Excite nor Netscape have received any complaints or comments from consumers who were confused in any way by a banner advertisement on the Excite or Netscape search results page that resulted from a search for the words "playboy" or "playmate." See Id.
*1080 H. There Is No Evidence of Dilution
37. PEI has presented no evidence of any lessening of the capacity of its marks to identify and distinguish goods and services as a result of any conduct by Excite and/or Netscape.
I. PEI Uses Its Marks In Connection With Sexually Explicit Material
38. PEI's Web site (Playboy ® Online) includes banner advertisements for sexually explicit material, and offers reviews of sexually explicit Web sites. See R. Naumann Decl., ¶¶ 30-47, 75-77, Exhs. 7-17, 33-34 thereto.
39. PEI offers sexually explicit programming on its "Playboy Channel." See Annes Decl., ¶¶ 38-39.
40. PEI uses the "Playboy ®" mark on publications (including Playboy ® Magazine) that specifically instruct readers on how to find explicit sexual content on the Internet. See R. Naumann Decl., ¶¶ 51-64, 68-74, Exhs. 20-27, 29-32 thereto.
41. PEI's goods bearing its "Playboy ®" and "Playmate ®" marks are frequently sold and displayed near sexually explicit material of others. PEI makes no attempt to discourage or inhibit this practice. See Annes Decl., ¶¶ 3-35, Exhs. 1-11 thereto; Campbell Decl., ¶¶ 2-9.
J. PEI Delayed Seeking Injunctive Relief
42. PEI retained an expert witness in November 1998, five months before filing its Motion For Preliminary Injunction. See Marhull Decl., ¶ 1.
II.
CONCLUSIONS OF LAW
A. Jurisdiction
43. The Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1331, 1338, and 1367, and 15 U.S.C. § 1121.
44. PEI has brought claims against defendants Excite and Netscape under the United States Trademark (Lanham) Act of 1946, as amended, 15 U.S.C. §§ 1051, et seq. (the "Lanham Act"), which provides the Court with the power to protect PEI's trademark rights through various measures, including injunctive relief.
45. PEI has also brought claims against defendants under California common law and the California Business and Profession Code, §§ 14320 et seq. and 17200 et seq., both of which may provide protection of trademark rights under the laws of the State of California.
B. Standard For a Preliminary Injunction
46. A party seeking preliminary injunction "must show either (1) a combination of probable success on the merits and a possibility of irreparable harm, or (2) the existence of serious questions on the merits and the balance of hardships weighing heavily its favor." PEI v. Welles, 7 F. Supp. 2d 1098, 1099 (S.D.Cal.), aff'd without opinion, 162 F.3d 1169, 1998 WL 750954 (9th Cir.1998).
47. "These are not two distinct tests, but ends of a continuum in which the required showing of harm `varies inversely with the required showing of meritoriousness.'" Id.
C. A Trademark is a Limited Property Right, Not a Monopoly
48. A trademark is a word, symbol or device which identifies the source of goods or services. See 15 U.S.C. § 1127 (a trademark is used by a person "to identify and distinguish his or her goods ... from those manufactured or sold by others and to indicate the source of those goods ...."); Mattel, Inc. v. MCA Records, Inc., 28 F. Supp. 2d 1120, 1141 (C.D.Cal.1998) ("[T]he purpose of trademark has `remained constant and limited: Identification of the manufacturer or sponsor of a good or the provider of a service.'").
49. A trademark is not an omnibus property right or a monopoly on the use of *1081 the words in the trademark. See New Kids on the Block v. News America Publishing, Inc., 971 F.2d 302, 306 (9th Cir. 1992) ("A trademark is a limited property right in a particular word, phrase or symbol."); see also S.Rep.No. 1333, 79th Cong., 2d Sess. (1946) ("Trade-marks are not monopolistic grants like patents and copyrights"), cited in Sebastian Internat'l, Inc. v. Longs Drug, 53 F.3d 1073, 1075 n. 5 (9th Cir.1995).[4]
50. "[O]ne can capitalize on a market ... created by another provided that it is not accomplished by confusing the public into mistakenly purchasing the product in the belief that the product is the product of the competitor." International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912, 919 (9th Cir.1980), cert. denied, 452 U.S. 941, 101 S. Ct. 3086, 69 L. Ed. 2d 956 (1981) (defendant permitted to manufacture jewelry bearing plaintiff's mark).
51. PEI is not entitled to the entire commercial utility of the words "playboy" and "playmate." See HMH Publishing Co., Inc. v. Brincat, 504 F.2d 713, 717-18 (9th Cir.1974) ("[T]he mere registration of the word `playboy' as a trademark can not entitle the registrant to capture the entire commercial utility of such a widely known concept.").[5]
52. A trademark holder may not bar all use on the Internet of words in the English language. See Brookfield Comm. Inc. v. West Coast Entertainment Corp., 174 F.3d 1036, 1066 (9th Cir.1999) ("The term `Movie Buff' is a descriptive term, which is routinely used in the English language .... The proper term for the `motion picture enthusiast' is `Movie Buff,' which [defendant] certainly can use.").
53. There are numerous cases in the Ninth Circuit in which a defendant has been allowed to "use" plaintiff's "trademark" without plaintiff's consent.
54. For example, it is well established that a party may "use" another's trademark for purposes other than to identify the source of products. See, e.g., PEI v. Welles, 7 F. Supp. 2d 1098, 1103 (S.D.Cal.) (former Playboy Playmate could use the words "playboy" and "playmate" in her advertising on the Internet; PEI's motion for preliminary injunction denied), aff'd without opinion, 162 F.3d 1169, 1998 WL 750954 (9th Cir.1998); New Kids on the Block v. News America Publishing, Inc., 971 F.2d 302, 309 (9th Cir.1992) (newspaper could have announcement that contained musical band's trademarked name to advertise newspapers' "900" line for public to vote for favorite members of musical band without consent of band; "the trademark laws do not give [plaintiffs] the right to channel their fans' enthusiasm (and dollars) only into items licensed or authorized by them"; summary judgment); Mattel, Inc. v. MCA Records, Inc., 28 F. Supp. 2d 1120, 1152 (C.D.Cal.1998) (defendant could distribute song "Barbie Girl" without consent of toy company which had "Barbie" trademark; summary judgment).
*1082 55. A competitor may also use another's trademark in its own advertising, as long as there is no confusion. See SSP Ag. Equip., Inc. v. Orchard Rite Ltd., 592 F.2d 1096, 1103 (9th Cir.1979); Saxony Prods., Inc. v. Guerlain, Inc., 513 F.2d 716, 722 (9th Cir.1975) ("[defendant] could use [plaintiff's] trademark SHALIMAR to apprise consumers that Fragrance S is `LIKE' or `similar' to SHALIMAR."); see also Calvin Klein Corp. v. Parfums de Coeur, Ltd., 824 F.2d 665, 668 (8th Cir. 1987) (phrase "If you like OBSESSION you'll love CONFESS" did not infringe); Penthouse v. PEI, 663 F.2d 371, 391 (2d Cir.1981) ("No reasonable person reading Penthouse's ... advertisements could be deceived ... into believing that Penthouse magazine was the same as a copy of Playboy.").
56. An unauthorized retailer may sell trademarked products without the trademark holder's consent. See Sebastian Internat'l, Inc. v. Longs Drug Stores Corp., 53 F.3d 1073, 1076 (9th Cir.1995) (this principle is "not rendered inapplicable merely because consumers erroneously believe the reseller is affiliated with or authorized by the producer").
57. The sale of a trademark by itself, unattached to a product, is not infringement. For example, an unauthorized jeweler may manufacture and sell jewelry encompassing another's mark without the consent of the holder of the mark. See International Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912, 919 (9th Cir.1980), cert. denied, 452 U.S. 941, 101 S. Ct. 3086, 69 L. Ed. 2d 956 (1981).
D. Excite and Netscape Are Not Using the Words "Playboy" Or "Playmate" As Trademarks
58. The use by Excite and Netscape of the words "playboy" and "playmate" is not a use of PEI's trademarks. The words are not used to identify the source of any goods or services. See PEI v. Welles, 7 F. Supp. 2d 1098, 1103 (S.D.Cal.) (former Playboy Playmate could use the words "playboy" and "playmate" to advertise her Web site); aff'd without opinion, 162 F.3d 1169, 1998 WL 750954 (9th Cir.1998); New Kids on the Block v. News America Publishing, Inc., 971 F.2d 302, 309 (9th Cir. 1992) (newspaper could publish announcement containing musical band's trademarked name to advertise newspaper's "900" line for public to vote for favorite members of band); Mattel, Inc. v. MCA Records, Inc., 28 F. Supp. 2d 1120, 1152 (C.D.Cal.1998) (distributor of song "Barbie Girl" did not need consent of toy company that owned "Barbie" trademark); Brookfield Comm., Inc. v. West Coast Enter. Corp., 174 F.3d 1036, 1066 (9th Cir.1999) (holder of trademark "MovieBuff" could not bar use of the term "Movie Buff").[6]
59. This reason alone justifies denial of the injunction.
60. The Court also finds, as discussed below, that PEI has failed to produce sufficient evidence of dilution or infringement to merit injunctive relief.
E. There Is No Evidence of Trademark Infringement
(1) Infringement Requires A Likelihood of Confusion
61. "The core element of trademark infringement is the likelihood of confusion, i.e. whether the similarity of the marks is likely to confuse customers about the source of the products." Official Airline Guides, Inc. v. Goss, 6 F.3d 1385, 1391 (9th Cir.1993).
62. The Ninth Circuit has recently recognized, in an Internet-related trademark infringement case, the doctrine of initial interest confusion. Brookfield Comm., *1083 Inc. v. West Coast Enter., Corp., 174 F.3d 1036, 1062-67 (9th Cir.1999).
63. This doctrine, as applied in Brookfield, holds that in the context of Internet searches using trademarks as search terms, Internet users may experience "initial interest confusion" when the results of their search include Web sites not sponsored by the trademark holder. Id. 174 F.3d at 1063-63.
64. Initial interest confusion results in trademark infringement even when the Internet user, who has been diverted to another Web site, realizes the mistake. Id. This diversion is damaging to a trademark owner such as PEI because it allows a competitor to capture the trademark owner's potential customers, who may decide to stay at the competitor's Web site rather than continue searching the Internet for the initially intended destination. Id.
65. Some people are always confused. Accordingly, to impose liability, the plaintiff must show confusion of a significant number of prospective purchasers. See August Storck K.G. v. Nabisco Inc., 59 F.3d 616, 618 (7th Cir.1995); Restatement (Third) of Unfair Competition § 20, comment g (same).
66. A higher showing of confusion is appropriate where, as here, First Amendment interests are at stake. See Mattel, Inc. v. MCA Records, Inc., 28 F. Supp. 2d 1120, 1152 (C.D.Cal.1998) ("The First Amendment interests at stake outweigh the possibility that some people ... might be confused."); Restatement (Third) of Unfair Competition § 20, comment g.
67. A higher showing of confusion is required here to prevent (a) PEI from obtaining a monopoly to the words "playboy" and "playmate"; and (b) Internet users from losing their ability to obtain information about words which also happen to be trademarks.
68. It makes no difference which showing is applied here. PEI has failed to establish any likelihood of confusion.[7]
(2) PEI's Lack of Evidence of Confusion Leads to an Inference That There is No Likelihood of Confusion
69. PEI's moving papers provided no evidence of actual confusion. This is significant in light of: (a) the length of time these banner advertisements have been published, see McKinley Decl. ¶ 11; (b) the word "playboy" is allegedly one of the most frequently-used search terms on the Internet, see PEI's Memo. of P & As re Netscape at p. 6, 1.9-10; (c) PEI's free Web site is allegedly one of the most visited Web sites on the Internet, see PEI's Memo. of P & As re Netscape at p. 5, 1.25-26; and (d) Excite and Netscape are two of the most widely-used search engines available on the Internet, see Soffer Decl. re Excite ¶ 31, re Netscape ¶ 32, attached to PEI's papers (in both cases).
70. Accordingly, the Court draws an inference that there is no likelihood of confusion here. See, e.g., Homeowners Group, Inc. v. Home Marketing Specialists, Inc., 931 F.2d 1100, 1110 (6th Cir. 1991) ("the existence of only a handful of instances of actual confusion after a significant time or a significant degree of concurrent sales under the respective marks may even lead to an inference that no likelihood of confusion exists."); McGregor-Doniger, Inc. v. Drizzle, Inc., 599 F.2d 1126, 1136 (2d Cir.1979) ("`it is certainly proper for the trial judge to infer from the absence of actual confusion that there was also no likelihood of confusion.'"); PEI v. Welles, 7 F. Supp. 2d 1098, 1104 (S.D.Cal.1998) *1084 ("[PEI] has presented no empirical evidence to show that there is actual confusion among consumers. Though not necessary, the lack of any such demonstration weighs in defendant's favor."), aff'd without opinion, 162 F.3d 1169, 1998 WL 750954 (9th Cir.1998).
71. PEI also failed to provide a survey showing a likelihood of confusion. This warrants a presumption that the results would have been unfavorable. See, e.g., Cairns v. Franklin Mint Co., 24 F. Supp. 2d 1013, 1041-42 (C.D.Cal.1998) ("Survey evidence is not required to establish likelihood of confusion, but it is often the most persuasive evidence. Consequently, a plaintiff's failure to conduct a consumer survey, assuming it has the financial resources to do so[8], may lead to an inference that the results of such a survey would be unfavorable. Here, plaintiffs had ample opportunity to conduct their own survey, and their failure to do so undermines their position that the advertisements at issue are likely to confuse consumers ...."; preliminary injunction denied); Essence Comm., Inc. v. Singh Ind., Inc., 703 F. Supp. 261, 269 (S.D.N.Y.1988) ("failure to offer a survey showing the existence of confusion is evidence that the likelihood of confusion cannot be shown"; preliminary injunction denied).
(3) The First Amendment Protects the Publication of Information Regarding an Internet User's Search
72. Excite and Netscape's publication of value-added information to aid the searches of Internet users is protected by the First Amendment.[9]See, e.g., New Kids, 971 F.2d at 308 ("While plaintiffs' trademark certainly deserves protection ..., such protection does not extend to rendering newspaper articles, conversations, polls and comparative advertising impossible."); Cher v. Forum Internat'l, 692 F.2d 634, 639 (9th Cir.1982) ("Constitutional protection extends to the truthful use of a public figure's name and likeness in advertising which is merely an adjunct of the protected publication.... [S]uch usage is protected by the First Amendment."); Montana v. San Jose Mercury News, Inc., 34 Cal. App. 4th 790, 797, 40 Cal. Rptr. 2d 639 (1995) ("the First Amendment protects the [newspaper's] posters [of Joe Montana, which were sold to the public]... because the posters themselves report newsworthy items of public interest...").
(4) The First Amendment Protects the Publication of Advertisements Keyed to Words in the English Language
73. Parties may not leverage their rights in certain intellectual property to infringe the First Amendment rights of others.
74. For example, copyright protects expression. However, in situations where an idea can be expressed in only a limited number of ways (e.g., (a) there is a "merger" of the idea and the expression of the idea or (b) the expression is of a common or "stock" scene, a concept known as "scenes a faire"), the First Amendment rights of others to express ideas "trump" the copyright. See, e.g., Harper & Row v. Nation Enterp., 471 U.S. 539, 556, 105 S. Ct. 2218, 2228, 85 L. Ed. 2d 588 (1985) ("copyright's idea/expression dichotomy `strike[s] a definitional balance between the First Amendment and the Copyright Act by permitting free communication of facts while still protecting an author's expression.' ... No author may copyright his ideas or the facts he narrates."); Allen v. Academic Games, 89 F.3d 614, 617-18 (9th *1085 Cir.1996) ("the notions of idea and expression may merge from such `stock' concepts that even verbatim reproduction of a factual work may not constitute infringement.").
75. Here, PEI is seeking to leverage its trademarks "Playboy ®" and "Playmate ®" (which cannot be searched on the Internet) into a monopoly on the words "playboy" and "playmate." Indeed, by seeking a prohibition on all advertisements that appear in response to the search words "playboy" and "playmate," PEI would effectively monopolize the use of these words on the Internet. This violates the First Amendment rights of (a) Excite and Netscape; (b) other trademark holders of "playboy" and "playmate"; as well as (c) members of the public who conduct Internet searches.[10]See generally See Bally Total Fitness Corp. v. Faber, 29 F. Supp. 2d 1161, 1165 (C.D.Cal.1998) ("prohibiting [defendant] from using [plaintiff's] name in the machine readable code would effectively isolate him from all but the most savvy of Internet users").
(5) To The Extent The Eight-Factor Test For Likelihood of Confusion Is Applicable, It Favors Excite and Netscape
76. Some courts invoke an eight factor test[11] for determining likelihood of confusion. The Ninth Circuit, however, has noted that such a test is "pliant", some factors are more important than others and the relative importance of the factors is "case-specific." Brookfield Comm., 174 F.3d 1036, 1053.
77. Those eight factors have been applied where a defendant's advertising contains plaintiff's mark. But, such is not the case here. Therefore, these factors do not apply.
78. Excite and Netscape are not using a PEI trademark. PEI uses the words "playboy" and "playmate" as trademarks, i.e., to identify its products. Internet users search for the words "playboy" and "playmate"; and Excite and Netscape use the words "playboy" and "playmate" in their search engines. Netscape and Excite do not use these words to identify any goods or services and have no intent to do so, much less an intent to confuse consumers. See Toho Co., Ltd. v. Sears, Roebuck & Co., 645 F.2d 788, 791 n. 2 (9th Cir.1981) ("[An earlier] court erred when it assumed that an intent to `capitalize' [on another's trademark] was enough [for trademark infringement]. In order to raise the inference of a likelihood of confusion, a plaintiff must show that the defendant intended to profit by confusing consumers."). Further, none of the banner advertisements contain PEI's marks and there is no evidence that any customer believes that the advertisements are sponsored or affiliated with PEI. Thus, the eight factor test is not applicable.
79. In any event, the factors in this test are either inapplicable or favor Excite and Netscape.
(a) The First and Third Factors Are Inapplicable
80. Because Excite and Netscape do not use the words "playboy" and "playmate" as trademarks, i.e. they do not use them to identify goods or services, the *1086 "strength of mark" and "similarity of marks" factors are inapplicable.
(b) The Second, Fifth, Sixth, and Eighth Factors Are Inapplicable
81. Similarly, the "proximity of goods," "similarity of marketing channels," "degree of purchaser care," and "likelihood of expansion of product line" factors are inapplicable because Excite and Netscape do not compete with PEI and do not use PEI's marks to identify goods or services, nor do they plan to do so.
(c) The Fourth Factor Favors Excite and Netscape
82. Given the length of time these banner advertisements have been published, the lack of any evidence of actual confusion weighs in Excite's and Netscape's favor. See PEI v. Welles, 7 F. Supp. 2d 1098, 1104 (S.D.Cal.) ("[PEI] has presented no empirical evidence to show that there is actual confusion among consumers. Though not necessary, the lack of any such demonstration weighs in defendant's favor."), aff'd without opinion, 162 F.3d 1169, 1998 WL 750954 (9th Cir.1998); Homeowners Group, Inc. v. Home Marketing Specialists, Inc., 931 F.2d 1100, 1110 (6th Cir. 1991); McGregor-Doniger, Inc. v. Drizzle, Inc., 599 F.2d 1126, 1136 (2d Cir.1979).
(d) The Seventh Factor Favors Excite and Netscape
83. The "intent" factor focuses on a defendant's intent to confuse consumers. See Toho Co., Ltd. v. Sears, Roebuck & Co., 645 F.2d 788, 791 n. 2 (9th Cir.1981) ("[A] plaintiff must show that the defendant intended to profit by confusing consumers."). PEI has presented no evidence that Excite or Netscape intend to confuse users of their search engines. Excite and Netscape charge their advertisers according to the number of times a banner advertisement is displayed to users, regardless of how many users "click" on the banner ad. Therefore, this factor weighs in favor of Excite and Netscape.
(e) Conclusion: There Is No Likelihood of Confusion
84. There is no evidence that the banner advertisements on Excite's and Netscape's Search Results pages "keyed" to the words "playboy" or "playmate" are likely to cause confusion as to source, sponsorship, or affiliation.
(6) In the Alternative, Excite's and Netscape's Use of the Words "Playboy" and "Playmate" Is Protected Fair Use
85. A trademark holder may not prevent the use of words necessary to communicate ideas. See New Kids on the Block v. News America Publishing, Inc., 971 F.2d 302, 308 (9th Cir.1992) (newspaper could use trademarked name of musical band to identify band); see also Mattel, 28 F.Supp.2d at 1142; Welles, 7 F.Supp.2d at 1103 (traditional eight factor test should only be applied in "standard" trademark case); Brookfield Comm., Inc. v. West Coast Enter. Corp., 174 F.3d 1036, 1066 (9th Cir.1999) (holder of trademark "MovieBuff" could not prevent defendant from using the term "Movie Buff" to describe its web site).
86. This fair use test generally has three factors: (a) the product must be one not readily identifiable without the use of the trademark (e.g., someone wanting to refer to the Chicago Bulls can use those words and does not need to go through the linguistic gymnastics of calling the team "the formerly successful professional basketball team in Chicago"); (b) only so much of the mark may be used as is reasonably necessary; and (c) the user must do nothing in conjunction with the mark to suggest sponsorship or endorsement.
87. The first factor does not apply. The words "playboy" and "playmate" are being used as words in the English language and not as trademarks to identify a product or service. There should be no liability for that reason. See generally Bada Co. v. Montgomery Ward & Co., 426 *1087 F.2d 8, 11 (9th Cir.1970), cert. denied, 400 U.S. 916, 91 S. Ct. 174, 27 L. Ed. 2d 155 (1970) ("The law is that a word which is in its primary meaning merely descriptive of the goods to which it is applied may not be appropriated as the exclusive trademark of a single seller, since one competitor will not be permitted to impoverish the language of commerce by preventing his fellows from fairly describing their own goods.").
88. The other two factors apply here: (a) there is a limited use of the mark, e.g., there is no use of any stylized letters or any bunny logo; and (b) there is no suggestion of sponsorship or endorsement.
89. Indeed, the Ninth Circuit recently held that a defendant may use words in the English language, even if they are substantially similar to another's trademark, in a meta-tag on the Internet; the Court only prohibited the use of another's trademark where the words in the trademark were not in the English language. See Brookfield Comm. Inc. v. West Coast Enter. Corp., 174 F.3d 1036, 1066 (9th Cir.1999) ("The term `Movie Buff' is a descriptive term[20], which is routinely used in the English language ....'MovieBuff' [which is plaintiff's trademark] is not.... The proper term for the `motion picture enthusiast' is `Movie Buff,' which [defendant] certainly can use.").
90. In short, because Excite and Netscape use the words "playboy" and "playmate" as words in the English language rather than as trademarks,[21] and do not use any stylized letters or logo, or in any other way suggest sponsorship or endorsement by PEI, Excite's and Netscape's use of the words is fair use.
91. The Ninth Circuit recently affirmed the denial of PEI's attempt to enjoin a former Playboy Playmate from advertising on the Internet that she is a former Playboy Playmate. See PEI v. Welles, 7 F. Supp. 2d 1098, 1103 (S.D.Cal.); aff'd without opinion, 162 F.3d 1169, 1998 WL 750954 (9th Cir.1998). Under PEI's legal theory, Excite and Netscape would not be permitted to publish advertising that has already been found lawful.
F. There Is No Evidence of Trademark Dilution
92. Dilution is "the lessening of the capacity of a famous mark to identify and distinguish goods or services." 15 U.S.C. § 1127.
93. "Dilution laws ... are not intended to serve as mere fallback protection for *1088 trademark owners unable to prove trademark infringement." I.P. Lund Trading ApS v. Kohler Co., 163 F.3d 27, 48 (1st Cir.1998); Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Utah Div'n of Travel Dept., 170 F.3d at 459 ("we simply cannot believe that... Congress could have intended ... to create property rights in gross, unlimited in time (via injunction) ..."); Toho Co. v. Sears, Roebuck & Co., 645 F.2d 788, 793 (9th Cir.1981) (refused to give the California dilution statute an overly broad application "lest it swallow up all competition in the claim of protection against trade name infringement").
94. To establish dilution under the Federal Trademark Dilution Act requires proof that: "(1) a defendant has made use of a junior mark sufficiently similar to the famous mark to evoke in a relevant universe of consumers a mental association of the two that (2) has caused (3) actual economic harm to the famous mark's economic value by lessening its former selling power as an advertising agent for its goods and services." Ringling Bros., 170 F.3d 449, 461 (4th Cir.1999) (held, the phrase the "Greatest Snow on Earth" did not dilute plaintiff's mark the "Greatest Show on Earth").[22]
95. The Ringling Bros. Court explained how to prove dilution: "Most obviously, but most rarely, there might be proof of an actual loss of revenues, and proof of replicating use as cause by disproving other possible causes. Most obviously relevant, and readily available, is the skillfully constructed consumer survey designed not just to demonstrate `mental association' of the marks in isolation, but further consumer impressions from which actual harm and cause might rationally be inferred." Id., 170 F.3d at 465.
96. Here, PEI failed to provide evidence of dilution by any means.
97. Dilution may occur through blurring or tarnishment, but is not limited to these categories. See Panavision International, L.P. v. Toeppen, 141 F.3d 1316, 1326 (9th Cir.1998).
98. Because trademark dilution on the Internet presents novel issues not necessarily addressed in non-Internet judicial decisions. Panavision, 141 F.3d at 1318. Therefore, to find dilution in an Internet case, a court need not rely on traditional definitions such a "blurring" and "tarnishment". Id. at 1326.
(1) There Is No Blurring
99. Blurring occurs when a defendant uses a plaintiff's trademark to identify the defendant's goods, which severs the unique association between the mark and a single product. See Panavision International, L.P. v. Toeppen, 141 F.3d 1316, 1326 n. 7(9th Cir.1998). The legislative history of the Dilution Act provides examples of such blurring: DuPont shoes, Buick aspirin and Kodak pianos. I.P. Lund Trading, 163 F.3d at 45.
100. It is hornbook law that defendant must use plaintiff's mark as its own trademark on its goods to cause blurring. See Restatement (Third) of Unfair Competition § 25, comment f (1995) ("[F]or such dilution to occur, [it must be the case that] ... a mark associated with plaintiff is now also in use as an identifying symbol of another."); 3 McCarthy on Trademarks and Unfair Competition § 24:103 at 24-188 (4th ed. 1998) ("Dilution by blurring occurs if the defendant uses the word as its own trademark for goods that are so different that no confusion of source or sponsorship can occur.").
101. Excite and Netscape have not used PEI's marks to identify goods or services. Therefore, there is no blurring. See Revlon Consumer Products Corp. v. Jennifer Leather Broadway, Inc., 858 F. Supp. 1268, 1277-78 (S.D.N.Y.1994), aff'd without opinion, 57 F.3d 1062 (2nd *1089 Cir.1995) (leather furniture seller's use of the phrase "only Revlon has more colors" did not violate New York dilution statute; defendant did not use plaintiff's mark to identify defendant's goods).
(2) There Is No Tarnishment
102. Tarnishment occurs when a famous mark is improperly associated with an inferior or offensive product or service. Panavision International, L.P. v. Toeppen, 141 F.3d 1316, 1326 n.7(9th Cir.1998).
103. PEI argues that because its "marks" are located near materials which it considers more sexually explicit than its material, its "marks" are being tarnished.[23]
104. The factual premise behind PEI's motion is incorrect. PEI uses its marks to sell sexually explicit material and specifically instructs its readers on how to find sexually explicit material. See Playboy Entertainment Group, Inc. v. U.S., 30 F. Supp. 2d 702, 707 (D.Del.1998) ("The programming on the Playboy network is virtually 100% sexually explicit adult programming.").
105. Further, PEI sells its goods near the sexually explicit products of others all the time. See PEI v. Webbworld, Inc., 991 F. Supp. 543, 558-59 (N.D.Tex.1997) ("[A PEI employee admitted that] PEI has a wide channel of distribution that includes adult bookstores ... [and] that PEI cannot control where and how its publications ... are displayed... [T]he Court finds no dilution.").
106. In light of the above, there is no tarnishment. See Ringling Bros.Barnum & Bailey Combined Shows v. B.E. Windows Corp., 937 F. Supp. 204, 211 (S.D.N.Y.1996) (no tarnishment where both plaintiff's and defendant's products were sold in similar places).
(3) PEI Has Not Shown That Its Marks Have Been Diluted
107. PEI has failed to produce any evidence that the capacity of its marks to identify and distinguish goods and services has been lessened in any way.
(4) PEI Is Not Likely To Prevail On Its Dilution Claims
108. Because there is no evidence of any lessening (by blurring, tarnishment, or any other means) of the capacity of PEI's marks to identify and distinguish goods and services, PEI has failed to demonstrate a likelihood that it could prevail on the merits of its dilution claims. See Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Utah Div'n of Travel Dept., 170 F.3d 449, 458-59 (4th Cir.1999) (plaintiff must provide evidence of dilution).[24]
G. PEI Has Not Shown a Likelihood of Success on Its State Law Claims
109. Because, as shown above, there is no trademark infringement or dilution, PEI has not shown a likelihood of success on its state law claims. See Bally Total Fitness Holding Corp. v. Faber, 29 F. Supp. 2d 1161, 1168 (C.D.Cal.1998); Mattel, Inc. v. MCA Records, Inc., 28 F. Supp. 2d 1120, 1157 (C.D.Cal.1998); Toho Co., Ltd. v. Sears, Roebuck & Co., 645 F.2d 788, 794 (9th Cir.1981).
*1090 H. There is No Irreparable Harm
110. PEI has not demonstrated a likelihood of confusion or dilution. Therefore, the Court finds that PEI will not suffer any irreparable harm from denial of injunctive relief.
111. PEI's delay in seeking injunctive relief further demonstrates the lack of any irreparable harm. See, e.g., Stokely-Van Camp, Inc. v. Coca-Cola Co., 1987 WL 6300, 2 U.S.P.Q.2d 1225, 1227 (N.D.Ill. 1987) ("the fact the [plaintiff] waited for three months indicates a lack of need for the extraordinary remedy of a preliminary injunction."); Programmed Tax Systems, Inc. v. Raytheon Co., 419 F. Supp. 1251, 1255 (S.D.N.Y.1976) (60-day delay in filing suit; denied preliminary injunction).
I. The Proposed Injunction Is Improper
112. As discussed above, the Court finds that PEI is not entitled to an injunction.
113. The Court further finds that PEI's proposed injunction is inherently flawed. PEI's proposed injunction would prohibit Excite and Netscape from, among other things, publishing any banner advertisements or directories which are keyed to respond to the entry of "PEI's trademarks, Playboy ® or Playmate ® as search terms..." See PEI's Proposed Injunction ¶ 1(i).
114. The proposed injunction would bar (a) nothing, because a user cannot enter PEI's trademarks Playboy ® or Playmate ® as search terms, a user only enters words as search terms; or (b) too much, because it would bar all advertising in response to the use of the words "playboy" and "playmate" as search terms, even though PEI does not have a monopoly on the use of those words.
III.
CONCLUSION
115. PEI has failed to establish either a likelihood of success on the merits or irreparable injury. Therefore, the Motion For Preliminary Injunction is denied.
NOTES
[1] The Court notes that Netscape's search engine is co-branded with Excite, and programmed by Excite, but for purposes of this Motion, the Court treats them both as search engine operators.
[3] The Court also notes that, since trademarks are established by use, not registration, additional entities may have trademarks that contain the words "playboy" or "playmate." See, e.g., In re ECCS Inc., 94 F.3d 1578, 1579 (Fed.Cir.1996) (trademarks are acquired by use, not registration).
[4] See Bally Total Fitness Holding Corp. v. Faber, 29 F. Supp. 2d 1161, 1165 (C.D.Cal.1998) ("the average Internet user ... will be unable to locate sites containing outside commentary [about plaintiff's goods and services] unless those sites include [plaintiff's] marks in the machine readable code upon which search engines rely."; summary judgment for defendant).
[5] PEI asserts that "the essence of [its] claim in this lawsuit is that Excite [and Netscape] has hijacked and usurped PEI's good will and reputation by exploiting a search based on a PEI mark as an opportunity to run banner advertisements and display directories specifically keyed to the PEI marks." Soffer Decl. re Excite ¶ 30 and re Netscape ¶ 31, attached to PEI's Memo. of P & As at p. 64; see also PEI's Complaints ¶ 29.
The Ninth Circuit has rejected this view of trademark law. See Smith v. Chanel, Inc., 402 F.2d 562, 566 (9th Cir.1968) ("[Plaintiffs] argue that protection should also be extended to the trademark's commercially more important function of embodying consumer good will created through extensive, skillful, and costly advertising. The courts, however, have generally confined legal protection to the trademark's source identification function for reasons grounded in the public policy favoring a free, competitive economy.").
[6] PEI admits that Internet users who type in "playboy" and "playmate" as search terms are not infringing PEI's trademarks. See Reporter's Transcript of May 24, 1999 Hearing at p. 43 ("We're not in any way claiming that people who use the Internet, Playboy, Playmate, themselves are infringing.").
[7] PEI's argument (unsupported by any evidence) that there is "initial interest confusion" proves too much. Under PEI's theory, as long as the defendant uses the words in plaintiff's trademark, there is "initial interest confusion." This is not the law. The "initial interest confusion" cases deal with a defendant-competitor's use of plaintiff's trademark, which is not the situation here. Further, in this case, the search results page specifically has a "link" to PEI's Web site.
[8] PEI's own papers admit that in 1997 PEI had sales of over $290 million and it spent over $45 million in advertising. See Lindeman Decl. ¶ 3.
[9] This information is entitled to even greater First Amendment protection because it is not "commercial speech." Mattel, 28 F.Supp.2d at 1154-55 (held, song was not commercial speech even though defendant attempted to make money).
[10] Where, as here, other important social policies may conflict with trademark law, those policies triumph. See, e.g., Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 165, 115 S. Ct. 1300, 1304, 131 L. Ed. 2d 248 (1995) ("`[A] product feature is functional' and cannot serve as a trademark `if it is essential to the use or purpose of the article or if it affects the cost or quality of the article.'"); I.P. Lund Trading, 163 F.3d at 39 (1st Cir.1998) ("even if a functional feature has achieved secondary meaning as an indication of origin, that feature is not protectable under trademark" law).
[11] The eight factors are: (1) strength of mark; (2) proximity of the goods; (3) similarity of the marks; (4) actual confusion; (5) similarity of the marketing channels; (6) degree of care used by the consumer; (7) defendant's intent; and (8) likelihood of expansion of product lines. See Bally Total Fitness Corp. v. Faber, 29 F. Supp. 2d 1161, 1163 (C.D.Cal.1998).
[20] A mark is used descriptively when it is not being used as a trademark, i.e., it is not being used to identify the source of goods. This has nothing to do with whether the mark is categorized as descriptive in the hierarchy of trademark law (i.e., whether a mark is generic, descriptive, suggestive, arbitrary or fanciful). See Car-Freshner Corp. v. S.C. Johnson & Son, Inc., 70 F.3d 267, 269 (2d Cir.1995).
[21] PEI's argument that a trademark owner is entitled to protect English language words where those words have attained secondary meaning is beside the point.
Trademark owners can never take words out of the English language. Trademark owners may keep defendants from using their trademarks with goods and services where the words in the trademarks have secondary meaning and there is a likelihood of confusion or dilution with those goods and services. See 2 J. McCarthy, Trademarks and Unfair Competition § 15:6 (4th ed.1999).
Here, there is no likelihood of confusion or dilution with any goods and services. PEI never contends that any specific banner advertisement (or the good or product in the banner advertisement) itself infringes or dilutes its marks.
PEI also does not contend that banner advertisements (or the goods or services in the banner advertisement) which are generated randomly when an Internet user searches for "playboy" or "playmate" are infringement or dilution. See PEI Proposed Findings F2.
PEI complains only that the "keying" of an advertisement to an Internet user's search for "playboy" or "playmate" is improper. However, the difference between whether a particular banner advertisement is generated randomly or "keyed" when an Internet user searches for "playboy" or "playmate" has nothing to do with the use of a trademark on a particular good or service.
[22] The Act requires dilution; There is no remedy for "likelihood of dilution." Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Utah Div'n of Travel Dept., 170 F.3d 449, 458 (4th Cir.1999).
[23] It is not clear how PEI's theory of "tarnishment" applies to its request for a preliminary injunction. PEI is requesting an injunction which prohibits all keying of any advertising (whether it relates to sexually explicit material or not) to an Internet user's search for "playboy" and "playmate."
[24] PEI's cases involving domain names, see, e.g., Panavision, 141 F.3d 1316, have nothing to do with the issues in this case. "A significant purpose of a domain name is to identify the entity that owns the web site." Id., 141 F.3d at 1327. In contrast, the words "playboy" and "playmate", unattached to PEI's goods and services, are merely words in the English language which PEI does not own.
Other courts have held that domain names are special and such cases are not easily analogous to other situations. See e.g., Bally Total Fitness Holding Corp. v. Faber, 29 F. Supp. 2d 1161, 1165 & n. 2 (C.D.Cal.1998). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1360209/ | 13 Utah 2d 382 (1962)
375 P.2d 28
NORMAN W. KETTNER, ADMINISTRATOR OF THE ESTATE OF ELIZABETH HERDMAN, DECEASED, AND HOWARD HERDMAN, PLAINTIFFS,
v.
HON. MARCELLUS K. SNOW, JUDGE; THE DISTRICT COURT OF THE THIRD JUDICIAL DISTRICT IN AND FOR SALT LAKE COUNTY, STATE OF UTAH; ALVIN KEDDINGTON, CLERK OF THE DISTRICT COURT OF SALT LAKE COUNTY; LEONA A. WATKINS AND JOHN WATKINS, DEFENDANTS.
No. 9659.
Supreme Court of Utah.
October 5, 1962.
Christensen & Jensen, Salt Lake City, for plaintiffs.
G. Gordon Hoxsie, R. Verne McCullough, Salt Lake City, for defendants.
CROCKETT, Justice.
Plaintiffs (defendants below) seek to prohibit the district court from further proceeding after it had granted a new trial based upon a motion not timely filed.[1]
The defendants Watkins (plaintiffs below) commenced the original action to recover for personal injuries and property damages resulting from an automobile collision. A jury returned a verdict of no cause of action and judgment was entered thereon November 30, 1961. Our rule on new trials, 59(b), provides that "A motion for a new trial shall be served not later than 10 days after the entry of judgment." Defendants permitted this time to go by and 60 days later, January 29, 1962, presented to the court an order permitting them to file a motion for a new trial, which the trial judge signed. It included the statement that, "said order may be dated as of the 8th day of December, 1961." A few days later, on February 5, 1962, the court entered a second order also purporting to be effective nunc pro tunc as of December 8, 1961, allowing additional time to file affidavits in support of the motion.
Plaintiffs (defendants below) moved to strike the nunc pro tunc orders and the motion for a new trial. After hearing arguments the court denied that motion and granted a new trial, whereupon plaintiffs brought this proceeding.
We are not unmindful of the fact that in proper circumstances where the interests of justice so require, the court has power to act nunc pro tunc, that is, to do an act upon one date and make it effective as of a prior date. It is recognized that clerical errors may be corrected or omissions supplied so the record will accurately reflect that which in fact took place.[2] However, this device cannot properly be used in the manner resorted to here to revive the time for taking a required step in a legal proceeding after the statutory time for doing it had elapsed.[3] If the court could thus arbitrarily permit a filing after the 10-day limitation prescribed in the rule had expired, the rule would be rendered ineffectual.
Subsequent to the entry of the nunc pro tunc orders above referred to, the defendants sought to justify them and the belated filing of the motion for a new trial under Rule 60(b) U.R.C.P. It authorizes the court to grant a party relief from a judgment, order or proceeding upon a motion made "within a reasonable time and * * not more than three months" after the judgment was entered upon the ground, among others, of "newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b) (the 10-day limit)." It is this ground upon which the long-delayed affidavits filed by the plaintiffs attempt to justify the granting of a new trial.
We are in accord with the proposition urged by the defendant that the trial court has broad discretion in granting new trials; and in allowing relief under Rule 60(b). But its power is not without limitation and cannot be exercised capriciously or arbitrarily. It is elementary that under usual circumstances the regular rules of procedure are binding, and that a party who has allowed the time to move for a new trial to expire is thereafter precluded from doing so. This can be avoided only where it is made to appear that for one or more of the reasons specified in Rule 60(b) justice has been so thwarted that equity and good conscience demand that this extraordinary relief be granted. And the burden of showing facts to justify doing so is upon him who seeks such relief.
In order to warrant the granting of a new trial on the ground of belatedly discovered evidence, relied on by the plaintiffs, it would have to appear both that it "by due diligence could not have been discovered in time to move for a new trial"; and that such evidence was of sufficient substance that there would be a reasonable likelihood of a different result.[4] Otherwise, it is obvious that the ends of justice would not be served by ordering a new trial.
Sparing the detail of plaintiffs' affidavits, it is sufficient to say that any evidence referred to therein having any probative value on the disputed issues appears to be so meager that we cannot believe there is any likelihood that it would produce a different result. But more significant, and of controlling importance, is the fact that no reason whatsoever is given to show why such evidence could not have been discovered in time to move for a new trial, nor in fact to have been presented on the original trial. Therefore, there existed no proper basis for granting relief under Rule 60(b).
The alternative writ prohibiting further proceedings in this case is made permanent. Costs to plaintiffs (defendants below).
WADE, C.J., and HENRIOD, McDONOUGH and CALLISTER, JJ., concur.
NOTES
[1] For discussion of use of prohibition where irreparable loss or placing party in position of irretrievable disadvantage is threatened, see Atwood v. Cox, 88 Utah 437, 55 P.2d 377; Broadbent v. Gibson, 105 Utah 53, 140 P.2d 939; Olson v. District Court, 106 Utah 220, 147 P.2d 471.
[2] See Rule 60(a), U.R.C.P.; also Frost et al., v. District Court et al., 96 Utah 106, 83 P.2d 737.
[3] See 21 C.J.S. Courts § 227; Green v. Myrick, 177 Miss. 778, 171 So. 774; National Life Ins. Co. v. Kohn, 133 Ohio St. 111, 11 N.E.2d 1020.
[4] See Uptown Appliance & Radio Co. v. Flint et al., 122 Utah 298, 249 P.2d 826. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1812203/ | 368 So.2d 220 (1979)
MISSISSIPPI CHEMICAL CORPORATION
v.
William C. ROGERS.
No. 50829.
Supreme Court of Mississippi.
February 21, 1979.
Rehearing Denied March 21, 1979.
Megehee, Brown & Williams, Michael J. McElhaney, Jr., Pascagoula, for appellant.
Pritchard, Myers & Gordon, Robert A. Pritchard, Pascagoula, for appellee.
Before SMITH, SUGG and COFER, JJ.
SUGG, Justice, for the Court:
This is an appeal from the Circuit Court of Jackson County from a judgment awarding *221 William C. Rogers $60,000 against Mississippi Chemical Corporation. Rogers was employed by Baggett Industrial Constructors, an independent contractor, which had a contract with Mississippi Chemical to perform a contract to repair one of the buildings owned by Mississippi Chemical. While walking across the roof of the building, Rogers fell through the roof when it gave way under his weight. As the result of the fall, Rogers suffered injuries.
In his declaration Rogers charged Mississippi Chemical with the specific acts of negligence as follows:
1. Failure to provide him with a reasonably safe place to work.
2. Failure to warn Rogers of the fact that the roof had deteriorated to the extent that it would constitute a hazard to his safety and well being by walking across the roof.
3. Failure to provide sufficient scaffolding to avoid the necessity for walking on the roof.
Mississippi Chemical argues on appeal that it was entitled to a peremptory instruction.
The building on which Rogers was working was a large building covering approximately two acres and was two stories high. The walls and roof of the building were covered with transite, an asbestos-type material. Rogers was working with a painting crew whose duty it was to sandblast the vertical beams, studs and braces to which the transite wall covering was attached. The structure to be sandblasted was a part of the second story of the building. In order to reach the wall it was necessary to mount the roof of the first story, and cross the roof to the wall of the second story. Rogers was carrying a hose across the roof when he fell through and received his injuries. He testified that there was no scaffolding or walkway across the roof which he was required to traverse in order to reach the wall of the second story of the building. Several witnesses for Mississippi Chemical testified that walkways were provided to enable workers to move across the roof, and Rogers' foreman testified that he warned Rogers to use the walkways and not walk on the transite roof.
There was no testimony that Mississippi Chemical warned Rogers that it was unsafe to walk on transite, neither was there any testimony that Mississippi Chemical specifically warned Baggett, the independent contractor, about the danger of walking on transite. However, the evidence shows without contradiction that the supervisory personnel of Baggett knew of the danger of walking on transite and had been instructed in a safety meeting to keep the employees of Baggett off the transite except on the walkways provided.
Lemand Edward West, a general foreman for Baggett, testified that all the general foremen were called in the office and told to caution all their employees to stay off the transite because it was dangerous. Jerry McVey, a painters foreman for Baggett, and Rogers' immediate foreman, testified that he had been instructed by his immediate foreman, Larry McVey, to keep his people off the transite and to require them to stay on the scaffold. Larry Wayne McVey, a painters general foreman for Baggett, testified that Ron Simmons, superintendent for Baggett, instructed him to tell his men not to walk on the transite. He said that he had three foremen working for him and he instructed his foremen to instruct the men in their crews not to walk on the transite. Charles Christian, a carpenters general foreman for Baggett, testified that he was told that one should not walk on transite. The reason given was that transite is more or less like concrete, it forms hairline cracks, and when the cracks occur, the material separates and would not support the weight of a man.
From the above testimony it is uncontradicted that the supervisory personnel of Baggett, the independent contractor, knew that transite would not support the weight of a person, that it was dangerous to walk on it, and the construction foremen were instructed to tell the crew members working under them not to walk directly on transite but use the walkways provided.
*222 Under these undisputed facts, was Mississippi Chemical liable for the injuries Rogers received?
The owner of a building owes a duty to an independent contractor and the latter's employees to furnish a reasonably safe place to work or give warning of danger. In Mississippi Power Co. v. Brooks, 309 So.2d 863 (Miss. 1975) we held:
However, the owner is liable for his own negligence. This was clearly enunciated in the case of Ingalls Shipbuilding Corporation v. McDougald, 228 So.2d 365 (Miss. 1969) where the Court discussed the obligation of a prime contractor to furnish the employees of a subcontractor a reasonably safe place to work. Ingalls did not involve a contract between an owner of property and an independent contractor but dealt with a contract between a prime contractor and an independent contractor who was a subcontractor; however, the principles set forth apply to a contract between an owner and an independent contractor. In Ingalls we stated:
Ordinarily a prime contractor is not liable for the torts of an independent contractor or of the latter's servants committed in the performance of the contracted work. This is based on the theory that the contractee does not possess the power of controlling the person employed as to the details of the work. However, one who employs an independent contractor is nevertheless answerable for his own negligence. So an employer owes a duty to an independent contractor and the latter's employees to turn over to them a reasonably safe place to work or to give warning of danger. W. Prosser, The Law of Torts § 80 at 546 (3d ed. 1964); 41 Am.Jur.2d, Independent Contractors §§ 24, 25, 27 (1968); Annot., 31 A.L.R.2d 1375 (1953); 57 C.J.S. Master and Servant § 603 (1948); see generally, Whatley v. Delta Brokerage & Warehouse Co., 248 Miss. 416, 159 So.2d 634 (1964); May v. Vardaman Mfg. Co., 244 Miss. 261, 142 So.2d 18 (1962).
(309 So.2d at 866).
The duty to warn of any latent danger is fulfilled when the owner of premises warns an independent contractor of latent danger. Mississippi Power & Light Co. v. Nail, 211 So.2d 815 (Miss. 1968).
We also recognize the rule that knowledge of danger by an independent contractor relieves the owner from the duty of warning the independent contractor or his employees. In Jackson Ready-Mix Concrete v. Sexton, 235 So.2d 267, 271 (1970), we said:
Closely related to this exception is the rule that the owner is not liable for death or injury of an independent contractor or one of his employees resulting from dangers which the contractor, as an expert, has known, ...
Moreover, it should be remembered that liability rests, not upon the ground of danger, but upon the ground of negligence. Mississippi Power & Light Co. v. Nail, 211 So.2d 815 (Miss. 1968); Long, Admx., Etc. v. Wollard and Farmers Elevator, Inc., 249 Miss. 722, 163 So.2d 698 (1964).
In sum, Rogers charged Mississippi Chemical with negligence in failing to provide him with a reasonably safe place to work and failure to warn him of the fact that the roof on which he was working would not support the weight of a person walking across it. Assuming that Mississippi Chemical did not furnish Rogers with a reasonably safe place to work, it did not have the duty to notify Rogers of the danger of walking on transite because his employer, an independent contractor, had knowledge of the danger of walking on transite, and the supervisory personnel of the independent contractor were instructed to warn its employees not to walk on the roof except on the walkways. Mississippi Chemical had no control over Rogers or the other employees of its independent contractor, and was entitled to the peremptory instruction which it requested.
REVERSED AND RENDERED.
*223 PATTERSON, C.J., SMITH and ROBERTSON, P. JJ., and WALKER, BROOM, LEE and COFER, JJ., concur.
BOWLING, J., takes no part. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/816689/ | UNITED STATES COURT OF APPEALS FOR VETERANS CLAIMS
No. 98-1375
JIMMIE HARVEY , JR., APPELLANT ,
V.
HERSHEL W. GOBER,
ACTING SECRETARY OF VETERANS AFFAIRS, APPELLEE.
On Appeal from the Board of Veterans' Appeals
(Argued April 5, 2000 Decided Sep 19, 2000)
Patrick H. Stiehm, of Alexandria, Virginia, for the appellant.
Gary E. O'Connor, with whom Leigh A. Bradley, General Counsel; Ron Garvin, Assistant
General Counsel; and Michael A. Leonard, Deputy Assistant General Counsel, all of Washington,
D.C., were on brief, for the appellee.
Before NEBEKER, Chief Judge, and KRAMER and IVERS, Judges
PER CURIAM: The appellant, Jimmie Harvey, Jr., appeals from a June 15, 1998, Board of
Veterans' Appeals (Board or BVA) decision that denied his application for Service Disabled
Veterans' Insurance (SDVI) on the grounds that Mr. Harvey failed to meet the basic criteria for
entitlement to such benefits. Mr. Harvey filed a brief and a reply brief in support of his claim, and
the Secretary filed a brief urging affirmance of the BVA decision. This appeal is timely, and the
Court has jurisdiction over the case pursuant to 38 U.S.C. § 7252(a). Upon consideration of the
submissions to the Court and the record on appeal, the Court will affirm the Board's decision for
the following reasons.
I. FACTS
Mr. Harvey served on active duty in the U.S. Army from May 1974 to March 1975. Record
(R.) at 45. In October 1974, he suffered an acute schizophrenic episode and was admitted to the
hospital. R. at 36. A medical board determined in January 1975 that he was no longer fit for
military duty, and he was separated from service three months later. R. at 36, 45. Within a few days
of his service separation, Mr. Harvey filed a claim for compensation benefits with VA for his
schizophrenia. R. at 47-48. He underwent a VA medical examination in April 1975 and was
diagnosed with "schizophrenic reaction, acute, undifferentiated type." R. at 53. The examiner noted
in his report that Mr. Harvey was competent and was not in need of psychiatric hospitalization. Id.
In May 1975, the VA regional office (RO) granted Mr. Harvey's claim for service connection and
assigned a 50% disability rating for his schizophrenia. R. at 58. Because Mr. Harvey's service-
connected disorder was rated above 10% disabling, he was eligible to apply for SDVI. See 38
U.S.C. § 241 (1970). His award letter, dated May 27, 1975, reflects that a copy of this decision was
to be sent to the "VA Center" in St. Paul, Minnesota. Id.
Mr. Harvey filed an application for SDVI in August 1995. R. at 126-27. The RO denied his
request via letter in January 1996, stating that he was no longer eligible for these benefits. R. at 205-
06. At the time of Mr. Harvey's award in 1975, applications for SDVI, the RO reported, must have
been submitted within one year from the date VA notifies a veteran that his or her disability is
service connected. R. at 205; see also 38 U.S.C. § 241 (1970). The letter went on to state that RO
records showed that VA sent Mr. Harvey notice of his service connection on May 27, 1975. R. at
205. Consequently, Mr. Harvey's SDVI application was untimely by more than twenty years. Id.
The RO also noted that subsequent changes to the law had extended the eligibility period for SDVI
to two years from the date of service connection notification for new disability ratings dated after
September 1, 1991, but that this did "not apply when second or subsequent ratings are re-ratings of
the same disability." Id.; see also 38 U.S.C. § 7722 (1999).
Mr. Harvey filed a Notice of Disagreement in March 1996. R. at 208-11. His representative
from Disabled American Veterans asserted that Mr. Harvey's service-connected disability "rendered
him unable to make decisions regarding matters such as insurance coverage." R. at 242. The Board
denied the claim in June 1998 (R. at 1-7), concluding that Mr. Harvey "has not demonstrated that
he was incompetent at any time during which he was eligible to apply for [SDVI] . . . . Therefore,
the statutory one-year eligibility period has not been tolled, and the veteran's application for such
benefits is untimely." R. at 5. The Board also stated that "[t]he law does not require the VA to
2
provide notice of eligibility for [SDVI], and such lack of notice does not toll the statutory application
period." R. at 4. This appeal follows.
II. ANALYSIS
The Board denied Mr. Harvey's claim for SDVI because it concluded that he had not
established that he was incompetent during his one year of eligibility, and therefore, the filing period
was not tolled. See 38 U.S.C. § 722(a) (1970) (explaining that where the veteran is shown to have
been mentally incompetent during the SDVI filing period, the application for SDVI may be filed
within one year after the appointment of a guardian or within one year after the removal of mental
incompetency) (recodified as 38 U.S.C. § 1922(a) by Pub.L. No. 102-86, § 201(a)(1), 105 Stat. 414,
415 (1991) (extending that period to two years after the appointment of a guardian or the removal
of incompetency)); 38 C.F.R. § 3.353 (1999) (providing the standard for determining incompetency).
Mr. Harvey, however, has not raised this issue before this Court. Thus, the Court deems the issue
abandoned and will not address it further. See Ford v. Gober, 10 Vet.App. 531, 535-36 (1997)
(citing Bucklinger v. Brown, 5 Vet.App. 435, 436 (1993)).
Mr. Harvey contends that the Board's finding that VA was not required to provide him with
notice of SDVI eligibility was contrary to law. Appellant's Brief (Br.) at 6-10. Specifically, he
argues that 38 U.S.C. § 7722(b)-(c) created a legal duty on the part of the Secretary to provide
veterans with notice of SDVI eligibility and that the Secretary did not fulfill his duty in this case.
Thus, he maintains that the statutory filing period for SDVI should be tolled. Id. Mr. Harvey did
not raise these issues before the RO or the Board. Consequently, the Secretary argues that they are
not properly before the Court. Secretary's Br. at 7.
The Court disagrees with the Secretary and holds that it possesses appropriate jurisdiction
to consider those issues pursuant to Maggitt v. West, 202 F.3d 1370, 1377 (Fed. Cir. 2000). In
Maggitt, the Federal Circuit held that the Court, in its discretion, may hear legal arguments presented
for the first time provided that it has proper jurisdiction of the claim. Id. In deciding whether or not
to hear a newly raised legal argument, "[t]he test is whether the interests of the individual weigh
heavily against the institutional interest the doctrine [of exhaustion of administrative remedies] exists
to serve." Id. (citing McCarthy v. Madigan, 503 U.S. 140, 146, 112 S.Ct. 1081, 117 L.Ed.2d 291
3
(1992)). "Those institutional interests are, in the main, to protect agency administrative authority
and to promote judicial efficiency." Id.
The doctrine of exhaustion, however, may not be invoked against an individual when: (1)
invocation of the doctrine will result in a prejudicial delay to the individual or doubt exists as to
whether the agency is empowered to grant effective relief, (2) the agency fashioned remedy is
considered inadequate because the agency is "shown to be biased or has otherwise predetermined
the issue before it[,]" or (3) the Congressional purpose or purposes of the statutory scheme under
which the individual is seeking to avoid application of the doctrine would be frustrated to the
detriment of the individual. Id. at 1378.
The Court holds that, to invoke the doctrine of exhaustion of administrative remedies against
Mr. Harvey would require him to present his newly raised legal arguments to the Board, even though
it has already concluded that VA was not required to notify him of his eligibility for SDVI. The
Board's conclusion that VA was not obligated by law to provide notice to Mr. Harvey is indicative
that VA has already predetermined the issue. Therefore, the Court, in its discretion, will not invoke
the doctrine of exhaustion of administrative remedies against Mr Harvey. See id. The invocation
of the doctrine would also result in further delay, which while perhaps not prejudicial to Mr. Harvey,
would be unnecessary and require further unnecessary expenditure of adjudicative resources.
At the time that Mr. Harvey was awarded service connection for his psychiatric disability in
May 1975 (R. at 60), 38 U.S.C. § 722 provided for a one-year period, commencing on the date
service connection is determined, in which a veteran awarded service connection for a condition
rated at least 10% disabling could apply for SDVI benefits. See 38 U.S.C. § 722(a) (1970). Because
Mr. Harvey did not submit his application for SDVI until August 1995 (R. at 126-27), more than 20
years after his award of service connection, that application was considered to have been untimely
under both the former § 722(a) and current § 1922(a). He contends, however, that VA failed to
notify him of his eligibility to apply for SDVI and that, because of such failure, the statutory period
for filing should be equitably tolled. For the following reasons, the Court disagrees.
First, the Court must address what sort of obligation VA had to notify Mr. Harvey of his
eligibility for SDVI. At the time VA granted Mr. Harvey service connection for his schizophrenia,
the pertinent law regarding notice was found in 38 U.S.C. § 241(b)-(c) (1970). Subsequently, the
4
law was altered, and now the relevant provisions are incorporated in 38 U.S.C. § 7722 (b)-(c). The
old and new provisions are essentially the same in content. Both provide that VA "shall by letter
advise each veteran at the time of the veteran's discharge or release from active military . . . service
(or as soon as possible after such discharge or release) of all benefits and services under laws
administered by the Department for which the veteran may be eligible." 38 U.S.C. § 7722 (b); see
also 38 U.S.C. § 241(b). Both also provide that VA "shall distribute full information to eligible
veterans . . . regarding all benefits and services to which they may be entitled under laws
administered by the Department . . . ." 38 U.S.C. § 7722 (c); see also 38 U.S.C. § 241(c). For the
purposes of this case, the Court will assume, without deciding, that the Secretary was under a duty
to notify Mr. Harvey of his eligibility for SDVI under both the former § 241 and the current § 7722,
and that if proper notification had not been made, the time for filing an application should be tolled.
See Bailey v. West, 160 F.3d 1360, 1365 (Fed. Cir. 1998) (holding that in appropriate circumstances,
a statutory filing period may be equitably tolled due to conduct of VA). Accordingly, the Court need
not decide whether the old or new provisions would be applicable here. See Karnas v. Derwinski,
1 Vet.App. 308, 313 (1991).
There are specific procedures that VA follows in order to notify veterans of their SDVI
eligibility:
First, a copy of the rating sheet with the award letter is sent to the VA Insurance
Center having insurance jurisdiction over the area in which the Regional Office is
located. See DEPARTMENT OF VETERANS BENEFITS MANUAL M29-1, Part IV, para.
1.02a (Jan. 27, 1976) . . . . Second, when the Insurance Center receives a copy of the
award letter, it is screened to determine whether the veteran is eligible for SDVI. Id.,
para. 1.02e. Third, veterans with eligible rating decisions are sent a form letter (FL
29-5a) and a pamphlet (VA Pamphlet 29-9, Service-Disabled Veterans Insurance
RH-Information and Premium Rates) regarding the requirements for applying for
SDVI. Id., para. 1.03.
Secretary's Br. at 9-10. The Secretary represents that these procedures were in effect at the time VA
granted Mr. Harvey service connection, and that shortly after Mr. Harvey's rating decision was
issued, VA documented the notification procedures in its Manual M29-1. Id. He further represents
that the proper Insurance Center at the time of Mr. Harvey's award of service connection was in St.
Paul, Minnesota. Id. at 2. Additionally, the Secretary's appendices 5-6 show that Form Letter FL
5
29-5a and Pamphlet 29-9 were created in July 1972--almost three years before Mr. Harvey's rating
decision was issued. Id. at 10, app. 5-6.
Mr. Harvey seems to contend that these procedures were not properly applied in his case, as
it is his position that he never received notice of his SDVI eligibility. Appellant's Br. at 4-5. He first
asserts that the service connection award letter, which was sent on May 27, 1975, according to VA
records, stated only that a copy of the letter was provided to the VA Insurance Center in St. Paul,
Minnesota. R. at 58. The letter, he argues, did not notify him specifically of his SDVI eligibility.
Id. at 10; Reply Br. at 4. Mr. Harvey, however, has not made any express assertion that he did not
receive by separate mailing Form Letter FL 29-5a or Pamphlet 29-9, which discuss eligibility
requirements for SDVI. Moreover, even assuming that Mr. Harvey's argument could be understood
to be an assertion that he never received these materials, such a contention does not constitute the
"clear evidence" necessary to overcome the presumption that the materials were sent to him in
accordance with the normal course of VA business. See YT v. Brown, 9 Vet.App. 195, 199 (1996)
(holding that a statement of non-receipt does not rebut the presumption of regularity attached to the
normal procedure of mailing Statements of the Case to claimants); Ashley v. Derwinski, 2 Vet.App.
62, 64 (1992) (stating that the Court must apply a "presumption of regularity" to "official acts of
public officers, and in the absence of clear evidence to the contrary, courts presume that they have
properly discharged their official duties" ) (emphasis in original) (quoting United States v. Chemical
Foundation, Inc., 272 U.S. 1, 14-15 (1926)).
Mr. Harvey next asserts that the Insurance Center was never actually notified of his service
connection award by the RO, and consequently, there was no act that would prompt the Insurance
Center to mail the SDVI eligibility notification to him. Appellant's Br. at 10; Reply Br. at 4. He has
nevertheless presented no evidence in support of such a proposition. Because the May 1975 RO
decision sent to Mr. Harvey shows that VA sent a copy of that decision to the "VA Center, St. Paul,
Minnesota," (R. at 58), the Court will assume, pursuant to the presumption of administrative
regularity, that a copy of his award letter was, in fact, sent to and received by the Minnesota location
(See Ashley, 2 Vet.App. at 64; Chemical Foundation, Inc., 272 U.S. at 14-15).
Finally, Mr. Harvey asserts that if the Insurance Center had actually received a copy of his
award letter, then a file containing this letter and a copy of a subsequent notification letter to him
6
regarding SDVI eligibility would have been prepared by the Insurance Center in the normal course
of business. Appellant's Br. at 10. That such a file does not now exist, Mr. Harvey argues, signifies
that no such notice was ever sent to him and would thus rebut the presumption of administrative
regularity. Id. The Secretary's representation at oral argument, however, reflects that at the time of
Mr. Harvey's service connection award, part of the regular administrative process of the Insurance
Center was to destroy any notification file that might have existed whenever an application was not
filed within the statutory period for filing. Consequently, the present non-existence of any file, many
years after the time in which such a file should have been destroyed in the normal course of business,
in no way demonstrates administrative irregularity. Because the file's non-existence at this time
cannot be relied upon to defeat the presumption of administrative regularity, Mr. Harvey's argument
must fail.
Even if the Court were to conclude that VA has a statutory duty to notify a veteran of his or
her SDVI eligibility, the Court holds that VA presumably has fulfilled its duty in this case.
Therefore, honoring Mr. Harvey's request to toll the statutory filing period for SDVI benefits is
unwarranted.
III. CONCLUSION
Upon consideration of the foregoing, the Board's June 15, 1998, decision is AFFIRMED.
7 | 01-03-2023 | 02-01-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1093052/ | 240 So.2d 280 (1970)
AETNA CASUALTY & SURETY COMPANY
v.
Mrs. Tom L. HEAD, Jr.
No. 45906.
Supreme Court of Mississippi.
October 19, 1970.
Watkins & Eager, Elizabeth Hulen, Jackson, for appellant.
Tennyson & Britt, Jackson, for appellee.
*281 GILLESPIE, Presiding Justice:
This case involves the question of whether the "physical contact" requirement used in defining "hit and run vehicle" in the uninsured motorists clause of an automobile liability policy is satisfied when a soft-drink bottle thrown from an unknown automobile strikes the insured's automobile and injures the insured.
On April 4, 1964, the appellee, Mrs. Tom L. Head, Jr., was the named insured in an automobile insurance policy issued by Aetna Casualty and Surety Company, the appellant. On that date at about 8:00 p.m. Mrs. Head was driving her car in a northerly direction on the frontage road near LeFleur's Restaurant in Jackson, Mississippi. Just as the appellee's automobile met an approaching southbound vehicle, a soft-drink bottle was tossed from the driver's window of the southbound vehicle. This bottle broke the windshield of the appellee's automobile and struck her in the face, causing injuries. The southbound vehicle was never identified nor were its occupant or occupants identified.
Mrs. Head sued her insurer under the uninsured motorists clause of her automobile policy and recovered a judgment in the court below.
The insuring clause of the uninsured motorists coverage is as follows:
Aetna Casualty will pay all sums which the insured or his legal representative shall be legally entitled to recover as damages from the owner or operator of an uninsured highway vehicle because of bodily injury sustained by the Insured, caused by accident and arising out of the ownership, maintenance or use of such uninsured highway vehicle; * * *
The policy definitions provide:
"uninsured highway vehicle" means:
(a) * * *
(b) a hit-and-run vehicle; * * * "hit-and-run vehicle" means a highway vehicle which causes bodily injury to an Insured arising out of physical contact of such vehicle with the Insured or with an automobile which the Insured is occupying at the time of the accident provided: (a) there cannot be ascertained the identity of either the operator or the owner of such vehicle; * * *
The decisive question is whether the "physical contact" requirement is satisfied in this case. We think not. There are no applicable Mississippi cases involving the uninsured motorists clause. The appellee relies upon cases in which the "physical contact" requirement was held to be satisfied when the hit-and-run automobile struck another vehicle (or some object) and propelled it into the insured's automobile, State Farm Mutual Automobile Ins. Co. v. Johnson, 242 Miss. 38, 133 So.2d 288 (1961); Gavin v. Motor Vehicle Accident Indemnification Corp., 57 Misc.2d 335, 292 N.Y.S.2d 745 (1968); and Johnson v. State Farm Mutual Automobile Ins. Co., 70 Wash.2d 587, 424 P.2d 648 (1967); the *282 first case construing a medical payments clause rather than an uninsured motorists provision. There are two types of factual situations in the cases relied upon by the appellee. Either (1) there was physical contact between the hit-and-run vehicle and an intervening vehicle causing the intervening vehicle to come into physical contact with the insured's automobile, or (2) the hit-and-run vehicle struck an object, propelling it into the insured's automobile. In the case at bar there was no contact between the unknown vehicle and the insured's automobile, nor was any other object hit by the unknown vehicle and propelled into the insured's automobile. The bottle which struck the insured's automobile was thrown from the unknown vehicle.
The appellant relies on a line of cases in which the "physical contact" requirement was held not to be satisfied when the unknown vehicle forced the insured's automobile off the highway or into the path of another vehicle, there being no physical contact between the unknown vehicle and the insured's automobile, Roloff v. Liberty Mutual Ins. Co., 191 So.2d 901 (La. App. 1966) and Cruger v. Allstate Ins. Co., 162 So.2d 690 (Fla.App. 1964). The Arizona Court stated in Lawrence v. Beneficial Fire & Casualty Ins. Co., 8 Ariz. App. 155, 444 P.2d 446 (1968):
We find nothing misleading or ambiguous about the wording used in both policies to define "hit and run automobile" or in setting out the requirement of physical contact. If we ignore or do away with the physical contact requirement we would be rewriting the contract between these parties, and would be rendering the phrase "hit and run" meaningless * * *. We cannot expand the language used beyond its plain and ordinary meaning, nor should we add something to the contract which the parties have not put there. * * * Where words are given standard meanings and a lack of coverage is the result, the language should not be treated so as to create ambiguity which would result in the opposite of what was so expressed. * * *
A contract of insurance is like any other contract. It is not a collection of separate unrelated parts. It is a whole document; each part must be read and interpreted in connection with all other parts thereof. When the meaning and intent of the contract is clear, it is not the prerogative of the courts to change or rewrite it in an atttempt to avoid harsh results. (8 Ariz. App. at 158, 159, 444 P.2d at 449, 450).
This Court has decided no uninsured motorists cases which are in point; however, it has construed a "physical contact" requirement in an insurance policy covering a building, George v. Miss. Farm Bureau Mutual Ins. Co., 250 Miss. 847, 168 So.2d 530 (1964). In that case the policy provisions stated that loss by vehicles was covered only in the event of "actual physical contact" of the vehicle with the building. A bulldozer pushed loose material into a cut in front of the building; the weight of the loose material caused the building to fall. In affirming the lower court decision that there was no coverage, the court stated:
This court has long recognized that insurance contracts, like all other contracts, where clear and unambiguous, must be construed exactly as written. * * * It is our opinion and we so hold that the language used in this exclusionary clause is clear and unambiguous; that it must be construed as requiring an actual contact touching of the building by the vehicle before there could be recovery under this clause of the contract. There being no actual physical contact, the court was correct in directing a verdict for the defendant. * * * (250 Miss. at 851, 852, 168 So.2d at 531, 532).
Under particular facts of this case, there is no room for an interpretation to extend the coverage beyond the plain and unambiguous language of the policy. The other requirement that the accident must "arise *283 out of the ownership, maintenance or use of the uninsured vehicle" is not reached, and we pretermit consideration of that question because it is unnecessary to do so.
Reversed and rendered.
RODGERS, JONES, BRADY and INZER, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2206270/ | 227 Cal.App.2d 40 (1964)
THE PEOPLE, Plaintiff and Respondent,
v.
PAUL C. STODDARD, Defendant and Appellant.
Crim. No. 4445.
California Court of Appeals. First Dist., Div. Three.
May 4, 1964.
Kilday, Nemer & Farbstein and George J. Kilday for Defendant and Appellant.
Stanley Mosk, Attorney General, Albert W. Harris, Jr., and Robert R. Granucci, Deputy Attorneys General, for Plaintiff and Respondent.
DRAPER, P. J.
A sexual psychopath is defined as one affected with specified mental conditions "in a form predisposing to the commission of sexual offenses, and in a degree constituting him a menace to the health or safety of others" (Welf. & Inst. Code, 5500). [fn. 1] Our question is whether the threat of psychological trauma to others, without likelihood of physical injury, constitutes such a menace.
Defendant pleaded guilty to a misdemeanor charge of indecent exposure (Pen. Code, 314, subd. 1), and was certified to the superior court for determination of sexual psychopathy. Four psychiatrists filed written reports and testified orally. All agreed that defendant is affected with a mental disorder which predisposes to the commission of such offenses, in that at times he has an irresistible urge to expose his sex organ to young girls, but that there is no likelihood of physical contact with them. Three felt that this predisposition does not constitute him a menace within the statutory definition. The fourth disagreed. The court found that there is sufficient cause to believe that he is a sexual psychopath, and ordered him temporarily committed to Atascadero State Hospital for a period not to exceed 90 days for observation and diagnosis. Defendant appeals. Appealability of the order is not argued.
Defendant contends that only the threat of physical injury can constitute one a "menace to the health or safety of others," and that since there is no likelihood of physical contact in repetition of his exhibitionism, he cannot be deemed a sexual psychopath. He cites dictionary definitions of "menace" as a show of intent "to inflict an evil or injury upon another" (Black's Law Dictionary (3d ed.); Webster's New Collegiate Dictionary (1960)). [1] But these do not aid him, for an "evil" may be "something that is injurious to moral or physical happiness or welfare" (Webster's Third New International Dictionary). The same work, in *42 defining "injury" quotes the passage: "mental or emotional upset is just as truly an injury to the body as a bone fracture." More than 100 years ago, it was judicially recognized that "any conduct sufficiently aggravated to produce ill-health or bodily pain," though operating upon the mind only, should be regarded as legal cruelty (Powelson v. Powelson, 22 Cal. 358, 360-361). [2] We have no hesitancy in holding that the threat of psychological trauma is quite as much a "menace to the health or safety of others" as is probable physical injury.
[3] One psychiatrist testified directly that renewal of appellant's exhibitionism would cause serious psychological injury to some of the young girls who are its likely victims. While there was some contradictory testimony, this is sufficient to support the trial court's finding.
Order of commitment affirmed.
Salsman, J., and Devine, J., concurred.
NOTES
[fn. 1] 1. Both the designation and the definition of such a person were changed by the 1963 amendment, but this case was tried before its effective date. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2201804/ | 436 B.R. 1 (2010)
In re Louis D. AMIR, Debtor.
David O. Simon, Chapter 7 Trustee, Plaintiff-Appellee,
v.
Louis D. Amir, Defendant-Appellant.
Nos. 09-8002, 09-8012, 09-8017, 09-8051.
United States Bankruptcy Appellate Panel of the Sixth Circuit.
August 5, 2010.
*7 ON BRIEF: Robert D. Barr, Lisa A. Vardzel, Dettelbach, Sicherman & Baumgart, Cleveland, Ohio, for Appellee. Louis D. Amir, Gates Mills, Ohio, pro se.
Before BOSWELL, McIVOR, and RHODES, Bankruptcy Appellate Panel Judges.
OPINION
G. HARVEY BOSWELL, Bankruptcy Judge.
The debtor in this case, Louis D. Amir ("Amir"), pro se, filed four separate notices of appeal for eight orders from the Bankruptcy Court for the Northern District of Ohio. First, Amir appeals the bankruptcy court's January 12, 2009, Order avoiding a pre-petition transfer of real property in Gates Mills, Ohio, ("Gates Mills property") pursuant to 11 U.S.C. §§ 544 and 547. Second, Amir appeals the bankruptcy court's February 25, 2009, Order denying his emergency motion to strike the petition and retroactively annul the automatic stay. Third, Amir appeals a February 25, 2009, Order denying his emergency motion to void the sale of his 2007 Bentley. Fourth, Amir appeals the bankruptcy court's March 17, 2009, Order denying his emergency motion to dismiss pursuant to 11 U.S.C. § 521(i). Lastly, Amir appeals four bankruptcy court orders issued on August 3, 2009. These orders (1) clarified that there is no stay in effect pending appeal, (2) granted the motion for authority to change the locks on the Gates Mills property filed by the chapter 7 Trustee, David O. Simon ("Trustee"), (3) granted the Trustee's motion to sell the Gates Mills property, and (4) granted the Trustee's application to employ a realtor to sell the Gates Mills property. The appeals have been consolidated.
For the following reasons, the Panel AFFIRMS the bankruptcy court's February 25, 2009, Order denying Amir's motion to strike and retroactively annul the automatic stay and the bankruptcy court's March 17, 2009, Order denying Amir's emergency motion to dismiss. The Panel DISMISSES the appeals of the following orders for lack of jurisdiction: (1) January 12, 2009, Order avoiding the pre-petition transfer of the Gates Mills property; (2) February 25, 2009, Order denying Amir's motion to void the sale of his 2007 Bentley; and (3) August 3, 2009, Orders: a) clarifying that there is no stay in effect pending appeal, b) granting the Trustee's motion to change the locks, c) granting the Trustee's motion to sell the Gates Mills property, and d) granting the Trustee's application to employ a realtor.
*8 I. JURISDICTION AND STANDARD OF REVIEW
The United States District Court for the Northern District of Ohio has authorized appeals to the Bankruptcy Appellate Panel ("Panel"), and no party has timely elected to have these appeals heard by the district court. 28 U.S.C. §§ 158(b)(6), (c)(1). The Panel has jurisdiction to hear appeals from "final judgments, orders, and decrees...." 28 U.S.C. § 158(a)(1) (emphasis added). For purposes of appeal, a final order "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted).
A. February 25, 2009, and March 17, 2009, Orders denying Amir's motions to dismiss
An order which denies a motion to dismiss a bankruptcy petition is not a final order for purposes of appeal. Jefferson County Bd. of County Comm'rs v. Voinovich (In re The V. Cos.), 292 B.R. 290, 292 (6th Cir. BAP 2003). An interlocutory, or non-final, order may only be appealed with leave of the court. 28 U.S.C. § 158(a)(3). Leave of court is generally sought by filing a motion for leave to appeal; however, in appropriate circumstances, the Panel may consider a notice of appeal as a motion for leave to appeal and decide the appeal. See Wicheff v. Baumgart (In re Wicheff), 215 B.R. 839, 843 (6th Cir. BAP 1998); Fed. R. Bankr.P. 8003(c); 28 U.S.C. §§ 158(a)(3) and (b). If the Panel decides that exercising jurisdiction over an interlocutory order is not appropriate, it lacks jurisdiction over the appeal. 28 U.S.C. § 158(a)(3).
The decision to grant leave to appeal is within the Panel's discretion and should be made by examining the standards found in 28 U.S.C. § 1292(b). U.S. Trustee v. Eggleston Works Loudspeaker Co. (In re Eggleston Works Loudspeaker Co.), 253 B.R. 519, 521 (6th Cir. BAP 2000). Section 1292(b) defines the Courts of Appeals' jurisdiction over interlocutory orders and, while the Panel is not constrained by the standards set forth in 28 U.S.C. § 1292(b), they are instructive. Wicheff, 215 B.R. at 844. The Sixth Circuit has adopted a four-part test for use in determining whether to grant leave to appeal an interlocutory order pursuant to 28 U.S.C. § 1292(b):
(1) The question involved must be one of "law"; (2) it must be "controlling"; (3) there must be substantial ground for "difference of opinion" about it; and (4) an immediate appeal must "materially advance the ultimate termination of the litigation."
Cardwell v. Chesapeake & Ohio Ry. Co., 504 F.2d 444, 445 (6th Cir.1974).
The Panel finds that the appeals of the February 25, 2009, and March 17, 2009, Orders denying Amir's motions to dismiss involve controlling questions of law on which there is substantial ground for difference of opinion. The February 25, 2009, Order denying Amir's emergency motion to strike the petition and retroactively annul the automatic stay was based on the bankruptcy court's interpretation of 11 U.S.C. § 109(h) and Federal Rule of Bankruptcy Procedure 9011. The March 17, 2009, Order denying Amir's emergency motion to dismiss was based on the bankruptcy court's interpretation of 11 U.S.C. § 521(i). Both 11 U.S.C. § 109(h) and § 521(i) were added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). Since their enactment, courts have strongly disagreed over the meaning of both sections. See, e.g., Wirum v. Warren (In re Warren), 568 F.3d *9 1113 (9th Cir.2009); In re Spencer, 388 B.R. 418 (Bankr.D.D.C.2008); In re Giles, 361 B.R. 212 (Bankr.D.Utah 2007); In re Hess, 347 B.R. 489 (Bankr.D.Vt.2006). The result is a split of authority among the courts.
The Panel also finds that allowing an immediate appeal of the two bankruptcy court orders denying Amir's motions to dismiss would "materially advance the ultimate termination of the litigation." Wicheff, 215 B.R. at 844. If the Panel affirms the bankruptcy court's decisions, Amir's case will continue and the Trustee will be able to complete the liquidation of estate assets. If the Panel instead decides that the bankruptcy court should be reversed, Amir's bankruptcy case will be dismissed and the Trustee will not be able to distribute any assets to creditors. Amir's appeals of the February 25, 2009, and March 17, 1009, Orders meet the criteria for pursuing an appeal of an interlocutory order. Therefore, the Panel concludes it is appropriate to grant leave to appeal the February 25, 2009, and March 17, 2009, Orders denying Amir's motions to dismiss.
On appeal, rulings on motions to dismiss a bankruptcy case are reviewed for an abuse of discretion. Riverview Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir.2007). "An abuse of discretion occurs only when the [trial] court relies upon clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous legal standard." Kaye v. Agripool, SRL (In re Murray, Inc.), 392 B.R. 288, 296 (6th Cir. BAP 2008). "An abuse of discretion is defined as a `definite and firm conviction that the [court below] committed a clear error of judgment.'" Mayor of Baltimore v. West Virginia (In re Eagle-Picher Indus., Inc.), 285 F.3d 522, 529 (6th Cir.2002) (citing Soberay Mach. & Equip. Co. v. MRF Ltd., Inc., 181 F.3d 759, 770 (6th Cir.1999)). In reviewing a lower court's decision under the "abuse of discretion" standard,
"[t]he question is not how the reviewing court would have ruled, but rather whether a reasonable person could agree with the bankruptcy court's decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion." Barlow v. M.J. Waterman & Assocs. (In re M.J. Waterman & Assocs.), 227 F.3d 604, 608 (6th Cir.2000) (citations omitted).
Geberegeorgis v. Gammarino (In re Geberegeorgis), 310 B.R. 61, 64 (6th Cir. BAP 2004).
B. January 12, 2009, Order avoiding the pre-petition transfer of the Gates Mills property and August 3, 2009, Order granting the Trustee's motion to sell the property
Although neither party to this appeal raised the issue of Amir's standing to appeal the June 12, 2009, Order avoiding the pre-petition transfer of real property, or the August 3, 2009, Orders relating to the sale of the real property, it is appropriate for the Panel to raise the issue sua sponte. SEC v. Basic Energy & Affiliated Res., Inc., 273 F.3d 657, 665 (6th Cir.2001). The lack of standing is a jurisdictional bar to appellate review. Harker v. Troutman (In re Troutman Enters.), 286 F.3d 359, 364 (6th Cir.2002). An appellate court must therefore raise the issue of standing sua sponte because it is "under an independent obligation to police its own jurisdiction." Basic Energy, 273 F.3d at 665.
"Appellate standing in bankruptcy cases is more limited than Article III standing or the prudential requirements associated therewith." Troutman, 286 F.3d at 364 (citation omitted). In order to have standing to appeal a bankruptcy *10 court order, an appellant must be a "person aggrieved" by the bankruptcy court's order. Fidelity Bank, Nat'l Ass'n v. M.M. Group, Inc., 77 F.3d 880, 882 (6th Cir.1996) (citations omitted). This doctrine limits standing to those persons who "have been directly and adversely affected pecuniarily by the order.... Only when the order directly diminishes a person's property, increases his burdens, or impairs his rights will [an appellant] have standing to appeal." Id.; Travelers Cas. & Sur. v. Corbin (In re First Cincinnati, Inc.), 286 B.R. 49, 51 (6th Cir. BAP 2002) (citations omitted). The burden of proving that a party is a "person aggrieved" is on the appellant asserting standing to pursue an appeal. Fidelity Bank, 77 F.3d at 882.
Courts rarely find that a Chapter 7 debtor is a "person aggrieved" by a bankruptcy court order regarding the disposition of property of the estate. Monus v. Lambros, 286 B.R. 629, 634 (N.D.Ohio 2002).
The advent of the chapter 7 estate and the appointment of the chapter 7 trustee divest the chapter 7 debtor of all right, title and interest in nonexempt property of the estate at the commencement of the case. Since title to property of the estate no longer resides in the chapter 7 debtor, the debtor typically lacks any pecuniary interest in the chapter 7 trustee's disposition of that property.
Spenlinhauer v. O'Donnell, 261 F.3d 113, 118 (1st Cir.2001) (citing 11 U.S.C. §§ 541(a) and 704(a)); see also 11 U.S.C. § 323. Pursuant to 11 U.S.C. § 727, the chapter 7 discharge releases the debtor from all personal liability for his debts. These Bankruptcy Code sections work together to greatly restrict a chapter 7 debtor's standing to appeal an order from the bankruptcy court. "[A] hopelessly insolvent debtor does not have standing to appeal orders affecting the size of the estate, since such an order would not diminish the debtor's property, increase his burdens, or detrimentally affect his rights." In re El San Juan Hotel, 809 F.2d 151, 154-55 (1st Cir.1987) (citations omitted). As a result, the chapter 7 trustee is often the only party who has standing to appeal an order that impacts the disposition of property of the estate. Richman v. First Woman's Bank (In re Richman), 104 F.3d 654, 657 (4th Cir.1997).
There are two exceptions to a chapter 7 debtor's limited standing:
(1) if the debtor can show that a successful appeal would generate assets in excess of liabilities, entitling the debtor to a distribution of surplus under Bankruptcy Code 726(a)(6), ... or (2) the order appealed from affects the terms of the debtor's discharge in bankruptcy.
Kowal v. Malkemus (In re Thompson), 965 F.2d 1136, 1144 n. 12 (1st Cir.1992) (citations omitted). If the debtor fails to present concrete evidence that either exception applies, he does not have standing to challenge a bankruptcy court order. United States v. Jones, 260 B.R. 415, 418 (E.D.Mich.2000). To proceed under the first exception, the debtor "cannot simply claim that there is a theoretical chance of a surplus in the estate, but must show that such surplus is a reasonable possibility." In re Rake, 363 B.R. 146, 151 (Bankr.D.Idaho 2007) (quoting Cult Awareness Network, Inc. v. Martino (In re Cult Awareness Network, Inc.), 1997 WL 327123 (N.D.Ill.1997)).
In the case presently before the Panel, Amir has failed to meet his burden of demonstrating he has standing to appeal the January 12, 2009, Order avoiding the pre-petition transfer or the August 3, 2009, Order granting the Trustee's motion to sell the Gates Mills property. The claims filed in Amir's bankruptcy case total $13,190,436.69. Of this amount, *11 $6,641,342.85 are general unsecured claims. The Gates Mills property is the debtor's primary asset. The Cuyahoga County Auditor's value of the property is $1,274,800 for the 2007 tax year. There are no recorded mortgages or liens on the Gates Mills property with the exception of money owed for past due real estate taxes. Despite its near lien-free status, the Trustee's liquidation of the property will not come close to satisfying the secured and administrative claims in the case, let alone provide any recovery to Amir's unsecured creditors. There is simply no possibility that a successful appeal would generate surplus assets that would be returned to Amir at the conclusion of his case. Amir also failed to establish that either order affects the terms of his discharge.
After case number 09-8051 was filed, the Panel asked the parties to submit briefs on the limited issue of standing. Amir argued in his brief that he has standing to challenge the avoidance order because he has an ownership interest in the Gates Mills property under a leasehold agreement executed between himself and IMC Mortgage Corporation ("IMC"). The Trustee argued in his brief that Amir was judicially estopped from claiming this interest because he has consistently stated that he was not the owner of the Gates Mills property at the time his case was filed. The Trustee is correct. Amir has consistently stated in both the bankruptcy court and in documents filed with the Panel that he was not the owner of the Gates Mills property at the time his case was filed. Instead, Amir alleged that he transferred the property to IMC sixteen months prior to the filing of the petition. As such, Amir has argued that the sale was final and unavoidable by the Trustee and IMC was the rightful owner of the property at the time the case was filed.
Based on Amir's assertions and the conclusions of the bankruptcy court, the only party who had any interest in the Gates Mills property at the time the case was filed was IMC. IMC did not appeal the bankruptcy court's January 12, 2009, Order avoiding its lien and Amir did not meet his burden of demonstrating he has standing to appeal either order. As a result, case number 09-8002 is DISMISSED. That portion of case number 09-8051 which concerns the August 3, 2009, Order granting the Trustee's motion to sell the Gates Mills property is also DISMISSED.
C. February 25, 2009, Order denying Amir's motion to void the sale and August 3, 2009, Order clarifying there is no stay in effect pending appeal
"If events occur during the pendency of a litigation which render the court unable to grant the requested relief, the case becomes moot" and a court has no jurisdiction to review the matter. Demis v. Sniezek, 558 F.3d 508, 512 (6th Cir.2009) (internal citation and quotation marks omitted). As with standing, the Panel is under an independent obligation to sua sponte determine if an issue is moot. Berger v. Cuyahoga Co. Bar Ass'n, 983 F.2d 718, 721 (6th Cir.1993).
In the case before the Panel, the bankruptcy court issued an order denying Amir's motion to void the sale of his 2007 Bentley on February 25, 2009. The sale was initially approved on January 7, 2009. Amir did not seek a stay of the sale pending appeal at any time during his case. The Bentley was sold by the Trustee. Consequently, his appeal of the February 25, 2009, Order is statutorily moot pursuant to 11 U.S.C. § 363(m). Parker v. Goodman (In re Parker), 499 F.3d 616, 621 (6th Cir.2007) (citing In re 255 Park Plaza Assocs. Ltd. P'ship, 100 F.3d 1214, *12 1216 (6th Cir.1996)). The only jurisdiction an appellate court has over an unstayed sale order is to determine if the buyer was a good faith purchaser, an issue which was not raised in these appeals. Weingarten Nostat, Inc. v. Serv. Merch. Co., Inc., 396 F.3d 737, 742 (6th Cir.2005). As a result, the Panel has no jurisdiction over the February 25, 2009, Order denying Amir's motion to void the sale. Demis, 558 F.3d at 512. That portion of case number 09-8012 that concerns the February 25, 2009, Order denying Amir's motion to void the sale of the 2007 Bentley is moot and is DISMISSED.
Amir's appeal of the August 3, 2009, Order clarifying there is no stay in effect is also moot. The bankruptcy court reinstated the stay on September 30, 2009. As such, there is no relief the Panel can give Amir in his appeal of that order. Demis, 558 F.3d at 512. Consequently, that portion of case number 09-8051 that concerns the August 3, 2009, Order clarifying there is no stay in effect is moot and is hereby DISMISSED.
D. August 3, 2009, Orders granting the Trustee's motion to change the locks and the Trustee's application to employ a realtor
Orders which grant or deny applications to employ professionals are typically found to be interlocutory. Cottrell v. Schilling (In re Cottrell), 876 F.2d 540, 542 (6th Cir.1989). In the case of Black Diamond Mining Co. v. Official Comm. of Unsecured Creditors (In re Black Diamond Mining Co.), 400 B.R. 207 (6th Cir. BAP 2009), the Panel found that it lacked jurisdiction to review an interlocutory order denying an application to employ counsel. Id. at 208. Based on Amir's failure to allege any error with the employment order aside from the "automatic dismissal" of his case, the Panel finds that it lacks jurisdiction to review the order granting the Trustee's application to employ a realtor in this case as well. Accordingly, that portion of case number 09-8051 which appeals the August 3, 2009, Order granting the Trustee's application to employ a realtor is DISMISSED.
The August 3, 2009, Order granting the Trustee's motion to change the locks on the real property is also interlocutory. The August 3, 2009, Order was issued in furtherance of the Trustee's statutory duty to collect and liquidate the debtor's assets. See 11 U.S.C. § 704(a)(1). It did not finally resolve any issues between the parties nor did it involve a controlling issue of law. As a result, the Panel denies leave to appeal and it is without jurisdiction to review the order. That portion of case number 09-8051 which appeals the August 3, 2009, Order granting the Trustee's motion to change the locks is DISMISSED.
II. ISSUES ON APPEAL
The remaining issues in these appeals are whether the bankruptcy court erred: (1) in denying Amir's emergency motion to strike the petition and retroactively annul the automatic stay, and (2) in denying Amir's emergency motion to dismiss his bankruptcy case pursuant to 11 U.S.C. § 521(i).[1]
*13 III. FACTS
On May 16, 2008, Louis D. Amir ("Amir") filed a chapter 13 petition for bankruptcy relief. Amir failed to include copies of payment advices or a certificate of credit counseling with his petition. According to the petition and schedules in his case, Amir resided at 1860 Surrey Place, Gates Mills, Ohio, ("Gates Mills property"). Amir's petition did not disclose an ownership interest in the Gates Mills property. The only creditors listed on Amir's schedules or in his chapter 13 plan were four secured creditors with claims on Amir's four luxury vehicles.
On July 2, 2008, the chapter 13 trustee filed a motion to convert Amir's case to chapter 7 due to his failure to appear at the § 341 meeting and failure to make payments under the chapter 13 plan. Amir failed to file a response to the Trustee's motion to convert and did not appear at the hearing on the Trustee's motion. On August 4, 2008, the bankruptcy court granted the Trustee's motion and the chapter 13 case was converted to one under chapter 7. Upon conversion of the case, David O. Simon ("Trustee") was appointed as the Chapter 7 Trustee. Amir did not successfully file an appeal of the conversion order.
On July 8, 2008, Amir filed a second voluntary petition under chapter 13 in an attempt to correct certain deficiencies (Case no. 08-15219). Because Amir already had a pending chapter 7 case, the court dismissed case number 08-15219 on October 3, 2008.
Between September 8, 2008, and October 22, 2008, Amir filed three separate motions to dismiss the bankruptcy case. In his first two motions, Amir asserted that the court lacked jurisdiction based on the trustee's failure to properly serve Amir with the motion to convert the bankruptcy case to chapter 7. In making his argument, Amir stated that "[o]n May 16, 2008, Debtor Amir attempted to file a Chapter 13 Bankruptcy Petition with this Court" but that the filing was "fatally defective" based on Amir's failure to file necessary documents including a matrix, schedules, statements, a certificate of credit counseling and payment advices. Amir did not assert that these filing defects were a basis for dismissal of his case in either of his first two motions to dismiss.
On September 10, 2008, the bankruptcy court denied the first motion to dismiss to the extent that Amir was seeking dismissal of the bankruptcy case. To the extent Amir sought reconsideration of the August 4, 2008, Order converting the case to chapter *14 7, the bankruptcy court continued the motion. Amir appealed the court's order denying his request for dismissal of the bankruptcy case. The appeal was subsequently dismissed for lack of prosecution. A hearing was conducted, sua sponte, regarding Amir's request for reconsideration of the conversion order. At the hearing, Amir refused to testify and invoked the Fifth Amendment in response to several questions. On October 8, 2008, the bankruptcy court denied Amir's request for reconsideration in open court. Amir did not appeal this order.
On October 8, 2008, the bankruptcy court denied Amir's second motion to dismiss. Amir did not appeal the court's order.
In Amir's third motion to dismiss filed on October 22, 2008, Amir first made his allegation that he did not prepare, sign, or file his two chapter 13 petitions. Amir instead alleged that an associate, Daphne Stokes, ("Stokes"), had signed and filed the petition without Amir's approval or knowledge.
The Trustee filed a memorandum in opposition to Amir's motion to dismiss. The Trustee asserted that Amir's motion was barred by the doctrines of judicial estoppel, collateral estoppel, res judicata, and/or law of the case because: Amir had previously set forth some of the same arguments regarding jurisdiction in his first and second motions to dismiss; Amir had failed to make any allegations about the signing or filing of his petition in either of his two prior motions to dismiss, and therefore Amir had waived the argument; and Amir had repeatedly admitted that he voluntarily commenced the bankruptcy case in other pleadings filed with the bankruptcy court, the United States District Court[2] and Ohio state court.[3] The Trustee alleged that Amir's admissions had the effect of ratifying Amir's bankruptcy filing. Amir filed an objection to the Trustee's Memorandum in Opposition.
On November 25, 2008, the bankruptcy court denied Amir's third motion to dismiss. The order states
[for] the reasons contained in the Trustee's Memorandum in Opposition (docket # 234), the debtor's Third Motion to Dismiss (docket # 166) is denied. The Court does not believe that an evidentiary hearing on the debtor's Third Motion to Dismiss (docket # 166) is necessary; even if the facts proffered by the debtor in open court on November 18, 2008, are true the Court would still deny the motion.
Amir did not appeal the court's order.
In addition to the motions to dismiss, Amir filed numerous pleadings in the bankruptcy court between August 22, *15 2008, and October 16, 2009:(1) Objection to the Trustee's motion for authority to change locks on the Gates Mills property (August 22, 2008); (2) Answer and Amended Answer to the Trustee's complaint seeking to avoid a pre-petition transfer of the Gates Mills property (September 25, 2009, and October 16, 2009);[4] (3) Emergency motion to stay proceedings (September 11, 2008); (4) Motion to strike all of plaintiff's pleadings (September 16, 2008); (5) Motion requesting Judge Harris recuse himself (September 16, 2008); (6) Second emergency motion to stay proceedings (September 16, 2008); (7) Second motion to strike all of plaintiff's pleadings (September 25, 2008); and (8) Objection to all claims, except the claims for the 2007 Cadillac, the 2007 Bentley, and the 2007 Rolls Royce (September 29, 2008). Amir did not allege in any of these pleadings that the bankruptcy case had been filed without his knowledge or consent.
On February 20, 2009, Amir filed an emergency motion to strike his petition and retroactively annul the automatic stay ("motion to strike"). The bankruptcy court's order on this motion is the first order that is the subject of this opinion. Amir's motion to strike repeated his allegations that Stokes had signed and filed his bankruptcy petition without his knowledge. Amir then asserted that the bankruptcy court lacked jurisdiction over his case based on his failure to comply with 11 U.S.C. § 109(h) and Federal Rule of Bankruptcy Procedure 9011(a). As an additional basis for dismissal, Amir alleged that the Trustee had violated Federal Rule of Civil Procedure 60(b) by making misrepresentations to the bankruptcy court concerning Amir's third motion to dismiss.
The Trustee filed a response to Amir's motion to strike on February 23, 2009. The Trustee asserted that Amir's motion to strike was little more than a reiteration of his prior unsuccessful motions to dismiss. The doctrines of law of the case, res judicata, collateral estoppel and judicial estoppel all barred Amir's arguments regarding the bankruptcy court's jurisdiction over his case. Additionally, the Trustee argued that there was no legal basis for striking or annulling a petition ten months after the case was filed and in which the Trustee had already administered and collected assets.
The bankruptcy court entered an order denying the debtor's motion to strike his petition on February 25, 2009. The bankruptcy court based its denial on its interpretation of § 109(h) and Bankruptcy Rule 9011(a). Amir filed a notice of appeal of the bankruptcy court's denial of his motion to strike on March 6, 2009. This appeal was assigned BAP case number 09-8012.
On March 2, 2009, in another attempt to dismiss his case, Amir filed an emergency motion to dismiss pursuant to 11 U.S.C. § 521(i)(1) ("§ 521 motion"). The bankruptcy court's order on the § 521 motion is the second order that is the subject of this opinion. Amir asserted that because he had failed to file all the documents listed in § 521(a)(1)(A) and (B)(i)-(iii), his case was subject to the "automatic dismissal" provision of § 521(i). After cursorily discussing his automatic dismissal claims, Amir then segued back to arguments previously *16 raised in his motion to strike based on § 109(h), Bankruptcy Rule 9011(a), and Civil Procedure Rule 60(b).
The bankruptcy court conducted a hearing on Amir's § 521 motion on March 10, 2009. Amir did not appear at the hearing. The bankruptcy court entered an order denying Amir's § 521 motion on March 17, 2009.
Amir filed an appeal of this order on March 17, 2009. This appeal was assigned BAP case number 09-8017.
IV. DISCUSSION
Since September, 2008, Amir has consistently argued that the bankruptcy court did not have jurisdiction over him and, therefore, his case should be dismissed. What has not been consistent, however, is the alleged cause for the jurisdictional defect. Initially, Amir argued that his case should be dismissed because it was improperly converted from chapter 13 to chapter 7. Amir based this argument on the chapter 13 trustee's alleged failure to properly serve him with notice of the motion to convert as required by Federal Rule of Civil Procedure 4. As the case progressed, Amir began to argue that his case should be dismissed because he did not sign or file the petition nor did he comply with § 109(h)'s credit counseling requirement. When the bankruptcy court refused to dismiss Amir's case for these alleged deficiencies, Amir then argued pursuant to 11 U.S.C. § 521(i), that his case was "automatically dismissed" on the 46th day due to his failure to file the payment advices within the proscribed time period. Based on Amir's failure to properly appeal the August 4, 2008, conversion order, the only issues properly before the Panel are whether failure to comply with Bankruptcy Rule 9011, § 109(h) or § 521(a)(1) mandates dismissal of a chapter 7 debtor's case upon the debtor's motion to dismiss.
As a starting point, the Panel recognizes that a chapter 7 debtor does not have an absolute right to dismiss his case. 11 U.S.C. § 707(a); Sicherman v. Cohara (In re Cohara), 324 B.R. 24, 27 (6th Cir. BAP 2005). Instead, § 707(a) provides that "[t]he court may dismiss a case under this chapter only after notice and a hearing and only for cause...." 11 U.S.C. § 707(a). Section 707(a) applies to motions filed by debtors seeking dismissal of a chapter 7 case. Cohara, 324 B.R. at 27. The decision to dismiss under § 707(a) is an equitable determination and is within the bankruptcy court's discretion. Indus. Ins. Servs., Inc. v. Zick (In re Zick), 931 F.2d 1124, 1126 (6th Cir.1991).
As the movant, a debtor seeking to voluntarily dismiss his case has the burden of demonstrating that cause exists under § 707(a). Cohara, 324 B.R. at 26. Section 707(a) lists three examples of "cause;" however, these grounds are illustrative only. Zick, 931 F.2d at 1126. "Accordingly, the courts must engage in [a] case-by case analysis in order to determine what constitutes `cause' sufficient to warrant dismissal." Dinova v. Harris (In re Harris), 212 B.R. 437, 442 (2nd Cir. BAP 1997). "`If dismissal would prejudice the creditors, then it will ordinarily be denied.'" Cohara, 324 B.R. at 27 (citing Peterson v. Atlas Supply Corp. (In re Atlas Supply Corp.), 857 F.2d 1061, 1063 (5th Cir.1988)). "Prejudice exists where assets which would be available for distribution are lost as a result of the dismissal." Cohara, 324 B.R. at 27 (internal quotation marks and citations omitted); see also In re Harker, 181 B.R. 326, 328 (Bankr. E.D.Tenn.1995) ("[I]f creditors are prejudiced in any respect by the dismissal or if the trustee has acquired funds for distribution, a request by the debtor for dismissal will be denied.").
*17 Although Amir's February 20, 2009, emergency motion to strike his petition and March 2, 2009, emergency motion to dismiss did not specifically seek dismissal of his case under § 707(a), the Panel must consider whether dismissal of Amir's case is equitable to his creditors. The Supreme Court has held that bankruptcy courts may use their 11 U.S.C. § 105(a) equitable powers to achieve a proper result in making determinations. In Marrama v. Citizens Bank of Mass., 549 U.S. 365, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007), the Supreme Court was asked to decide whether a chapter 7 debtor's seemingly absolute right to convert was subject to a bad faith exception. Id. at 373-74, 127 S.Ct. 1105. The Court determined that it was. Id., 127 S.Ct. 1105 After examining 11 U.S.C. §§ 706(d) and 1307(c), the Supreme Court looked to the role 11 U.S.C. § 105(a) played in the inquiry:
Nothing in the text of either § 706 or § 1307(c) (or the legislative history of either provision) limits the authority of the court to take appropriate action in response to fraudulent conduct by the atypical litigant who has demonstrated that he is not entitled to the relief available to the typical debtor. On the contrary, the broad authority granted to bankruptcy judges to take any action that is necessary or appropriate "to prevent an abuse of process" described in § 105(a) of the Code, is surely adequate to authorize an immediate denial of a motion to convert filed under § 706 in lieu of a conversion order that merely postpones the allowance of equivalent relief and may provide a debtor with an opportunity to take action prejudicial to creditors.
549 U.S. at 374-75, 127 S.Ct. at 1111-12 (footnotes omitted). Since its issuance, courts have applied Marrama's holding to find that a court's equitable powers under § 105(a) are broad and may be used to "achieve a result that the Code clearly required." Perez v. Peake, 373 B.R. 468, 488 (S.D.Tex.2007); Hildebrand v. Kimbro (In re Kimbro), 389 B.R. 518, 531 n. 9 (6th Cir. BAP 2008).
Amir based his requests for dismissal on three statutory arguments. First, Amir argued that his failure to sign the petition required the court to "strike" the petition under Rule 9011(a) which provides that "[a]n unsigned paper shall be stricken...." Fed. R. Bankr.P. 9011(a) (emphasis added). Secondly, Amir asserted that his failure to obtain the § 109(h) pre-petition credit counseling made him ineligible to be a debtor. Based on this alleged ineligibility, Amir argued that no case was commenced when his petition was filed. Lastly, Amir asserted that § 521(i) provides that his failure to file all of the information required under § 521(a)(1) resulted in the "automatic dismissal" of his case on the 46th day. The Panel will address each of these arguments separately.
A. Federal Rule of Bankruptcy Procedure 9011
Amir alleges that he did not sign or file his bankruptcy petition. Instead, Amir claims that Stokes signed and filed his petition without his knowledge. Amir argues that his alleged failure to sign the petition violates Rule 9011(a). Amir also has alleged that the forged petition is a contract which is "rendered unlawful and unenforceable against" him because he "has never given offer and acceptance of the bankruptcy petition." Despite this forgery, Amir continued to participate in his bankruptcy case, alleging that he did so only "under EXTREME DURESS." (Appellee's App. 6/1/09 at 805-06.)
Pursuant to Title 11 of the United States Code, a voluntary bankruptcy *18 case "is commenced by the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter." 11 U.S.C. § 301(a). Federal Rule of Bankruptcy Procedure 9011(a) mandates that every petition or pleading filed in bankruptcy court be signed by the attorney of record, or if the debtor is pro se, by the debtor himself. Fed. R. Bankr.P. 9011(a). Oftentimes, when a debtor fails to sign a petition or pleading, or his signature is forged, courts dismiss the underlying bankruptcy case. Willis v. Rice (In re Willis), 345 B.R. 647, 651 (8th Cir. BAP 2006). However, "[n]o provision of the Bankruptcy Code, the Bankruptcy Rules or any other authority requires the Court to dismiss a debtor's case merely because he or she failed to sign the petition," where the facts of the case mandate a different result. In re Rose, 422 B.R. 896, 899 (Bankr.S.D.Ohio 2010) (emphasis added); Willis, 345 B.R. at 651.
For example, there are instances in which dismissal is deemed inappropriate based on the debtor's subsequent ratification of the allegedly forged document. Willis, 345 B.R. at 651.
"Ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act ... is given effect as if originally authorized by him." Riss v. Angel, 131 Wash.2d 612, 636, 934 P.2d 669 (1997). The principal ratifies the prior act if, with full knowledge of the facts, he "accepts the benefits of the acts" or assumes that an obligation is imposed. Id. And any conduct manifesting an intent to treat an unauthorized act as authorized, such as failure to repudiate a contract, supports a finding of ratification. Rayonier Inc. v. Polson, 400 F.2d 909, 915 (9th Cir. 1968).
In re Eicholz, 310 B.R. 203, 207-08 (W.D.Wash.2004). The Eicholz court held that although the mere passage of time alone could not serve to ratify a bankruptcy filing, the receipt of benefits from the allegedly unauthorized act, namely the protections of the automatic stay, could. Id. Other courts have found that a debtor's failure to mention that she had not signed the petition in prior pleadings or at court hearings served to ratify the filing of an unsigned petition. Willis, 345 B.R. at 654. Active participation in a case can also ratify a defective filing. First State Bank of Newport v. Beshears (In re Beshears), 196 B.R. 468, 473 (Bankr.E.D.Ark.1996). Filing amendments to schedules and opposing motions for relief are considered active participation in a case. Willis, 345 B.R. at 654.
In Amir's case, there is no doubt that both the passage of time and Amir's participation in the case demonstrate that he ratified the filing of the petition. The case was filed May 16, 2008. Amir did not assert he had not filed the case or signed the petition until October 22, 2008, when he filed his third motion to dismiss. Prior to that time, between August 25, 2008, and October 22, 2008, Amir filed no less than eleven pleadings in the bankruptcy court. Amir never alleged in any of these pleadings that he had not signed or filed the petition. In fact, in several of the pleadings he stated that he attempted to file a chapter 13 bankruptcy petition on May 16, 2008, but that it was fatally defective. Amir also appeared in the bankruptcy court on August 26, 2008, and "made no effort to disavow that a bankruptcy petition was filed on his behalf and with his knowledge. Rather, he admitted that the filing he had made was incomplete and that he had hoped to correct the deficiencies but instead had filed another Chapter 13 case not knowing that the first Chapter *19 13 case was still pending." (Appellee's App. 6/1/09 at 863.)
Even after first raising the issue in his October 22, 2008, motion to dismiss, Amir was inconsistent with reiterating his claim that Stokes signed and filed the petition without his knowledge. He made no mention of the forged petition in any of his numerous objections to claims or in his objections to the Trustee's motions to sell the Gates Mills property or his Bentley. He also failed to raise the forged petition argument in his district court civil rights complaint against Judge Harris, the Trustee and the Trustee's attorneys. The district court complaint was filed one day after his October 22, 2008, motion to dismiss. In this complaint, Amir made no mention of his bankruptcy petition being forged and fraudulently filed. Instead, in the first paragraph of his complaint, Amir stated "[o]n May 16, 2008, Plaintiff Louis D. Amir, who is an African American, filed a in [sic] pro se petition in the United States Bankruptcy Court for the Northern District of Ohio seeking relief under Chapter 13 of Title 11 of the United States Code." Had his petition been forged and fraudulently filed, it would seem only logical to have raised that issue in a lawsuit alleging misconduct on the part of Judge Harris and other court officers in the administration of his assets. This is especially true considering that the district court complaint was filed one day after Amir first raised the forged petition argument in the bankruptcy court.
In his briefs in this appeal, Amir has argued that his statements about attempting to file a chapter 13 bankruptcy petition on May 16, 2008, were mere "scrivener error[s] and mistake[s] of the fact." Black's Law Dictionary defines a "scrivener error" as a synonym for "clerical error." Black's Law Dictionary 1375 (8th ed.2004). In turn, a "clerical error" is defined as
[a]n error resulting from a minor mistake or inadvertence, esp. in writing or copying something on the record, and not from judicial reasoning or determination. Among the boundless examples of clerical errors are omitting an appendix from a document; typing an incorrect number; mistranscribing a word; and failing to log a call.
Id. A scrivener's error is "mechanical in nature." United States v. Zabawa, 134 Fed.Appx. 60, 68 (6th Cir.2005) (unpublished).
The record before the Panel amply supports the bankruptcy court's conclusion that Amir's statements about attempting to file a bankruptcy petition on May 16, 2008, were not mere scrivener's errors. Amir's arguments about a scrivener's error did not address his appearances and statements in court or his pleadings in the district court lawsuit. Additionally, Amir made no effort to disavow the filing of the petition when he first appeared in bankruptcy court on August 26, 2008.
Throughout the entire pendency of his case, Amir has enjoyed the benefits of the automatic stay. It was only after the Trustee began to pursue recovery of the Gates Mills property that Amir began making his forged petition argument. Amir actively used the protections of the automatic stay to shield himself from the Ohio state court lawsuit filed by Toys-R-Us by filing a plea of bankruptcy on August 14, 2008. In addition, the bankruptcy court, the case Trustee and Amir's creditors all relied on Amir's failure to dispute the validity of his case. The case Trustee collected and sold assets for the benefit of Amir's creditors. The bankruptcy court conducted hearings and approved various motions. The court presided over the claims allowance process. Based on all of these facts, the Panel concludes that Amir has ratified the filing of his bankruptcy *20 petition.[5] The bankruptcy court's refusal to dismiss his case based on the allegedly forged signature argument was not an abuse of discretion and is affirmed.
B. 11 U.S.C. § 109(h)
Amir also alleged in his February 22, 2009, motion to strike his bankruptcy petition that his failure to comply with § 109(h) mandated dismissal of his case. The bankruptcy court denied Amir's motion on February 25, 2009. In addressing the motion, the bankruptcy court first looked at the question of whether § 109(h)'s pre-petition credit counseling requirement was jurisdictional. The bankruptcy court recognized the split of authority on the issue and eventually agreed with courts holding that a court has discretion to retain a case even though a debtor has failed to comply with § 109(h). Consequently, the bankruptcy court denied Amir's motion.
Section 109(h) mandates that
an individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency described in section 111(a) an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.
11 U.S.C.A. § 109(h).
Courts are divided as to whether failure to satisfy § 109 mandates dismissal of a case. Some courts have held that a court has the discretion to waive a debtor's non-compliance with § 109(h). Mendez v. Salven (In re Mendez), 367 B.R. 109, 118 (9th Cir. BAP 2007); In re Nichols, 362 B.R. 88, 93 (Bankr.S.D.N.Y.2007); In re Parker, 351 B.R. 790, 800-01 (Bankr.N.D.Ga. 2006); In re Hess, 347 B.R. 489, 494 (Bankr.D.Vt.2006). These decisions are based largely on the conclusion that failure to satisfy § 109(h) is an eligibility question as opposed to a jurisdictional issue and that "strict compliance with the credit counseling requirements of § 109(h) can be waived[.]" Mendez, 367 B.R. at 118. These courts also hold that a court has the discretion to determine whether declining to exercise jurisdiction based on the failure to comply with § 109(h) "would result in manifest injustice." Nichols, 362 B.R. at 93.
Other courts have held that strict compliance with the credit counseling requirement is mandatory and a "[c]ourt simply lacks jurisdiction over a debtor's case where the debtor fails to comply with § 109(h)." In re Giles, 361 B.R. 212, 214 (Bankr.D.Utah 2007); Clippard v. Bass, 365 B.R. 131, 136 (W.D.Tenn.2007); Hedquist v. Fokkena (In re Hedquist), 342 B.R. 295, 298 (8th Cir. BAP 2006). These courts have held that if a debtor does not comply with § 109(h), a court has no discretion but to dismiss the case. Giles, 361 B.R. at 214; Clippard, 365 B.R. at 136; Hedquist, 342 B.R. at 298. These decisions are based largely on the conclusion that the plain meaning of § 109's statutory language is clear and "`the sole function of the courts is to enforce it according to its terms.'" In re Cleaver, 333 B.R. 430, 432 (Bankr.S.D.Ohio 2005) (citing United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989)). These cases hold that dismissal is mandatory even if it leads to *21 harsh or inequitable results. Hedquist, 342 B.R. at 300.
Neither the Sixth Circuit Court of Appeals nor the Sixth Circuit BAP has addressed the issue of § 109(h) as it relates to eligibility for bankruptcy relief, nor has any other circuit court of appeals. Several circuit appellate courts have, however, addressed the issue of whether eligibility under other subsections of 11 U.S.C. § 109 is jurisdictional. These decisions have all found that eligibility under § 109 is not jurisdictional in nature. Glance v. Carroll (In re Glance), 487 F.3d 317, 321 (6th Cir.2007) ("... the eligibility requirements of § 109(e) create a gateway into the bankruptcy process, not an ongoing limitation on the jurisdiction of the bankruptcy courts."); Hamilton Creek Metro. Dist. v. Bondholders Colo. Bondshares (In re Hamilton Creek Metro. Dist.), 143 F.3d 1381, 1385 n. 2 (10th Cir.1998); Promenade Nat'l. Bank v. Phillips (In re Phillips), 844 F.2d 230, 236 n. 2 (5th Cir.1988); see also In re Estrella, 257 B.R. 114, 117 (Bankr.D.P.R.2000) ("Section 109 of the Bankruptcy Code establishes the eligibility of a debtor to file a bankruptcy petition, but does not determine the jurisdiction of the bankruptcy court to act." Jurisdiction is instead determined by looking to 28 U.S.C. 1334 and 28 U.S.C. § 157).
In cases where debtors "have attempted to use their own non-compliance strategically in order to have their cases dismissed when further proceedings were not to their benefit," most courts have held that a court has the discretion to waive the § 109(h) requirement. In re Lilliefors, 379 B.R. 608, 611 (Bankr.E.D.Va.2007); Mendez, 367 B.R. at 118; In re Timmerman, 379 B.R. 838 (Bankr.N.D.Iowa 2007); Parker, 351 B.R. at 800; see also In re Crawford, 420 B.R. 833, 838-39 (Bankr. D.N.M.2009) (recognizing that failure to comply with § 109(h) ordinarily mandates dismissal of a case, but opining that when "there is [ ] evidence to suggest that a debtor is purposely manipulating the bankruptcy system in order to avoid the trustee's administration of estate assets, a debtor's failure to comply" with § 109(h) may lead to a different result). Oftentimes courts faced with these types of debtors find them to be unsympathetic and disingenuous movants. Mendez, 367 B.R. at 118. This is especially true when the debtor does not move for dismissal under § 109(h) until after a court has found significant assets that can be sold for the benefit of the estate. Id.; Parker, 351 B.R. at 797. These decisions are based largely on issues of statutory interpretation and the doctrine of judicial estoppel. See Parker, 351 B.R. at 799 (where "[t]he Court entered a number of Orders with the consent of the Debtor based upon Debtor's implicit representation that he was eligible for bankruptcy relief ..." the court held that "[a]llowing the Debtor to change his position would make a mockery of the bankruptcy processthe precise situation that the application of judicial estoppel guards against."); Timmerman, 379 B.R. at 847 ("Allowing Timmermans to dismiss to the prejudice of creditors would impair the integrity of the bankruptcy system.").
In Parker, the bankruptcy court concluded that § 109(h)'s eligibility requirements were not jurisdictional and "because the bankruptcy court retains the authority to determine the debtor's eligibility, the court must have jurisdiction over a case commenced by an ineligible debtor." Parker, 351 B.R. at 796. The court concluded that such a determination "is certainly a matter which `arises in a case under Title 11.'" Id. (citing 28 U.S.C. § 1334(a)). Because the eligibility issue was not jurisdictional, the Parker court held that the § 109(h) requirements could be waived by a court. Id. at 797.
*22 In the present case, the bankruptcy court concluded that Amir had waived his right to move for dismissal based on his failure to comply with § 109(h). A waiver can be either express or constructive and can be inferred from conduct. Toledo Trust Co. v. Peoples Banking Co. (In re Hartley), 52 B.R. 679, 685 (Bankr.N.D.Ohio 1985). "As a general rule, the doctrine of waiver is applicable to all personal rights and privileges, whether secured by contract, conferred by statute, or guaranteed by the Constitution, provided that the waiver does not violate public policy." Sheskey v. Tyler-Smith, 118 Ohio Misc.2d 169, 770 N.E.2d 161, 164 (Ohio Com.Pl.2002).
Amir did not allege he was ineligible to be a debtor under § 109(h) until February 20, 2009, when he filed his motion to strike. Prior to this filing, he had appeared in the bankruptcy court on numerous occasions and filed several pleadings with the court, including three motions to dismiss. Although Amir acknowledged in some of these filings that he had failed to file the credit counseling certificate, he never alleged this defect made him ineligible to be a debtor. It was only after the bankruptcy court avoided IMC's lien on the Gates Mills property and ruled that it was property of the estate, that Amir began asserting he was ineligible for bankruptcy relief under § 109(h). The bankruptcy court's conclusion that Amir waived his § 109(h) argument was not clearly erroneous. Moreover, the facts in this case demonstrate the exact type of abuse of process that the Marrama decision was designed to protect against. Accordingly, the bankruptcy court did not abuse its discretion in denying Amir's motion to dismiss his case for failure to comply with § 109(h) and the decision is affirmed.
C. 11 U.S.C. § 521(i)
In his March 2, 2009, motion to dismiss, Amir asserted that his failure to file his payment advices resulted in his case being automatically dismissed pursuant to § 521(i). The bankruptcy court denied Amir's motion on March 17, 2009. In so doing, the bankruptcy court recognized the split of authority on the issue of whether § 521(i) requires automatic dismissal of a case when a debtor fails to file the information required by § 521(a). The bankruptcy court concluded that a bankruptcy court does have some discretion over whether to dismiss a case pursuant to § 521(i)(1). Amir's refusal to cooperate with the Trustee or comply with court orders led the bankruptcy court to conclude that "`waiver [of the § 521(a) requirements] is needed to prevent automatic dismissal from furthering a debtor's abusive conduct....'." Simon v. Wells Fargo Bank (In re Amir), No. 08-13700, AP No. 08-1258, 2009 WL 1616670 *7 (Bankr.N.D.Ohio March 17, 2009) (citing Segarra-Miranda v. Acosta-Rivera (In re Acosta-Rivera), 557 F.3d 8, 13 (1st Cir. 2009)).
Prior to BAPCPA in 2005, § 521(a)(1) required debtors to file a list of creditors, a schedule of assets and liabilities, a statement of current income and expenses and a statement of the debtor's financial affairs. 11 U.S.C. § 521(a)(1) (1994). When BAPCPA went into effect in October 2005, § 521(a) was amended to require a debtor to file additional types of financial information, including copies of payment advices. 11 U.S.C. § 521(a)(1)(B)(iv). The BAPCPA amendments also added subsection (i) to § 521. This new subsection provides:
(i)(1) Subject to paragraphs (2) and (4) and notwithstanding section 707(a), if an individual debtor in a voluntary case under chapter 7 or 13 fails to file all of the information required under subsection *23 (a)(1) within 45 days after the date of the filing of the petition, the case shall be automatically dismissed effective on the 46th day after the date of the filing of the petition.
(2) Subject to paragraph (4) and with respect to a case described in paragraph (1), any party in interest may request the court to enter an order dismissing the case. If requested, the court shall enter an order of dismissal not later than 5 days after such request.[6]
(3) Subject to paragraph (4) and upon request of the debtor made within 45 days after the date of the filing of the petition described in paragraph (1), the court may allow the debtor an additional period of not to exceed 45 days to file the information required under subsection (a)(1) if the court finds justification for extending the period for the filing.
(4) Notwithstanding any other provision of this subsection, on the motion of the trustee filed before the expiration of the applicable period of time specified in paragraph (1), (2), or (3), and after notice and a hearing, the court may decline to dismiss the case if the court finds that the debtor attempted in good faith to file all the information required by subsection (a)(1)(B)(iv) and that the best interests of the creditors would be served by administration of the case.
11 U.S.C. § 521(i) (2008).[7]
There is a split of authority on the interpretation of § 521(i). Some cases hold that a court does not have discretion to waive the § 521(a)(1) filing requirements after expiration of the 45 day filing deadline. In re Spencer, 388 B.R. 418 (Bankr. D.D.C.2008); In re Ackerman, 374 B.R. 65 (Bankr.W.D.N.Y.2007); In re Hall, 368 B.R. 595 (Bankr.W.D.Tex.2007). These courts find that § 521(i)'s "shall be automatically dismissed" language is unambiguous and that a "[c]ourt's hands are tied by the operation of the express language of" the statute. In re Ott, 343 B.R. 264, 265 (Bankr.D.Colo.2006); In re Fawson, 338 B.R. 505, 510 (Bankr.D.Utah 2006) ("[Section 521(i)] provides that the case is automatically dismissed on the 46th day if an individual debtor fails to file the § 521(a)(1) papers within 45 days of filing the petition. Automatic means `acting or operating in a manner essentially independent of external influence or control.'").
Other cases, including the only two circuit appellate courts to consider the issue, hold that a court does retain some discretion to waive the § 521(a)(1) filing requirements after expiration of the 45 day filing deadline. Wirum v. Warren (In re Warren), 568 F.3d 1113 (9th Cir.2009); Acosta-Rivera, 557 F.3d at 13; In re Jackson, 348 B.R. 487 (Bankr.S.D.Iowa 2006); Parker, 351 B.R. at 800.
In Acosta-Rivera, the debtors moved for dismissal of their chapter 7 case under § 521(i) over six months after filing their bankruptcy petition. Acosta-Rivera, 557 F.3d at 10. As grounds for their motion, the debtors alleged that they had failed to file payment advices and a statement of monthly net income as required by § 521(a)(1)(B)(iv) and (v). The debtors' motion to dismiss was filed after the Trustee moved for leave to settle a previously undisclosed state court lawsuit that would have paid all of the Acosta-Riveras' creditors *24 in full and provided a surplus to the debtors. Id.
The bankruptcy court denied the debtors' motion and entered an order excusing the debtors from filing the payment advices required under § 521(a)(1)(B)(iv). Id. at 11. On appeal, the district court reversed the bankruptcy court's decision and held that the bankruptcy court did not have any discretion to waive compliance with § 521(a)(1)(B). Id.
On appeal, the First Circuit reversed the district court and found that a court does indeed have discretion to waive a debtor's compliance with § 521(a)(1). The First Circuit relied heavily on the "unless the court orders otherwise" language found in § 521(a)(1)(B):
The grant of judicial power to "order[ ] otherwise" predated BAPCPA. In overhauling section 521, Congress left this familiar language intact. We do not regard that as a mere fortuity. Nor do we think that a slip of the pen accounts for the fact that the provision does not now contain an explicit deadline for ordering otherwise. In this context, we have a high regard for congressional silence.
Id. at 12 (footnote omitted). The First Circuit concluded that a bankruptcy court is the best judge of what information is necessary and must be filed under § 521(a) and, as such, retains the discretion to waive compliance with § 521(a)(1)(B). Id. at 14.
In making its decision, the First Circuit stated that its holding was limited to cases in which "there is no continuing need for the information or a waiver is needed to prevent automatic dismissal from furthering a debtor's abusive conduct." Id. at 14. The First Circuit was concerned that a strict reading of § 521(a) and (i) could offer bad faith debtors a new gateway for abuse:
Because any party in interest may request an order of automatic dismissal, debtors with something to hide are liable to treat dismissal as an escape hatch to be opened as needed. In such cases, the court has no occasion to address non-disclosure until long after the forty-five-day period has elapsed. That timetable rubs uneasily against the strictures of an inflexible reading-and bankruptcy courts are, after all, courts of equity.
...
The amendments to section 521 are part of an abuse-prevention package. With Congress's core purpose in mind, we are reluctant to read into the statute by implication a new limit on judicial discretion that would encourage rather than discourage bankruptcy abuse. It is safe to say that Congress, in enacting BAPCPA, was not bent on placing additional weapons in the hands of abusive debtors.
Id. at 13 (citations omitted).
The Ninth Circuit interpreted the meaning of 11 U.S.C. § 521(i) in Wirum v. Warren (In re Warren), 568 F.3d at 1113. In that case, the debtor's petition included a list of creditors but did not include the other financial information required by § 521(a). Almost five months after filing his case, the debtor filed a motion to dismiss in which he alleged that this deficiency resulted in the automatic dismissal of his case on the 46th day pursuant to § 521(i). Warren, 568 F.3d at 1115. The bankruptcy court denied Warren's motion holding that "dismissal is not mandated where the debtor is seeking to take advantage of ... § 521(i) to the prejudice of his creditors." In re Warren, 2007 WL 1079943 *1 (Bankr.N.D.Cal.2007).
On appeal, the district court reversed the bankruptcy court. Warren v. Wirum, 378 B.R. 640, 647 (N.D.Cal.2007). The district court found that the plain language of § 521(i) required dismissal of a case *25 when a debtor fails to comply with § 521(a) by filing all of the required information. Id. In so ruling, the district court recognized that the automatic dismissal provision may lead to harsh and inequitable results especially in cases in which a debtor seeks "to manipulate the bankruptcy process by intentionally withholding documents required under § 521;" however, the district court found that "this is a problem that can only be resolved by Congress, and not the courts." Id.
The Ninth Circuit Court of Appeals reversed the district court and found that a court does have discretion to waive the § 521(a) filing requirement even after the 45-day filing deadline has passed. Warren, 568 F.3d at 1117. The Ninth Circuit agreed with the First Circuit's Acosta-Rivera decision and based its conclusion on § 521(a)(1)(B)'s "unless the court orders otherwise" language. Because no subsection in § 521 puts a time limit on the court's ability to "order[ ] otherwise" and because Congress did not alter the "orders otherwise" provision when it passed BAPCPA, the Ninth Circuit concluded that Congress did not intend to impose a time limit on the court's ability to "order otherwise." Id. at 1118. The Ninth Circuit found this conclusion further supported the Congressional purpose in enacting BAPCPA: preventing abusive bankruptcy filings. Id.
The Panel agrees with the Ninth Circuit's reasoning in Warren and the First Circuit's reasoning in Acosta-Rivera and holds that bankruptcy courts have the authority to waive § 521(a)(1)'s filing requirements if enforcing those requirements would create an abuse of the bankruptcy process.
Amir failed to raise the § 521(i) issue until March 2, 2009ten months after filing his case. Amir never presented any proof to the bankruptcy court that any payment advices even exist for him. His petition lists his occupation as CEO of RXC Appraisals. His monthly income is listed as $19,890.00. Despite this large monthly income, Amir's chapter 13 plan only proposed to pay $480 per month for four luxury vehicles. Those payments were never made and Amir's case was converted to chapter 7. Since that time, the Trustee has been collecting and liquidating Amir's assets to pay creditors. There is no proof that Amir's payment advices will have any impact at this stage of the case except to allow Amir to further a pattern of abuse. As the bankruptcy court recognized in its opinion, Amir ignored orders of the court on a continual basis and refused to cooperate with the Trustee. Only after discovering that undisclosed assets were going to be collected and liquidated did Amir move for dismissal under § 521(i).
Accordingly, the bankruptcy court did not error and the court's March 17, 2009, Order denying Amir's motion to dismiss under § 521(i) is affirmed.
V. CONCLUSION
For the foregoing reasons, we AFFIRM the February 25, 2009, Order denying Amir's motion to strike his petition and retroactively annul the stay and AFFIRM the March 17, 2009, Order denying Amir's emergency motion to dismiss his case pursuant to 11 U.S.C. § 521(i).
NOTES
[1] Amir's briefs in these matters also assert that the bankruptcy court erred in converting the case from chapter 13 to chapter 7, in issuing an arrest warrant and incarcerating Amir, and in overruling Amir's various objections to claims. Although the order converting the case was appealed in a prior case, BAP case number 08-8065, that appeal was dismissed on November 3, 2008, for failure to designate the record. The order issuing an arrest warrant was not appealed nor were any of the orders overruling Amir's objections to claims. Pursuant to Federal Rule of Bankruptcy Procedure 8002(a), those orders became final and unappealable ten days after their issuance. Fed. R. Bankr.P. 8002(a); Walker v. Bank of Cadiz (In re LBL Sports Center, Inc.), 684 F.2d 410, 411-12 (6th Cir. 1982). As a result, Amir's failure to file a timely notice of appeal of those orders deprives the Panel of jurisdiction to review them. Id.
In his appellant brief in case number 09-8051, Amir has also asserted that the bankruptcy court lacked personal jurisdiction over him based on his alleged lack of United States citizenship. Although Amir filed numerous motions to dismiss alleging various jurisdictional defects throughout his bankruptcy case, it was not until August 31, 2009, some fifteen months after the case was filed, that Amir alleged the bankruptcy court did not have jurisdiction over him because he is "a Non U.S. Citizen of National status." Amir moved for dismissal of his case under this new theory on August 31, 2009, September 23, 2009, and September 29, 2009, (collectively "citizenship motions"). The bankruptcy court denied all three of these motions and Amir did not appeal any of those decisions. As a result, the Panel does not have jurisdiction to review the bankruptcy court's denial of the citizenship motions. Fed. R. Bankr.P. 8002(a); LBL Sports Center, Inc., 684 F.2d at 412.
[2] On October 23, 2008, Amir filed a complaint in the United States District Court for the Northern District of Ohio against the bankruptcy court judge, Judge Arthur I. Harris, the Trustee and the Trustee's counsel. The complaint alleged that the defendants violated Amir's civil rights in converting his case from chapter 13 to chapter 7. Amir affirmatively stated in his complaint that he "filed a in [sic] pro se petition in the United States Bankruptcy Court for the Northern District of Ohio seeking relief under Chapter 13 of Title 11 of the United States Code." The District Court complaint was dismissed based on judicial immunity and failure to state a claim upon which relief could be granted.
[3] In August 2008, Amir was added as a defendant in a proceeding in the Court of Common Pleas of Cuyahoga County, Ohio (Toys "R" UsDelaware, Inc. v. Zaddok Development Corporation). Attorney Andrew Hoffman sent a letter to the attorney for Toys "R" Us which contained a "Notice of Filing of Bankruptcy By New Party Defendant, Louis Amir." A notice of Amir's bankruptcy filing was also filed with the Cuyahoga Court of Common Pleas on August 14, 2008.
[4] Amir's only reference to the filing was his statement in his second answer to the complaint that "[o]n May 16, 2008, a petition was filed in the United States Bankruptcy Court for the Northern District of Ohio seeking relief Under Chapter 13 of Title 11 of the United States Code." Amir did not follow this sentence with any allegation that someone other than himself had filed the petition. The only thing done without his knowledge, according to this answer, was the conversion of his case to chapter 7 on August 4, 2008. Amir's second answer to the amended complaint restated this allegation.
[5] Because the Panel finds that, even if Amir's petition was forged, he ratified it, the Panel does not have to address the issue of whether Amir actually did sign the petition.
[6] Effective December 1, 2009, Congress amended 11 U.S.C. § 521(i)(2) to provide that "the court shall enter an order of dismissal not later than 7 days after such request;" however, because Amir's case was filed in May 2008, his case is controlled by the pre-December 2009 version of § 521(i)(2) which provides that the court shall enter the dismissal order within 5 days of the request.
[7] See note 6 supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2413056/ | 36 F. Supp. 2d 360 (1999)
TAYLOR PUBLISHING COMPANY, Plaintiff,
v.
JOSTENS, INC., Defendant.
No. 4:97CV11.
United States District Court, E.D. Texas, Sherman Division.
January 14, 1999.
*361 *362 *363 *364 George C. Lamb, III, Tracy L. Silva, Baker & Botts, Dallas, TX, R. Hewitt Pate, Hunton & Williams, Richmond, VA, David M. Aronowitz, Dublin, OH, for plaintiff.
Jeffrey J. Keyes, James Long, Briggs & Morgan, Minneapolis, MN, Clyde Moody Siebman, Carol Siebman, Siebman & Siebman, Sherman, TX, for defendant.
MEMORANDUM OPINION AND ORDER
PAUL N. BROWN, District Judge.
Introduction
Plaintiff, Taylor Publishing Company, and Defendant, Jostens, Inc., are competitors in the manufacture and sale of scholastic yearbooks. The major competitors in the yearbook market are Plaintiff, Defendant, Herff-Jones, Lifetouch, and Walsworth. Defendant and Plaintiff hold the number one and number two market positions, respectively.
Plaintiff brought claims for damages against Defendant alleging that Defendant violated federal law by attempting to monopolize the national yearbook market in violation of Section 2 of the Sherman Antitrust Act and by engaging in price discrimination in violation of the Robinson-Patman Act. Additionally, Plaintiff claimed Defendant violated Texas state law by tortiously interfering with Plaintiff's contracts, by conspiring and knowingly participating in the breach of fiduciary duties owed to Plaintiff by Plaintiff's former employees, and by engaging in unfair competition.
For purposes of Plaintiff's attempted monopolization claim, the parties agreed that the relevant geographic market was limited to sales within the United States, however, the parties disagreed as to the relevant product market. Plaintiff contended that the product market was limited to "yearbooks," those products prepared by students, with some teacher input, that incorporate individual student pictures as well as candid shots of various activities within the school. Plaintiff argued that "picture books," those products usually limited to individual student pictures and often prepared by teachers with little or no input from students, should not be included in the product market. On the other hand, Defendant claimed the relevant product market included both yearbooks and picture books.
The case was tried with a jury beginning on May 4, 1998. At trial, Plaintiff focused on its attempted monopolization claim. Plaintiff claimed that Defendant planned to eliminate Plaintiff from the market and implemented such plan by the use of many predatory practices. The predatory conduct asserted by Plaintiff included that Defendant: (1) engaged in sham and predatory pricing; (2) raided Plaintiff's sales force; (3) acquired Plaintiff's confidential information by illegal means; (4) interfered with Plaintiff's contracts; and (5) committed predatory disparagement of Plaintiff. The remainder of Plaintiff's causes of action were based on these same acts.
On May 8, Defendant orally moved and submitted a written motion for judgment as a matter of law (collectively "pre-verdict motion"), which the Court took under advisement. On May 12, the last day of trial, the Court denied Defendant's pre-verdict motion, and the case was submitted to the jury. The jury returned with a verdict containing findings against Defendant on all claims except Plaintiff's state law claim that Defendant tortiously *365 interfered with contracts between Plaintiff and its customers. On June 12, 1998, the Court entered judgment only upon the jury's verdict as to Plaintiff's attempted monopolization claim because all other claims on which the jury found in favor of Plaintiff overlapped this claim.
Defendant files the current motion and renews its Motion for Judgment as a Matter of Law pursuant to Federal Rule of Civil Procedure 50.[1] Defendant contends Plaintiff's case fails on the following four essential grounds: (1) Plaintiff failed to offer evidence of legally cognizable predatory conduct to sustain an attempt to monopolize claim or Plaintiff's state law claims; (2) Plaintiff failed to show a dangerous probability of monopolization; (3) Plaintiff's case was devoid of minimal proof of causation of damage, fact of injury, or antitrust injury; and (4) Plaintiff's damage claim which went to the jury was fraught with error and based on guesswork and speculation.
In its response, Plaintiff asserts that due to procedural defects, Defendant waived the right to assert the present motion. In the absence of a finding of waiver, Plaintiff urges the Court to deny Defendant's motion because the evidence supports the jury's verdict.
Legal Standard for Judgment as a Matter of Law
Judgment as a matter of law is proper if "there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue." FED.R.CIV.P. 50(a)(1). The standard of review for judgment as a matter of law is as follows:
[T]he court should consider all of the evidence not just that evidence which supports the non-mover's case in the light and with all reasonable inferences most favorable to the party opposed to the motion. If the facts and inferences point so strongly and overwhelmingly in favor of one party that the Court believes that reasonable men could not arrive at a contrary verdict, granting [judgment as a matter of law] is proper. On the other hand, if there is substantial evidence opposed to the motion, that is, evidence of such quality and weight that reasonable and fair-minded men in the exercise of impartial judgment might reach different conclusions, [judgment as a matter of law] should be denied.... [I]t is the function of the jury as the traditional finder of facts, and not the court, to weigh conflicting evidence and inferences, and determine the credibility of witnesses.
Boeing Co. v. Shipman, 411 F.2d 365, 374-75 (5th Cir.1969), overruled on other grounds, Gautreaux v. Scurlock Marine, Inc., 107 F.3d 331 (5th Cir.1997).
Discussion
As a preliminary matter, the Court will address Plaintiff's contention that Defendant waived its right to assert the pending motion, then the Court will discuss Defendant's motion.
I. Plaintiff's Arguments of Waiver
A. Plaintiff's Arguments
Plaintiff claims Defendant waived the present Motion for Judgment as a Matter of Law due to two procedural defects. First, Plaintiff complains that Defendant's pre-verdict motion was not made or renewed at the close of all the evidence, therefore, the motion now pending before the Court is waived. Second, Plaintiff contends that Defendant's motion raises matters that were not stated as grounds in the pre-verdict motion. Two significant examples Plaintiff points out are that Defendant's pre-verdict motion did not challenge the sufficiency of the evidence regarding predatory conduct asserted by Plaintiff nor the amount of damages awarded by the jury. Because these matters were not raised in the pre-verdict motion, Plaintiff argues they cannot now be considered by the Court.
B. Applicable Law
Rule 50 of the Federal Rules of Civil Procedure provides in part:
*366 (a)(2) Motions for judgment as a matter of law may be made at any time before submission of the case to the jury. Such a motion shall specify the judgment sought and the law and the facts on which the moving party is entitled to the judgment.
(b) If, for any reason, the court does not grant a motion for judgment as a matter of law made at the close of all the evidence, the court is considered to have submitted the action to the jury subject to the court's later deciding the legal questions raised by the motion.
In evaluating the procedural requirements of Rule 50, the Fifth Circuit holds that the failure to request judgment as a matter of law at the close of all the evidence waives judgment as a matter of law after the jury verdict. See Tamez v. City of San Marcos, Texas, 118 F.3d 1085, 1089 (5th Cir.1997), cert. denied, ___ U.S. ___, 118 S. Ct. 1073, 140 L. Ed. 2d 132 (1998). However, in Tamez, the Fifth Circuit acknowledged an exception to this rule and noted the following facts as being pertinent to evaluating whether a de minimis exception from non-compliance with Rule 50(b) exists:
(1) we concluded that allowing the motion would satisfy the purposes (if not the letter) of Rule 50; (2) the trial court had reserved, not denied, a motion for [judgment as a matter of law] at the close of the plaintiff's case; (3) the defendant called no more than two witnesses before closing; (4) only a few minutes elapsed between the motion for [judgment as a matter of law] and the conclusion of all the evidence; and (5) the plaintiff introduced no rebuttal evidence.
Tamez, 118 F.3d at 1090. Another requirement of Rule 50 provides that a post-trial motion for judgment as a matter of law cannot assert a ground not included in a pre-verdict motion. Dimmitt Agri Indus., Inc. v. CPC Intern. Inc., 679 F.2d 516, 521 (5th Cir.1982), cert. denied, 460 U.S. 1082, 103 S. Ct. 1770, 76 L. Ed. 2d 344 (1983). The rationale for this rule is to avoid ambushing the trial court and opposing counsel. Id.
C. Defendant's Response
Regarding Plaintiff's first contention, Defendant responds that it fully complied with all requirements for the preservation of its right to judgment as a matter of law and outlines the following procedural facts. On May 8, 1998, the Court stated in response to Defendant's inquiry about scheduling the argument on Defendant's pre-verdict motion that the Court would "consider for the record that your motion is timely filed, and that it probably would be better for my schedule to consider after we finish the evidence." R. at 1142:24-143:2. At that time, it was anticipated that all of the evidence would be finished that afternoon. Later that day, after Defendant finished its defense and Plaintiff finished its rebuttal evidence, it became apparent that some short video depositions, which Plaintiff was permitted to offer out of order as part of its case in chief, were not ready. In order to efficiently utilize time, the Court heard Defendant's pre-verdict motion and Plaintiff's response, and took the matter under advisement until the next and final day of trial, May 12, 1998.
On May 12, the Court conducted the jury charge conference and addressed the issue of the remaining deposition testimony from Plaintiff's case in chief. Plaintiff's counsel discussed, in detail, the evidence that would be presented by way of this deposition testimony. At the conclusion of this discussion, the Court denied Defendant's pre-verdict motion, the jury was brought into the court-room, Plaintiff presented the brief video deposition testimony, and the case proceeded to final argument.
Defendant contends that from the point that the Court denied its motion, the only evidence presented was Plaintiff's offer of video deposition testimony of three witnesses, which lasted a period of approximately forty minutes and the content of which had been previously disclosed to the Court. Regarding Plaintiff's second argument, Defendant reiterates the arguments it made in its pre-verdict motion as to the insufficiency of Plaintiff's evidence.
*367 D. Court's Analysis
Applying the factors discussed above, the Court finds that this case falls within the de minimis exception from technical compliance with Rule 50(b): allowing Defendant's motion would satisfy the purposes of Rule 50; the Court reserved ruling on Defendant's pre-verdict motion until after all of Defendant's evidence, Plaintiff's rebuttal evidence, and almost all of Plaintiff's case in chief; Defendant called no more witnesses after urging the motion; only a short period of time elapsed between the Court's denying Defendant's motion and the conclusion of all the evidence; and at the time Defendant argued its motion, Plaintiff's rebuttal evidence had been offered and the Court and parties were aware of the substance of the remaining evidence of Plaintiff's case in chief. Throughout trial, the Court made many accommodations to all parties regarding the order of evidence. Due to these adjustments, when asked by Defendant when the Court would allow Defendant to offer its pre-verdict motion, the Court responded that it would "consider for the record that your motion is timely filed." R. at 1142:24-143:2.
Additionally, the Court is of the opinion that Plaintiff's second argument lacks merit. To the extent considered by the Court, Plaintiff was fully apprised of the arguments Defendant states in its present motion. Since the Court finds that Defendant's Motion for Judgment as a Matter of Law is properly before the Court, the Court will address the merits of the motion.
II. Defendant's Motion for Judgment as a Matter of Law
Again, Defendant's motion alleges that all of Plaintiff's claims fail because Plaintiff (1) failed to offer evidence of legally cognizable predatory conduct to sustain an attempt to monopolize claim or Plaintiff's state law claims; (2) failed to show a dangerous probability of monopolization; (3) lacked proof of causation of damage, fact of injury, or antitrust injury; and (4) asserted damage claims that were fraught with error and based on guesswork and speculation. Because the Court agrees with Defendant's first two arguments, it is unnecessary to address Defendant's remaining arguments. However, the Court will also briefly discuss Defendant's argument that Plaintiff failed to prove causation of damages.
A. Attempted Monopolization Under Section 2 of the Sherman Act
1. The Applicable Law
An attempted monopoly in violation of Section 2 of the Sherman Act consists of 3 elements: (1) that the defendant engaged in predatory or anticompetitive conduct, (2) that the defendant specifically intended to acquire monopoly power in the relevant market, and (3) a dangerous probability that an actual monopoly position will ultimately be achieved. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S. Ct. 884, 122 L. Ed. 2d 247 (1993). In Spectrum Sports, the Supreme Court explained the intent of the Sherman Act as follows:
The purpose of the Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself.... [Section] 2 makes the conduct of a single firm unlawful only when it actually monopolizes or dangerously threatens to do so.
Id. at 458-59, 113 S. Ct. 884.
2. Court's Analysis
In short, Defendant contends that Plaintiff's Section 2 claim fails as a matter of law because Plaintiff presented insufficient evidence of substantial predatory conduct which created a dangerous probability of monopolization. While Defendant also claims that Plaintiff presented insufficient evidence of specific intent to monopolize, the Court finds that the evidence presented at trial was sufficient for the jury to find specific intent. Therefore, the Court will only address Defendant's contentions under elements one and three of an attempt to monopolize claim.
a. Predatory or Anticompetitive Conduct
The first element of an attempted monopolization claim requires Plaintiff to *368 show that Defendant engaged in anticompetitive or predatory conduct designed to further an intent to monopolize. "Predatory or anti-competitive conduct is that which unfairly tends to be exclusionary or tends to destroy competition." Great W. Directories v. Southwestern Bell Tel. Co., 63 F.3d 1378, 1385 (5th Cir.1995), withdrawn and superseded in part, 74 F.3d 613 (1996). "Exclusionary conduct is conduct that tends to exclude or restrict competition and is not supported by a valid business reason." Id. The Tenth Circuit requires that "[i]n order to rise to a § 2 violation, however, the exclusionary conduct must appear reasonably capable of contributing significantly to creating or maintaining monopoly power." Instructional Sys. Dev. Corp. v. Aetna Cas. and Sur. Co., 817 F.2d 639, 649 (10th Cir.1987) (emphasis added); See also, PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 782 (1996).
At trial, Plaintiff claimed that Defendant engaged in the following anticompetitive activities: (1) sham pricing; (2) predatory pricing; (3) raiding Plaintiff's sales force; (4) acquiring Plaintiff's confidential information; (5) interfering with Plaintiff's term agreements with customers; and (6) predatory disparagement.
Defendant argues that Plaintiff's minimal evidence of predatory conduct, even when aggregated, is not sufficient to constitute predatory conduct in violation of Section 2. The Court will address each area of conduct.
i. Sham Pricing or Upgrading
"Sham pricing" was the predominant type of conduct Plaintiff pointed to in support of its claim of predatory, anticompetitive conduct by Defendant. Plaintiff claimed that Defendant's sales representatives made false or sham price quotes in order to win yearbook accounts from Plaintiff without the intention of fulfilling the contracts at the quoted prices. Plaintiff contended that after Defendant entered into contracts with the converted customers, it then charged higher prices to the customer. Plaintiff offered Plaintiff's Exhibit 274, a memorandum written by one of Defendant's personnel that described the process of upgrading as providing the lowest price to a customer in order to obtain the business and then reselling a new program to this customer after the customer has committed to having Defendant publish the yearbook. Additionally, Plaintiff identified other evidence of training programs on upgrading that were offered by Defendant to its sales representatives. Plaintiff claimed that over the 4-year period of 1995 to 1998, 840 of its former customers were victims of Defendant's sham pricing and that such conduct caused $9,602,000 in damages to Plaintiff. See Pl.'s Ex. 301.
While Plaintiff characterizes this conduct as "sham" or "false pricing," Defendant contends this conduct is known as "upgrading" in the industry and is the process of selling additional yearbook features to customers. The sale of additional features results in a final invoice price greater than the original contract price, however, Defendant argues this is not fraudulent or illegal, anticompetitive conduct. In its Motion for Judgment as a Matter of Law, Defendant offers three reasons why Plaintiff's sham pricing claim fails to constitute predatory conduct. First, Defendant states that no Section 2 attempt to monopolize case has ever based liability upon a predatory act of "sham pricing," rather, as stated in Abcor Corp. v. AM International, Inc., 916 F.2d 924, 928 (4th Cir.1990), antitrust claims based on pricing, even deceptive pricing, require below-cost pricing not mere deception. Second, for a jury to have found that Defendant engaged in sham pricing, Plaintiff had to prove that Defendant's acts constituted fraud under Texas law. Finally, Defendant argues that upgrading is an ordinary and integral part of the yearbook business that allows yearbook companies to sell additional features to customers and, therefore, does not constitute predatory conduct.
The Court finds that Plaintiff's sham pricing claim is best characterized as a fraud or misrepresentation claim rather than a predatory pricing claim. While Plaintiff offered evidence regarding the upgrading strategies and training provided within Defendant's company, Plaintiff failed to offer evidence that any customer was given a contract price which misrepresented what the customer would be receiving with that price or which *369 deceptively purported to include features that later had to be purchased by paying more money. Rather, the testimony from customers who switched from Plaintiff to Defendant established that a final invoice price that exceeded the original contract price was a result of added features and changes to the product. R. at 253:18-256:11. Absent evidence that Defendant's original contracts misrepresented what the customer would be receiving for the stated price or that Defendant falsely quoted prices to the customer, the Court finds that Plaintiff failed to prove that Defendant's actions constituted predatory, anticompetitive conduct.
ii. Predatory Pricing
A claimant alleging predatory pricing in violation of Section 2 of the Sherman Act must establish two elements for recovery. First, a plaintiff must prove that a rival's low prices are below an appropriate measure of the rival's costs. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222, 113 S. Ct. 2578, 125 L. Ed. 2d 168 (1993). The second element of a predatory pricing claim requires the plaintiff to demonstrate that the rival had a dangerous probability of recouping its investment in below-cost prices. Id. at 224, 113 S. Ct. 2578. "For recoupment to occur, below-cost pricing must be capable, as a threshold matter, of producing the intended effects on the firm's rivals, whether driving them from the market, or, ... causing them to raise their prices to supracompetitive levels...." Id. at 225, 113 S. Ct. 2578. If market circumstances or deficiencies in proof would bar a reasonable jury from finding that the scheme alleged would likely result in driving competitors from the market, the plaintiff's case fails. Id. at 226, 113 S. Ct. 2578.
While the Fifth Circuit recognizes two different cost measures for purposes of a predatory pricing claim, the cost measure utilized by Plaintiff in this case was average variable cost ("AVC"). Plaintiff calculated Defendant's AVC to be 65%; thus, any discounting by Defendant at a rate greater than 35% would be discounting below its AVC. Plaintiff argued that as part of Defendant's attempt to monopolize the yearbook market, Defendant priced its yearbooks to customers at prices below its AVC, thus taking a loss on the yearbook. Plaintiff offered evidence that Defendant sold below its AVC to 66 customers over the 4-year period of 1995 to 1998 and that from this, Plaintiff's actual losses and future lost profits for a 10-year period amounted to $591,000.[2]
Defendant's Motion for Judgment as a Matter of Law contests Plaintiff's predatory pricing claim on numerous grounds, including the argument that Plaintiff offered insufficient evidence of predatory pricing and that Plaintiff offered no evidence to show recoupment.
The Court finds that Plaintiff's evidence on predatory pricing fails to support a finding of anticompetitive conduct in violation of the Sherman Act. First, through its accounting expert Bryan Jones ("Jones"), Plaintiff offered evidence that throughout the entire United States, Defendant sold below its AVC to 27 of Plaintiff's former customers in 1995, 26 in 1996, and 13 in 1997. Since Plaintiff annually serviced 7,000 schools on average, this evidence amounts to a customer loss of less than 1% of Plaintiff's annual sales. The Court finds that with an impact of less than 1%, Defendant's below-cost pricing was not capable, as a threshold matter, of driving its competitors from the market. Further, Plaintiff's lack of evidence on recoupment is fatal to its predatory pricing claim. Deficiencies in proof on these points bar a finding that the scheme alleged would likely result in driving competitors from the market; therefore, no reasonable jury could have found that the evidence supported a finding of anticompetitive conduct based on predatory pricing.
iii. Predatory Hiring
In Associated Radio Service Co. v. Page Airways, Inc., 624 F.2d 1342 (5th Cir. 1980), cert. denied, 450 U.S. 1030, 101 S. Ct. 1740, 68 L. Ed. 2d 226 (1981), the Fifth Circuit *370 recited the following principles from a treatise on antitrust law:
Areeda and Turner are adamant in their view that the mere hiring away of employees from a rival is per se legal under the antitrust laws.... [However] no similar virtue would redeem efforts to induce such disloyal performance by a rival's employee as disclosure of trade secrets or other private information; [or] steering customers, researchers, or others away from his employer and to the monopolist. [S]uch practices would be grounds for section 2 liability if the actual effect was significant.
Id. at 1354 (citations omitted) (emphasis added). In Page, the Fifth Circuit found an antitrust violation in a narrowly framed market based on evidence that the defendant induced the plaintiff's employees to act disloyally in steering business toward the defendant while the employees were still employed by the plaintiff. Id. The Fifth Circuit found that the evidence allowed the jury to find that gross impropriety occurred. Id. at 1355.
In the present case, Plaintiff offered evidence that Defendant hired the following three sales representatives from Plaintiff: Jeff Graffam, Jan Day DeFalco, and Dan DeFalco, who was regarded as a "lynchpin" that would bring $1.4 million in sales to Defendant. Since sales representatives are very important to a yearbook company, Plaintiff contended that Defendant's hiring of Plaintiff's sales representatives was an effective way to put Plaintiff out of business. Additionally, Plaintiff claimed Defendant induced these individuals to reveal confidential information concerning Plaintiff. Plaintiff asserted that it lost 49 customers during 1995 to 1998 due to Defendant's raiding of Plaintiff's sales force and that such loss resulted in actual lost profits and projected lost profits of $664,000 over a 10-year period. See Pl.'s Ex. 304.
Defendant argues that Plaintiff offered insufficient evidence of anticompetitive conduct based on the raiding of Plaintiff's sales force. Defendant contends that Plaintiff failed to show that Defendant either induced disclosure of confidential information by Graffam or the DeFalcos or that these representatives steered customers away from Plaintiff and to Defendant while the representatives were still employed by Plaintiff. Additionally, Defendant argues that Plaintiff failed to show that the actual effect of any conduct by Defendant was significant.
While there was evidence that Defendant had in its possession certain documents created by Plaintiff, the Court is unable to find sufficient evidence that Defendant either induced disclosure of confidential information by Graffam or the DeFalcos or that these sales representatives steered customers away from Plaintiff and to Defendant while the sales representatives were still employed by Plaintiff. Moreover, the Court finds the loss sustained by Plaintiff was insignificant. Evidence at trial showed that Plaintiff had over 200 sales representatives; therefore, the loss of 3 represented 1.5% of its sales force. Further, less than 1% of Plaintiff's customers, a figure representing 49 of Plaintiff's 7,000 total customers, transferred to Defendant. Additionally, the monetary loss of $664,000 over 10 years represented less than 1% of the approximate $70 million in sales that Plaintiff has in 1 year. The Court finds Defendant's hiring of the 3 representatives had a negligible impact upon Plaintiff's competitive position.
iv. Acquisition of Confidential Information or Trade Secrets
Although Defendant argues that Plaintiff failed to present sufficient evidence that the information obtained by Defendant was confidential or trade secret information or that Plaintiff was damaged as a result of Defendant's acquisition of some of Plaintiff's confidential information, the Court finds that Plaintiff offered some evidence that Defendant possessed confidential information of Plaintiff. However, the Court is of the opinion that the acquisition of such information by Defendant had an insubstantial effect on Plaintiff. Plaintiff claimed damages in the amount of $1,446,576 from Defendant's acquisition of confidential information. See Pl.'s Ex. 303. This amount constitutes only 2% of Plaintiff's total sales in one year. Such impact does not rise to the level of contributing significantly to creating or maintaining monopoly *371 power; therefore, this conduct cannot support a finding of a Section 2 violation.
v. Interference with Term Agreements
The jury found that Defendant did not interfere with Plaintiff's term agreements with its customers, and Defendant does not contest this finding.
vi. Predatory Disparagement
In Abcor Corp. v. AM International, Inc., 916 F.2d 924 (4th Cir.1990), the Fourth Circuit found that isolated incidents of disparagement do not constitute sufficient evidence to support an attempted monopolization claim.
Defendant contends that Plaintiff presented no evidence of disparagement at trial. At best, Defendant states the only testimony which might be considered such was testimony that one of Defendant's sales representatives told a teacher that Plaintiff was having problems with its plant in 1994.
While Plaintiff alleged disparagement by Defendant, in its Brief in Opposition to Defendant's Motion for Judgment as a Matter of Law and For New Trial, Plaintiff failed to support such allegation. Further, the Court is not aware of any damages suffered by Plaintiff as a result of disparagement. Therefore, the Court finds that as a matter of law, the jury could not have based a finding of predatory, anticompetitive conduct on alleged disparagement.
In summary, the Court finds that not one of the instances of improper conduct would lead to Section 2 liability. The analysis remains unchanged when the acts are viewed as a whole. The evidence showed that the aggregated conduct had an insubstantial effect on Plaintiff and does not support the jury's verdict that Defendant attempted to monopolize the yearbook market. Since the Court is of the opinion that Plaintiff failed to prove predatory conduct that unfairly tended to be exclusionary or tended to destroy competition, Plaintiff's attempted monopolization claim fails for lack of this element.
b. Dangerous Probability of Achieving Monopoly Power
Even though the Court believes Plaintiff's attempted monopolization claim fails for lack of sufficient anticompetitive conduct, the Court also finds that the claim fails for lack of a dangerous probability that Defendant would have achieved monopoly power. As part of Plaintiff's attempted monopolization claim, Plaintiff had to prove there was a dangerous probability that the attempted monopolization would succeed. Deauville Corp. v. Federated Dep't Stores, 756 F.2d 1183, 1191 (5th Cir.1985). Monopoly power is the power to control prices or exclude competition. United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391, 76 S. Ct. 994, 100 L. Ed. 1264 (1956). In determining whether there is a dangerous probability of monopolization, courts have found it necessary to consider the relevant market and the defendant's ability to lessen or destroy competition in that market. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S. Ct. 884, 122 L. Ed. 2d 247 (1993). Further, this element is assessed by evaluating the defendant's market share in the relevant market. Great W. Directories v. Southwestern Bell Tel. Co., 63 F.3d 1378, 1385 (5th Cir.1995), withdrawn and superseded in part, 74 F.3d 613 (1996).
Plaintiff contends that Defendant devised and implemented a plan to put Plaintiff out of business. The most significant evidence presented by Plaintiff in support of its claim was the collection of statements by Jack Thornton ("Thornton"), the individual who ran Defendant's yearbook business during the relevant time period, pertaining to Thornton's dream of becoming the only national yearbook company in the industry. Additionally, Plaintiff offered minimal evidence of predatory conduct: (1) that Defendant hired 3 of Plaintiff's 200 sales representatives; (2) that Defendant sold below its AVC to a total of 66 customers over 4 years; and (3) that Defendant obtained some of Plaintiff's confidential information.
While the most significant pieces of evidence Plaintiff relied upon to establish a dangerous probability of monopolization were statements of intent to become the only national yearbook company by Defendant's personnel, this evidence did not establish that Defendant realistically possessed the power *372 to create a monopoly. Instead, the undisputed evidence at trial indicated that throughout the period of alleged predation, Plaintiff was a large, profitable company whose sales remained constant during the relevant period of time $100.4 million in 1994, $98.6 in 1995, $99 in 1996, $98.2 in 1997, and an estimated $102.2 in 1998. R. at 696:12-698:23. There was no evidence that any conduct by Defendant caused Plaintiff to exit any markets or product lines, lay off any employees, sell assets, or do anything to place its business in peril. The evidence at trial was insufficient to support a finding that the predatory acts on which Plaintiff relied resulted in a dangerous probability that an attempted monopoly would succeed. Rather, the evidence indicated Defendant did not control prices or exclude competition; therefore, no dangerous probability of Defendant monopolizing the market existed.
c. Causation
Given the Court's conclusion that Plaintiff failed to establish an attempted monopolization claim, it is not necessary for the Court to reach the issue of causation. However, because the Court finds Plaintiff failed to establish causation, the Court will briefly address this issue.
To recover under the antitrust laws, Plaintiff "must prove (1) a violation of the antitrust laws, (2) cognizable injury attributable to the violation, and (3) at least the approximate amount of the damage." Malcolm v. Marathon Oil Co., 642 F.2d 845, 852 (5th Cir.), cert. denied, 454 U.S. 1125, 102 S. Ct. 975, 71 L. Ed. 2d 113 (1981). The question of causation is generally a factual question for the jury; however, a court should enter judgment as a matter of law where the plaintiff has failed to present substantial evidence that defendant's illegal practices were a material cause of plaintiff's injuries. Comfort Trane Air Conditioning Co. v. Trane Co., 592 F.2d 1373, 1383 (5th Cir.1979). Conclusory statements by the plaintiff, without evidentiary support, as to the fact of damage caused by the alleged antitrust violation are not sufficient. J.T. Gibbons, Inc. v. Crawford Fitting Co., 704 F.2d 787, 793 (5th Cir. 1983).
In its Motion for Judgment as a Matter of Law, Defendant argues that Plaintiff's attempted monopolization claim fails because Plaintiff presented no evidence that even one of Plaintiff's customers switched to Defendant as a result of any of Defendant's conduct. Further, Defendant argues that Plaintiff presented no evidence and had no information with respect to the actual reasons why any of the 1,245 customers that switched from Plaintiff to Defendant did so. Defendant contends Plaintiff's failure to present any evidence on why customers switched is fatal to the issue of causation. Defendant argues that proof of other factors during the relevant time, including Plaintiff's quality, delivery, pricing, and other problems, caused Plaintiff's loss of customers.
The Court concludes that Plaintiff did not submit any evidence that its loss of customers was caused by anticompetitive conduct on the part of Defendant. Instead, the undisputed evidence from former customers indicated they discontinued purchasing from Plaintiff due to Plaintiff's quality and delivery problems. Since no reasonable inference of causation can be drawn from the evidence presented, Plaintiff's attempted monopolization claim fails for this reason as well.
B. Price Discrimination in Violation of the Robinson-Patman Act
The Supreme Court clarified the elements of a price discrimination claim in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 113 S. Ct. 2578, 125 L. Ed. 2d 168 (1993). First, the plaintiff must prove that the prices complained of are below an appropriate measure of its rival's costs. Id. at 222-23, 113 S. Ct. 2578. Here, the relevant cost measure is AVC. Phototron Corp. v. Eastman Kodak Co., 842 F.2d 95, 99 n. 4 (5th Cir.), cert. denied, 486 U.S. 1023, 108 S. Ct. 1996, 100 L. Ed. 2d 228 (1988). The second element of a price discrimination claim requires the plaintiff to demonstrate that the competitor had a reasonable prospect of recouping its investment in below-cost prices. Brooke Group, 509 U.S. at 224, 113 S. Ct. 2578. "For recoupment to occur, below-cost pricing must be capable, as a threshold matter, of producing the intended *373 effects on the firm's rivals, whether driving them from the market, or ... causing them to raise their prices to supracompetitive levels within a disciplined oligopoly." Id. at 225, 113 S. Ct. 2578. "The inquiry is whether, given the aggregate losses caused by the below-cost pricing, the intended target would likely succumb." Id.
The Court concludes that Plaintiff's price discrimination claim fails for the same reasons stated above in the predatory pricing discussion. Therefore, Plaintiff is unable to support the jury's finding of price discrimination and judgment as a matter of law should be granted for Defendant on this claim.
C. Tortious Interference
1. Applicable Law
Under Texas law, a claim of tortious interference with an existing contract requires: (1) the existence of a contract subject to interference; (2) a willful and intentional act of interference; (3) the act was a proximate cause of the plaintiff's damages; and (4) actual damage or loss. Texas Beef Cattle Co. v. Green, 921 S.W.2d 203, 210 (Tex.1996).
2. Plaintiff's Claims
At trial, Plaintiff asserted two types of tortious interference claims. First, Plaintiff claimed that Defendant intentionally interfered with Plaintiff's contracts with its customers by inducing customers to break multi-year contracts with Plaintiff. Second, Plaintiff claimed that Defendant interfered with three of the contracts Plaintiff had with its sales representatives. The jury found that Defendant did not tortiously interfere with contracts between Plaintiff and its customers; however, the jury did find that Defendant tortiously interfered with Plaintiff's contracts with its sales representatives, Graffam and the DeFalcos.
3. Defendant's Motion
Defendant argues that the jury's finding of tortious interference is not supported by sufficient evidence. First, regarding Graffam, Defendant argues that a tortious interference claim fails because Plaintiff failed to offer any evidence (1) indicating what Graffam's contractual obligations to Plaintiff were or how they may have been breached; (2) concerning why Graffam left Plaintiff's employ and went to Defendant; or (3) showing that Defendant induced Graffam to switch to Defendant. Next, concerning the DeFalcos, Defendant argues that the undisputed evidence showed that the DeFalcos had a clear right to leave Plaintiff's employ and that the DeFalcos initiated contact with Defendant regarding possible employment opportunities. Further, Defendant contends that the undisputed testimony from Mr. DeFalco showed that he left Plaintiff because of severe quality and delivery problems at Plaintiff and due to the significant decrease in pay that Mr. DeFalco was going to experience. Additionally, the evidence indicated that Defendant did nothing to induce the DeFalcos to violate their non-solicitation or confidentiality obligations to Plaintiff. Finally, Defendant argues that Plaintiff failed to provide sufficient evidence of causation and damages to support this claim. Plaintiff failed to respond.
4. Court's Analysis
After reviewing the record, the Court finds no evidence of a willful or intentional act of interference with a contract Plaintiff may have had with Graffam or the DeFalcos. Moreover, the Court finds that Plaintiff failed to offer evidence to support a finding that Defendant's alleged conduct was a proximate cause of Plaintiff's damages. Based upon this lack of evidence, a jury could not have reasonably found that Defendant tortiously interfered with Plaintiff's contracts with Graffam or the DeFalcos; therefore, judgment as a matter of law should be granted to Defendant on this claim.
D. Breach of Fiduciary Duty Claims
At trial, Plaintiff asserted two fiduciary duty claims. Plaintiff claimed that certain of its former employees breached their fiduciary duties and duties of loyalty to Plaintiff and that Defendant was a knowing participant in such conduct. Additionally, Plaintiff contended that Defendant conspired with Plaintiff's former employees to breach these *374 duties. The jury found for Plaintiff on both claims.
1. Defendant's Motion
While Defendant supports its Motion for Judgment as a Matter of Law on Plaintiff's breach of fiduciary duty claims on several bases, the Court finds that Defendant's argument that Plaintiff failed to prove causation is dispositive of this claim. Defendant indicates that Plaintiff's only attempt at quantification of damages relating to acquisition of confidential information was based upon the testimony of one of Plaintiff's expert accountants, David Lasater ("Lasater"). Lasater testified that if the jury concluded that Plaintiff was injured by the disclosure of confidential information, then damages should be valued by Defendant's increase in market share percentages and the earnings associated with those market share percentages. R. at 864:8-865:21. Lasater concluded that "to the extent that the information is used to obtain market share, then the value of each market share point would be the [resulting damage]." R. at 865:18-20. Defendant argues that Plaintiff presented no evidence by which a reasonable jury could conclude that Defendant gained any business from Plaintiff or any increase in market share as a result of Defendant's use of any confidential information.
2. Plaintiff's Response
Plaintiff contends that in this area, the law encourages a flexible approach to damages and allows the jury to determine damages based on the testimony offered by Lasater. In support of its position, Plaintiff cites American Precision Vibrator Co. v. National Air Vibrator Co., 764 S.W.2d 274 (Tex.App. Houston [1st Dist.] 1988, no writ), Molex, Inc. v. Nolen, 759 F.2d 474 (5th Cir.1985), and University Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518 (5th Cir.1974). Each of these cases addresses the valuation of damages in an action by a former employer against a former employee for misappropriation of trade secrets and confidential information. In American Precision, the court of appeals upheld the jury's award of damages, which was valued by the loss sustained by the party injured or the benefit received by the infringer. American Precision, 764 S.W.2d at 279. In Molex and University Computing, the Fifth Circuit explained that damages due to misappropriation of confidential information or trade secrets can be awarded based on the reasonable royalty measure of damages, which stated simply is a percentage of sales or profits. See Molex, 759 F.2d at 479; University Computing, 504 F.2d at 537.
3. Court's Analysis
While the Court agrees with Plaintiff that the facts of this case required a flexible approach to the measurement of damages, it does not excuse the need for Plaintiff to offer evidence that the information at issue was used by Defendant to obtain market share. Lasater even recognized that his damage benchmark was useful "to the extent that the information is used to obtain market share ..." R. at 865:18-20. Plaintiff's experts testified as to the number of customers that Plaintiff lost; however, no expert was able to testify as to why Plaintiff lost any customers. In the absence of any evidence on which a reasonable jury could find that Defendant increased its market share or gained any business from Plaintiff as a result of any use of Plaintiff's confidential information, Plaintiff failed to prove causation. Therefore, judgment as a matter of law should be granted in favor of Defendant on these claims.
E. Unfair Competition
To establish "a claim for unfair competition under Texas law, the plaintiff must prove that the defendant committed a separate unlawful act that, in addition to being unlawful, improperly interfered with the plaintiff's ability to conduct his business." Continental Airlines, Inc. v. American Airlines, Inc., 824 F. Supp. 689, 694 (S.D.Tex. 1993) (citations omitted). Plaintiff based its unfair competition claim on what has been previously referred to and discussed as "sham pricing." Plaintiff argued that Defendant quoted discounted prices to Plaintiff's customers for the purpose of inducing those customers to switch to Defendant's business *375 and that Defendant intended to charge higher prices once the customer switched. The jury found in favor of Plaintiff on this claim.
For the same reasons discussed above concerning "sham pricing" or "upgrading," the Court finds that judgment as a matter of law on Plaintiff's unfair competition claim should be granted in favor of Defendant. The record is devoid of evidence that Defendant misrepresented what customers would receive under original contracts or of evidence that Defendant fraudulently entered contracts.
Conclusion
For the foregoing reasons, the Court finds that judgment as a matter of law should be granted in Defendant's favor on all of Plaintiff's claims.
IT IS SO ORDERED.
NOTES
[1] Alternatively, Defendant's motion seeks a new trial or an order of remittitur. Because the Court finds judgment as a matter of law should be granted in Defendant's favor, the Court need not address Defendant's alternative requests.
[2] While Plaintiff's exhibit 305 indicates Defendant sold below its AVC to 56 customers, R. at 770-71, testimony at trial from both sides indicated the number was 66. Therefore, the Court will use the latter figure in its discussion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2433456/ | 967 S.W.2d 848 (1998)
Roderic JOHNSON, Appellant,
v.
The STATE of Texas.
No. 1399-96.
Court of Criminal Appeals of Texas, En Banc.
March 25, 1998.
*849 Allan K. Butcher, Allan K. Butcher, Jr., Fort Worth, for appellant.
Danielle A. LeGault, Asst. Dist. Atty., Fort Worth, Matthew Paul, State's Atty., Austin, for State.
Before the court en banc.
OPINION ON APPELLANT'S PETITION FOR DISCRETIONARY REVIEW
McCORMICK, Presiding Judge, delivered the opinion of the Court joined by MANSFIELD, KELLER, HOLLAND and WOMACK, Judges.
Appellant was convicted by a jury of the offense of indecency with a child and the jury assessed punishment at confinement for two years, probated for a period of five years. In an unpublished opinion, the Court of Appeals affirmed appellant's conviction. Johnson v. State, No. 02-95-384-CR (Tex.App.Fort Worth July 18, 1996 pet. granted)(not designated for publication). This Court granted review to determine whether the offense of indecency with a child requires a culpable mental state relating to the child's age. We will affirm.
The statute relevant to this issue is Section 21.11 of the Texas Penal Code. Section 21.11(a)(1) and (2) states in pertinent part that:
"(a) A person commits an offense if, with a child younger than 17 years and not his spouse, whether the child is of the same or opposite sex, he:
"(1) engages in sexual contact with the child; or
"(2) exposes his anus or any part of his genitals, knowing the child is present, with intent to arouse or gratify the sexual desire of any person."
Appellant argues that touching the anus, breasts, or genitals is only a crime if the circumstances of the act make it a crime. He claims that indecency with a child is a circumstances of the conduct crime which is different when compared to the nature of the conduct or result of the conduct crime, as evidenced in the offenses of gambling and murder respectively. In the instant case, appellant contends that his culpable mental state attaches to the circumstances surrounding the conduct, the child's age. Appellant relies on McQueen v. State, 781 S.W.2d 600 (Tex.Cr.App.1989), where this Court held that unauthorized use of a vehicle is a circumstances of conduct crime, and that the culpable mental state attaches not only to the conduct of the operating the vehicle, but also to the circumstances surrounding the conduct, that the operation is without the consent of the owner. Appellant therefore argues that a defendant must intentionally operate the vehicle, knowing the operation is without the owner's consent. Appellant compares McQueen with the instant case in that he should not be guilty unless he knew the victim was under age 17. He contends that the rationale used in McQueen should be applied to indecency with a child.
However, this Court has previously held that in cases involving the sexual assault of a child, such as rape of a child or indecency with a child, the State is not required to show that appellant knew the victim to be younger than 17 years of age. In fact, this Court held in Vasquez v. State that, "[I]t follows that to require the State to allege and prove the appellant know the prosecutrix to have been under the age of 17 would establish ignorance or mistake as a defense in contravention of the clear legislative intent." Vasquez v. State, 622 S.W.2d 864, 866 (Tex.Cr.App. 1981). Had the Legislature intended to make a provision regarding the knowledge of the victim's age it would have expressly included that requirement within Section 21.11 of the Texas Penal Code. Absence of such express language proves otherwise.
This Court in Roof v. State 665 S.W.2d 490, 492 (Tex.Cr.App.1984) again concludes that, "[G]iven our case law and legislative tradition running squarely against appellant's notion *850 that the State must prove his knowledge of the victim's age, and given the failure of the Legislature to specifically require such knowledge when it required knowledge of the victim's presence, appellant's position must fail." In case after case, this Court has held that the State is not required to show that appellant knew the victim to be under the age of 17.[1] This rule is well established and we therefore find that it is dispositive of the issue in the case at bar.
For the reasons stated above, appellant's sole ground of review is overruled. The judgment of the Court of Appeals is affirmed.
PRICE, J., filed a concurring opinion joined by MEYERS, MANSFIELD and WOMACK, JJ.
BAIRD, J., filed a dissenting opinion.
OVERSTREET, J., dissents.
PRICE, Judge, concurring.
I write separately, because although I concur with the judgment of the majority, I believe neither the majority nor the dissent fully address the issues this case presents, in terms of statutory interpretation and constitutionality.
The question presented today is what, if any, culpable mental state is required under TEX. PEN.CODE § 21.11. The issue of whether or not a culpable mental state is required for the offense of "statutory rape" has been much debated throughout the country for several decades now. As has been noted, "[p]rior to 1964, it was the universally accepted rule in the United States that a defendant's mistaken belief as to the age of the victim was not a defense to a charge of statutory rape." Colin Campbell, Annotation, Mistake or Lack of Information as to Victim's Age as Defense to Statutory Rape, 46 A.L.R. 5th 499, 499 (1997). This court's own case law has long held that such a mistaken belief was not a defense. In what appears to be the first reported case in Texas, we relied primarily on the decisions of other states, as well as on treatises on criminal law and British decisions, for the proposition that mistake of fact as to the victim's age is no defense. Edens v. State 43 S.W. 89, 89 (Tex.Crim.App.1897). Although this "universal rule" was first "broken" by the California Supreme Court more than thirty years ago, see People v. Hernandez, 61 Cal. 2d 529, 39 Cal. Rptr. 361, 393 P.2d 673 (1964), such breakage has hardly been universally accepted. Instead, courts around the country have been split, not only as to the results reached, but also as to the reasons relied upon in reaching those results.[1]
*851 The first consideration in today's case is one of statutory interpretation. An initial reading of § 21.11 might suggest that, in fact, a required element of the offense is knowledge of the victim's age. That is, § 21.11(a)(2) requires that the defendant know that "... the child is present." Whether such knowledge goes only to the victim's presence or to the fact that the victim is a child, i.e., under the age of 17 years, is not clear. This court has held that when the language of a statute is ambiguous, we may consider extratextual factors such as legislative history to determine legislative intent. Boykin v. State, 818 S.W.2d 782, 785-786 (Tex.Crim.App.1991). Using such legislative history, we have previously determined that the intent of the legislature was that the knowledge element of § 21.11(a)(2) applies only to the presence of the victim, rather than the victim's age. Roof v. .State, 665 S.W.2d 490, 491-492 (Tex.Crim.App.1984).
The next consideration is the interaction of TEX. PEN.CODE §§ 6.02 and 21.11. Tex. Penal Code § 6.02, titled "Requirement of Culpability," states in relevant part:
(a) Except as provided in Subsection (b), a person does not commit an offense unless he intentionally, knowingly, recklessly or with criminal negligence engages in conduct as the definition of the offense requires.
(b) If the definition of an offense does not prescribe a culpable mental state, a culpable mental state is nevertheless required unless the definition plainly dispenses with any mental element. (emphasis added)
The issue of when an offense "plainly dispenses" with a mental element is not itself plainly evident. That is, does mere silence as to a mental element mean that the legislature intended to "plainly dispense" with any mental element, or must the text of the statute explicitly state the legislature's intent to do away with any mental element? If mere silence is not, in and of itself, sufficient to "plainly dispense" with a mental element, then under Boykin, supra, courts may be required to go outside of the text of the statute and consider legislative history, public policy, etc., to determine legislative intent.
Judicial interpretation of § 6.02 has varied, depending on the specific statute at issue.[2]*852 However, with regard to Tex. Penal Code § 21.11, several factors lead to the conclusion that the legislature intended that no mental element be required as to the age of the victim.
Recently in Long v. State, 931 S.W.2d 285 (Tex.Crim.App.1996), we declared the stalking provision of a harassment statute unconstitutional. In doing so, we noted that particular subdivisions of that statute prescribed a culpable mental state. From this, we reasoned that the legislature intended only those subdivisions of the statute, and no others, to require a culpable mental state. Id. at 291. In the present case, the relevant portion of § 21.11 reads as follows:
(a) A person commits an offense if, with a child younger than 17 years and not his spouse, whether the child is of the same or opposite sex, he:
(1) engages in sexual contact with the child; or
(2) exposes his anus or any part of his genitals, knowing the child is present, with intent to arouse or gratify the sexual desire of any person. (emphasis added)
Thus, it can be implied, similar to the reasoning in Long, that since § 21.11(a)(2) contains the mental elements "knowing" and "intent," and since those same mental elements are apart from the provision of § 21.11(a), which specifies the age of the victim, the intent of the legislature was to dispense with a culpable mental state as to the victim's age. The dissent states that I am "... unable to point to any language in the statute which `plainly dispenses' with a culpable mental state." Post, at 855. But, it is precisely the absence of a culpable mental state as to the victim's age, when the legislature has prescribed mental elements as to other portions of the offense, that makes the legislative intent clear.
This conclusion is further bolstered by comparing the previous versions of § 21.11 with its current enactment. Prior to the enactment of the current penal code, the offense at issue here was codified, in part, by the following provisions:
It shall be unlawful for any person with lascivious intent to knowingly and intentionally expose his or her private parts or genital organs to any other person, male or female, under the age of sixteen (16) years. (emphasis added)
Acts 1950, 51st Leg., 1st C.S., p. 50, ch. 9, repealed by Acts 1973, 63rd Leg., p. 991, ch. 399, § 3(a), effective January 1, 1974.
It shall be unlawful for any person with lascivious intent to intentionally place or attempt to place his or her hand or hands, or any portion of his or her hands upon or against a sexual part of a male or female under the age of fourteen (14) years, or to in any way or manner fondle or attempt to fondle a sexual part of a male or female under the age of fourteen (14) years, or to intentionally place or attempt to place his or her hands or any part of his or her hands upon the breast of a female under the age of fourteen (14) years, or to in any *853 way or manner fondle or attempt to fondle the breast of a female under the age of fourteen (14) years. (emphasis added)
Acts 1950, 51st Leg., 1st C.S., p. 52, ch. 12, repealed by Acts 1973, 63rd Leg., p. 991, ch. 399, § 3(a), effective January 1, 1974.
In these previous versions of § 21.11, it is not clear exactly "how far down" the italicized mental states are meant to "travel," i.e., whether or not they are meant to modify the age of the victim. However, it is notable that when redrafting these provisions for the current penal code, the legislature chose to break the offense down into several separate parts and to clearly remove the mental elements from the portion of the statute having to do with the victim's age. This further suggests that there was no intent on the part of the legislature for there to be any mental element as to the victim's age.
Finally, it is notable that since it was first passed by the legislature as part of the penal code in 1973, § 21.11 has been amended several times.[3] In two of these amendments, the legislature made substantial changes as to the affirmative defenses available within the statute itself.[4] The fact that neither of these changes relates to the issue of culpable mental state and the defense of mistake of fact (TEX. PEN.CODE § 8.02), coupled with the context in which these issues have been hotly debated around the country by both legislatures and courts, reinforces the conclusion that, with regard to § 21.11, the legislative intent is to "plainly dispense" with any mental element as to the victim's age.
Furthermore, although the United States Supreme Court has never specifically ruled on the constitutionality of prohibiting a defense of mistake of fact as to the victim's age in cases of "statutory rape," that court has repeatedly suggested over the years that such a prohibition is not constitutionally infirm. This can be inferred from the following: (1) in a 1994 decision construing a federal child pornography statute, in which the court held that the term "knowingly" applied to the minority of the performers and noted that if it were not to construe the statute that way, the statute might be unconstitutional, it noted in passing that "... we do not think the common law treatment of sex offenses militates against our construction of the present statute." United States v. X-Citement Video, Inc., 513 U.S. 64, 78 & 72 n. 2, 115 S. Ct. 464, 472 & 469 n. 2, 130 L. Ed. 2d 372 (1994)[5]; (2) in 1982, the Supreme Court declined to hear an appeal of a decision by the Supreme Court of Pennsylvania holding that a denial of the defense of mistake of fact as to the victim's age did not violate the U.S. Constitution, on the grounds of lack of a "substantial federal question." Robinson v. Pennsylvania, 457 U.S. 1101, 102 S. Ct. 2898, 73 L. Ed. 2d 1310 (1982), dismissing appeal Commonwealth v. Robinson, 497 Pa. 49, 438 A.2d 964 (1981).[6] Given these facts, as well as Texas' long tradition of refusing to recognize the defense of mistake of fact as to the victim's age,[7] I believe that neither the *854 United States Constitution nor the Texas Constitution mandate that such a defense be allowed.[8] Therefore, I concur with the judgment of the majority.[9]
MEYERS, MANSFIELD and WOMACK, JJ., join
BAIRD, Judge, dissenting.
Believing the majority's holding conflicts with the laws of the State of Texas which seek not to criminalize conduct that is without guilt, I dissent.
I.
"The contention that an injury can amount to a crime only when inflicted by intention is no provincial or transient notion. It is as universal and persistent in mature systems of law as belief in the freedom of human will and a consequent ability and duty of the normal individual to choose between good and evil." Morissette v. United States, 342 U.S. 246, 250, 72 S. Ct. 240, 243, 96 L. Ed. 288 (1952). The requirement of a culpable mental state descended from the Eighteenth Century common-law theory that to constitute a crime there must be a "vicious will." Id., 342 U.S. at 251, 72 S. Ct. at 244 (citing 4 Bl. Comm. 21). Speaking of the requirement of mens rea or "vicious will," the Court stated:
Crime, as a compound concept, generally constituted only from concurrence of an evil-meaning mind with an evil-doing hand, was congenial to an intense individualism and took deep and early root in American soil. As the states codified the common law crimes, even if their enactments were silent on the subject, their courts assumed that the omission did not signify disapproval of the principle but merely recognized that intent was so inherent in the idea of the offense that it required no statutory affirmation.
Id., 342 U.S. at 251-252, 72 S. Ct. at 244.[1]
The mandate of Morissette has been expressly recognized by our Legislature in at least two statutory provisions. First, the Penal Code is to be construed, inter alia, to "safeguard conduct that is without guilt from condemnation as criminal." Tex. Penal Code Ann. § 1.02(4).[2] Second, virtually every offense enumerated in the Penal Code prescribes a culpable mental state. And in the rare offense where a culpable mental state is not prescribed, one is nevertheless required. Tex. Penal Code Ann. § 6.02(b).[3]
*855 An offense without a prescribed culpable mental state creates strict criminal liability. Strict liability offenses are disfavored because:
... [t]o punish conduct without reference to the actor's state of mind is both inefficacious and unjust. It is inefficacious because conduct unaccompanied by an awareness of the facts making it criminal does not mark the actor as one who needs to be subjected to punishment in order to deter him or others from behaving similarly in the future, nor does it single him out as a socially dangerous individual who needs to be incapacitated or reformed. It is unjust because the actor is subjected to the stigma of a criminal conviction without being morally blameworthy. Consequently, on either a preventative or retributive theory of criminal punishment, the criminal sanction is inappropriate in the absence of mens rea.
Wayne R. LaFave and Austin W. Scott, Jr., Substantive Criminal Law, Vol. I, p. 348. This stigma is especially severe in the case of a rape conviction. Herbert Packer, Mens Rea and the Supreme Court, 1962 Sup.Ct. Rev. 107, 109 (1962).
II.
The question presented by the instant case is whether the offense of indecency with a child requires a culpable mental state as to the age of the complainant. At the times relevant to the instant case, Tex. Penal Code Ann. § 21.11 (West 1994) provided:
(a) A person commits an offense if, with a child younger than 17 years and not his spouse, whether the child is of the same or opposite sex, he:
(1) engages in sexual contact with the child.
Tex. Penal Code Ann. § 21.01(2) (West 1994) defined sexual contact as "any touching of the anus, breast, or any part of the genitals of another person with intent to arouse or gratify the sexual desire of any person."
The concurring judge concludes the statute has plainly dispensed with a culpable mental state. However, that conclusion is not reached after considering the clear language of the statute. Rather that conclusion is reached only after consulting a twisted trail of legislative history, bolstered by previous versions of the statute, and suggestions as to the intent of the legislature when redrafting the law. Exhausting as his argument may be, he is unable to point to any language in the statute which "plainly dispenses" with a culpable mental state. And his footnote detailing myriads of cases where "this court and several lower courts have asserted that when the statute is merely silent as to a mental element, it has not plainly dispensed with one, and so one is nevertheless required," undermines his conclusion. Ante, at 851-852, n. 2. In addition, the concurring judge's opinion that "it is precisely the absence of a culpable mental state as to the victim's age, when the legislature has prescribed mental elements as to other portions of the offense, that makes the legislative intent clear," renders Tex. Penal Code Ann. § 6.02 a nullity. Ante at 852 (emphasis in the original). This "absence" does not elucidate the intent of the legislature, as posited by the concurrence.
Contrary to the concurring judge's position, the legislature has not plainly dispensed with the required culpable mental stated for the offense of indecency with a child. When the legislature has intended to dispense with this requirement, the intent is clear. For example Tex. Penal Code Ann. § 7.22: Criminal Responsibility of Corporation or Association, provides:
(a) If conduct constituting an offense is performed by an agent acting in behalf of a corporation or association and within the scope of his office or employment, the corporation or association is criminally responsible for an offense defined:
*856 (1) in this code where corporations and associations are made subject thereto;
(2) by law other than this code in which a legislative purpose to impose criminal responsibility on corporations or associations plainly appears; or
(3) by law other than this code for which strict liability is imposed, unless a legislative purpose not to impose criminal responsibility on corporations or associations plainly appears.
III.
The instant case should be analyzed in light of two cases, one from the United States Supreme Court and the other from this Court.
A.
The first case is United States v. X-Citement Video, 513 U.S. 64, 115 S. Ct. 464, 130 L. Ed. 2d 372 (1994), where the defendant's mens rea as to the age of the participant was not a statutory element of the charged crime. Nevertheless, the Supreme Court extended the stated culpable mental state to every element within the offense. The statute in question provided, in relevant part:
(a) Any person who-
(1) knowingly transports or ships in interstate or foreign commerce by any means including by computer or mails, any visual depiction, if-
(A) the producing of such visual depiction involves the use of a minor engaging in sexually explicit conduct; and
(B) such visual depiction is of such conduct;
(2) knowingly receives, or distributes any visual depiction that has been mailed, or has been shipped or transported in interstate or foreign commerce, or which contains materials which have been mailed or so shipped or transported, by any means including by computer, or knowingly reproduces any visual depiction for distribution in interstate or foreign commerce or through the mails, if-
(A) the producing of such visual depiction involves the use of a minor engaging in sexually explicit conduct; and
(B) such visual depiction is of such conduct.
Id., 513 U.S. at 68, 115 S. Ct. at 467.
Even though a grammatical reading of the statute suggested the term "knowingly" only modified the surrounding verbs, the Court concluded the statute, when properly read, required the actor know the age of the performer. The Court reasoned:
Our reluctance to simply follow the most grammatical reading of the statute is heightened by our cases interpreting criminal statutes to include broadly applicable scienter requirements, even where the statute by its terms does not contain them.
Id., 513 U.S. at 70, 115 S. Ct. at 468. In reaching their conclusion, the Court held:
A final canon of statutory construction supports the reading that the term "knowingly" applies to both elements. Cases such as [New York v.] Ferber, 458 U.S., [747] at 765, 102 S.Ct., [3348] at 3359 [, 73 L. Ed. 2d 1113 (1982)] ("As with obscenity laws, criminal responsibility may not be imposed without some element of scienter on the part of the defendant"); Smith v. California, 361 U.S. 147, 80 S. Ct. 215, 4 L. Ed. 2d 205 (1959); Hamling v. United States, 418 U.S. 87, 94 S. Ct. 2887, 41 L. Ed. 2d 590 (1974); and Osborne v. Ohio, 495 U.S. 103, 115, 110 S. Ct. 1691, 1699, 109 L. Ed. 2d 98 (1990), suggest that a statute completely bereft of a scienter requirement as to the age of the performers would raise serious constitutional doubts. It is therefore incumbent upon us to read the statute to eliminate those doubts so long as such a reading is not plainly contrary to the intent of Congress.
Id., 513 U.S. at 78, 115 S. Ct. at 472.
The core of the statute was the age of the performer; "the age of the performers is the crucial element separating legal innocence from wrongful conduct." Id., 513 U.S. at 73, 115 S. Ct. at 469. The Supreme Court could *857 not have more plainly expressed the inherent difficulty with the statute's lack of an intent element by holding the statute would probably not pass constitutional muster. The Court held it was their responsibility to interpret the statute in a way that would first pass constitutional considerations and not plainly dispense with congressional intent.
In Texas, if there is a dispute over the meaning of the statute, the literal text of the statute controls. Boykin v. State, 818 S.W.2d 782 (Tex.Cr.App.1991). As the Boykin Court held, "the statute is the law in the sense that it is the only thing actually adopted by the legislators ..." Id., 818 S.W.2d at 785,(emphasis in the original). The reasons for this type of statutory interpretation were made clear in Boykin:
When attempting to discern this collective legislative intent or purpose, we necessarily focus our intention on the literal text of the statute in question and attempt to discern the fair, objective meaning of that text at the time of its enactment ... We focus on the literal text also because the text is the only definitive evidence of what the legislators (and perhaps the Governor) had in mind when the statute was enacted into law. There really is no other certain method for determining the collective legislative intent or purpose at some point in the past, even assuming a single intent or purpose was dominant at the time of enactment. Yet a third reason for focusing on the literal text is that the Legislature is constitutionally entitled to expect that the Judiciary will faithfully follow the specific text that was adopted. (emphasis in the original).
Boykin, 818 S.W.2d at 785.
Consequently, the majority is incorrect when they state: "Had the Legislature intended to make a provision regarding the knowledge of the victim's age it would have expressly included the requirement within Section 21.11 of the Texas Penal Code." Ante, at 849-850. This type of interpretation conflicts with Boykin, supra, and fails to acknowledge the existence of Tex. Penal Code Ann. § 6.02.
B.
The second case is McQueen v. State, 781 S.W.2d 600 (Tex.Cr.App.1989), which considered the culpable mental states associated with the offense of unauthorized use of a motor vehicle. For commission of such an offense, three elements were required to be proven: "(1) that a defendant operated a motor-propelled vehicle; and, (2) that he knew he was operating the vehicle; and, (3) that he did so without the permission of the owner." Id., 781 S.W.2d at 602. The McQueen Court held the State was required to prove McQueen operated the motor vehicle knowing such operation was without the owner's effective consent. Ibid. Otherwise, unauthorized use of a motor vehicle would be a strict liability offense because:
... once the State proved that the vehicle was operated at all, the requisite mental state with regard to the nature of conduct would be self-proved, (we cannot foresee any time one would operate a vehicle unintentionally or unknowingly), and the defendant would be held liable regardless of anyone's awareness of the owner's consent or lack thereof. To require culpability only as to the otherwise lawful act of operating a vehicle wholly fails to `safeguard conduct that is without guilt from condemnation as criminal.'
Id., 781 S.W.2d at 604. The Court's reasoning for requiring the culpable mental state for each element of the offense was:
... what separates lawful operation of another's motor vehicle from unauthorized use is the actor's knowledge of a "crucial circumstance surrounding the conduct" that such operation is done without the effective consent of the owner. Accordingly... we believe Sec. 6.03(b) requires proof of the actor's knowledge of this circumstance.
Further support for this proposition comes from (V.T.C.A., Penal Code, Sec. 1.02(4), one of the basic objectives of the Penal Code: 4) to safeguard conduct that is without guilt from condemnation as criminal;
Id., 781 S.W.2d at 604.
C.
In light of X-Citement Video and McQueen, the law may be stated as follows: *858 If the conduct itself is not illegal, i.e., operating a motor vehicle, then a culpable mental state regarding the circumstances of the offense is required.
IV.
A.
With the foregoing in mind, consider the instant case where the 19 year old appellant engaged in consensual sexual intercourse with the complainant, a 12 year old girl. Appellant was told by the complainant and her friend that the complainant was 17 years old. Several witnesses, including the complainant herself, testified she frequently told people she was older than 12. The evidence also showed the complainant appeared to be older than her chronological age. There was also evidence of several telephone calls by the complainant entreating appellant to engage in sexual intercourse. The day after the sexual intercourse, the complainant informed her mother and appellant was subsequently arrested and charged with aggravated sexual assault of a child and indecency with a child.
At trial, appellant admitted to engaging in sexual intercourse with the complainant but testified that he did not know she was under 17 years of age. Appellant requested a jury charge on mistake of fact. Tex. Penal Code Ann. § 8.02. The trial judge denied the requested instruction. During their deliberations, the jury sent out the following note:
Does "intentionally or knowingly" refer to what he did with his penis i.e.: inadvertent contact vs. intentional contact or does "intentionally or knowingly" cause the penetration of the female sexual organ of a child refer to knowing that she was a child? We have to understand the meaning of the law.
The trial judge did not answer the question and appellant was convicted of the lesser charged offense, indecency with a child. The range of punishment for that offense is from two to twenty years imprisonment and a possible fine of up to $10,000. Tex. Penal Code Ann. §§ 21.11(a)(1), (c), and 12.33. The jury assessed the minimum punishment allowed by law, two years probation with no fine.
On appeal, appellant argued that knowledge of the complainant's age was required for conviction and the trial judge erred in denying the mistake of fact charge. The Court of Appeals restated appellant's argument:
Johnson argues that a culpable mental state which does not require knowledge of the complainant's age "miss[es] the whole point of the offense." He notes that the act in question is not criminal unless the complainant is under the age of 17. He then argues that the intent or knowledge that the person is under 17 should be the required culpable mental state which makes the act an offense. We admit that Johnson's logic is reasonable. The current state of the law, however, is not based on a fault in Johnson's logic, but instead on a countervailing public policy.
Johnson v. State, No. 2-95-384-CR, slip op. pp. 8-9 (Tex.App.Fort Worth July 18, 1996)(not designated for publication). The Court of Appeals affirmed the judgment of the trial court stating: "because we find that a mistake about the age of a child has no bearing on the requisite culpable mental state for indecency with a child, we hold that mistake of fact is not a proper jury charge...." Id., at 10.
B.
The instant case should be resolved using the reasoning of X-Citement Video, supra, and McQueen, supra. Consistent with those holdings, a crime cannot be completed by mere conduct, in this case consensual sexual intercourse, without proving a culpable mental state regarding the circumstances of the offense. This is especially true in light of Tex. Penal Code Ann. § 1.02(4), where the objective of the Code is "to safeguard conduct that is without guilt from condemnation as criminal."[4] If a conviction for the offense *859 of unauthorized use of a motor vehicle cannot rest on the mere operation of the vehicle, a conviction for indecency with a child cannot rest on the mere act of consensual sexual intercourse.
Operating a vehicle is not per se illegal and neither is consensual sexual intercourse. The age of the child is "the crucial element separating legal innocence from wrongful conduct." X-Citement Video, 513 U.S. at 73, 115 S. Ct. at 469. Because the gravamen of the offense of indecency with a child is the age of the complainant, the defendant must have knowledge of that age in order to suffer criminal liability.
NOTES
[1] See Clark v. State, 558 S.W.2d 887 (Tex.Cr.App. 1977)(this Court rejected an accused's contention that the indictment under V.T.C.A. Penal Code, Sec. 21.11(a)(1),(which prohibits engaging in sexual contact with a child younger than 17), failed to allege all the elements of the offense when it failed to allege the defendant's knowledge that the victim was a child); Green v. State, 571 S.W.2d 13 (Tex.Cr.App.1978)(the defendant contended that the indictment under which he was charged failed to allege an offense under Sec. 21.11(a)(2), this Court found the indictment sufficient even though it did not allege that the defendant know his victim was under 17 years of age).
[1] For the various results reached among the various state and federal courts, see generally, Colin Campbell, Annotation, Mistake or Lack of Information as to Victim's Age as Defense to Statutory Rape, 46 A.L.R. 5th 499 (1997). Among the decisions revealing the contentiousness of this issue are Perez v. State, 111 N.M. 160, 803 P.2d 249 (1990), in which the court allowed a defense of mistake of fact, reasoning that because the statute at issue distinguished between victims under thirteen and those between thirteen and sixteen and also focused on whether the defendant was at least eighteen or at least four years older than the victim, such statute was a "numbers game... When the law requires a mathematical formula for its application, we cannot say that being provided the wrong numbers is immaterial." Id. 803 P.2d at 251; State v. Elton, 680 P.2d 727 (Utah 1984), vacating upon reconsideration 657 P.2d 1261(Utah 1982), in which the Utah Supreme Court reversed itself two years later on the issue, and declared that mistake of fact with regard to the age of the victim was a defense, while noting (680 P.2d at 732 n. 8) that the decision was itself limited by legislation which had subsequently been passed by the legislature; State v. Guest, 583 P.2d 836, 839 (Alaska 1978), in which the Alaska Supreme Court construed that state's statutory rape law to allow for a mistake of fact defense, noting that except for "public welfare" types of offenses, that state's constitution requires criminal intent as a part of its criminal laws (this decision was subsequently superseded by statute, see infra n. 8); and Garnett v. State, 332 Md. 571, 632 A.2d 797 (1993), perhaps the "inevitable epic" of this long debate, with a majority opinion detailing the legislative intent and constitutional status of the statute at issue (Id. 632 A.2d at 797-805), as well as two dissents (Id. at 805-807 (Eldridge, J., dissenting) & 807-824 (Bell, J., dissenting)) challenging those assertions.
[2] In a large number of cases, this court and several lower courts have asserted that when the statute is merely silent as to a mental element, it has not plainly dispensed with one, and so one is nevertheless required. See, e.g., Crawford v. State, 646 S.W.2d 936, 937 (Tex.Crim.App. 1983) ("endless chain"/pyramid promotional scheme); Goss v. State, 582 S.W.2d 782 (Tex.Crim.App. 1979) (failure to stop and render aid); West v. State, 567 S.W.2d 515, 516 (Tex.Crim.App. [Panel Op.] 1978) (criminal trespass); Zachery v. State, 552 S.W.2d 136, 137 (Tex.Crim.App. 1977) (attempted rape); Tew v. State, 551 S.W.2d 375, 376 (Tex.Crim.App.1977) (unlawful possession of firearm by felon); Ex Parte Winton, 549 S.W.2d 751, 752 (Tex.Crim.App.1977) (burglary); Rodriquez v. State, 548 S.W.2d 26, 28-29 (Tex.Crim. App.1977) (felony murder); Baldwin v. State, 538 S.W.2d 109 (Tex.Crim.App.1976) (credit card abuse); Hazel v. State, 534 S.W.2d 698, 700 (Tex.Crim.App.1976) (unlawful possession of firearm by felon); Braxton v. State, 528 S.W.2d 844, 846 (Tex.Crim.App.1975) (rape); Aguirre v. State, No. 08-97-00408-CR, 1998 WL 32434, at *1-*2, ___ S.W.2d ___, ___-___ (Tex.App.El Paso Jan.29, 1998, no pet. h.) (municipal ordinance prohibiting conducting business in a nude live entertainment club located within 1,000 feet of a school); Pollard v. State, 687 S.W.2d 373, 374 (Tex.App.Dallas 1985, pet. ref'd) (city ordinance prohibiting sleeping and dozing in public place); Franklin v. State, 682 S.W.2d 426, 427 (Tex.App.Houston [1st Dist.] 1984, no pet.) (illegal use of shrimping equipment); Clayton v. State, 652 S.W.2d 810, 811-812 (Tex.App. Amarillo 1983, no pet.) (driving with suspended license); Diggles v. State, 641 S.W.2d 667, 668 (Tex.App.Dallas 1982, pet.ref'd)(illegal voter assistance); Hang On, Inc. v. City of Arlington, 65 F.3d 1248, 1254-1255 (5th Cir.1995) (city ordinance prohibiting touching between customers and nude employees at adult cabarets); Howard Gault Co. v. Texas Rural Legal Aid, Inc., 848 F.2d 544, 563 (5th Cir.1988) (statute prohibiting picketing accompanied by slander, libel or public misrepresentation). But see Zulauf v. State, 591 S.W.2d 869, 872-873 (Tex.Crim.App. [Panel Op.] 1979) (holding that phrase "[n]o person shall drive a vehicle on the highway at a speed greater than is reasonable and prudent under the circumstances then existing ..." is clear command that legislature intended to make speeding a strict liability offense).
In other circumstances, courts have found that when the terms of the statute require a mental element that is not prescribed within the penal code, a mental state is not plainly dispensed with, so that a mental state specifically prescribed within the penal code (i.e., intentional, knowing, reckless, or criminally negligent) is required. See, e.g., Honeycutt v. State, 627 S.W.2d 417, 424 (Tex.Crim.App. [Panel Op.] 1981) (municipal offense of prohibiting negligent collision); Bocanegra v. State, 552 S.W.2d 130, 132 (Tex. Crim.App.1977) (welfare fraud).
Sometimes, courts have gone outside of the text of the statute and examined legislative history to determine whether a culpable mental state is required. See, e.g., American Plant Food Corp. v. State, 587 S.W.2d 679, 684-686 (Tex.Crim. App.1979) (en banc) (water pollutionno culpable mental state required); Ex Parte Ross, 522 S.W.2d 214 (Tex.Crim.App.1975), cert. denied, 423 U.S. 1018, 96 S. Ct. 454, 46 L. Ed. 2d 390 (1975) (driving while intoxicatedno culpable mental state required); Exxon Co., U.S.A. v. State, 646 S.W.2d 536, 537-538 (Tex.App. Houston [1st Dist.] 1982, pet. ref'd)(air pollutionno culpable mental state required).
Finally, public policy has been occasionally considered in determining if a culpable mental state is required. See, e.g., Aguirre v. State, No. 08-97-00408-CR, 1998 WL 32434, at *2, ___ S.W.2d ___, ___ (Tex.App.El Paso Jan.29, 1998, no pet. h.) (municipal ordinance prohibiting conducting business in a nude live entertainment club located within 1,000 feet of a school); Baggett v. State, 691 S.W.2d 779, 782 (Tex.App.-Beaumont 1985), rev'd on other grounds, 722 S.W.2d 700 (Tex.Crim.App.1987) (refusal to allow inspection by proper official of certain aquatic products in possession of licensed wholesale fish dealerno culpable mental state required); Exxon Co., U.S.A. v. State, 646 S.W.2d 536, 538 (Tex.App.Houston [1st Dist.] 1982, pet. ref'd) (air pollution-no culpable mental state required).
[3] See TEX. PEN.CODE ANN. § 21.11 credits & historical notes (Vernon 1994) [Acts 1973, 63rd Leg., p. 883, ch. 399, § 1, eff. Jan. 1, 1974. Amended by Acts 1981, 67th Leg., p. 472, ch. 202, § 3, eff. Sept. 1, 1981; Acts 1987, 70th Leg., ch. 1028, § 1, eff. Sept. 1, 1987; Acts 1993, 73rd Leg., ch. 900, § 1.01, eff. Sept. 1, 1994].
[4] See Acts 1981, 67th Leg., p. 472, ch. 202, § 3, eff. Sept. 1, 1981; Acts 1987, 70th Leg., ch. 1028, § 1, eff. Sept. 1, 1987.
[5] The dissent cites X-Citement Video as authority in support of its position that § 21.11 requires a mens rea as to the age of the victim. Post, at 856-859. However, as noted above, and as one of our intermediate appellate courts has previously stated, that decision specifically distinguished common law sex offenses from the reasoning used by the Supreme Court in that decision. Duron v. State, 915 S.W.2d 920, 922 (Tex.App.Houston [1st Dist.] 1996) (citing X-Citement Video, 513 U.S. at 72 n. 2, 115 S. Ct. at 469 n. 2), aff'd on other grounds, 956 S.W.2d 547 (Tex.Crim.App.1997).
[6] Unlike denials of certiorari, dismissals for want of a substantial federal question do carry some, albeit limited, precedential weight. See Illinois State Board of Elections v. Socialist Workers Party, 440 U.S. 173, 180-183, 99 S. Ct. 983, 988-989, 59 L. Ed. 2d 230 (1979); Mandel v. Bradley, 432 U.S. 173, 176-177, 97 S. Ct. 2238, 2240-2241, 53 L. Ed. 2d 199 (1977).
[7] The dissent cites to McQueen v. State, 781 S.W.2d 600 (Tex.Crim.App.1989) in support of its position that § 21.11 requires a culpable mental state as to the age of the victim. Post, at 857-859. McQueen, however, dealt with a statute prohibiting unauthorized use of a vehicle. § 21.11 is distinguishable from that statute for the simple reason that it codifies a common law sex offense which has traditionally been excepted from the mens rea requirement of most criminal offenses. See Morissette v. United States, 342 U.S. 246, 251 n. 8, 72 S. Ct. 240, 244 n. 8, 96 L. Ed. 288 (1952).
[8] The drafters of the Model Penal Code advocate that mistake of fact as to the victim's age be allowed as a defense, at least "[w]hen criminality depends on the child's being below a critical age other than 10." Model Penal Code § 213.6(1) & cmt. 2 (Official Draft). As well, a few state legislatures have made decisions allowing for the defense of mistake of fact, to varying degrees. See ALASKA STAT. § 11.41.445(b) (1997); OR.REV. STAT. § 163.325(1) & (2) (1996); WASH. REV.CODE § 9A.44.030(2) & (3) (1997). These facts suggest that refusing to allow such a defense may be an unwise policy; nevertheless, it is a policy decision, and thus one for the legislature, rather than the courts, to make.
[9] The dissent dramatically characterizes the majority of members of this court as "... believ[ing] the legislature intends to punish as a registered sex offender an individual who engages in consensual sexual intercourse with a child even if the child appears to be 17, acts 17, has a fake identification card that represents her age to be 17, has support from friends that she is 17, and convincingly acts 17. Clearly, the law was not designed to punish such an individual." Post, at 858 n. 4. What is clear is that the legislature intended to punish those who engage in conduct proscribed by § 21.11, and to have registered as sex offenders those who violate certain provisions of the penal code, including § 21.11. As the appellant violated the terms of § 21.11 and was found guilty of doing so, he is subject to its punishment, as well as to the mandates of Chapter 62 of the Texas Code of Criminal Procedure.
[1] Oliver Wendell Holmes recognized that "criminal liability is founded on blameworthiness" and "a law which punished conduct which would not be blameworthy in the average member of the community would be too severe for that community to bear." Oliver Wendell Holmes, The Common Law 50 (Boston, Little, Brown & Co. 1881).
[2] When considering statutory construct, the Tex. Penal Code Ann. § 1.05(a), specifically states: "... The provisions of this code shall be construed according to the fair import of their terms, to promote justice and effect the objectives of the code."
[3] Tex. Penal Code Ann. § 6.02(b) provides:
If the definition of an offense does not prescribe a culpable mental state, a culpable mental state is nevertheless required unless the definition plainly dispenses with it.
All emphasis is supplied unless otherwise indicated.
[4] The majority and concurrence believe the legislature intends to punish as a registered sex offender an individual who engages in consensual sexual intercourse with a child even if the child appears to be 17, acts 17, has a fake identification card that representing her age to be 17, has support from friends that she is 17, and convincingly acts 17. Clearly, the law was not designed to punish such an individual. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2510898/ | 127 P.3d 1256 (2005)
Nevin PRATT and Denise Pratt, Plaintiffs and Appellants,
v.
Mary Ann NELSON; Douglas F. White; John Dustin Morris; William A. Mark; McKay, Burton & Thurman, P.C.; and Does 1-200, Defendants and Appellees.
No. 20040752-CA.
Court of Appeals of Utah.
December 15, 2005.
*1258 F. Mark Hansen, Mark Hansen PC, and Carl E. Kingston, Salt Lake City, for Appellants.
John Dustin Morris, McKay Burton & Thurman, Salt Lake City, Douglas F. White, Bountiful, and William A. Mark, William A Mark PC, North Salt Lake, for Appellees.
Before BILLINGS, P.J., BENCH, Associate P.J., and ORME, J.
OPINION
ORME, Judge:
¶ 1 Nevin and Denise Pratt were named as defendants in a lawsuit against alleged members of a polygamous cult. Counsel for plaintiff in that case held a press conference about the lawsuit, out of which this defamation action arose. In this appeal, the Pratts seek to overturn a ruling on summary judgment dismissing their lawsuit with prejudice. Specifically, the Pratts appeal the trial court's application of the judicial proceeding *1259 privilege and group defamation doctrine to bar their claims. We affirm.
BACKGROUND
¶ 2 On February 11, 2004, the Pratts brought claims of defamation, invasion of privacy, and civil conspiracy against Defendants Mary Ann Nelson; Douglas F. White; John Dustin Morris; William A. Mark; and McKay, Burton & Thurman, P.C. (collectively "the Defendants") following a press conference the Defendants held and participated in on August 28, 2003. The press conference was characterized by the Defendants as a preemptive effort to address the likely media attention that Mary Ann Nelson's lawsuit against David and Daniel Kingston would garner. Nelson, with the assistance of her attorneysthe other defendants named by the Prattshad filed a complaint against David Kingston, Daniel Kingston, and many others (the Kingston Complaint), seeking damages for various alleged batteries and other torts. At the press conference, Nelson and at least two of her attorneys made statements to the press concerning the Kingston Complaint and its allegations. The Defendants distributed copies of the Kingston Complaint to members of the press who were present and, upon the request of a reporter, provided copies of the statement that Nelson read at the press conference (Nelson's Press Statement).[1]
¶ 3 Of particular relevance to this case are the Kingston Complaint's claims of infliction of emotional distress, civil conspiracy, and negligence against over 200 individual defendants, including the Pratts. As to these defendants, the Kingston Complaint specifically alleged that as members of a secretive religious society and economic organization known as "the Order," the defendants assisted, encouraged, or knew ofand failed to prevent or reportthe alleged torts committed by David and Daniel Kingston against Nelson.
¶ 4 The Defendants responded to the Pratts' lawsuit by moving to dismiss it for failure to state a claim. The Pratts filed a memorandum in opposition to the motion to dismiss, and the Defendants then responded with a reply memorandum in support of their motion to dismiss. In the reply memorandum, the Defendants argued for the first time that "judicial immunity, an absolute privilege to a claim of defamation," protected the Kingston Complaint, thereby barring any of the Pratts' defamation claims founded on the Kingston Complaint. In addition, the Defendants also included an affidavit with their reply memorandum that, among other things, averred that the Defendants had only generally referred to the defendants named in the Kingston Complaint as the "`society,' `organization,' and `the Order'" at the press conference, never mentioning the Pratts by name. The trial court did not exclude the affidavit and thereafter properly treated the Defendants' motion, under rule 12 of the Utah Rules of Civil Procedure, as a motion for summary judgment. See Utah R. Civ. P. 12(b).
¶ 5 Because the motion to dismiss had been converted into a motion for summary judgment, the trial court entered an order allowing the parties ten days to submit "all supporting material ... pertinent to the motion for summary judgment." The Pratts presented no additional supporting material and neither did the Defendants.[2] In a separate *1260 order, the trial court acknowledged that the Defendants had raised the issue of judicial privilege for the first time in their reply memorandum and, in the interest of fairness, allowed the Pratts an additional eight days to file a responsive memorandum, limited to the issue of judicial privilege. The Pratts did not file their responsive memorandum concerning the issue of judicial privilege until over a month after the trial court's deadline for filing the memorandum had passed. The Pratts offered no explanation for their tardiness in filing, nor did they seek an extension of the deadline. The Defendants moved to strike the Pratts' late responsive memorandum, and in return, the Pratts moved to strike the Defendants' judicial privilege argument as improperly raised for the first time in a reply memorandum.
¶ 6 The trial court granted the Defendants' motion to strike the Pratts' memorandum, ruling that the Pratts' late memorandum was unauthorized under rule 7 of the Utah Rules of Civil Procedure and would, therefore, not be considered. The trial court also denied the Pratts' motion to strike the Defendants' judicial privilege argument, reasoning that the Pratts had been given the opportunity to address the argument but had chosen not to respond within the allotted time and were "solely to blame" for their own late filing and could not now "complain of unfairness." The trial court then proceeded, without a hearing, to rule on the Defendants' motion for summary judgment.
¶ 7 In its ruling, the trial court concluded that the Kingston Complaint was covered by the judicial proceeding privilege, which "acts as an absolute bar to the Pratts' claim of defamation arising from allegations made in [the Kingston Complaint]."[3] It also concluded that Nelson's Press Statement was not defamatory towards the Pratts, as a matter of law, because the statement never directly mentioned the Pratts, but only referred to a larger group of persons, i.e., "the leaders of the Kingston organization," "the people that we are bringing this lawsuit against," "the Kingston Polygamist Family," etc. The trial court based this conclusion on the Defendants' unrefuted affidavit, which set forth what the Defendants said at the press conference.[4]
ISSUES AND STANDARDS OF REVIEW
¶ 8 The Pratts ask us to determine whether the trial court erred in granting summary judgment against them, thereby dismissing their claims.[5] Summary judgment *1261 is proper when "there is no genuine issue as to any material fact and [when] the moving party is entitled to a judgment as a matter of law." Utah R. Civ. P. 56(c). "In reviewing the district court's grant of summary judgment, we view the facts and inferences therefrom in the light most favorable to the nonmoving party." Badger v. Brooklyn Canal Co., 966 P.2d 844, 847 (Utah 1998). "Because summary judgment is granted as a matter of law, we give the trial court's legal conclusions no particular deference." Hodgson v. Bunzl Utah, Inc., 844 P.2d 331, 333 (Utah 1992).
¶ 9 The Pratts also ask us to determine whether the trial court erred in striking their untimely memorandum on the issue of judicial privilege while refusing to strike the Defendants' judicial privilege argument raised for the first time in the Defendants' reply memorandum. "Motions to strike pleadings or parts thereof are addressed to the judgment and discretion of the trial court. A ruling thereon, except under circumstances which amount to a clear abuse of discretion, will not be disturbed on appeal." Adams v. Portage Irrigation, Reservoir & Power Co., 95 Utah 1, 72 P.2d 648, 651 (1937).
ANALYSIS
I. Judicial Privilege
¶ 10 We first consider the Pratts' argument that the trial court erred in striking their late-filed memorandum, as our decision on that issue influences other aspects of the Pratts' appeal. The trial court ruled that the Pratts' memorandum was "an unauthorized memorandum" that the court would not consider and granted the Defendants' motion to strike the memorandum. The Pratts contend, however, that their memorandum was not "unauthorized," but "merely untimely," and that the trial court abused its discretion in deciding not to consider it. Moreover, the Pratts argue that the trial court's treatment of their untimely memorandum and its treatment of the Defendants' late-raised judicial privilege argument was inconsistent, prejudicial to them, and an abuse of the trial court's discretion.
¶ 11 The Pratts contend that, unlike the harm they suffered when the Defendants raised the judicial privilege argument for the first time in a reply memorandum, the Defendants would not have been prejudiced, nor the trial court inconvenienced, if the court had considered the memorandum in spite of its tardiness. While the trial court could have, as a matter of judicial power, opted to consider the late-filed memorandum, we cannot say that the trial court abused its discretion in deciding to strike the Pratts' late memorandum. Nor can we say that it abused its discretion in permitting the judicial privilege argument to remain in issue, even though it was raised for the first time in a reply memorandum, or in permitting the Pratts to respond, should they desire, within only eight days.
¶ 12 Generally, appellate courts grant "[a] trial judge ... broad discretion in determining how a [case] shall proceed in his or her courtroom." University of Utah v. Industrial Comm'n, 736 P.2d 630, 633 (Utah 1987). While rule 7 of the Utah Rules of Civil Procedure states that a party's "reply memorandum ... shall be limited to rebuttal of matters raised in the [other party's] memorandum in opposition" to a motion, Utah R. Civ. P. 7(c)(1), the rule also allows the trial court discretion to consider other memoranda. See id. ("No other memoranda will be considered without leave of the court.") (emphasis added). Thus, when an issue is raised for the first time in a reply memorandum, a trial court may properly opt to "grant a motion to strike issues raised for the first time in a reply memorandum." U.P.C., Inc. v. R.O.A. Gen., Inc., 1999 UT App 303, ¶ 63, 990 P.2d 945. But
as a matter of judicial economy, where there is no prejudice (i.e., where the opposing party is able to respond) and where the issues could be raised simply by filing a separate motion to dismiss, the trial court *1262 has discretion to consider arguments raised for the first time in a reply memorandum.[6]
Trillium USA, Inc. v. Board of County Comm'rs, 2001 UT 101, ¶ 17 n. 3, 37 P.3d 1093. Cf. Hartford Leasing Corp. v. State, 888 P.2d 694, 702 n. 9 (Utah Ct.App.1994) ("Nothing prevents the trial court from receiving additional memoranda if it wishes to do so.").
¶ 13 Given the facts of this case, we see no abuse of discretion. After deciding to consider the Defendants' judicial privilege argument, the trial court appropriately allowed the Pratts time to respond to the issue with their own memorandum. Thus, the Pratts were not blind-sided or otherwise prejudiced by the trial court's decision to consider the Defendants' judicial privilege argument.
¶ 14 We also conclude that the trial court's decision to strike the Pratts' memorandum as unauthorized after it was filed one month too late also falls within the trial court's broad discretion to manage the case before it. See Adams v. Portage Irrigation, Reservoir & Power Co., 95 Utah 1, 72 P.2d 648, 651 (1937). Cf. Barnard v. Wassermann, 855 P.2d 243, 249 (Utah 1993) (noting that trial courts have the power to impose sanctions to control the proceedings before them); Johnson v. Peck, 90 Utah 544, 63 P.2d 251, 253-54 (1936) (holding that trial court did not abuse its discretion in refusing amendments to pleadings because they came too late). While the Pratts claim they are prejudiced by the trial court's decision to strike their memorandum, it is clear that any harm the Pratts suffered is self-inflicted. The Pratts filed the memorandum one month later than the trial court's deadline, without any effort to explain their lateness or to seek an extension of the deadline. The trial court's decision to strike the memorandum falls well short of being arbitrary. The Pratts, at their own peril, failed to timely file their responsive memorandum on the issue of judicial privilege.
¶ 15 With the Pratts' memorandum stricken from the trial court's consideration, the Defendants' assertions that a judicial privilege applied in this case were unopposed and uncontested. Being persuaded by the Defendants' judicial privilege arguments, the trial court ruled on summary judgment "that the doctrine of judicial privilege acts as an absolute bar to the Pratts' claim of defamation arising from allegations made in [the Kingston Complaint]." Given what was before the court, this ruling appears to be entirely correct. The Pratts now challenge the correctness of the trial court's summary judgment determination that a judicial privilege applies to the Kingston Complaint. The Defendants argue, however, that because of the Pratts' failure to timely file their memorandum presenting their legal arguments to the trial court, they cannot now ask this court to consider their judicial privilege arguments for the first time on appeal.
¶ 16 The Defendants' argument is well taken. In a situation like the instant one, the invited error doctrine comes into play to prevent us, for sound policy reasons, from reaching the merits of the trial court's ruling on the issue of judicial privilege. Utah's appellate courts apply the invited error doctrine, in part, "to give the trial court the first opportunity to address the claim of error" from which a party may later seek appellate relief. State v. Geukgeuzian, 2004 UT 16,¶ 12, 86 P.3d 742. This is so because, as has been noted, "fairness dictates that the trial judge should not be reversed on an issue he [or she] never considered, for if the issues had been presented, it is possible that no error would have been committed." Justice Michael J. Wilkins et al., A "Primer" in Utah State Appellate Practice, 2000 Utah L.Rev. 111, 126 (2000) (alteration in original) (internal quotations and citation omitted).
¶ 17 While the instant case does not bear the more tell-tale signs of a decision by a party to "intentionally mislead[] the trial court so as to preserve a hidden ground for reversal on appeal," State v. Dunn, 850 P.2d *1263 1201, 1220 (Utah 1993), it does implicate the sound rationale behind many cases decided under the invited error doctrine. Our appellate courts "have held repeatedly that on appeal, a party cannot take advantage of an error committed at trial when that party led the trial court into committing the error." Id. Indeed, the alleged error from which the Pratts now seek appellate relief was caused, in no small part, by the Pratts' own disregard for the trial court's deadline for responding to the newly-raised issue of judicial privilege. The Pratts were put on notice that the trial court intended to consider the merits of the Defendants' judicial privilege argument, and they were given a specific opportunity to argue their side of the issue to the trial court and explain why judicial privilege should not apply.
¶ 18 The Pratts, however, did not see fit to file their memorandum in a timely manner, nor did they explain their lateness and seek more time to file the memorandum. Had the Pratts responded in a timely manner, the error they now allege in the trial court's ruling would have been brought to the trial court's attention and possibly avoided. We conclude that the Pratts cannot simply disregard the trial court's deadline, have their late memorandum stricken as a result, and expect to be able to nevertheless have the trial court reversed on appeal if it decided the issue incorrectly without the aid of their memorandum.
II. Group Defamation
¶ 19 While the trial court applied the judicial proceeding privilege to the Kingston Complaint, the trial court did not definitively rule that Nelson's Press Statement was also covered by the privilege.[7] Instead, the trial court ruled, as a matter of law, that the Pratts could not, without relying on the Kingston Complaint, show that any of the alleged defamatory statements refer to them because the Pratts were never mentioned in Nelson's Press Statement nor did the circumstances imply any reference to the Pratts.[8] It therefore concluded that the alleged defamatory statements could not be interpreted by a reasonable jury to be libelous or slanderous towards the Pratts. The Pratts argue, however, that even if Utah law recognizes a "so-called" group defamation rule, they may be able to convince a jury that the words used by the Defendants at the press conference, even without the aid of the Kingston Complaint, referred to them and that they should, therefore, have been allowed to proceed to trial.
¶ 20 It is clear under Utah law that defamatory statements concerning a group or class of people may not be actionable by each individual member of the defamed group or class. "In order to state a claim for defamation under Utah law, a plaintiff must show [among other things,] `that defendants published the statements concerning him [either in print or by spoken words] ....'" Wayment v. Clear Channel Broad., Inc., 2005 UT 25, ¶ 18 n. 2, 116 P.3d 271 (emphasis added) (second alteration in original) (citation omitted). Thus, under Utah law, in order for defamatory statements "to be regarded actionable they must refer to some ascertained or ascertainable person, and that person must be the person complaining, shown to be such by directly being named, or so intended from the extrinsic facts and circumstances." Lynch v. Standard Publ'g Co., 51 Utah 322, 170 P. 770, 773 (1918). See also Fenstermaker v. Tribune *1264 Publ'g Co., 12 Utah 439, 43 P. 112, 114 (1895) (stating that defamatory statements "must refer to some ascertained or ascertainable person" in order to be actionable). It follows then, as the Utah Supreme Court has stated, that
where words defamatory in their character seem to apply to a particular class of individuals, and are not specifically defamatory of any particular member of the class, an action can be maintained by any individual of the class who may be able to show the words referred to himself.
Lynch, 170 P. at 773 (emphasis added). See also Fenstermaker, 43 P. at 114; W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 111, at 784 (5th ed.1984). It also necessarily follows, however, that "[w]here the defamatory matter has no special application and is so general that no individual damages can be presumed, and the class referred to is so numerous that great vexation and oppression might grow out of a multiplicity of suits, no private suit can be maintained." Lynch, 170 P. at 774 (emphasis added) (internal quotations and citation omitted). See Fenstermaker, 43 P. at 114; W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 111, at 784 (5th ed.1984).
¶ 21 The Restatement's "Defamation of a Group or Class" rule, which we apply to the instant case, concisely states the principles Utah case law has espoused in the group defamation context:
One who publishes defamatory matter concerning a group or class of persons is subject to liability to an individual member of it if, but only if,
(a) the group or class is so small that the matter can reasonably be understood to refer to the member, or
(b) the circumstances of publication reasonably give rise to the conclusion that there is particular reference to the member.
Restatement (Second) of Torts § 564A (1977) (emphasis added). The Pratts argue that under the above rules a jury could reasonably make the connection between the Pratts and the statements made during the press conference, even without reference to the Kingston Complaint, but the facts of this case prevent that conclusion. Indeed, without the aid of the Kingston Complaint, the Defendants' statements at the press conference cannot reasonably be understood to refer, with any particularity, to the Pratts.
¶ 22 The only place where the Pratts are identified by name is in the Kingston Complaint, where they are listed with some 200 other individual defendants. Without the Kingston Complaint, the Pratts can only point to the Defendants' group references and argue that such statements defame them as individuals. Admittedly, under the right circumstances the references to a group such as "the Kingston Polygamist Family" might reasonably be understood to refer to an individual surnamed Kingston. See Fenstermaker, 43 P. at 114 (allowing head of a family to maintain an action for defamation where defamatory statements were made about "a family named Fenstermaker"). But see Restatement (Second) of Torts § 564A cmt. a, illus. 1 (1977) (giving hypothetical example where defamatory statements about a large family would not be actionable by individual family members). In fact, if the Pratts were widely known as members of "the Kingston Polygamist Family," the Pratts might very well be able to maintain an action on such statements, even without referring to the Kingston Complaint. See Fawcett Publ'ns, Inc. v. Morris, 377 P.2d 42, 51-52 (Okla.1962) (holding that a single member of a large university football team could maintain a lawsuit for libel for general statements about the team since he was "well known and identified in connection with the group" and because he "ha[d] sufficiently established his identity as one of those libeled by the publication"), cert. denied, 376 U.S. 513, 84 S. Ct. 964, 11 L. Ed. 2d 968 (1964). See also Restatement (Second) of Torts § 564A cmt. b (observing that a statement such as "`That jury was bribed' may reasonably be understood to mean that each of the twelve jurymen has accepted a bribe," giving each member a cause of action for defamation). Cf. id. § 564A cmt. a (observing that the statement "`All lawyers are shysters,' . . . cannot ordinarily be taken to have personal reference to any of the class"). The nature and size of *1265 the group must be such that "the words may reasonably be understood to have personal reference and application to any member of it, so that he is defamed as an individual." Id. § 564A cmt. b.
¶ 23 In the instant case, the nature and size of the groups referred to, and the circumstances of publication, do not lend themselves to any reasonable understanding that they have personal application to the Pratts. While the Pratts argue that it is for a jury to decide whether they can be connected to Defendants' statements about the group or groups mentioned, we conclude that the trial court properly resolved the issue on summary judgment. Indeed, there is nothing in the record before us, other than the Kingston Complaint, that makes a connection between the Pratts and the group or groups identified in the Defendants' statements. There was no dispute of fact that only general references were made at the press conference to groups and that the Pratts were never mentioned by name, and nothing in the record gives rise to any sort of reasonable understanding that the Pratts were included in the extrajudicial references to these groups. We therefore conclude that the trial court properly disposed of this issue on summary judgment.
CONCLUSION
¶ 24 We do not reach the merits of the Pratts' challenge on appeal against the trial court's application of the judicial proceeding privilege to the Kingston Complaint, because the Pratts invited any error in the trial court's ruling. As a result, we affirm the trial court's ruling dismissing the Pratts' claims that are founded upon their names appearing in the Kingston Complaint. Consequently, the Pratts cannot rely on any references to them in the Kingston Complaint to support their claims based on statements the Defendants made at the press conference. The Defendants' statements cannot, therefore, be reasonably understood to refer to the Pratts without the aid of the Kingston Complaint. The only other statements alleged to be defamatory refer to larger amorphous groups and are not actionable by the Pratts. Thus, the trial court's summary judgment ruling in favor of the Defendants was proper.
¶ 25 Affirmed.
¶ 26 WE CONCUR: JUDITH M. BILLINGS, Presiding Judge and RUSSELL W. BENCH, Associate Presiding Judge.
NOTES
[1] Nelson's written statement reads:
My name is Mary Ann and I was raised in the Kingston Polygamist Family. I escaped when I was 16 years old. I am pursuing this lawsuit with the hope that other young girls and boys in the same position that I was in will see that the leaders of the Kingston organization are not above the law even though they tell us that they are, that they can be punished for what they do to us, and that we can escape and seek recovery for the harm that was done to us. I also hope that the people that we are bringing this lawsuit against will realize the harm they have caused and continue to cause, and that they will change their ways.
[2] Relying on appellate rule 11, the Pratts filed a motion with this court to supplement the record and now seek to add to the record a transcript of a video recording of the press conference held August 28, 2003. See Utah R.App. P. 11(h) (allowing for the "[c]orrection or modification of the record" transmitted to this court for the purposes of an appeal "[i]f anything material to either party is omitted from the record by error or accident or is misstated"). The Pratts contend that they are seeking to supplement the record in order to correct one "deliberate and wilful falsehood" and one misstatement the Defendants have made in their appellate brief about what was said at the press conference. We deferred ruling on the motion pending plenary consideration of the matter and now deny the Pratts' motion as beyond the scope of rule 11. See Olson v. Park-Craig-Olson, Inc., 815 P.2d 1356, 1359 (Utah Ct.App.1991) (explaining that the record on appeal may only be supplemented "because of an omission or exclusion, or a dispute as to the accuracy of reporting, and not to introduce new material into the record") (citation omitted).
[3] The trial court based its ruling on the general rule stated in Krouse v. Bower, 2001 UT 28, 20 P.3d 895, "that judges, jurors, witnesses, litigants, and counsel involved in a judicial proceeding have an absolute privilege against suits alleging defamation." Id. at ¶ 8. The trial court reasoned that the complaint was covered by the judicial proceeding privilege because the privilege covers "all pleadings and affidavits necessary to set the judicial machinery in motion." DeBry v. Godbe, 1999 UT 111, ¶ 12, 992 P.2d 979 (internal quotations and citation omitted).
[4] Because the Pratts did not file any opposing evidence after the Defendants' motion to dismiss was properly converted to a motion for summary judgment, the trial court rightly concluded there was no genuine issue of disputed fact as to what was said at the press conference. See Amica Mut. Ins. Co. v. Schettler, 768 P.2d 950, 957 (Utah Ct.App.1989)("[W]hen the moving party has presented evidence sufficient to support a judgment in its favor, and the opposing party fails to submit contrary evidence, a trial court is justified in concluding that no genuine issue of fact is present or would be at trial."), cert. denied, 109 Utah Adv. Rep. 39 (1993).
[5] The Defendants argue that the Pratts have not briefed or challenged certain aspects of the trial court's ruling, contending that the Pratts have waived those issues. Our review of the trial court's ruling and the Pratts' arguments on appeal reveals, however, that the only aspect of the trial court's ruling the Pratts have not meaningfully challenged on appeal is the trial court's reasons for dismissing the Pratts' civil conspiracy claim. "It is axiomatic that we will presume the correctness of lower court rulings that neither party challenges on appeal." Dansie v. Hi-Country Estates Homeowners Ass'n, 2004 UT App 149, ¶ 10, ¶ 10, 92 P.3d 162. Thus, we do not specifically address the dismissal of the Pratts' civil conspiracy claim.
[6] The trial court in this case may well have been motivated by considerations of judicial efficiency and economy. Had the trial court refused to consider the judicial privilege issue raised for the first time in the Defendants' reply memorandum, the issue was one that Defendants could simply have raised by filing another motion to dismiss or for summary judgment.
[7] In its ruling, the trial court noted that it "cannot say unequivocally that the press statement is not covered by the judicial proceeding privilege," and put forth reasons why it arguably "could be protected by judicial privilege." Yet the trial court ultimately relied on other grounds in dismissing the Pratts' defamation claims insofar as they were premised on statements other than those made in the Kingston Complaint, which leads us to conclude that the trial court's insights on whether the judicial privilege extended to Nelson's Press Statement never culminated in an actual legal ruling.
[8] In the trial court's view, none of Nelson's allegedly defamatory statements ever directly mentioned the Pratts by name and, aside from the Kingston Complaint, none of the extrinsic facts and circumstances demonstrated that the statements were intended to specifically refer to the Pratts. The trial court found that the allegedly defamatory statements merely referred generally to large groups of people, i.e., "the Kingston Polygamist Family," "leaders of the Kingston organization," etc., and not the Pratts specifically, thus barring their action for defamation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2398720/ | 86 F. Supp. 2d 834 (2000)
ELI LILLY AND COMPANY, an Indiana corporation, Plaintiff,
v.
NATURAL ANSWERS, INC., a Florida corporation, and Brian Alexander Feinstein, Defendants.
No. IP 99-1600-C H/G.
United States District Court, S.D. Indiana, Indianapolis Division.
January 20, 2000.
*835 James H. Ham, III, Baker & Daniels, Indianapolis, IN, Jeffrey A. Schwab, Abelman Frayne & Schwab, New York, NY, for Eli Lilly and Co.
James A. Richardson, Locke Reynolds LLP, Indianapolis, IN, R. Lawrence Bonner, Homer Bonner & Delgado, P.A., Miami, FL, for Natural Answers, Inc., Brian Alexander Feinstein.
ENTRY ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION
HAMILTON, District Judge.
Plaintiff Eli Lilly & Company ("Lilly") manufactures and sells fluoxetine hydrochloride under the federally registered trademark PROZAC ®. PROZAC ® is a prescription drug used to treat clinical depression and some other psychological conditions. Defendant Natural Answers, Inc. manufactures and sells a blend of St. John's Wort and several other herbs under the name HERBROZAC. Natural Answers has been advertising HERBROZAC over the Internet as "a very potent and synergistic formula, designed to promote Mood Elevation," and as "a powerful, and effective all-natural and herbal formula alternative *836 to [the] prescription drug Prozac."
Lilly has sued Natural Answers and its founder, Brian Alexander Feinstein, under the Lanham Act for federal trademark infringement and for dilution of PROZAC ® as a famous trademark. See 15 U.S.C. § 1125(a) & (c). On December 16, 1999, Lilly moved for a preliminary injunction to prevent Natural Answers from continuing to market its product using both the HERBROZAC name and references to PROZAC ® in its Internet advertising. The court held a hearing on December 28, 1999, and has considered additional post-hearing briefs.
When the court rules on a motion for a preliminary injunction, it makes a preliminary judgment based on an incomplete factual record. Its findings of fact and conclusions of law are subject to revision based on more complete information later in the case. As explained below, however, Lilly has made a powerful case of both trademark infringement and dilution of a famous trademark. Lilly has also established the other elements of a preliminary injunction. The court therefore grants Lilly's motion for a preliminary injunction against further use of the HERBROZAC name and mark and further use of references to PROZAC ® in the source code of the Natural Answers web site. Pursuant to Rules 52 and 65 of the Federal Rules of Civil Procedure, the court now states its findings of fact and conclusions of law.
Findings of Fact
I. Lilly's PROZAC ®
Since 1988, using the trademark PROZAC ®, plaintiff Lilly has sold fluoxetine hydrochloride throughout the United States and in many countries around the world. Lilly has marketed the medicine primarily to treat depression. The medicine has also proven useful in treating bulimia nervosa and obsessive-compulsive disorder.
Lilly owns United States Trademark Registration No. 1357582 for PROZAC ® as used for pharmaceutical products. The registration was issued September 3, 1985, and has become incontestable as a matter of law. See 15 U.S.C. § 1065.
As a prescription drug, PROZAC ® is not freely available to patients who seek to use it to relieve depression or other conditions. A licensed physician must prescribe the medicine, and a licensed pharmacist must fill the prescription for the patient. Lilly's advertising of PROZAC ® has been aimed at physicians and pharmacists, and not directly to potential consumers.
PROZAC ® is the best-selling prescription antidepressant in the United States. Since 1988, doctors have prescribed PROZAC ® more than 240 million times for more than 17 million Americans. PROZAC ® sales in the United States alone have totaled more than $12 billion since 1988.
Over the last eleven years, fluoxetine hydrochloride and the PROZAC ® mark have received an extraordinary amount of attention from the news media. The product has achieved extraordinary fame in American culture. PROZAC ® is the best known brand of a new generation of medications that have been developed and are being developed to treat not only depression but a host of other psychological conditions more effectively than has been possible before. See, e.g., Pl.Ex. 1-3 at 37 (Newsweek cover story entitled "Beyond Prozac," Feb. 7, 1994).
Lilly has submitted a sampling of newspaper and magazine articles and books about PROZAC ® that evidence this fame. In 1993, for example, Penguin Books USA published Peter D. Kramer's book Listening to Prozac, and in 1994, The Berkley Publishing Group published Elizabeth Wurtzel's Prozac Nation: Young and Depressed in America. Both books were national bestsellers. PROZAC ® has been featured twice on the cover of Newsweek and once on the cover of The Saturday Evening Post, among other national magazines.
Major broadcasting networks have also featured PROZAC ® in national stories. *837 For example, in 1991 CBS broadcast a story titled "What About Prozac?" on 60 Minutes. In 1995, ABC broadcast a story called "Beyond Prozac" on Good Morning America. The Oprah Winfrey Show carried a story called "Prozac" in 1994. A health care industry advertising publication called MedAdNews named PROZAC its "brand of the year" for 1993.
As further evidence of the fame of the mark, in the flurry of retrospective looks at the 20th Century, Fortune Magazine identified PROZAC ® as one of the top six products of the century in the category of health and grooming. Pl.Ex. 1-10.[1]
Lilly has submitted an article from the Baltimore Sun of September 21, 1993, that sums up the fame PROZAC ® achieved within just a few years of its initial launch as a brand. After referring to the use of PROZAC ® in punch lines in a Woody Allen film and a New Yorker poem, the author wrote:
Prozac entered the popular lexicon almost immediately after its introduction six years ago. It's been on the cover of Newsweek and shared the stage with Phil and Geraldo; it continues to turn up in the monologues of comedians and the cultural references of the ironic. It's a designer label, a buzzword, a brand name familiar to not only the 4.5 million Americans who have taken it, but also those who wonder if they, too, might find a cure for whatever ails them in the little green-and-off-white capsule.
Pl.Ex. 1-6.
As further evidence of PROZAC ®'s fame, searches of computerized databases turned up extraordinary numbers of responses. A search of the Internet for "Prozac" using the Altavista search engine on November 29, 1999, found 63,150 web pages. Pl.Ex. 2-8. A November 29, 1999, search of the Westlaw database ALL-NEWS for the word Prozac and a date after 1997 produced more than 10,000 stories. Pl.Ex. 2-9. The Westlaw database DOW JONES MAJOR NEWSPAPERS covers only 48 major newspapers. A November 29, 1999, search of that database for "Prozac" over the last ten years turned up more than 12,000 references, or an average of more than 250 stories for each newspaper included in the database. Pl. Ex. 2-10.
II. HERBROZAC and its Marketing
Defendant Natural Answers' HERBROZAC is part of a line of products that Natural Answers calls HERBSCRIPTIONS ®. These products are manufactured from a variety of herbs and other natural substances. Natural Answers markets these products over the Internet from a site marked . Natural Answers has not yet arranged for distribution through "brick-and-mortar" retail stores, but it is actively seeking to do so.
The HERBSCRIPTIONS ® line of products includes HERBROZAC, as well as HERBALIUM, VITA-AGRA, CLIMAGRA, HERBOCET ®, ZONK OUT, HerbenolPM, HERBASPRIN ®, and HERBADRYL ®. Pl.Ex. 2-1 (printout of Natural Answers home page on Nov. 29, 1999).
Natural Answers tries to walk a fine line in its business. On one hand, Natural Answers attempts to draw a sharp distinction between its herbal formula dietary supplements and the drugs manufactured by pharmaceutical companies like Lilly. Natural Answer takes care to claim that its products are not "intended to diagnose, treat or cure any disease." See, e.g., Feinstein Aff. ¶¶ 19, 4. This distinction is important for both marketing and legal reasons.
Natural Answers does not want to subject its products to regulation by the Food and Drug Administration. The FDA *838 treats Natural Answers' dietary supplements as "foods" that are not subject to the FDA's drug approval process. This regulatory treatment of the products as "foods," however, requires Natural Answers to make clear in its labeling that its products are not FDA-approved and are "not intended to diagnose, treat, cure, or prevent any disease." 21 U.S.C. §§ 321(ff), 343(r)(6)(C). Nevertheless, Natural Answers wants to market its products as natural alternatives to manufactured pharmaceuticals. Natural Answers markets its products as "dietary supplements" that are "intended to promote the body's natural functions." Feinstein Aff. ¶ 5.
Natural Answers markets all the HERBSCRIPTIONS ® products as alternatives to drugs. The company's web site makes a direct comparison between "herbs" and "drugs" that portrays herbal formulas in an entirely positive light and as alternatives to drugs.
One way in which Natural Answers tries to suggest the benefits of its products is by giving them names that suggest an association with well-known drug brands or families of drugs. As explained below in the discussion of the similarity of the marks in question, the association between PROZAC ® and HERBROZAC is strong and intentional. Natural Answers chose a name similar to PROZAC ® rather than a name similar to other antidepressant drugs because PROZAC ® is the most famous and best-selling antidepressant drug. See Tr. 40, 43-44 (Feinstein cross-examination). Natural Answers has advertised HERBROZAC as "a very potent and synergistic formula, designed to promote Mood Elevation!" Pl.Ex. 2-1. Natural Answers also has advertised HERBROZAC as "a powerful, and effective all-natural and herbal formula alternative to prescription drug Prozac." Pl.Ex. 2-2 (source code for Natural Answers home page as of Nov. 29, 1999).[2]
Natural Answers' Feinstein testified at the hearing that the other product names in the HERBSCRIPTIONS ® line attempt to suggest similar associations. Natural Answers promotes HERBALIUM as a formula to promote "deep relaxation," and the name is intended to suggest an association with the brand-name drug VALIUM. Natural Answers promotes VITA-AGRA as enhancing men's sexual performance, and the name is intended to suggest an association with the Pfizer brand-name drug VIAGRA ®.[3] Natural Answers promotes HERBOCET ® as a pain reliever, and its name is intended to suggest an association with a family of pain relief drugs using the suffix "cet," such as Lorcet, Darvocet, and Percocet. Natural Answers promotes HerbenolPM as suitable for headaches and a good night's sleep, and the name is intended to suggest an association with TylenolPM ®. Natural Answers promotes HERBASPRIN ® for pain relief, and the name is intended to suggest an association with aspirin. Similarly, the name of the Natural Answers product HERBADRYL ® is intended to suggest an association with BENADRYL ®.
On cross-examination, Feinstein tried hard to avoid admitting that the names were intended to suggest an association with these famous name-brand drugs. He tried to phrase his answers in terms of suggesting an association not with the name-brand drugs themselves but with the functions or benefits of those drugs. See Tr. 49-52. Feinstein's balancing act does not withstand a moment's scrutiny. His chosen product names suggest the intended functions or benefits of name-brand drugs precisely because consumers are familiar with the names and benefits of the famous drugs.
*839 The exception proves the rule here. The HERBSCRIPTIONS ® line includes ZONK OUT, which obviously does not include the "HERB-" prefix or any other part of a word suggesting an association with a famous brand name drug or family of drugs. Feinstein testified that ZONK OUT is intended to promote deep sleep. He admitted that he used that name because "I did not believe that there was a sleeping preparation out there that was so widely known with a suffix that would call to mind a certain function so as to help the consumer know that melatonin combined with passion flower and calcium magnesium would help them sleep." Tr. 52. His testimony continued:
Q So you couldn'tfor your product for deep sleep, you couldn't find a product with a brand name sufficiently well known that called to mind that function of promoting deep sleep to fit with this particular product, is that correct?
A I don't know if I'd agree with what thesay that again, please.
(Whereupon the pending question was read back.)
A That's correct.
Tr. 52-53.
As compared to Lilly, which is a worldwide pharmaceutical company established in 1876, with annual sales in the billions of dollars, Natural Answers launched its business in 1999 and has one full-time employee, founder Brian Feinstein. Natural Answers' sales of HERBROZAC have amounted to no more than $2000 to date.
Feinstein and Natural Answers have filed applications to register trademarks for HERBSCRIPTIONS ® and the various Natural Answers products, including HERBROZAC. Feinstein submitted his application to register HERBROZAC in September 1998. On January 5, 1999, a lawyer for Lilly sent a letter to Feinstein asking him to withdraw the trademark application. Pl.Ex. 5-1. Feinstein did not respond. The proposed HERBROZAC mark was first published for opposition in August 1999. Lilly has filed a notice of opposition to Feinstein's application. Pl. Ex. 5-3. No final action has been taken on the application.
Among Natural Answers' other trademarks, its applications to register HERBOCET ®, HERBSCRIPTIONS ®, HERBASPRIN ®, and HERBADRYL ® have been allowed. Its application for HerbenolPM has been published for opposition and the seller of TylenolPM ® has filed a notice of opposition. Natural Answers' application for VITA-AGRA has been published for opposition.
On the web page for HERBROZAC, Natural Answers included several references to PROZAC ® in the source file until December 1999. These references were not visible to a casual visitor to the web page, but they were visible to a visitor who sought to access it. (The source file for a web page is available on most computer terminals by highlighting the "view" command and then clicking on "source" or "page source." See Def. Ex. 106.) These so-called "metatags" naming PROZAC ® in the source file were read by search engines searching Internet sites. The effect of the PROZAC ® metatags was to make the HERBROZAC web page responsive to Internet users' searches for sites relating to PROZAC ®.
The PROZAC ® metatags apparently did little to raise the visibility of the HERBROZAC web page. Tests on various search engines before the metatags were removed indicated that the HERBROZAC web page was swamped by many other web pages with far more references to PROZAC ®. See Def. Ex. 101. Natural Answers removed the PROZAC ® metatags from the source files of its web site in December 1999 after Lilly raised in this lawsuit a specific objection to their use.
III. Herbal Diet Supplements and Pharmaceutical Companies
The legal line between pharmaceutical drugs and herbal remedies has begun to blur in the market place. Several major pharmaceutical companies have recently *840 begun marketing herbal products based, as HERBROZAC is, on St. John's Wort. These companies include Warner-Lambert and SmithKline Beecham. See Pl. Exs. 2-5, 2-6, 2-7.
This phenomenon lends weight to a possibility that is legally important. It would not be unreasonable for a number of consumers who see or hear the name HERBROZAC not only to associate the name with PROZAC ® but also to assume or expect that there is some affiliation between the two. Even though the two products are distributed differently and are subject to very different regulatory regimes, they obviously are marketed to address similar if not identical conditions. The fact that some other major pharmaceutical companies are now marketing herbal products in general, and especially herbal products for mood elevation tends to lend some support to the possibility of confusion with respect to association or affiliation.
Conclusions of Law
I. Standard for Preliminary Injunction
In a recent Lanham Act case the Seventh Circuit set forth its definitive standard for deciding motions for preliminary injunctions:
As a threshold matter, a party seeking a preliminary injunction must demonstrate (1) some likelihood of succeeding on the merits, and (2) that it has "no adequate remedy at law" and will suffer "irreparable harm" if preliminary relief is denied. If the moving party cannot establish either of these prerequisites, a court's inquiry is over and the injunction must be denied. If, however, the moving party clears both thresholds, the court must then consider: (3) the irreparable harm the non-moving party will suffer if preliminary relief is granted, balancing that harm against the irreparable harm to the moving party if relief is denied; and (4) the public interest, meaning the consequences of granting or denying the injunction to nonparties.
The court, sitting as would a chancellor in equity, then "weighs" all four factors in deciding whether to grant the injunction, seeking at all times to "minimize the costs of being mistaken." We call this process the "sliding scale" approach: the more likely it is the plaintiff will succeed on the merits, the less the balance of irreparable harms need weigh towards its side; the less likely it is the plaintiff will succeed, the more the balance need weigh towards its side.
Abbott Laboratories v. Mead Johnson & Co., 971 F.2d 6, 11-12 (7th Cir.1992) (vacating denial of preliminary injunction where Abbott showed likelihood of succeeding on merits and court should have presumed irreparable harm from deceptive comparative advertising) (citations omitted).
II. Likelihood of Success on the Merits
A. Trademark Infringement
To succeed on a trademark infringement claim, a plaintiff must establish that it has a protectable trademark and that the alleged infringer's use of that trademark is likely to cause confusion among consumers. Munters Corp. v. Matsui America, Inc., 909 F.2d 250, 252 (7th Cir.1990); International Kennel Club of Chicago, Inc. v. Mighty Star, Inc., 846 F.2d 1079, 1084 (7th Cir.1988). Lilly's PROZAC ® mark was registered more than five years ago and has been in continuous use for more than five years, so the mark is "incontestable." 15 U.S.C. § 1065. Since Lilly's PROZAC ® mark is incontestable, Natural Answers cannot argue that the PROZAC ® mark is invalid or unprotectable. See Park 'N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 205, 105 S. Ct. 658, 83 L. Ed. 2d 582 (1985). However, Lilly must still prove infringement (by showing "likelihood of confusion"), and its claims for infringement are subject to defenses set forth in 15 U.S.C. § 1115(b).
In assessing the likelihood of confusion, the court must consider several factors: (1) the degree of similarity between the parties' marks in appearance and suggestion *841 (or actual copying); (2) the similarity of the products; (3) the area and manner of concurrent use; (4) the degree of care likely to be exercised by consumers; (5) the strength of complainant's mark; (6) actual confusion; and (7) intent to palm off by the infringer. Smith Fiberglass Prods., Inc. v. Ameron, Inc., 7 F.3d 1327, 1329 (7th Cir.1993); Indianapolis Colts, Inc. v. Metropolitan Baltimore Football Club, LP, 31 U.S.P.Q.2d 1801, 1806 (S.D.Ind.1994), aff'd, 34 F.3d 410 (7th Cir. 1994).
This list of factors is not intended to be a mechanical checklist. No one factor is decisive, and the court must weigh all the facts and circumstances of the particular marks, products, and parties. See International Kennel Club, 846 F.2d at 1087. There are a myriad of variables to be considered, but the most important are the similarity of the marks, the intent of the claimed infringer, and evidence of actual confusion. G. Heileman Brewing Company, Inc. v. Anheuser-Busch, Inc., 873 F.2d 985, 999 (7th Cir.1989). In general, the Seventh Circuit has often reaffirmed that the weight accorded to each of the seven factors will vary from case to case. E.g., Dorr-Oliver, Inc. v. Fluid-Quip, Inc., 94 F.3d 376, 380 (7th Cir.1996).
1. Similarity of Marks
There is a strong similarity between the marks PROZAC ® and HERBROZAC, in terms of sight, sound, and meaning. HERBROZAC includes five of the six letters of PROZAC ®. As for the sixth, the "B" sound in HERBROZAC is very similar to the "P" sound at the beginning of PROZAC ®. The net effect is a message that effectively states "herbal Prozac."
In their surreply brief, defendants argue that HERBROZAC merely "calls to mind" the PROZAC ® mark. The Lanham Act does not prohibit the use of a mark that merely calls to mind another mark. See 3 McCarthy on Trademarks and Unfair Competition § 23:9 (4th ed.1999). If Lilly's case were based only on the similarity of the two marks, defendants' point would carry more weight. In considering the likelihood of confusion, however, the court must consider several other factors which show that HERBROZAC does much more than merely "call to mind" the PROZAC ® mark.
2. Similarity of Products
There are important differences and similarities between these two products. HERBROZAC is not a drug. It is a dietary supplement available directly to consumers who choose to take it. The maker of HERBROZAC may not lawfully claim that the product is intended to diagnose, treat, or cure a disease. By contrast, PROZAC ® is a prescription drug that has been proven safe and effective in treating clinical depression and other conditions. There are also physical differences between the products that should not be overlooked. HERBROZAC comes in large capsules with a distinctly herbal odor. PROZAC ® comes in small green and off-white pills.
Despite these differences, the difference between a drug and a dietary supplement is primarily an artificial construct of the law, not necessarily a real difference between products. The artificial distinction between drug and dietary supplement is one that Natural Answers seeks to preserve for legal purposes but to obscure for marketing purposes. Natural Answers markets HERBROZAC as an alternative to PROZAC ® and other antidepressant drugs. And the promotion of "mood elevation" (which HERBROZAC claims) is neatly and intentionally parallel to the use of PROZAC ® to treat depression.
Competition between products is a matter of degree. COCA-COLA ® competes most directly with PEPSI-COLA ® and other cola drinks, but it also competes to some degree with other beverages, such as ginger ale, root beer, fruit juices, milk, and bottled water. Similarly, PROZAC ® competes most directly with other prescription antidepressant drugs like Zoloft ® and Elavil ®. Where the defendant has *842 chosen to market its product explicitly as an alternative to the plaintiff's product, however, as in this case, it is reasonable to treat the products as in direct competition or at the very least as in close "competitive proximity," despite some important differences. See Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254, 257-58 (2d Cir.1987) (Mobil's famous flying horse mark with word "pegasus" was infringed by oil trading company's use of "pegasus;" although Mobil did not use flying horse mark in oil trading business, the competitive proximity of the businesses and the strength of Mobil's mark tended to show likelihood of confusion).
The Seventh Circuit has explained, in applying this factor, that the parties' lines of business need not be the same, so long as their "`products [or services] are the kind the public attributes to a single source.'" Forum Corporation of North America v. Forum, Ltd., 903 F.2d 434, 442 (7th Cir.1990), quoting International Kennel Club, 846 F.2d at 1089, and citing Helene Curtis Indus. v. Church & Dwight Co., 560 F.2d 1325, 1331 (7th Cir.1977). "The parties need not be in direct competition and their goods and services need not be identical." Forum, 903 F.2d at 442, citing Halliburton Co. v. Halliburton Pipe and Steel Co., 207 U.S.P.Q. 318, 320 (S.D.Tex.1980) (concurrent use between large diversified oil field service company and distributor of steel supplies to petroleum companies).
The distinction between drugs and dietary supplements is recognized in the law, but it is being obscured in the market-place. As noted above, large pharmaceutical companies are now marketing their own brands of dietary supplements. These include products based on St. John's Wort, which is associated with some degree of "mood elevation." In other words, a dietary supplement based on herbs lies, for purposes of trademark law, in the natural line of expansion for a manufacturer of pharmaceutical drugs, especially where a drug and dietary supplement are intended and used to affect the same body functions and/or structures. That is, Natural Answers is trying to position its HERBROZAC in the closest "competitive proximity" to PROZAC ® that the food and drug laws will possibly allow. In addition, because of this competitive proximity, a consumer could now reasonably perceive some affiliation or association between the sources of PROZAC ® and HERBROZAC.
3. Area and Manner of Concurrent Use
With respect to this factor, again, there are both similarities and differences. Lilly distributes PROZAC ® throughout the United States and in many countries around the world. PROZAC ® is available both from brick-and-mortar pharmacies and from Internet pharmacies (as long as the customer can show he or she has a proper prescription). Natural Answers advertises HERBROZAC on the Internet and appears to be willing to fill orders at least from anywhere in the United States. The important difference is that PROZAC ® is available only by prescription, while anyone may order HERBROZAC over the Internet.
4. Consumers' Degree of Care
Lilly does not contend that consumers are likely to believe that HERBROZAC capsules are really PROZAC ®. Such confusion is not likely because one cannot even purchase PROZAC ® without a prescription from a licensed physician, who is not at all likely to confuse one product for another. Lilly contends, however, that the similarity of the trademarks is likely to confuse some consumers as to whether there is some affiliation or association between the sources of the two products. The Lanham Act applies to use of a product name that "is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person ...." 15 U.S.C. § 1125(a)(1); see also 4 McCarthy, § 24:16 *843 at 24-33 ("If the consumer is reasonably mistaken as to the source or sponsorship of an alleged infringer's goods, she suffers a real and independent injury ...."); Pebble Beach Co. v. Tour 18 I Ltd., 155 F.3d 526, 543 (5th Cir.1998) (golf course designed to imitate famous golf holes found likely to cause confusion of affiliation between the original golf courses and imitation course).
On the issue of consumer care with respect to affiliation or association, there is no reason to expect consumers of HERBROZAC to exercise great care to determine whether or not the seller of HERBROZAC is affiliated, connected, or associated with the seller of PROZAC ®.
5. Strength of the PROZAC ® mark
"The term `strength' as applied to trademarks refers to the distinctiveness of the mark, or more precisely, its tendency to identify the goods sold under the mark as emanating from a particular ... source." Sands, Taylor & Wood Co. v. Quaker Oats Co., 978 F.2d 947, 959 (7th Cir.1992), quoting McGregor-Doniger Inc. v. Drizzle Inc., 599 F.2d 1126, 1131 (2d Cir.1979), superseded by rule on other grounds, as recognized in Bristol-Myers Squibb Co. v. McNeil-P.P.C., Inc., 973 F.2d 1033, 1044 (2d Cir.1992).
The PROZAC ® mark is unusually strong. First, it is a fanciful word that carries no meaning apart from its use to identify a product. It does not describe or suggest the function of the product it names. When the seller of a product coins a word just for the product, as Lilly did with PROZAC, trademark protection is at its highest. See Polaroid Corp. v. Polaraid, Inc., 319 F.2d 830, 837 (7th Cir.1963); accord, Hyatt Corp. v. Hyatt Legal Services, 736 F.2d 1153, 1158 (7th Cir.1984).
Natural Answers asserts that PROZAC ® is now so famous that it has become a "generic" term no longer entitled to trademark protection. Def. Br. at 14. A trademark becomes generic when it comes to describe, in common usage in the United States, a class of goods rather than an individual product. See New Kids on the Block v. New America Publishing, Inc., 971 F.2d 302, 306 (9th Cir.1992). The Seventh Circuit has explained:
When a trademark becomes generic, such as "aspirin" or "thermos," and so loses trademark protection, because the public, perhaps egged on by the omni-present media, decides to use the trademark to designate not the particular manufacturer's brand but the entire product comprising all the competing brands, the trademark is dead no matter how vigorously the holder has tried to prevent this usage.
Illinois High School Ass'n v. GTE Vantage, Inc., 99 F.3d 244, 247 (7th Cir.1996) (collecting cases and affirming finding that "March Madness" phrase was generic).
Where the plaintiff's trademark has been registered with the United States Patent and Trademark Office, the plaintiff is entitled to a presumption that the mark is not generic, and the burden of proof is on the defendant to come forward with evidence showing that the mark is generic. Liquid Controls Corp. v. Liquid Control Corp., 802 F.2d 934, 936 (7th Cir.1986); accord, Reese Publishing Co. v. Hampton Int'l Communications, Inc., 620 F.2d 7, 11 (2d Cir.1980), citing McGregor-Doniger Inc. v. Drizzle, Inc., 599 F.2d at 1132; Venetianaire Corp. of America v. A & P Import Co., 429 F.2d 1079, 1080 n. 1 (2d Cir.1970); E.I. DuPont de Nemours & Co. v. Yoshida Int'l, Inc., 393 F. Supp. 502, 523 n. 45 (E.D.N.Y.1975).
For an illustration of the type of proof useful in showing that a trademark has become descriptive and generic, the district court's opinion in the "thermos" case is instructive. See American Thermos Products Co. v. Aladdin Industries, Inc., 207 F. Supp. 9 (D.Conn.1962), aff'd sub nom. King-Seeley Thermos Co. v. Aladdin Industries, Inc., 321 F.2d 577 (2d Cir. 1963). The evidence in the thermos case included hundreds of newspaper and magazine articles, as well as dictionary and encyclopedia references, large volumes of *844 correspondence, and a public survey. American Thermos, 207 F.Supp. at 19-20. The district court found that the large volume of references using the term "thermos" in a generic or descriptive sense showed that the term had lost its trademark status as identifying the source of a particular brand of vacuum-insulated containers. The Second Circuit affirmed on the district court's detailed findings. King-Seeley Thermos Co., 321 F.2d at 579.
Professor McCarthy has catalogued types of evidence useful in proving that a term has become generic. Such evidence may include generic use of the mark by competitors without objection from the plaintiff, the plaintiff's own use in a generic way, dictionary definitions, generic use in the media, testimony of persons in the trade about the use of the term, and consumer surveys. See 2 McCarthy, § 12:13 at 12-28 to -31.
Natural Answers has tried to use Lilly's own evidence of the fame of PROZAC ® to show that the term has become generic. Natural Answers highlights, for example, the Newsweek statement that "Prozac has the familiarity of Kleenex and the social status of spring water." See, e.g., Pl.Ex. 1-3 at 1. In fact, however, the cluster of Newsweek articles did not use the term generically but distinguished between PROZAC ® and other antidepressant drugs. A trademark can become exceptionally strong and famous without becoming generic, as suggested by the examples of COCA-COLA ® and KODAK ®.
Natural Answers has not shown that PROZAC ® is likely to be deemed generic. There is no evidence that any other competitors have used the term in a generic way, let alone that Lilly has tolerated such use.[4] There is no evidence that Lilly itself has used the term in a generic way. The parties have not submitted dictionary definitions tending to show the term has seeped into common usage in a generic sense. See Illinois High School Ass'n, 99 F.3d at 246 (trademark holder must try to convince "dictionary editors, magazine and newspaper editors, journalists and columnists, judges, and other lexicographically influential persons" to avoid using the trademark in a generic way).
The media references actually before the court do not use the term "Prozac" in a generic way. They use the term instead to identify plaintiff Lilly's product. They tend to focus on PROZAC ® more than other brands, but they do not use the term "Prozac" to refer to a whole class of different antidepressant drugs. In fact, the references to the new class of antidepressant drugs, of which PROZAC ® is the most widely sold, are much more descriptive: "selective seritonin re-uptake inhibitors." Nor is there any evidence of persons in the trade that the term "Prozac" has taken on a generic meaning, nor has Natural Answers presented any public surveys about the meaning of the term. The court recognizes, of course, that the case is now pending on a motion for preliminary injunction and that defendant may not have had a full opportunity to seek out such evidence. But defendant has not come forward with any serious indication that evidence of generic use of the term "Prozac" is likely to be available.
6. Evidence of Actual Confusion
Lilly has not presented any evidence of actual confusion here. That is *845 not surprising. Lilly filed suit and sought a preliminary injunction before HERBROZAC had reached a level of even $2000 in total sales. In fact, a respectable consumer survey would probably require sampling reactions of more consumers than have actually purchased HERBROZAC to date. The Seventh Circuit has made it clear that proof of actual confusion is not essential for a plaintiff to prevail where the other factors point to a significant likelihood of actual confusion. E.g., Computer Care v. Service Systems Enterprises, Inc., 982 F.2d 1063, 1070 (7th Cir.1992).
Natural Answers is probably correct in its contention that, by the time a consumer actually completes a purchase and receives a bottle of HERBROZAC capsules, the consumer is unlikely to believe that she has purchased PROZAC ® manufactured by Lilly. That point overlooks another important kind of confusion under the Lanham Act, which has been described as "initial interest confusion," which occurs when a competitor lures potential customers by initially passing off its goods as those of another, even if confusion as to the source of goods is dispelled by the time the sales are completed. See Dorr-Oliver, Inc., 94 F.3d at 382, citing Forum Corp., 903 F.2d at 442 n. 2, and Mobil Oil Corp., 818 F.2d at 260.
In this case there is significant evidence of a risk of such "initial interest confusion" as a result of Natural Answers' use of both the HERBROZAC mark and the term "Prozac" as a "metatag" on its web site. Natural Answers chose the name HERBROZAC precisely because it suggested a similarity to PROZAC ®. And Natural Answers chose to use the "Prozac" metatags in an attempt to attract the attention of Internet surfers looking for information about PROZAC ®.
7. Defendant's Intent
Where the defendant has deliberately tried to create confusion between its product and the plaintiff's by copying a trademark, the defendant's intent is an "important factor bearing on the likelihood of confusion." Computer Care, 982 F.2d at 1070, quoting Processed Plastic Co. v. Warner Communications, Inc., 675 F.2d 852, 857 (7th Cir.1982). While a defendant's intent to copy the plaintiff's trademark does not create a presumption of confusion, a defendant's intent can weigh more heavily than other factors in certain cases. See Schwinn Bicycle Co. v. Ross Bicycles, Inc., 870 F.2d 1176, 1184-85 (7th Cir.1989). In this case, Natural Answers' intent to copy Lilly's trademark is clear and is an important factor in considering the risk of confusion by consumers in the source of Natural Answers' product.
As discussed above, Natural Answers coined the name HERBROZAC precisely because it would remind consumers of PROZAC ®. Similarly, Natural Answers included in the source files of its web page the term "Prozac" for the clear purpose of attracting attention to its web site when Internet users searched for information about PROZAC ®. The fact that defendant's efforts along these lines have not been successful to date does not undermine the relevance of those efforts as evidence of intent to confuse and mislead.
Natural Answers has suggested that this case raises profound and novel issues about the use of trademarks in metatags.[5] The court disagrees. The Ninth Circuit recently surveyed the early reported decisions *846 dealing with use of trademarks in metatags in Brookfield Communications, Inc. v. West Coast Entertainment Corp., 174 F.3d 1036 (9th Cir.1999). The case involved the use of a competitor's trademark as a metatag to divert interest from that competitor's web site. The Ninth Circuit reversed the district court's denial of injunctive relief and explained how such use of a metatag could violate the Lanham Act:
Using another's trademark in one's metatags is much like posting a sign with another's trademark in front of one's store. Suppose West Coast's competitor (let's call it "Blockbuster") puts up a billboard on a highway reading"West Coast Video: 2 miles ahead at Exit 7"where West Coast is really located at Exit 8 but Blockbuster is located at Exit 7. Customers looking for West Coast's store will pull off at Exit 7 and drive around looking for it. Unable to locate West Coast, but seeing the Blockbuster store right by the highway entrance, they may simply rent there. Even consumers who prefer West Coast may find it not worth the trouble to continue searching for West Coast since there is a Blockbuster right there. Customers are not confused in the narrow sense: they are fully aware that they are purchasing from Blockbuster and they have no reason to believe that Blockbuster is related to, or in any way sponsored by, West Coast. Nevertheless, the fact that there is only initial consumer confusion does not alter the fact that Blockbuster would be misappropriating West Coast's acquired goodwill.
Brookfield Communications, 174 F.3d at 1064.
The Ninth Circuit further explained that its holding would not prohibit use of another's trademark on a web site or in metatags where the use would be a "fair use" under the Lanham Act, such as in nondeceptive comparative advertising or in a fair description of the site. Id. at 1065-66. In the case of metatags, however, where the person viewing a web site may not even see the metatags, it is difficult to see how the use could be fair, except in some unusual situations. See New York State Soc. of Certified Public Accountants v. Eric Louis Associates, Inc., 79 F. Supp. 2d 331, 339-341 (S.D.N.Y.1999) (use of plaintiff's trademark and domain name in metatags amounted to false designation of origin under Lanham Act; attorneys' fees awarded to plaintiff); SNA, Inc. v. Array, 51 F. Supp. 2d 554, 562 (E.D.Pa.1999) (defendant's deliberate use of plaintiff's web-site address as a metatag in defendant's web page violated Lanham Act); cf. Playboy Enterprises, Inc. v. Welles, 7 F. Supp. 2d 1098 (S.D.Cal.1998) (former Playboy Playmate could use "playboy" and "playmate" both in metatags and in references on her web site where the terms fairly and accurately described the contents of the site, and where the site included explicit disclaimers of any current affiliation with plaintiff).
Returning to the overall question of likelihood of confusion, the seven factors in the canonical Seventh Circuit formula are not intended to be a mechanical checklist. The overall question remains the likelihood of confusion on the part of consumers, and in this case the relevant type of confusion includes "initial interest confusion" and confusion as to affiliation or association. Considering all the factors as set forth above, the court concludes that Lilly has shown an unusually strong case on the issue of likelihood of confusion. Most important here are the unusual strength of Lilly's PROZAC ® mark, the strong similarity between PROZAC ® and HERBROZAC, and defendant's intentional selection of the HERBROZAC name precisely because of its similarity to PROZAC ® for the purpose of suggesting an association or affiliation between the products. Add to this mixture the fairly close "competitive proximity" of the two products, especially as pharmaceutical companies expand into the herbal and dietary supplement business, and Lilly has made a powerful showing of likelihood of success on its claim for trademark infringement.
*847 B. Dilution of Famous Trademark
Lilly also seeks relief under the Federal Trademark Dilution Act of 1995, which added § 43(c) to the Lanham Act, 15 U.S.C. § 1125(c). Section 43(c)(1) provides:
The owner of a famous mark shall be entitled, subject to the principles of equity and upon such terms as the court deems reasonable, to an injunction against another person's commercial use in commerce of a mark or trade name, if such use begins after the mark has become famous and causes dilution of the distinctive quality of the mark, and to obtain such other relief as is provided in this subsection.
Dilution is defined as "the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of(1) competition between the owner of the famous mark and other parties, or (2) likelihood of confusion, mistake, or deception." 15 U.S.C. § 1127. The prohibition on dilution is intended to "protect the trademark owner from the erosion of the distinctiveness and prestige of a trademark caused by the sale of other goods or services under the same name ..., even though there is no confusion as to source." Illinois High School Ass'n, 99 F.3d at 247.
Lilly must prove four elements to establish a federal trademark dilution claim: (1) its PROZAC ® mark is famous; (2) Natural Answers adopted its mark after Lilly's mark became famous; (3) Natural Answers diluted Lilly's mark; and (4) Natural Answers' use of its mark is commercial and in commerce. See 15 U.S.C. § 1125(c)(1); Syndicate Sales, Inc. v. Hampshire Paper Corp., 192 F.3d 633, 639 (7th Cir.1999). These elements are not fundamentally different from those found in most state antidilution statutes. See, e.g., Hormel Foods Corp. v. Jim Henson Productions, Inc., 73 F.3d 497, 506 (2d Cir.1996) (under New York's antidilution statute, the prior user must show both that its mark is distinctive and that there is a "likelihood of dilution"); Hyatt Corp. v. Hyatt Legal Servs., 736 F.2d 1153, 1157 (7th Cir.1984) (under Illinois Anti-Dilution Act, prior user must "show that the mark is distinctive and that the subsequent user's use dilutes that distinctiveness; neither competition between the users nor confusion need be shown") (footnote omitted).[6]
Plaintiff Lilly has shown that it is likely to prevail on this claim by establishing each of the four elements of the federal dilution claim. The second and fourth elements are not in dispute. If Lilly's PROZAC ® mark is famous, Natural Answers plainly adopted its HERBROZAC mark after PROZAC ® became famous, and Natural Answers uses its HERBROZAC mark in commerce and for commercial purposes. Natural Answers contends, however, that PROZAC ® is not famous and that the HERBROZAC mark causes no dilution of the PROZAC ® mark.
1. PROZAC ® is a "Famous" Mark
Section 43(c)(1) of the Lanham Act provides a non-exclusive list of eight factors relevant to whether a mark is distinctive and famous:
*848 (A) the degree of inherent or acquired distinctiveness of the mark;
(B) the duration and extent of use of the mark in connection with the goods or services with which the mark is used;
(C) the duration and extent of advertising and publicity of the mark;
(D) the geographical extent of the trading area in which the mark is used;
(E) the channels of trade for the goods or services with which the mark is used;
(F) the degree of recognition of the mark in the trading areas and channels of trade used by the mark's owner and the person against whom the injunction is sought;
(G) the nature and extent of use of the same or similar marks by third parties; and
(H) whether the mark was registered.
15 U.S.C. § 1125(c)(1). The court considers these factors in turn, but will try to avoid undue repetition where they duplicate the analysis of factors for likelihood of confusion in trademark infringement. The bottom line here is that PROZAC ® is the archetype of a "famous" mark for these purposes.
(A) Distinctiveness of the PROZAC ® Mark
In considering whether a mark is "famous," the court must first determine whether the mark is "distinct." It is possible for a mark to be famous but not distinct. Examples of famous but non-distinct marks are "American," "First," "Federal," or "National." Nabisco, Inc. v. PF Brands, Inc., 191 F.3d 208, 216 (2d Cir.1999). As the court found in Nabisco, the "most distinctive are marks that are entirely the product of the imagination .... The strongest protection of the trademark laws is reserved for these most highly distinctive marks." Id. PROZAC ® is a fanciful word that carries no meaning apart from its use to identify Lilly's product. It does not describe or suggest the function of the product it names. This fact weighs heavily in favor of finding that the PROZAC ® mark is distinct.
Natural Answers disputes the distinctiveness of the PROZAC ® mark by breaking down the word PROZAC ® into two syllables. Natural Answer argues that PROZAC ® is not a distinctive mark because the syllables "pro" and "zac" have been used in a number of other product names, including other Lilly products. See Def. Br. at 19-21.
By breaking down the PROZAC ® mark into two syllables, however, Natural Answers' argument does not accurately reflect the letters that are shared by both marks. HERBROZAC and PROZAC ® do not share only the three letter syllable "zac." Five of the six letters in the PROZAC ® mark are contained in the HERBROZAC mark. Natural Answers merely dropped the "P" from PROZAC ® and substituted the word "HERB."
Putting that fact aside, however, the primary problem with Natural Answers' argument is that the distinctiveness of the two separate syllables in the PROZAC ® mark is not the issue here. The question is whether the PROZAC ® mark as a whole is distinctive. Natural Answers has not pointed to any court decisions analyzing a mark's distinctiveness by breaking it down in the manner Natural Answers suggests. The PROZAC ® mark as a whole is an arbitrary and fanciful name that does not describe the function of the product it names, and is thus a highly distinctive mark. This distinctiveness weighs in favor of finding PROZAC ® to be a famous mark.
Natural Answers also argues that the trademark PROZAC ® has become generic and is thus not a distinct name. A trademark becomes "generic" when it describes a class or a group of products rather than an individual product. See Illinois High School Ass'n, 99 F.3d at 247. As discussed above, however, there is no evidence that PROZAC ® has become a victim of "genericide." The media references before the court do not use the *849 PROZAC ® mark in a generic way. They use the term only to identify Lilly's product.
(B) Duration and Extent of Use of the PROZAC ® Mark in Connection with Fluoxetine Hydrochloride
Lilly has used the PROZAC ® mark since 1988 to market fluoxetine hydrochloride. The name is a fanciful one created by Lilly for the purpose of marketing this drug. There is no evidence before the court that Lilly has itself used or permitted the use of the PROZAC ® mark on any product other than fluoxetine hydrochloride.
(C) Duration and Extent of the Advertising and Publicity of the PROZAC ® Mark
This factor considers how long a mark has been in use and how much advertising and publicity the mark has garnered during its life. Natural Answers argues that the eleven years the PROZAC ® mark has been in use is too short a time to establish "fame" for purposes of the Dilution Act. Natural Answers points to two decisions in which courts held that product names with longer life spans were not "famous" for dilution purposes. See S Industries, Inc. v. Diamond Multimedia Systems, Inc., 991 F. Supp. 1012, 1022 (N.D.Ill.1998) (mark in use for 17 years held not famous); Michael Caruso & Co., Inc. v. Estefan Enterprises, Inc., 994 F. Supp. 1454, 1463 (S.D.Fla.1998) (mark in use for 15 years held not famous).
There is no arbitrary minimum time, however, for proving fame for these purposes, nor did the courts in those cases suggest that there is. Consider, for example, the extraordinary speed with which some commercial names associated with the Internet have become famous in the last few years. The duration of the use of the PROZAC ® mark is only part of the analysis. The court must also consider the extent of the advertising and publicity the mark received during its life. In S Industries, the plaintiff "presented no evidence of any substantial publicity or advertising, other than two catalogs, a few advertising contracts with retailers, and three solicitation letters ...." S Industries, 991 F.Supp. at 1022. In Caruso, the court found that the plaintiff's publicity and advertising extended only to the junior women's apparel market and was not a "generally famous mark like `Exxon' and `Kodak.'" Caruso, 994 F.Supp. at 1463. In contrast here, the massive publicity surrounding the PROZAC ® mark and product during the last eleven years has been more than sufficient to make it a "famous" mark despite its relatively short life.
(D) The Geographical Extent of the Trading Area in which the PROZAC ® Mark is Used
There is little dispute over this factor. PROZAC ® has been marketed and sold throughout the United States and around the world. Since 1988, in the United States alone, PROZAC ® has been prescribed over 240 million times to more than 17 million Americans. PROZAC ®'s sales have totaled more than $12 billion since 1988. The PROZAC ® mark is used in an extremely broad trading area.
(E) The Channels of Trade for the PROZAC ® Product
PROZAC ® is a prescription drug, and as such, its channels of trade include doctors, pharmacists, and patients who have received prescriptions for PROZAC ®.
(F) The Degree of Recognition of the PROZAC ® mark in the Trading Areas and Channels of Trade used by both Lilly and Natural Answers.
This factor considers the degree of recognition that the PROZAC ® mark has achieved in markets that are used by both Lilly for PROZAC ® and Natural Answers for HERBROZAC. Essentially, the question is whether potential customers for HERBROZAC recognize the PROZAC ® mark. If they did not, then Natural Answers might be able to argue that the *850 PROZAC ® mark had achieved fame only in a particular "niche" market and not a more general level of fame. See Syndicate Sales, 192 F.3d at 640 (collecting cases on fame in niche markets); King of the Mountain Sports, Inc. v. Chrysler Corp., 968 F. Supp. 568, 578 (D.Col.1997), aff'd, 185 F.3d 1084 (10th Cir.1999); Golden Bear International, Inc. v. Bear U.S.A., Inc., 969 F. Supp. 742, 749 (N.D.Ga.1996).
A good example of the application of this factor is Mead Data Central, Inc. v. Toyota Motor Sales, U.S.A., Inc., 875 F.2d 1026, 1031 (2d Cir.1989). In Mead Data, the Second Circuit applied New York's antidilution statute and concluded that LEXIS, the mark used by the plaintiff for its computerized legal research service, is famous and distinctive only in its market attorneys and accountants. Id. The "general public associates nothing with LEXIS." Id. Therefore, it could not enjoin the defendant's use of LEXUS as the mark for luxury automobiles and the division of Toyota that manufactures them: the market in which LEXIS is well-known is considerably smaller than the market in which LEXUS operates.
PROZAC ®'s channels of trade are among doctors, pharmacists, and patients with a PROZAC ® prescription. Because of these limited channels of trade, Natural Answers argues, this factor weighs against a finding that the PROZAC ® mark has achieved the "general" level of fame that is required under the Dilution Act. But see Syndicate Sales, 192 F.3d at 640 (fame of plaintiff's mark in "niche" market may support federal dilution claim where defendant seeks to use similar mark in same niche). The court disagrees with defendant's contention. As set forth above, the PROZAC ® mark is widely publicized and advertised around the United States and the world. This publicity is not limited, as some drugs are, to medical journals and catalogs. The PROZAC ® mark has achieved recognition among an extraordinarily wide public.
PROZAC ®'s wide public recognition obviously includes a large percentage of Natural Answer's actual and potential customers. In fact, this overlap in the recognition of the PROZAC ® mark between Lilly's and Natural Answer's markets is precisely why Natural Answers chose the name HERBROZAC. Natural Answers wants people to consider using its product as a "natural" alternative to PROZAC ®. The overlap of markets is further evidenced by the fact that Natural Answers has used the word "Prozac" as a metatag for its web page. Natural Answers wanted people who were using the web to gather information on PROZAC ® to come across its web page so that Natural Answers could encourage them to consider an all-natural alternative to PROZAC ®. Natural Answers' entire marketing strategy for HERBROZAC has been based on the fact that its potential customers recognize the PROZAC ® mark. This factor clearly weighs in favor of PROZAC ® being a famous mark.
(G) The Nature and Extent of the Use of the Same or Similar Marks by Third Parties
The court addressed this factor above in its discussion of whether the PROZAC ® mark is distinctive. Natural Answers points out that a number of product names use the prefix "pro" and the suffix "zac." Again, however, the entire mark should be considered in determining the fame of a mark. Natural Answers has not put forth any evidence that other products have used, or are using the PROZAC ® mark. Therefore, this factor also weighs in favor of finding the PROZAC ® mark to be famous.
(H) Registration of the PROZAC ® Mark
As for the final factor, the PROZAC ® mark has been registered by Lilly. Pl.Ex. 1-1.
The evidence is clear in this case that PROZAC ® is a widely publicized and recognized mark around the world. After considering the factors listed in 15 U.S.C. *851 § 1125(c)(1), the court finds that Lilly is likely to be able to show that PROZAC ® is a famous mark for purposes of the Dilution Act.
2. HERBROZAC's Dilution of the PROZAC Mark
The Lanham Act defines "dilution" as "the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of (1) competition between the owner of the famous mark and other parties, or (2) likelihood of confusion, mistake, or deception." 15 U.S.C. § 1127. A likelihood of dilution can be established by showing either "blurring" or "tarnishment." E.g., Hormel Foods Corp., 73 F.3d at 506.
A trademark may be tarnished when it is linked to "products of shoddy quality," is "portrayed in an unwholesome light or unsavory context," or loses its ability to serve as a "wholesome identifier" of a plaintiff's product. Id. at 507 quoting Deere & Co. v. MTD Products, Inc., 41 F.3d 39, 43 (2d Cir.1994). Lilly does not contend that Natural Answer's HERBROZAC mark tarnishes the PROZAC ® mark. Instead, Lilly asserts that the HERBROZAC mark dilutes its PROZAC ® mark by "blurring" it.
Dilution by blurring occurs where customers or prospective customers see the plaintiff's mark on a "plethora of different goods and services," thus potentially diluting and weakening the mark's ability to serve as a unique identifier of one sourcethe plaintiff's product. Id. at 506; 4 McCarthy, § 24.94. An often-cited hypothetical example of dilution by blurring would be a piano company marketing a "Kodak piano." "No one would confuse Kodak pianos with Kodak film, but the use of the name on the piano could dilute its effectiveness as a mark for the film." I.P. Lund Trading ApS, Kroin Inc. v. Kohler Co., 163 F.3d 27, 49 (1st Cir.1998).
In a concurring opinion in the Mead Data decision discussed above, Judge Sweet proposed six factors for considering whether blurring has occurred for purposes of the New York dilution statute. These factors or some combination of them have been applied by a number of courts in analyzing the possible dilution of a mark by blurring. The factors consider: (1) the similarity of the marks, (2) the similarity of the products covered by the marks, (3) the sophistication of consumers, (4) predatory intent, (5) the renown of the senior mark, and (6) the renown of the junior mark. Mead Data, 875 F.2d at 1035 (Sweet, J., concurring). Some courts and commentators have questioned the use of some of these factors, however, in analyzing whether a mark has been blurred for purposes of the federal Dilution Act. See 4 McCarthy, § 24:94.1 (questioning the relevance of factors 2, 3, 4, and 6 because they relate to a "likelihood of confusion" analysis rather than a "blurring" analysis.); I.P. Lund, 163 F.3d at 49 (agreeing with Professor McCarthy on this point).
This court agrees that several of these factors relate more to a "likelihood of confusion" analysis than a "blurring" analysis. First, the similarity of the products is not necessarily important because the federal Dilution Act was meant to protect non-similar products (i.e., to protect Kodak ® film from Kodak pianos). Next, the sophistication of consumers is also unlikely to be important. A consumer's sophistication is a factor in determining whether the person will be confused between two products or their sources. Both the least and the most sophisticated consumers, however, may find that Kodak's mark has been blurred if they see Kodak pianos for sale. The intent of the junior mark's holder is also unlikely to be important. Using the same example, the manufacturer of Kodak pianos may not intend to use the fame of the Kodak ® film mark to assist it in selling its pianos. Despite this lack of intent, however, the Kodak ® mark may still become blurred and less distinctive because of its use on Kodak pianos. Finally, the renown of the junior mark is also not likely to be controlling here. If a junior mark is well known, then the potential for blurring *852 it with the senior mark is obvious. Even if the junior mark is not well known, however, a senior mark still becomes diluted under the theory of blurring each time a new junior mark arises. Therefore, the strength of the junior mark should not matter on this issue (although it may be important in choosing an equitable remedy).
Because dilution by blurring is the gradual whittling away of the value of a famous mark by other similar marks, the key issue in determining whether a junior mark blurs a senior mark is whether permitting junior marks to be used will weaken the strength of the senior mark. Mead Data, 875 F.2d at 1031; 4 McCarthy, § 24:94. For blurring to occur, there must be some mental association in the reasonable consumer's mind between the plaintiff's and the defendant's uses of the mark. Mead Data, 875 F.2d at 1031. Accordingly, dilution is likely only where the junior mark is either identical or substantially similar to the senior mark. Id. at 1029; Elvis Presley Enterprises, Inc. v. Capece, 950 F. Supp. 783, 798 (S.D.Tex. 1996) (same under federal Dilution Act). Therefore, the relevant factors are the similarity of the marks and the strength of the senior mark.
The court has already addressed these two factors at length above. There is a strong similarity between these two marks in terms of sight, sound, and meaning. Natural Answers has simply removed PROZAC ®'s first letter and replaced it with "HERB." In addition, the "B" sound is very similar to the "P" sound in PROZAC ®. As the court stated above, the effect of the HERBROZAC name is to portray the image of an "herbal Prozac."
The court has also already addressed the renown of the PROZAC ® mark. PROZAC ® is marketed throughout the United States and the world. It has been featured in numerous national publications and nationally broadcast television shows, and has been the subject of best-selling books. In short, PROZAC ® has become "a designer label, a buzzword, a brand name familiar to not only the 4.5 million Americans who have taken it, but also those who wonder if they, too, might find a cure for whatever ails them in the little green-and-off-white capsule." Pl.Ex. 1-6.
Considering these two relevant factors, Lilly has shown that it is likely to prevail in showing that the HERBROZAC mark blurs the PROZAC ® mark. HERBROZAC is a new product with little national recognition. However, if other manufacturers were to follow Natural Answers' footsteps in naming products, the PROZAC ® mark would become less and less distinctive.
Natural Answers contends, however, that Lilly cannot succeed on its claim under the federal Dilution Act without showing that actual blurring of the PROZAC ® mark has already occurred. See Ringling Bros.-Barnum & Bailey Combined Shows, Inc. v. Utah Div. of Travel Dev., 170 F.3d 449, 458 (4th Cir.1999) (plaintiff in action under Dilution Act must show "an actual lessening of the senior mark's selling power"). The Fourth Circuit held that the statutory phrase "causes dilution" does not mean "likely" to cause dilution. Ringling Bros., 170 F.3d at 464. More recently, however, the Second Circuit has disagreed in Nabisco, Inc. v. PF Brands, Inc., 191 F.3d 208, 224 (2d Cir.1999). This court agrees with the Second Circuit on this issue. The Fourth Circuit's interpretation of the Dilution Act would effectively defeat the purpose of the Act, and focusing on likelihood of dilution does no violence to the statutory language.
The theory of dilution by blurring is that if a famous commercial mark exists, and other nonfamous similar marks are permitted to be used in commerce, the famous mark will lose more and more of its distinctiveness with each new similar mark. Put another way:
The theory of dilution by blurring is that if one small user can blur the sharp focus of the famous mark to uniquely signify one source, then another and another small user can and will do so. *853 Like being stung by a hundred bees, significant injury is caused by the cumulative effect, not by just one.
4 McCarthy, § 24:94 at 24-163. The Dilution Act was written to protect a famous mark from the first "bee sting" and to stop the dilution at the beginning of the problem, not at the end.
If the holder of a senior mark cannot obtain injunctive relief until after actual dilution has occurred, the holder of the senior mark must suffer significant and irreparable harm before it is entitled to relief. In cases like this one, the senior mark holder would probably not be able to establish proof of actual dilution when the first junior mark has just come on the scene. Lilly has filed this case very early, before Natural Answers has sold even $2000 worth of HERBROZAC. By the time a number of junior marks have come into use, the senior mark holder would have a better chance of establishing actual dilution, but if the senior mark holder waits to file any dilution claims until after it can show actual irreparable harm from dilution, the senior mark holder would be open to the argument that it has not actively protected its mark. In addition, in determining whether the senior mark is famous and distinctive, the junior mark holder will have evidence of all the other junior marks to dispute the senior mark's distinctiveness. With every new junior mark, actual dilution increases and the fame and distinctiveness of the senior mark decreases. This sort of double-edged sword is contrary to the purpose behind the Dilution Act. Its purpose was to give the senior mark holder the ability to protect its mark with injunctive relief when the first junior mark arises and before any substantial harm is done.
Thus, Lilly is likely to be able to show: (1) that its PROZAC ® mark is famous, (2) Natural Answers began the use of its HERBROZAC mark after the PROZAC ® mark gained its fame, (3) the HERBROZAC mark dilutes the PROZAC ® mark by blurring it, and (4) that Natural Answers uses its HERBROZAC mark in commerce. Therefore, Lilly has established all four elements of a claim under the Dilution Act and has shown a strong likelihood of success on its dilution claim.
III. Irreparable Harm
Irreparable harm is generally presumed in cases of trademark infringement. See Abbott Laboratories v. Mead Johnson & Co., 971 F.2d 6, 16 (7th Cir.1992) (citing the line of cases supporting the "well-established presumption that injuries arising from Lanham Act violations are irreparable, even absent a showing of business loss."). Irreparable harm is also generally presumed in dilution cases. See American Dairy Queen Corp. v. New Line Productions, Inc., 35 F. Supp. 2d 727, 729 (D.Minn. 1998); Clinique Laboratories, Inc. v. Dep Corp., 945 F. Supp. 547, 550 (S.D.N.Y. 1996). Although the presumption of harm can be rebutted, it has not been rebutted in this case.
IV. Balance of Harms
The court must also consider the risk of harm to Natural Answers if the court were to grant a preliminary injunction erroneously. See Abbott Laboratories, 971 F.2d at 19. An injunction will leave Natural Answers free to market its blend of St. John's Wort and other herbs, but will prohibit Natural Answers from using a mark deceptively similar to Lilly's PROZAC ®. Requiring that change will impose some costs on Natural Answers and might inflict some competitive harm. In view of the evidence that Natural Answers has sold only a very small amount of its product using the HERBROZAC name, however, the extent of the harm appears not to be great.
V. The Public Interest
In considering the public interest, the court focuses generally on the interests of any persons not present before the court as parties. Abbott Laboratories, 971 F.2d at 18-19. The public interest generally favors enforcement of trademark laws so as to prevent confusion on the part of *854 consumers. See id. at 19, International Kennel Club, 846 F.2d at 1092 n. 8; Philip Morris Inc. v. Allen Distributors, Inc., 48 F. Supp. 2d 844, 855 (S.D.Ind.1999). There is certainly no evidence that a preliminary injunction will cause harm to anyone who is not a party to the lawsuit.
VI. The Scope of Relief and Requirements for Security
Preliminary injunctive relief must be tailored to the harm that is threatened. In this case the threat obviously comes from defendant's use of the name HERBROZAC and from its use of the term "Prozac" and similar terms as metatags in the source file for its web site. The court will therefore order defendant to remove the name HERBROZAC from its web site and any other advertising effective immediately. The court will also order defendant to remove references to PROZAC ® (including variations such as "prozack" and "prozac") from the source files of its web site effective immediately. The court will also order defendant to report to the court no later than January 31, 2000, confirming that defendant has complied with these requirements. The court will not prohibit defendant from filling orders actually received before January 31, 2000, with bottles labeled HERBROZAC, but any orders received after that time may not be filled unless the bottles are relabeled without the HERBROZAC name.
Defendant is entitled to security against the risk that the injunction is erroneous. In light of the very low level of HERBROZAC sales and the modest costs needed to comply with the injunction, the court will order plaintiff Lilly to post security in the amount of $10,000 no later than January 27, 2000.
A preliminary injunction to this effect shall issue immediately by separate order.
NOTES
[1] By way of comparison, the other five in that category were the safety razor, BAND-AIDS ®, penicillin, TAMPAX ® tampons, and birth control pills, and in the field of travel, the top five were the DC-3, the Harley-Davidson motorcycle, the Ford Model T, skateboards, and the Boeing 707.
[2] During December 1999, Natural Answers revised its advertising to remove explicit references to PROZAC ® and deleted the use of "Prozac" in the "metatags" in the source code for its web page. See page 839, infra.
[3] Natural Answers' web site and product labels for VITA-AGRA include a statement that the product is not a Pfizer product.
[4] Like many defendants in trademark cases, Natural Answers has tried to portray itself as a tiny David being bullied by a gigantic Goliath. For the holder of a famous trademark on a successful product, however, there is little alternative because the risk of inaction is so great. Delay or failure in enforcing trademark rights will usually give rise to a laches defense. Thus, even when the infringing use is on a new product produced in small volume by a tiny start-up company, the holder of the trademark and the court must assume that the defendant's new product will achieve great commercial success. If the holder of the famous trademark waits, a growing competitor may argue laches. If the holder ignores the first infringer, a later infringer with a more successful product may try to use the holder's failure to contest the small infringing use as evidence of abandonment or of generic meaning.
[5] The Ninth Circuit explained metatags in Brookfield Communications, Inc. v. West Coast Entertainment Corp., 174 F.3d 1036, 1045 (9th Cir.1999):
Metatags are HTML code intended to describe the contents of the web site. There are different types of metatags, but those of principal concern to us are the "description" and "keyword" metatags. The description metatags are intended to describe the web site; the keyword metatags, at least in theory, contain keywords relating to the contents of the web site. The more often a term appears in the metatags and in the text of the web page, the more likely it is that the web page will be "hit" in a search for that keyword and the higher on the list of "hits" the web page will appear.
[6] Several courts have limited state antidilution statutes to cases involving non-competing products. See AHP Subsidiary Holding Co. v. Stuart Hale Co., 1 F.3d 611, 619 (7th Cir. 1993) ("the protection of the Illinois Anti-Dilution statute is not available to competitors under Illinois case law"); EZ Loader Boat Trailers, Inc. v. Cox Trailers, Inc., 746 F.2d 375, 380 (7th Cir.1984) (same); see generally Jordache Enterprises, Inc. v. Hogg Wyld, Ltd., 828 F.2d 1482, 1489 (10th Cir.1987) (collecting cases limiting state antidilution statutes to noncompeting products, but holding that the "plain language" of New Mexico's statute, which allows relief "notwithstanding the absence of competition between the parties," applied to competing uses). Congress addressed this issue explicitly when it enacted the federal Dilution Act. The federal act defines dilution as "the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of ... competition between the owner of the famous mark and other parties...." 15 U.S.C. § 1127. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2127694/ | 645 N.E.2d 195 (1994)
163 Ill. 2d 302
206 Ill. Dec. 190
The PEOPLE of the State of Illinois, Appellee,
v.
Delores JAMES, Appellant.
No. 75490.
Supreme Court of Illinois.
December 22, 1994.
*196 Daniel D. Yuhas, Deputy Defender, and Karen Munoz, Asst. Defender, of the Office of the State Appellate Defender, Springfield, for appellant.
Roland W. Burris, Atty. Gen., Springfield, and Thomas J. Difanis, State's Atty., Urbana *197 (Rosalyn B. Kaplan, Solicitor Gen., and Terence M. Madsen and Martha E. Gillis, Asst. Attys. Gen., Chicago, of counsel), for the People.
Tom Leahy and Dennis A. Rendleman, Springfield (John Donahue and Elaine Odeh, Donahue, Sowa & Bugos, Lisle, of counsel, Liam Dixon, law clerk), for amicus curiae Illinois State Bar Association.
Justice McMORROW delivered the opinion of the court:
The instant appeal presents the question of whether it is reasonable for a police officer to believe that he has been granted the right to search a closed purse that he finds on the passenger seat in an automobile, where the driver of the car, but not the passenger, has consented to a search of the vehicle.
In April 1992, the defendant, Delores James, was a passenger in an automobile that was stopped by officers of the Urbana police department. The officers directed the driver and the passengers to step out of the car. When defendant exited the vehicle, she left her purse on the front, passenger-side seat of the car. One of the officers then escorted defendant away from the automobile.
Although defendant was not aware of it, the driver of the car agreed to a police search of the vehicle. During this search, the officers opened and looked into defendant's purse, where they found cocaine. She was arrested and charged with unlawful possession of a controlled substance (720 ILCS 570/402(c) (West 1992)).
Defendant filed a motion to suppress the evidence found by police officers during their search of her purse. She argued that she had not consented to the search and that the driver lacked the authority to consent to a search of her purse. Following an evidentiary hearing, the trial court allowed the defendant's motion to suppress. The appellate court reversed the trial court's ruling (242 Ill.App.3d 675, 183 Ill. Dec. 839, 612 N.E.2d 96), with one justice dissenting (242 Ill. App.3d at 677-79, 183 Ill. Dec. 839, 612 N.E.2d 96 (Cook, J., dissenting)). We allowed the defendant's petition for leave to appeal (145 Ill.2d R. 315(a)).
I
At the trial court's hearing with respect to defendant's motion to suppress, the defendant testified that on April 1, 1992, at approximately 7 p.m., she was a passenger in a vehicle being driven by Ruth Boolman. Defendant was sitting in the front passenger seat of the car. A third passenger, Shirley James, was in the back seat of the car. They were stopped by an Urbana police department squad car. One officer approached the driver's side of the car, another officer came to the passenger side, and a third officer went to the rear of the vehicle.
The officer near the driver, Boolman, spoke to her briefly. The officers then asked defendant and Shirley James to exit the car and they complied. One of the officers "walked [defendant] off a good piece by a tree" away from where the others were located. Defendant could not hear the conversations between the police officers and the other occupants of the vehicle. A short while later, one of the other officers approached defendant and asked her about her purse. She described the purse as a "little brown wallet with just a snap on it." Defendant had left the purse on the front passenger seat in the car. She stated that the officer told her he had looked in the purse and removed "a pipe and the bag and the tie." The officers never asked her permission to look inside her purse. Defendant admitted that the items found inside the purse belonged to her.
Officer Troy Phillips of the Urbana police department testified that on the night of the incident, he and his partner stopped a vehicle because it had no rear license plate and because a document, indicating that a license had been applied for, was torn and illegible. When the officers stopped the car, they examined the document and found it to be in order.
Officer Phillips testified that there were three women passengers in the car and two small children. He spoke to the driver, Boolman, after she got out of the automobile. Officer Phillips explained to Boolman that *198 they were working a special detail in the area because it was a "high traffic drug area." He asked Boolman if she had any contraband such as weapons or drugs on her person, and she said that she did not. She agreed to a search of her person, which produced no drugs or contraband.
Officer Phillips then asked Boolman if he could search her car, advising her that he was looking for drugs or weapons. Boolman consented to a search of the automobile. Officer Phillips stated that all of the passengers had exited the car before he searched it. During the search, he noticed a purse on the front seat. He opened the purse and found drug paraphernalia inside it.
Officer Phillips stated on cross-examination that when Boolman consented to the search of her vehicle, she was standing behind her car, in between her own vehicle and the squad car. The officer stated that he believed the other passengers were still in the vehicle at the time he sought Boolman's consent. After Boolman consented to the search, Officer Phillips asked the passengers to step out of the car. The officer admitted that he did not tell the passengers that he was going to search the vehicle.
Based on this testimony, the trial court allowed the defendant's motion to suppress the evidence taken from her purse. In its oral pronouncements, the trial court acknowledged that the officers had lawfully stopped the Boolman vehicle in order to check the validity of its license plates. The trial court also found no impropriety in Officer Phillips' request that Boolman permit him to search the vehicle.
With respect to Officer Phillips' search of the defendant's purse, however, the trial court found it significant that the purse did not belong to Boolman, but belonged to the defendant. The trial court further found that defendant had not consented to the officer's search of the purse and that she "had no idea that car was going to be searched." The trial court observed that "where there is more than one person in the car, that would lead a person to presume that perhaps an article that was found on the passenger seat, which is somewhere other than where the owner/driver had been located, that it seems to me at the very least some reasonable inquiry as to whom that property belongs to would be necessary." The trial court noted that the officers were well aware that there were passengers in the vehicle, and observed that the officers found the purse "where one of those other persons who has not given consent to search the car or container was seated." The trial court held that the defendant "didn't abandon [her purse] under the circumstances." The trial court allowed the defendant's motion to suppress.
The State appealed from the trial court's ruling, arguing that the driver's consent to search the automobile reasonably included the contents of the purse found on the front passenger seat of the vehicle. The appellate court agreed and reversed the trial court's allowance of the defendant's motion to suppress. The appellate court reasoned that "driver consent to search for drugs extends to closed containers * * * which may belong to others who have exited the vehicle." (Emphasis omitted.) (242 Ill.App.3d at 676, 183 Ill. Dec. 839, 612 N.E.2d 96.) Indeed, the appellate court "ponder[ed] how the searching officers [could] distinguish between ownership of the various containers in the vehicle" and noted that "[i]n the search process, such split-second decisions are likely given little thought." 242 Ill.App.3d at 676, 183 Ill. Dec. 839, 612 N.E.2d 96.
The appellate court also observed that a "third party may give legally sufficient consent for a search if he has actual authority over the property shared in common with the defendant. [Citation.]" (242 Ill.App.3d at 676, 183 Ill. Dec. 839, 612 N.E.2d 96.) According to the appellate court, "[b]y allowing the driver to exercise authority over a vehicle, a defendant assumes the risk that the driver will allow someone to look inside it. [Citations.]" (242 Ill.App.3d at 676-77, 183 Ill. Dec. 839, 612 N.E.2d 96.) The court concluded that it could find "no justifiable reason to limit the effect of driver consent to search where a passenger aware or unaware of the consent to search leaves a container in the automobile." (242 Ill.App.3d at 677, 183 Ill. Dec. 839, 612 N.E.2d 96.) The appellate court held that, when the driver of a vehicle consents to a police officer's search of the car *199 for narcotics, it is reasonable for the police officer to believe that the driver's consent to search the vehicle also extends to a search of a closed purse left in the vehicle by a passenger.
One justice dissented from this disposition. This dissenting justice believed that defendant had a reasonable expectation of privacy in her purse, which was closed when she left it in the automobile. (242 Ill.App.3d at 677, 183 Ill. Dec. 839, 612 N.E.2d 96 (Cook, J., dissenting).) The dissent noted that a police officer is "not always entitled to accept a person's * * * consent to search personal property." (242 Ill.App.3d at 678, 183 Ill. Dec. 839, 612 N.E.2d 96, citing Illinois v. Rodriguez (1990), 497 U.S. 177, 188-89, 110 S. Ct. 2793, 2801, 111 L. Ed. 2d 148, 161.) The dissenting justice concluded that the trial court's factual findings were not against the manifest weight of the evidence and that the cases cited by the majority were distinguishable and inapposite. 242 Ill.App.3d at 678, 183 Ill. Dec. 839, 612 N.E.2d 96.
II
Defendant argues that the trial court's suppression of the evidence taken from her purse was correct and should be upheld by this court. Defendant contends that Boolman's consent to Officer Phillips' search of the automobile did not justify his search of defendant's purse. Defendant claims that Boolman did not have the authority to consent to a search of defendant's purse. Defendant notes that under United States Supreme Court precedent, a police officer must make an objectively reasonable determination of whether a person has the apparent authority to consent to a search. (Illinois v. Rodriguez (1990), 497 U.S. 177, 110 S. Ct. 2793, 111 L. Ed. 2d 148.) The defendant asserts that other Supreme Court precedent is factually distinguishable from the instant cause (Florida v. Jimeno (1991), 500 U.S. 248, 111 S. Ct. 1801, 114 L. Ed. 2d 297) and that decisions from other jurisdictions support her position (United States v. Welch (9th Cir.1993), 4 F.3d 761; People v. McMillan (Colo.App.1993), 870 P.2d 493; State v. Suazo (1993), 133 N.J. 315, 627 A.2d 1074). The defendant argues that the appellate court's decision did not take into account the factual findings made by the trial court, all of which were fully supported in the record.
The State responds that although the trial court's factual findings should be reversed only if manifestly erroneous, the trial court's legal determination regarding the reasonableness of the search is subject to de novo review. The State emphasizes that there is a lesser privacy interest in a vehicle than there is in a private dwelling and asserts that the Supreme Court "has accorded automobiles fewer constitutional protections than other non-mobile entities." The State contends that Supreme Court precedent supports the appellate court's ruling, citing Jimeno, 500 U.S. 248, 111 S. Ct. 1801, 114 L. Ed. 2d 297, and United States v. Ross (1982), 456 U.S. 798, 102 S. Ct. 2157, 72 L. Ed. 2d 572.
The State suggests that the "fact that Officer Phillips may have incorrectly assumed that the purse belonged to the driver of the car is not a factor relevant to a Fourth Amendment analysis." The State relies upon the apparent authority rule enunciated by the Supreme Court in Rodriguez, 497 U.S. 177, 110 S. Ct. 2793, 111 L. Ed. 2d 148. On this basis, the State contends that the driver of the vehicle, Boolman, had the apparent authority to consent to a search of defendant's purse. The State asserts that defendant assumed the risk that the driver of the automobile in which she was riding would agree to a police search of the vehicle and its contents, including defendant's purse. The State argues that it would be impractical to require police officers to "inquire of all of the occupants of an automobile whether they consent to the search of their belongings, and then sort out and classify all of those belongings."
The Illinois State Bar Association, as amicus curiae, agrees with the position advocated by the defendant. The Association contends that the appellate court's decision should be reversed as an improvident erosion of fourth amendment rights.
III
Generally, a trial court's ruling with respect to a motion to suppress evidence is subject to reversal only if manifestly erroneous. *200 De novo review by this court is appropriate "[w]hen neither the facts nor the credibility of witnesses is questioned * * *. [Citations.]" (People v. Foskey (1990), 136 Ill. 2d 66, 76, 143 Ill. Dec. 257, 554 N.E.2d 192; see also People v. Smith (1992), 152 Ill. 2d 229, 251, 178 Ill. Dec. 335, 604 N.E.2d 858; In re D.G. (1991), 144 Ill. 2d 404, 408-09, 163 Ill. Dec. 494, 581 N.E.2d 648.) The State urges that we apply the standard of review set forth in Wanless v. Rothballer (1986), 115 Ill. 2d 158, 104 Ill. Dec. 759, 503 N.E.2d 316. However, that case pertained to a review of whether the evidence proved actual malice in a libel suit, and is therefore inapposite to the instant cause. Because the testimony provided by defendant and Officer Phillips was not wholly consistent or uncontradictory, we find the manifest error standard of review is applicable in the present cause.
Under the fourth amendment to the United States Constitution, the "right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause * * * and particularly describing the place to be searched, and the persons or things to be seized." (U.S. Const., amend. IV.) The fundamental purpose of the fourth amendment is to protect the legitimate expectations of privacy that citizens possess in their persons, their homes, and their belongings. (Ybarra v. Illinois (1979), 444 U.S. 85, 91, 100 S. Ct. 338, 342, 62 L. Ed. 2d 238, 245.) The amendment seeks to balance and accommodate the "`often opposing interests'" of "`safeguard[ing] citizens from rash and unreasonable interferences with privacy'" and yet accord "`fair leeway for enforcing the law in the community's protection.' [Citation.]" (Dunaway v. New York (1979), 442 U.S. 200, 208, 60 L. Ed. 2d 824, 833, 99 S. Ct. 2248, 2254.) The principles of the fourth amendment are applicable to the States through the due process clause of the fourteenth amendment, since the right to be free from arbitrary government intrusion is basic to a free society and implicit in the concept of ordered liberty. Stefanelli v. Minard (1951), 342 U.S. 117, 119, 72 S. Ct. 118, 119-20, 96 L. Ed. 138, 141.
Initially, we note that general principles of fourth amendment jurisprudence provide no validity for the law enforcement officers' actions in the case presently before us. The amendment explicitly requires that officers obtain a warrant, supported by probable cause, before they may search persons or property. (See, e.g., Katz v. United States (1967), 389 U.S. 347, 356-57, 88 S. Ct. 507, 514, 19 L. Ed. 2d 576, 585.) The record does not show that Officer Phillips had a warrant for his search of the Boolman car or the defendant's purse.
The United States Supreme Court has recognized an exception to the fourth amendment's warrant requirement, applicable where it is shown that there are exigent circumstances excusing the need to obtain the warrant. However, the police must still have probable cause to undertake the search. (See, e.g., Mincey v. Arizona (1978), 437 U.S. 385, 392-93, 98 S. Ct. 2408, 2413, 57 L. Ed. 2d 290, 299-300.) In the present case, there is no argument that exigent circumstances existed or justified the warrantless search undertaken by Officer Phillips. The State attempts to justify the search of the defendant's purse by relying upon another exception to the fourth amendment warrant requirement that has been recognized by United States Supreme Court precedent: the "automobile exception." However, that exception does not apply, and is inapposite, to the present cause.
Under the automobile exception, law enforcement officers may undertake a warrantless search of a vehicle if there is probable cause to believe that the automobile contains evidence of criminal activity that the officers are entitled to seize. (See, e.g., Carroll v. United States (1925), 267 U.S. 132, 45 S. Ct. 280, 69 L. Ed. 543.) Thus, in United States v. Ross (1982), 456 U.S. 798, 102 S. Ct. 2157, 72 L. Ed. 2d 572, and in California v. Acevedo (1991), 500 U.S. 565, 111 S. Ct. 1982, 114 L. Ed. 2d 619, the Supreme Court held that, under the automobile exception, police officers may undertake a warrantless search of a closed container found in a vehicle when the officers have probable cause to believe that evidence of criminal activity will be found in the container.
*201 The State relies upon the view expressed by the Court in Ross, and echoed in Acevedo, that "the expectation of privacy in one's vehicle is equal to one's expectation of privacy in the [closed] container, and * * * `the privacy interests in a car's trunk or glove compartment may be no less than those in a movable container.' [Citation.]" (Acevedo, 500 U.S. at 573, 111 S. Ct. at 1987-88, 114 L.Ed.2d at 629-30, quoting Ross, 456 U.S. at 823, 102 S. Ct. at 2172, 72 L.Ed.2d at 593.) The focus of the Court's analysis, in both Ross and Acevedo, was whether law enforcement officers were required to have probable cause in order to search a closed container being carried in an automobile. The Court decided that officers may conduct a warrantless search of an automobile, as well as closed containers in the vehicle, "where [the officers] have probable cause to believe contraband or evidence is contained." (Acevedo, 500 U.S. at 580, 111 S. Ct. at 1991, 114 L.Ed.2d at 634.) In the case at bar, the State does not suggest that Officer Phillips had probable cause to believe that evidence of a crime would be found in either the Boolman vehicle or defendant's purse. In addition, there is nothing in the record to demonstrate that the police had such probable cause. Officer Phillips never testified that he believed that he had probable cause to search the car or the purse. Neither Ross, Acevedo, nor the "automobile exception" provides support for the State's position.
The record offers only one reason for Officer Phillips' search of Boolman's vehicle: he undertook his search of the automobile because Boolman consented to this search. Therefore, if Officer Phillips' search of defendant's purse is to be justified under fourth amendment principles, the State must find refuge in Boolman's consent to the officer's search of the vehicle.
On the issue of consent, the State seeks to justify the officer's search of defendant's purse in light of the United States Supreme Court's decision in Florida v. Jimeno (1991), 500 U.S. 248, 111 S. Ct. 1801, 114 L. Ed. 2d 297> In Jimeno, a police officer stopped the vehicle which defendant was driving because of a traffic offense. The officer asked to search defendant's automobile for narcotics and the defendant consented. During the search, the officer saw a folded, brown bag on the floor of the vehicle. The officer opened the bag and found cocaine.
The Supreme Court determined that the officer's search of the brown paper bag was authorized by the defendant's consent to a search of the vehicle. The Court reasoned that the "standard for measuring the scope of a suspect's consent under the Fourth Amendment is that of `objective' reasonablenesswhat would the typical reasonable person have understood by the exchange between the officer and the suspect? [Citations.]" (Jimeno, 500 U.S. at 251, 111 S. Ct. at 1803-04, 114 L.Ed.2d at 302.) The Court framed the question before it as "whether it is reasonable for an officer to consider a suspect's general consent to a search of his car to include consent to examine a paper bag lying on the floor of the car." (Jimeno, 500 U.S. at 251, 111 S. Ct. at 1804, 114 L.Ed.2d at 302-03.) The Court noted that the parameters of a search are usually defined by the purpose of the search. The Court reasoned that "it was objectively reasonable for the police to conclude that the general consent to search respondents' car included consent to search containers within that car which might bear drugs." (Jimeno, 500 U.S. at 251, 111 S. Ct. at 1804, 114 L.Ed.2d at 303.) On this basis, the Court found that the consent to search "extended beyond the surfaces of the car's interior to the paper bag lying on the car's floor." Jimeno, 500 U.S. at 251, 111 S. Ct. at 1804, 114 L.Ed.2d at 303.
The State argues that the Court's ruling in Jimeno shows that the officers in the instant case were justified in searching the purse found in Boolman's car. We disagree, because we find that Jimeno is significantly different from the present case.
The defendant in Jimeno was the driver of the vehicle. In his capacity as driver, the defendant had the authority to consent to a search of the car, because he had immediate possession and control of the entire vehicle. (See People v. Harris (1990), 199 Ill.App.3d 1008, 1013, 146 Ill. Dec. 90, 557 N.E.2d 1277 (citing United States v. Morales (3d Cir. *202 1988), 861 F.2d 396, 399, and 3 W. LaFave, Search & Seizure § 8.6(a), at 316 (2d ed. 1987)); see also People v. Kelk (1992), 231 Ill.App.3d 797, 173 Ill. Dec. 388, 596 N.E.2d 1267.) There was no question in Jimeno that the driver also had possession and control over the brown paper bag, and that he therefore had the authority to permit the police to search the bag. Although there was a passenger in Jimeno, there was no argument that the brown bag belonged to the passenger rather than the defendant driver. The question in Jimeno was whether the defendant, having the authority to consent to a search of both the vehicle and the paper bag, intended his consent to a search of the vehicle to also encompass a search of the paper bag. (See also Kelk, 231 Ill.App.3d 797, 173 Ill. Dec. 388, 596 N.E.2d 1267.) In the instant case, in contrast, Boolman did not own defendant's purse, nor is there any suggestion that she had common possession or control of the defendant's purse. Since Boolman did not own or share control of the purse, the precise question addressed in Jimeno is not presented in the case now before us.
Our conclusion in this respect also finds support in the decision of the Federal court of appeals in United States v. Welch (9th Cir.1993), 4 F.3d 761. In that case, the driver of a car consented to a police search of his vehicle. During this search, the officers also found and looked into the purse of the defendant's companion, which had been left in the automobile. The court determined that Jimeno did not resolve the question of whether the officers' search of the purse was justified. The Welch court's reasoning is applicable to the present cause. As in Welch, the "dispositive issue * * * is not what areas of the car [Boolman] may have intended [her] consent to encompass, whether or not [she] intended to authorize a search of any of the car's contents, or even what constitutes an objectively reasonable interpretation of [her] statements to the officers." (Welch, 4 F.3d at 764.) "Rather the issue is whether [Boolman] had the [apparent] authority * * * to give effective consent to the search of [her] companion's purse." (Emphasis in original.) Welch, 4 F.3d at 764.
The "apparent authority" rule was recognized and adopted by the United States Supreme Court in Illinois v. Rodriguez (1990), 497 U.S. 177, 110 S. Ct. 2793, 111 L. Ed. 2d 148. In that case, the defendant's girlfriend consented to police officers' entrance into the defendant's apartment. Once they had gained entry, the authorities saw drug paraphernalia as well as containers filled with a substance later determined to be cocaine. The defendant was arrested and charged with possession of a controlled substance with the intent to deliver. He filed a motion to suppress the evidence seized from the apartment, arguing that his girlfriend lacked the actual authority to consent to police entry into the residence.
The United States Supreme Court held that the girlfriend lacked the actual authority to allow the police to enter the apartment, since she no longer lived in the apartment and had no legal interest in the premises. (Rodriguez, 497 U.S. at 181-82, 110 S. Ct. at 2797-98, 111 L.Ed.2d at 156-57.) However, the Court accepted the State's argument that the officers' entry was nevertheless valid, because the officers reasonably believed that the girlfriend had the authority to allow them to enter the apartment. The Court stated that "in order to satisfy the `reasonableness' requirement of the Fourth Amendment, what is generally demanded of the many factual determinations that must regularly be made by agents of the government * * * is not that they always be correct, but that they always be reasonable." Rodriguez, 497 U.S. at 185, 110 S. Ct. at 2800, 111 L.Ed.2d at 159.
In reaching this conclusion, the Court cautioned that law enforcement officers may not blindly accept a person's consent to search property or premises. "Even when the invitation [to search] is accompanied by an explicit assertion that the person lives there, the surrounding circumstances could conceivably be such that a reasonable person would doubt its truth and not act upon it without further inquiry." (Rodriguez, 497 U.S. at 188, 110 S. Ct. at 2801, 111 L.Ed.2d at 161.) The Court emphasized that "determination of consent to enter must `be judged against an objective standard: would the facts available to the officer at the moment *203... "warrant a man of reasonable caution in the belief'" that the consenting party had authority over the premises?" (Rodriguez, 497 U.S. at 188, 110 S. Ct. at 2801, 111 L.Ed.2d at 161, quoting Terry v. Ohio (1968), 392 U.S. 1, 21-22, 88 S. Ct. 1868, 1880, 20 L. Ed. 2d 889, 906.) If the facts and circumstances are such that it would be objectively reasonable to conclude that the person who consented did not have authority to do so, then the police officers' subsequent search would be invalid. (Rodriguez, 497 U.S. at 188-89, 110 S.Ct. at 2801, 111 L. Ed. 2d at 161.) The State bears the burden of proving that the officers were objectively reasonable in their belief that the person who gave consent to the search had the authority to do so. See Rodriguez, 497 U.S. at 181, 110 S. Ct. at 2797, 111 L.Ed.2d at 156.
Consistent with Rodriguez, decisions from other jurisdictions have generally held that a driver's consent to a search of the vehicle does not extend to an item remaining in the car that belongs exclusively to a passenger of the vehicle. United States v. Welch (9th Cir.1993), 4 F.3d 761 (passenger's consent to search of car did not permit search of companion's purse); State v. Suazo (1993), 133 N.J. 315, 627 A.2d 1074 (driver had no authority to consent to search of passenger's luggage; officers' belief that driver could validly consent to search held unreasonable); State v. Williams (1980), 48 Or.App. 293, 616 P.2d 1178 (vehicle owner's consent to search of vehicle held not reasonably construed as permission for search of closed and latched stereo cassette tape case that belonged to passenger); State v. Zachodni (S.D.1991), 466 N.W.2d 624 (driver's consent to search of vehicle not reasonably construed as permission to search wife's purse, who was passenger in vehicle); May v. State (Tex.Cr.App. 1979), 582 S.W.2d 848 (passenger's consent to search of vehicle did not justify police search of lunch box that driver said was his); see also People v. McMillan (Colo.App.1993), 870 P.2d 493 (officers' probable cause to search vehicle based on arrest of driver did not provide probable cause to search passenger's purse); see generally Annot., 31 A.L.R. 3d 1078 (1970).
Applying this jurisprudence to the present case, we conclude that Officer Phillips should have ascertained who owned the purse he found in the Boolman vehicle before he opened and searched the contents of the purse. In our view, it would have been objectively reasonable for the law enforcement officer to realize that the purse might belong to one of the passengers rather than to Boolman. A purse is normally carried by a woman, and all of the adult occupants of the vehicle were women. Thus, the purse could logically have belonged to any one of the three adult women in the car. The purse was found on a passenger seat in the car, not on the driver's seat, thereby tending to the conclusion that the purse belonged to the passenger, not the driver. It would have been unreasonable for the officer to believe that Boolman shared some common use in the purse with one of the passengers in the vehicle, since a purse is generally not an object for which two or more persons share common use and authority.
Also, it is uncontradicted that defendant did not know that Boolman had given her consent to a search of the vehicle. It is also unrebutted that defendant did not know the police officers' purpose for the search, and that defendant was not aware that she was being asked to exit the vehicle so that the officers could search the automobile. Under these circumstances, the defendant did not abandon her purse in the vehicle, nor did she assume the risk that someone might look into her purse if she left it in the car.
Given all of these considerations, we conclude that Officer Phillips' actions were not objectively reasonable and that his search of defendant's purse was therefore invalid.
By our holding we emphasize that the apparent authority rule does not allow law enforcement officers to "proceed without inquiry in ambiguous circumstances or always accept at face value the consenting party's apparent assumption that he has authority to allow the contemplated search." (3 W. LaFave, Search & Seizure § 8.3(g), at 266 (2d ed. 1987).) One commentator has succinctly remarked:
*204 "[U]nder a sound application of the apparent authority rule the police must be required to make reasonable inquiries when they find themselves in ambiguous circumstances. This does not mean that the police must contest every claim of authority * * *. But sometimes the facts known by the police cry out for further inquiry, and when this is the case it is not reasonable for the police to proceed on the theory that `ignorance is bliss.'" 3 W. LaFave, Search & Seizure § 8.3(g), at 266-67 (2d ed. 1987).
Similarly, the officer in the present case acted unreasonably when he proceeded to search the closed purse, although he was ignorant of the identity of the owner of the purse. The State suggests that Officer Phillips was mistaken and incorrectly believed that Boolman did in fact own the purse. There is nothing in the record to support this contention, however. Officer Phillips did not testify that he mistakenly believed that Boolman owned the purse he found on the front passenger seat of the car. The officer simply testified that he asked the occupants to step out of the car, but never told them he was going to search it. Under these circumstances, it is likely that the officer simply did not know who owned the purse, and that he did not believe that he needed to find out. In our view, such police action is not reasonable under the Supreme Court's interpretation of the fourth amendment to the United States Constitution.
The appellate court found that further inquiry by Officer Phillips would not have been advisable because it would have been difficult for him to determine who owned the various pieces of property in the vehicle. (242 Ill. App.3d at 676, 183 Ill. Dec. 839, 612 N.E.2d 96.) The court also suggested that when a search is undertaken, "such split-second decisions are likely given little thought." 242 Ill.App.3d at 676, 183 Ill. Dec. 839, 612 N.E.2d 96.
Similar sentiments have been expressed in decisions from other courts regarding the apparent authority rule. We would agree that the apparent authority doctrine should not be applied so strictly that it becomes "unworkable and place[s] too heavy a burden on the police." (United States v. Poole (E.D.La.1969), 307 F. Supp. 1185, 1190.) Also, the emergency nature of the circumstances confronting the police in various situations may not permit protracted investigation into the true ownership or authority over the property or premises which the police have been given the permission to search. (See, e.g., People v. Adams (1981), 53 N.Y.2d 1, 422 N.E.2d 537, 439 N.Y.S.2d 877.) Consent searches provide a valuable investigative tool for law enforcement authorities, by providing a lawful avenue for the officers to exonerate the innocent and focus their efforts on others who are more likely to be guilty of criminal activity.
However, neither police convenience nor the exigencies of the moment justified the officer's failure to ask Boolman in the present case if the purse belonged to her or to one of her passengers. This would not have been a cumbersome, time-consuming or complicated undertaking in the instant case. Also, there was no emergency nature to the officer's search, since the occupants of the vehicle were being detained by the officers, and there was no likelihood that the evidence of narcotics, if it were present, would be destroyed or hidden by Boolman or her passengers. There was no immediate threat that the evidence or the occupants would be affected by the short time it would have taken for the officer to simply inquire regarding ownership of the purse. As the Illinois State Bar Association aptly observes, the time that would be required to ask which passenger owned the purse "does not seem an onerous burden nor one which would place the officers in danger."
Based upon our review of the record and the pertinent precedent, we find no manifest error in the trial court's determination that Officer Phillips' search of the defendant's purse was not objectively reasonable. At no time did the defendant abandon her possessory interest in or control over her purse. The purse was closed when she left it on the passenger seat of the vehicle, where she had been riding, and she had a legitimate expectation of privacy in the contents of her purse. Accordingly, we affirm the trial court's allowance of the defendant's motion to suppress. *205 We reverse the appellate court's decision that the trial court's ruling was in error.
We decline to consider the State's invitation that this court adopt the apparent authority rule as a matter of substantive Illinois constitutional law, pursuant to our State constitutional provision that bars unreasonable searches and seizures. (Ill. Const. 1970, art. I, § 6.) This argument is waived, inasmuch as it was never presented to the trial court or the appellate court upon review. Also, we note that the cases upon which the State relies do not address the apparent authority rule in the context of our State constitutional provision, but rather analyzed and applied Federal fourth amendment jurisprudence regarding unreasonable searches and seizures. (See People v. Miller (1968), 40 Ill. 2d 154, 157, 238 N.E.2d 407; People v. Harris (1990), 199 Ill.App.3d 1008, 1013, 146 Ill. Dec. 90, 557 N.E.2d 1277; People v. Speer (1989), 184 Ill.App.3d 730, 737, 133 Ill. Dec. 223, 540 N.E.2d 1089; People v. Vought (1988), 174 Ill.App.3d 563, 570, 124 Ill. Dec. 204, 528 N.E.2d 1095; People v. Bochniak (1981), 93 Ill.App.3d 575, 577, 49 Ill. Dec. 32, 417 N.E.2d 722.) Subsequent to those decisions, the United States Supreme Court adopted the apparent authority rule (Rodriguez, 497 U.S. 177, 110 S. Ct. 2793, 111 L. Ed. 2d 148), which this court has since applied to fourth amendment issues (see People v. Henderson (1990), 142 Ill. 2d 258, 299, 154 Ill. Dec. 785, 568 N.E.2d 1234 ("[w]e now hold that, when a court is deciding whether consent was given * * *, the circumstances must have been such that the police could have reasonably believed they had been given consent to enter [citation]"); see also People v. Steinberg (1994), 260 Ill.App.3d 653, 658, 198 Ill. Dec. 680, 633 N.E.2d 142 (applying Rodriguez apparent authority rule)).
We need not and do not decide whether the apparent authority rule has not been, but should be, adopted as an element of our State constitutional jurisprudence prohibiting unreasonable searches and seizures. As stated more fully above, the apparent authority rule does not justify the officers' conduct in the present cause. As a result, our recognition of the rule as an element of Illinois constitutional law would not alter our conclusion that the trial court's decision was correct, and that the disposition of the appellate court should be reversed.
For the reasons stated, judgment of the appellate court is reversed and the judgment of the circuit court is affirmed. The cause is remanded to the circuit court for further proceedings consistent herewith.
Appellate court reversed; circuit court affirmed; cause remanded.
Justice HEIPLE, dissenting:
I dissent for the reasons adequately expressed in the majority opinion of the appellate court which this court now reverses. 242 Ill.App.3d 675, 183 Ill. Dec. 839, 612 N.E.2d 96. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3107245/ | 02-12-403-CR
COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-12-00403-CR
Paula Faye Netter
APPELLANT
V.
The State of Texas
STATE
------------
FROM THE 396TH
District Court OF TARRANT COUNTY
------------
MEMORANDUM
OPINION[1] AND
JUDGMENT
----------
We
have considered appellant’s “Motion To Dismiss Appeal.” The motion complies
with rule 42.2(a) of the rules of appellate procedure. Tex. R. App. P. 42.2(a). No decision of this
court having been delivered before we received this motion, we grant the motion
and dismiss the appeal in cause No. 02-12-403-CR (relating to trial court cause
no. 1170799D). See Tex. R. App. P.
42.2(a), 43.2(f). The appeal in cause number 02-12-402-CR (relating
to trial court cause no. 1210337D) remains pending in this court.
PER
CURIAM
PANEL: WALKER, MCCOY, and MEIER, JJ.
DO NOT PUBLISH
Tex. R. App.
P. 47.2(b)
DELIVERED: December 21,
2012.
[1]See Tex. R. App. P. 47.4. | 01-03-2023 | 10-16-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1132732/ | 374 So. 2d 1288 (1979)
COLONIAL LIFE & ACCIDENT INSURANCE COMPANY
v.
Mrs. Geraldine COOK.
No. 51435.
Supreme Court of Mississippi.
September 12, 1979.
*1289 Wells, Wells, Marble & Hurst, John E. Hughes, III, Jackson, for appellant.
Waller & Waller, Bill Waller, Jr., Jackson, for appellee.
Before SMITH, P.J., and LEE and BOWLING, JJ.
SMITH, Presiding Justice, for the Court:
Colonial Life and Accident Insurance Company has appealed from a judgment entered against it in favor of Mrs. Geraldine Cook, as beneficiary under three separate policies of insurance issued to her husband, Victor W. Cook, Jr. Throughout the record, Policy No. 42664-01 is referred to as Policy No. 1, Policy No. 1151-1124 is referred to as Policy No. 2 and Policy No. 3773-32785 is referred to as Policy No. 3. Those designations will be used in this opinion.
Policy Nos. 1 and 2 were each entitled "Select Risk Accident Policy" and Policy No. 3 as a life insurance policy. Mrs. Cook's husband, Victor W. Cook, Jr., was named as the insured in each of the policies.
On April 2, 1976, Cook died as the result of a gunshot wound under the following circumstances. Cook and several of his friends were at a service station in Bentonia. While there, a minor disturbance arose and Cook went to his truck and obtained his pistol, which he placed under his belt. When the service station closed, Cook entered his truck preparatory to leaving. The pistol discharged, striking him in the groin and causing his death. There is no evidence, and in fact no contention, that insured was shot by any other person, or that Cook had died as the result of any crime or foul play.
Colonial defended as to Policy Nos. 1 and 2 upon the ground that it had paid, and Mrs. Cook, the beneficiary, had accepted and appropriated to her own use the amount due under each of the policies, and that therefore an accord and satisfaction had resulted. As to Policy No. 3, Colonial's defense was that there had been a material misrepresentation in the application for the policy which had voided the policy.
Subsequent to Cook's death, Mrs. Cook, as beneficiary, submitted a claim and proof of loss to Colonial. With these documents she also submitted a copy of Cook's death certificate. The claim form signed by Mrs. Cook stated that the cause of Cook's death had been "accidental self-inflocted (sic) gun shot wound." The death certificate submitted stated that the cause of death was "self-inflicted gun shot wounds accidental."
POLICY NO. 1:
Policy No. 1 contained the following provision:
For death covered by the provisions of this policy, where it results from . ., shooting self-inflicted .. ., the amount payable shall be one-fifth the amount otherwise payable for accidental death... .
Colonial, on the ground that the death of Cook had resulted from a self-inflicted shooting, mailed to appellant its check in the amount of $750.00, payable to her as beneficiary, and representing one-fifth of the amount otherwise payable, for death by "self-inflicted shooting" under Policy No. 1, it being the position of Colonial that this was the amount due under the terms of the insurance contract.
*1290 On the reverse of this check, the following language appeared:
I hereby acknowledge that this payment is received in full settlement and release of all claims and liabilities under the policy issued by Colonial Life & Accident Insurance Company identified on the face of this draft and arising out of the accident on or about the date also shown thereon.
Mrs. Cook endorsed the check below the above release and testified at the trial that she knew and understood that the amount was tendered by Colonial in full payment and settlement of all claims under the terms of Policy No. 1, identified on the face of the check. The law in Mississippi as to accord and satisfaction is well settled.
In State Highway Department v. Duckworth, 178 Miss. 35, 42, 172 So. 148, 150 (1937) this Court said:
This court is thoroughly committed to the doctrine that, where money is paid with a recital that it is in full settlement of all demands, or of all accounts, or similar wording, when it is accepted, it is full settlement therefor, although there might be, in fact, more due than the recital in the check or warrant showed... .
This court is also committed to the doctrine that all antecedent agreements between parties are merged into the written contract when executed, and that parol evidence of such antecedent agreements is not admissible to contradict the recitals of the written instrument.
In May Brothers v. Doggett, 155 Miss. 849, 124 So. 476 (1929), the Court said:
It seems to be the general rule, as announced by the text-writers, (1 C.J. 554; 1 R.C.L. 191), that where a claim is unliquidated, or in dispute, the acceptance of a sum tendered by a debtor on condition that it be accepted in full settlement of the claim constitutes an accord and satisfaction; but in this state this rule applies to liquidated as well as unliquidated demands... .
(155 Miss. at 855, 124 So. at 478).
It is clear from the language of the release appearing on the reverse of the check and which was signed by Mrs. Cook that it was an effective release. Her testimony regarding this matter was to the effect that in endorsing the check she had done so knowing that the check was tendered by Colonial in full settlement of all of her claims under the policy, and she had accepted and used the proceeds for her own benefit, although she made a mental reservation that she was not accepting it as such. The execution of the release and acceptance of the money under the undisputed facts constituted an effective release of all claims and also was an accord and satisfaction, notwithstanding any secret mental reservation she may have had.
Mrs. Cook was not entitled to recover anything further under Policy No. 1, Colonial was entitled to a peremptory instruction in its favor, and it was error to submit the issue to the jury.
POLICY NO. 2:
Policy No. 2 contained a provision similar to that referred to above and contained in Policy No. 1, expressly limiting recovery under the undisputed circumstances in which Cook met his death, to one-fifth of the amount otherwise payable. This provision in Policy No. 2 was as follows:
For death covered by the provisions of this policy, where it results from . ., shooting accidentally self-inflicted, . ., the amount payable shall be one-fifth the amount otherwise payable for accidental death... .
Colonial tendered, and Mrs. Cook accepted and appropriated to her own use and expended, in settlement of her claim under Policy No. 2, the sum of $600.00, being one-fifth of the amount otherwise payable. This check, although there was no release appearing upon the back of it, according to Mrs. Cook's own testimony, was known by her to have been tendered by Colonial in full settlement of her claim under the policy. However, we think it is unnecessary to decide whether accord and satisfaction resulted from her action with respect to this for the reason that the amount tendered *1291 was one-fifth of the sum which otherwise would have been payable under the policy and was, therefore, the amount due under the circumstances and under the express terms of the policy in the light of the undisputed facts relating to the manner in which Cook had met his death. For this reason, if for no other, Colonial was entitled to a peremptory instruction to the jury to find in its favor as to Policy No. 2, and it was error to submit the issue to the jury.
POLICY NO. 3:
As to Policy No. 3, it is the contention of Colonial that there had been a material misrepresentation of fact in the application submitted by Cook. This misrepresentation is said to have consisted in false answers to these questions which appeared on the application.
3. Has Applicant (or Spouse) had any advice or treatment within last five years for heart disease, lung disease, high blood pressure, cancer or any other serious illness?
4. Has Applicant (or Spouse) consulted a physician or been confined to a hospital or sanitarium within last five years (other than for normal pregnancy)?
Both of the above questions were answered in the application in the negative.
It was developed in evidence, however, that as a matter of fact, applicant, Victor W. Cook, Jr. had been examined by a Dr. Allard on August 19, 1971. Dr. Allard obtained a blood pressure reading on that occasion of 170/120, and that this constitutes what is known as high blood pressure or hypertension. An anti-hypertensive drug was prescribed by the doctor.
The insurance contract provides:
All statements in the application will, in the absence of fraud, be deemed representations and not warranties, and no statement will avoid this policy or be used in defense to a claim under this policy unless it is contained in the application and a copy of the application is attached to this policy when issued. (Emphasis added).
It was developed at the trial that Mrs. Cook had been the "writer" of the family, and that she and Victor W. Cook, Jr., her husband, had consulted together and that it was she who had actually filled out the application and had signed it for him. Cook took this policy pursuant to solicitation by the company by mail, and no agent of the company ever called upon him. It is undisputed that the insured, Cook, enjoyed perfect health between the date of his examination by Dr. Allard, when his blood pressure had been 170/120, until the time of his death. Cook had been examined by Dr. Allard again on January 1, 1973, and found to be in perfect health, requiring no treatment of any kind. However, it does not appear that a blood pressure reading was taken at that time. Mrs. Cook testified that she ate with her husband every day and slept with him every night, that he had not been on any medication of any kind and that his health had been perfect. Colonial offered a witness, purporting to be qualified as an expert in the field of life insurance. This witness testified, in substance, that the concealment of the fact that on one occasion a reading of the insured's blood pressure had shown it to be 170/120 was sufficient cause for rejecting or declining to assume the risk.
The testimony of Mrs. Cook and the circumstances surrounding the making out and submission of the application are incapable of supporting a contention that either she or her husband had been guilty of intentional fraud. In National Casualty Co. v. Johnson, 219 Miss. 1, 67 So. 2d 865 (1953), this Court said:
The distinction between a warranty and a representation in an application for insurance has been well recognized by this Court, and that distinction is that a warranty must be literally true and its materiality cannot be inquired into, whereas a representation, if substantially true and not material to the risk, will not invalidate the policy in the absence of fraud... .
(219 Miss. at 6, 67 So.2d at 867).
*1292 In the case at bar the terms of the policy itself provide that, in the absence of fraud, statements in the applications shall be representations and not warranties. In National Casualty Co. v. Johnson, supra, the Court said of the circumstances in that case:
Whether or not these previous ailments materially affected either the acceptance of the risk or the hazard assumed by the company was, in our opinion, a question of fact and an issue for the determination of the jury. Fidelity Mutual Life Insurance Co. v. Miazza, 93 Miss. 18, 46 So. 817; Fidelity Mutual Life Insurance Co. v. Miazza, 93 Miss. 422, 48 So. 1017. [Hn 3] This issue was submitted to the jury, and we think rightly so, and the jury resolved the issue in favor of the appellee, and in our opinion was amply warranted in so doing under the evidence.
(219 Miss. at 7, 67 So.2d at 867).
In the light of the totality of the evidence, including the strong evidence of insured's good health during the intervening period, no fraud having been perpetrated by the Cooks, we have concluded that it cannot be said as a matter of law that this single isolated occasion of an elevated blood pressure reading of 170/120, so materially affected the acceptance of the risk or expanded the exposure assumed by the company under the policy, as to avoid the policy, particularly where there is nothing in the record to indicate that this reading as to insured's blood pressure was more than a temporary condition or that it continued or was chronic. The trial court correctly submitted the issue of liability as to Policy No. 3 to the jury. The verdict of the jury finding for Mrs. Cook as to liability under Policy No. 3 is supported by the evidence. However, the amount of the verdict returned by the jury on this policy is in error. The policy provides for a $500 initial payment, plus $150 per month for 12 months, plus a second payment of $1,500.00, or a total of $3,800.00.
The case will be reversed and judgment will be entered here for appellant, Colonial Life And Accident Insurance Company, as to Policy No. 1 and Policy No. 2. As to Policy No. 3, the judgment will be reduced to $3,800.00 and for that amount will be affirmed.
REVERSED AS TO POLICIES NOS. 1 AND 2. JUDGMENT AS TO POLICY NO. 3 REDUCED TO $3,800.00 AND AFFIRMED IN THAT AMOUNT.
PATTERSON, C.J., ROBERTSON, P.J., and SUGG, WALKER, BROOM, LEE, BOWLING and COFER, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1259224/ | 8 Cal. 4th 121 (1994)
876 P.2d 1074
32 Cal. Rptr. 2d 275
JANET JENNINGS, Plaintiff and Appellant,
v.
JAMES J. MARRALLE et al., Defendants and Respondents.
Docket No. S034510.
Supreme Court of California.
August 1, 1994.
*123 COUNSEL
Marvin D. Mayer and William Quackenbush for Plaintiff and Appellant.
Joseph Posner as Amicus Curiae on behalf of Plaintiff and Appellant.
*124 Rutan & Tucker, James L. Morris, Carol L. Demmler and Bruce W. Hamby for Defendants and Respondents.
Bernard L. Allamano, Fred J. Hiestand, Proskauer, Rose, Goetz & Mendelsohn, Jeffrey A. Berman, Steven G. Drapkin and Monica J. Lizka-Miller as Amici Curiae on behalf of Defendants and Respondents.
OPINION
BAXTER, J.
The Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.)[1] declares, as a public policy of this state, a necessity to protect and safeguard the right and opportunity to seek, obtain, and hold employment without discrimination on various grounds, among which is age. (§ 12920.)[2] In furtherance of that policy the FEHA declares that the right to employment without discrimination is a civil right (§ 12921)[3] and creates administrative remedies that are intended to eliminate discriminatory practices in hiring and employment. (§ 12960 et seq.) We are asked to decide whether an employee to whom those remedies are not available because her employer does not regularly employ five or more persons may, nonetheless, maintain a common law tort action for damages for wrongful discharge in violation of the public policy stated in section 12920.
We conclude that permitting such an action would be inconsistent with the legislative intent reflected in various provisions of the FEHA and, in particular, subdivision (d) of section 12926 which, by defining employer as a *125 person "regularly employing five or more persons," restricts employer liability for violations of the FEHA age provision to employers subject to the FEHA. This exemption of small employers from the FEHA ban on age discrimination was enacted simultaneously to, and is inseparable from, the legislative statement of policy. For that reason, and because no other statute or constitutional provision bars age discrimination, we conclude that there presently exists no "fundamental policy" which precludes age discrimination by a small employer. Thus, there is no independent basis for an action for tortious discharge in violation of policy.
We shall therefore reverse the judgment of the Court of Appeal.
I
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff Jennings initiated this action in the Orange County Superior Court on June 15, 1990, naming defendant Marralle, her former employer, and his professional corporation as defendants (hereafter defendant). The complaint stated three causes of action: wrongful termination, age discrimination in violation of section 12941, and failure to pay back wages and pension benefits.
With regard to the first and subsequent counts, Jennings alleged that she had been employed by defendant from May 5, 1986, to April 12, 1990; that defendant expressly and impliedly represented to her that she would be employed indefinitely as long as she carried out her duties competently; and that notwithstanding her competent performance her employment was terminated on April 12, 1990. Plaintiff also alleged that the termination was due solely to her age, and that defendant acted to prevent her from receiving employment benefits to which she was entitled.
With regard to the second count, Jennings alleged that she was an employee covered by section 12941; that defendant was an employer within the meaning of former subdivision (c) (now subdivision (d)) of section 12926; that she had filed a complaint with the Department of Fair Employment and Housing (the department); and that on April 28, 1990, the department issued a "Right to Sue" letter to her.
The third count alleged that as a result of defendant's actions Jennings had not received benefits to which she was entitled as a vested beneficiary of defendant's pension plan and sought back wages.
Defendant removed the action to the United States District Court for the Central District of California pursuant to 28 United States Code section *126 1441. That court granted summary judgment for defendant on the second count, finding that defendant was not an employer within the meaning of the FEHA because he did not employ five or more persons. The third cause of action was dismissed without prejudice "to the extent [it] concerns pension benefits [and] arises under ERISA, 29 U.S.C. § 1001 et seq." The state law claim for breach of an implied contract and the portion of the third count involving overdue wages was remanded to the state court.
Jennings then sought leave to amend the complaint to state a common law cause of action for wrongful termination in violation of public policy as recognized in Rojo v. Kliger (1990) 52 Cal. 3d 65 [276 Cal. Rptr. 130, 801 P.2d 373]. The proposed complaint alleged that the termination of plaintiff's employment violated public policy prohibiting discrimination in employment on the basis of age. The superior court denied the motion for leave to amend.
The remaining issues were then submitted to binding arbitration. The arbitrator's award was entered on June 4, 1992. Plaintiff then appealed from "the judgment entered on June 4, 1992, as to that portion of the judgment denying plaintiff leave to amend her complaint...." The Court of Appeal reversed the judgment with directions that the proposed amended complaint be accepted for filing.
II
APPELLATE JURISDICTION
Because the parties submitted the remaining issues to binding judicial arbitration following denial of Jennings's motion for leave to amend, made after the federal court had granted summary judgment for defendant on the count seeking damages for violation of the FEHA ban on age-related employment discrimination, the only judgment entered by the superior court was a judgment on the arbitrator's award. That award did not encompass any matters related to the FEHA count or the denial of plaintiff's motion to amend that count.
(1a) Preliminarily, therefore, we must determine whether plaintiff has appealed from an appealable order or judgment. (2) The existence of an appealable judgment is a jurisdictional prerequisite to an appeal. A reviewing court must raise the issue on its own initiative whenever a doubt exists as to whether the trial court has entered a final judgment or other order or judgment made appealable by Code of Civil Procedure section 904.1. (Olson v. Cory (1983) 35 Cal. 3d 390, 398 [197 Cal. Rptr. 843, 673 P.2d 720]; *127 Committee for Responsible Planning v. City of Indian Wells (1990) 225 Cal. App. 3d 191, 195 [275 Cal. Rptr. 57].) (1b) Here, a doubt exists by virtue of Code of Civil Procedure section 1141.23, which provides that an award resulting from judicial arbitration "shall have the same force and effect as a judgment in any civil action or proceeding, except that it is not subject to appeal and it may not be attacked or set aside except as provided by Section 473, 1286.2, or Judicial Council rule." (Italics added.) To determine the effect of this provision on the appeal here, we asked the parties to file briefs addressing the question of whether an appealable order or judgment had been entered.
Both parties contend that the appeal is proper and identify the order denying plaintiff leave to amend as the basis for this appeal. Plaintiff states that the appeal "is from that portion of the judgment entered by the Superior Court on June 8 [sic], 1991 which denied Appellant's motion to amend her complaint...." In support of her belief that an appealable judgment was entered by the trial court, she has submitted the following documents of which we take judicial notice:
1. A June 8, 1992, "Judgment after Binding Arbitration" in which the superior court awarded plaintiff damages of $1,693.18, plus costs of suit.
2. A "Notice of Review Hearing" filed July 22, 1991. That notice recites: "the conference had been set to review the status of the stipulation between the parties to refer the First and Third causes of action of the complaint to binding judicial arbitration. Such stipulation does not affect the right of any party to appeal any prior court orders or judgments."
3. A copy of a letter dated September 21, 1992, in which defendant's counsel confirmed that the "execution by plaintiff of a Notice of Satisfaction of Judgment does not waive your client's ability to maintain an appeal on the subject of her desire to assert a common law cause of action for age discrimination."
The latter two documents reveal that in stipulating to judicial arbitration of the remaining causes of action, the parties understood that plaintiff's right to appeal would be preserved as to issues and causes of action not submitted to arbitration. (3), (1c) Although jurisdiction may not be conferred by consent of the parties (Estate of Hanley (1943) 23 Cal. 2d 120 [142 P.2d 423, 149 A.L.R. 1250]; Caruso v. Snap-Tite, Inc. (1969) 275 Cal. App. 2d 211 [79 Cal. Rptr. 642]), the parties' understanding is relevant to a determination of the scope of arbitration and the effect of the subsequent award.
*128 A superior court judgment, unless it is interlocutory, is normally apealable. (Code Civ. Proc., § 904.1.)[4] On appeal from a superior court judgment, "the reviewing court may review ... any intermediate ruling, proceeding, order or decision which involves the merits or necessarily affects the judgment or order appealed from or which substantially affects the rights of a party...." (Id., § 906.) (4) Thus, an order sustaining a demurrer, granting summary adjudication of certain claims, or denying leave to amend the complaint is generally reviewable on appeal from the final judgment in the action. (1d) Absent an express waiver of the right to appeal, appellate review of these judicial determinations should not be foreclosed merely because the parties thereafter stipulate to submit the remaining claims to arbitration, if those claims are independent of those submitted to arbitration.
The statutory scheme for judicial arbitration provides that a party who is dissatisfied with an arbitration award may elect a trial de novo by court or jury. (Code Civ. Proc., § 1141.20.) It is the availability of this remedy that justifies and explains the prohibition of appeal from judicial arbitration awards. This remedy does not affect pre-arbitration judicial rulings foreclosing claims that were not submitted to arbitration, however. Those rulings are reviewable only by appeal from the judgment. If the submission of some, but *129 less than all, of the claims in a civil action foreclosed appellate review of pre-arbitration rulings on the remaining claims, there would be a substantial disincentive to judicial arbitration. This could be inconsistent with the legislative intent that arbitration be encouraged. (Code Civ. Proc., § 1141.10.)
To avoid this disincentive, and thus to encourage parties to stipulate to judicial arbitration, we conclude that a judgment on an arbitration award is appealable as to pre-arbitration judicial rulings on claims not submitted to arbitration which are independent of the arbitrated claim.[5]
This conclusion is consistent with the language of Code of Civil Procedure section 1141.23. Under that provision, it is the arbitration award itself that is "not subject to appeal." The judgment incorporating the award is appealable (Code Civ. Proc., § 904.1, subd. (a)(1)), and brings before the appellate court for review all intermediate judicial rulings on independent claims that were not submitted to arbitration. Accordingly, we conclude that the judgment is appealable and brings up for appellate review the court's order denying leave to amend the complaint to assert a claim for wrongful discharge in violation of fundamental public policy.
III
AGE DISCRIMINATION IN EMPLOYMENT
(5) An action in tort seeking damages for discharge from employment in contravention of public policy is an exception to the general rule, now codified in Labor Code section 2922,[6] that unless otherwise agreed by the parties, an employment is terminable at will. That exception was recognized in Tameny v. Atlantic Richfield Co. (1980) 27 Cal. 3d 167 [164 Cal. Rptr. 839, 610 P.2d 1330, 9 A.L.R. 4th 314] (Tameny), where the court noted that a growing number of states permitted a tort action for termination which contravenes public policy. The specific holding, however, was only that "an employer's authority over its employee does not include the right to demand that the employee commit a criminal act.... An employer engaging in such conduct violates a basic duty imposed by law upon all employers, and thus an employee who has suffered damages as a result of such discharge may maintain a tort action for wrongful discharge against the employer." (Id., at p. 178.)
Because the Tameny decision and its progeny (see Rojo v. Kliger, supra, 52 Cal. 3d 65; Foley v. Interactive Data Corp. (1988) 47 Cal. 3d 654 [254 *130 Cal. Rptr. 211, 765 P.2d 373]) did not make clear the scope of the exception to the terminable-at-will employment relationship, we addressed that question in Gantt v. Sentry Insurance (1992) 1 Cal. 4th 1083 [4 Cal. Rptr. 2d 874, 824 P.2d 680]. There the court concluded that only termination in violation of a fundamental public policy expressed in a statute or a constitutional provision will support a wrongful discharge action. (Id., at p. 1095.) After reviewing the sources of public policy recognized by other states in which a wrongful termination action is permitted, we held: (1) The public policy exception to the right to terminate an employee at will must be found in either a constitutional or statutory provision; (2) "[W]hile an at-will employee may be terminated for no reason, or for an arbitrary or irrational reason, there can be no right to terminate for an unlawful reason or a purpose that contravenes fundamental public policy." (Id., at p. 1094.) Gantt did not involve alleged discriminatory hiring and retention practices or public policy declared in the FEHA, however. Whether discrimination in employment on the basis of age violates a "fundamental" public policy has not been resolved by this court. We need not decide that question here since the "public policy" on which plaintiff relies is not applicable to defendant. He is not an "employer" subject to the age discrimination provisions of the FEHA.
(6) The FEHA is a statute which clearly states a public policy against discrimination on the basis of age in employment. However, the FEHA, which declares the right to employment without discrimination to be a civil right and establishes that right as public policy of this state, simultaneously limits the application of the act's enforcement provisions to employers of five or more persons. Thus, while the Legislature has made a broad statement of policy, it has not extended that policy to small employers. The FEHA gives plaintiff no remedy as defendant does not regularly employ five or more persons.
The absence of an FEHA remedy would not negate the existence of a common law tort remedy if another law created the right on which this action is predicated. The FEHA expressly preserves rights created in other statutes, stating in section 12993, subdivision (a): "The provisions of this part shall be construed liberally for the accomplishment of the purposes thereof. Nothing contained in this part shall be deemed to repeal any of the provisions of the Civil Rights Law or of any other law of this state relating to discrimination because of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, marital status, sex, or age, unless those provisions provide less protection to the enumerated classes of persons covered under this part." (Italics added.)
Age discrimination in employment has been subject to statutory limitations since 1961, when former section 2072 was added to the Unemployment *131 Insurance Code as part of chapter 9.5, entitled "Employment of Older Workers." (Stats. 1961, ch. 1623, § 1, p. 3517.) That legislation also declared an age-related public policy in section 2070 of the Unemployment Insurance Code: "It is the public policy of the State of California that manpower should be used to its fullest extent. This statement of policy compels the further conclusion that human beings seeking employment, or retention thereof, should be judged fairly and without resort to rigid and unsound rules that operate to disqualify significant portions of the population from gainful and useful employment. Accordingly, use by employers, employment agencies, and labor organizations of arbitrary and unreasonable rules which bar or terminate employment on the ground of age offend the public policy of this State." (Stats. 1961, ch. 1623, § 1, p. 3517.)
The Legislature established discrimination on the basis of age as an unlawful employment practice in 1972 when it repealed Unemployment Insurance Code section 2072 and enacted former section 1420.1 of the Labor Code, a part of the Fair Employment Practices Act. (Stats. 1972, ch. 1144, § 1, p. 2211.) Former section 1420.1 of the Labor Code made it an unlawful employment practice "for an employer to refuse to hire or employ, or to discharge, dismiss, reduce, suspend, or demote, any individual between the ages of 40 and 64 solely on the ground of age, except in cases where the law compels or provides for such action...."
Former section 1420.1 of the Labor Code and former section 2072 of the Unemployment Insurance Code each made it unlawful to refuse to hire or employ, or to discriminate against, persons between the ages of 40 and 64 solely on the ground of age. However, the Labor Code definition of employer limited application of the statutory provisions to employers of five or more persons. (Lab. Code, former § 1413.) Under the Unemployment Insurance Code provision the threshold had been six employees. (Unemp. Ins. Code, former § 2071, subd. (4).)
When former section 1420.1 of the Labor Code was adopted in 1972 as part of the Fair Employment Practices Act (Lab. Code, former § 1410 et seq.; see Stats. 1959, ch. 121, p. 1999 [the Fair Employment Practices Act]), it replaced former section 2072 of the Unemployment Insurance Code. Although the language of the new ban on age discrimination was substantially identical to that of the prior statute, the Legislature did not add age discrimination to the categories of discrimination declared to be violations of public policy in former sections 1411 and 1412 of the Labor Code.
When the FEHA was enacted the Fair Employment Practices Act, including former section 1420.1 of the Labor Code, was repealed. Therefore, while *132 the Legislature declared its intent that the FEHA not repeal other state laws governing discrimination in employment, it expressly repealed the former statutory bar to age discrimination. At the time subdivision (a) of section 12993 was enacted, although Unemployment Insurance Code section 2070 declared arbitrary age discrimination in employment to be contrary to public policy, there was no statutory prohibition of age discrimination in employment, and there had never been one applicable to small employers.
As the Court of Appeal recognized, and plaintiff concedes, there is presently no law of this state other than the FEHA which proscribes discrimination on the basis of age. Thus, while the FEHA is cumulative to preexisting common law and statutory rights (Rojo v. Kliger, supra, 52 Cal. 3d 65, 79), it is not so with respect to a cause of action for age discrimination in employment.
Because Tameny was decided while the FEHA was still undergoing the legislative process,[7] and age was included among the types of discrimination declared to be in violation of public policy under sections 12920 and 12921 (Stats. 1980, ch. 992, § 4, pp. 3142-3143), the Legislature may have been aware when it adopted the FEHA that the court would recognize some violations of public policy in the discharge of an at-will employee as a basis for a tort action.
Nonetheless, the FEHA ban on discrimination in employment applies only to employers of five or more persons (§ 12926, subd. (d)). It seems clear, therefore, that the Legislature did not intend to make the right to be free of age discrimination by a small employer a "fundamental" public policy and to thereby subject employers who are not within the FEHA's statutory prohibitions and remedies to Tameny-based common law civil liability for age discrimination.
The Court of Appeal concluded that the absence of FEHA remedies for age discrimination by employers of fewer than five persons reflected only the Legislature's creation of an "arbitrary cutoff" of liability for the convenience of the administrative agency charged with responsibility for administering the FEHA remedies. As this court explained in Robinson v. Fair Employment & Housing Com. (1992) 2 Cal. 4th 226 [5 Cal. Rptr. 2d 782, 825 P.2d 767], however, that was not the sole purpose of the small employer exemption. That purpose had two aspects: "relieving the administrative body of the burden of enforcement where few job opportunities are available, and *133 ... keeping the agency out of situations in which discrimination is too subtle or too personal to make effective solutions possible." (Id., at p. 240, italics added.)
The Court of Appeal also concluded that no public policy outweighed the protection against age discrimination in employment established by section 12920, and saw no reason to deny plaintiff a common law remedy based on the public policy expressed in the statute. Therefore, the court held, while a person covered under the act is required to exhaust FEHA remedies and may not base a claim on the policy expressed in the act, noncovered persons may base a common law cause of action on that policy. In so doing, the Court of Appeal distinguished Strauss v. A.L. Randall Co. (1983) 144 Cal. App. 3d 514 [194 Cal. Rptr. 520], in which another court held that there is no common law cause of action for age discrimination in employment based on the FEHA statement of public policy. The employee in Strauss, the court reasoned, was a person covered by the FEHA and thus had a FEHA remedy while Jennings did not.
The Court of Appeal acknowledged that this court had discussed the Strauss decision at length in Rojo v. Kliger, supra, 52 Cal. 3d 65, and had not disapproved that court's conclusion that no common law cause of action was created by the public policy statements in the FEHA. Nonetheless, the Court of Appeal reasoned, Jennings must be allowed a remedy if the employee is a victim of the discrimination prohibited under the public policy of the state.
Defendant, who relies on the history of the FEHA explored in Robinson v. Fair Employment & Housing Com., supra, 2 Cal. 4th 226, argues that the age discrimination ban in the FEHA does not reflect a "fundamental" public policy of the type which the court held would support a common law action in Gantt v. Sentry Insurance, supra, 1 Cal. 4th 1083. Relying on the history of the FEHA small employer exemption discussed in Robinson v. Fair Employment & Housing Com., supra, 2 Cal. 4th 226, he contends that the conclusion of the Court of Appeal is contrary to the legislative intent in limiting statutory remedies for age discrimination to discrimination by persons who regularly employ five or more persons. That history included the explanation of the FEHA small employer exception offered in Tobriner, California FEPC (1965) 16 Hastings L.J. 333, 342: "A sense of justice and propriety led the framers to believe that individuals should be allowed to retain some small measure of the so-called freedom to discriminate; besides, they feared the political repercussions of eliminating totally an area of free choice whose infringement had been so bitterly opposed. In the second place, the framers believed that discrimination on a small scale would prove exceedingly difficult to detect and police. Third, it was believed that an employment *134 situation in which there were less than five employees might involve a close personal relationship between employer and employees and that fair employment laws should not apply where such a relationship existed. Finally, the framers were interested primarily in attacking protracted large-scale discrimination by important employers and strong unions. Their aim was not so much to redress each discrete instance of individual discrimination as to eliminate the egregious and continued discriminatory practices of economically powerful organizations. Thus, they could afford to exempt the small employer." (Fn. omitted; see also Brennan, State Legislation Prohibiting Discrimination in Employment Because of Age (1967) 18 Hastings L.J. 539, 551.)
Therefore, defendant argues, the legislative intent underlying the inclusion of age in the public policy declarations in sections 12920 and 12921 must be gleaned by reading those sections in conjunction with the definition of employer found in section 12926, which includes the small employer exemption and also exempts nonprofit religious associations and corporations.
Amicus curiae California Dental Association, noting these exceptions, argues that to qualify as a fundamental public policy within the meaning of Gantt v. Sentry Insurance, supra, 1 Cal. 4th 1083, and thus support a common law cause of action, the policy must be one of universal application. That test, it argues, is supported by the reasoning of the court in Foley v. Interactive Data Corp., supra, where the court concluded that there was no distinct public interest at stake unless an employer violated a "fundamental duty imposed on all employers for the protection of the public interest." (47 Cal.3d at p. 670, fn. 12.)
Plaintiff concedes that age is not entitled to the same broad protection as are race and gender, that it does not enjoy constitutional protection, and that age-based preferences have been upheld where age is a bona fide occupational qualification or some other legitimate governmental interest warrants such treatment. She argues, however, that the limitation of FEHA remedies to employers of five or more persons does not signal approval of age-based discrimination by smaller employers. The public policy declared in section 12920, she claims, is not limited to employment by employers of five or more persons.
We agree with plaintiff that the public policy declared by the Legislature in section 12920 applies to all employers. It does not follow, however, that in declaring that policy the Legislature intended to create the basis for a common law tort action and to thereby subject employers whom it expressly exempted from FEHA coverage to liability for age discrimination. That it *135 did not is suggested by the statement in section 12993 that the act does not repeal any other laws relating to discrimination. That statement reflects an intent to create new rights within the FEHA statutory scheme while leaving existing rights intact, not intent to create new common law rights.
The exemption of small employers from the statutory bar to discrimination on the basis of age, an exemption which is not based on bona fide occupational qualifications and which is not found in section 12940, distinguishes the age-related rights created by the FEHA from the fundamental rights against discrimination on other bases, rights which predate the FEHA and have their origin in the Constitution, other statutes, or common law. We conclude therefore that, notwithstanding the inclusion of "age" in the policy and civil rights provisions of the FEHA, the Legislature did not intend by those provisions to establish age discrimination by a small employer as a new "fundamental" right for violation of which a wrongful termination action would lie.
The reasoning which supported our holding in Gantt v. Sentry Insurance, supra, 1 Cal. 4th 1083, makes it clear that the inclusion of age in the policy statement of the FEHA alone is not sufficient to establish a "fundamental" public policy for the violation of which an employer may be held liable in a common law tort action. The Legislature's decision to exclude small employers from the FEHA and the omission of any other legislation barring discrimination on the basis of age precludes finding a fundamental policy that extends to age discrimination by small employers.
We explained in Gantt that "[a] public policy exception carefully tethered to fundamental policies that are delineated in constitutional or statutory provisions strikes the proper balance among the interests of employers, employees and the public. The employer is bound, at a minimum, to know the fundamental public policies of the state and nation as expressed in their constitutions and statutes; so limited, the public policy exception presents no impediment to employers that operate within the bounds of law. Employees are protected against employer actions that contravene fundamental state policy. And society's interests are served through a more stable job market, in which its most important policies are safeguarded." (Gantt v. Sentry Insurance, supra, 1 Cal.4th at p. 1095, italics added.)
While the FEHA includes age among the categories protected by public policy against discrimination in employment, it does not make discrimination by an employer of less than five persons unlawful. Employers of four or fewer persons are exempt under the FEHA and no other law makes discrimination on the basis of age unlawful. It would be unreasonable to expect *136 employers who are expressly exempted from the FEHA ban on age discrimination to nonetheless realize that they must comply with the law from which they are exempted under pain of possible tort liability. We do not ascribe such a purpose to the Legislature.
Permitting such actions is not shown to be necessary to achieve the Legislature's goal in including a limited ban on age discrimination in the FEHA. The Legislature intended of FEHA itself "to provide effective remedies which will eliminate" the discriminatory practices condemned by the act. (§ 12920.) Those practices, declared to be unlawful employment practices, are such only when engaged in by "employers," i.e., a "person regularly employing five or more persons." (§ 12926, subd. (d).)
The trial court did not err in denying Jennings's motion for leave to amend to state a common law Tameny-based cause of action for age discrimination.[8]
IV
DISPOSITION
The judgment of the Court of Appeal is reversed and that court is directed to remand to the trial court with instructions to modify its judgment to include a dismissal of the action.
Lucas, C.J., Mosk, J., Kennard, J., Arabian, J., George, J., and Werdegar, J., concurred.
NOTES
[1] All future statutory references are to the Government Code unless otherwise indicated.
[2] Section 12920 provides: "It is hereby declared as the public policy of this state that it is necessary to protect and safeguard the right and opportunity of all persons to seek, obtain, and hold employment without discrimination or abridgment on account of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, marital status, sex, or age.
"It is recognized that the practice of denying employment opportunity and discriminating in the terms of employment for such reasons foments domestic strife and unrest, deprives the state of the fullest utilization of its capacities for development and advance, and substantially and adversely affects the interest of employees, employers, and the public in general.
"Further, the practice of discrimination because of race, color, religion, sex, marital status, national origin, ancestry, familial status, or disability in housing accommodations is declared to be against public policy. It is the purpose of this part to provide effective remedies which will eliminate such discriminatory practices.
"This part shall be deemed an exercise of the police power of the state for the protection of the welfare, health, and peace of the people of this state."
[3] Section 12921 provides: "The opportunity to seek, obtain and hold employment without discrimination because of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, marital status, sex, or age is hereby recognized as and declared to be a civil right."
[4] Code of Civil Procedure section 904.1: "(a) An appeal may be taken from a superior court in the following cases:
"(1) From a judgment, except (A) an interlocutory judgment....
"(2) From an order made after a judgment made appealable by paragraph (1).
"(3) From an order granting a motion to quash service of summons or granting a motion to stay or dismiss the action on the ground of inconvenient forum.
"(4) From an order granting a new trial or denying a motion for judgment notwithstanding the verdict.
"(5) From an order discharging or refusing to discharge an attachment or granting a right to attach order.
"(6) From an order granting or dissolving an injunction, or refusing to grant or dissolve an injunction.
"(7) From an order appointing a receiver.
"(8) From an interlocutory judgment, order, or decree, hereafter made or entered in an action to redeem real or personal property from a mortgage thereof, or a lien thereon, determining the right to redeem and directing an accounting.
"(9) From an interlocutory judgment in an action for partition determining the rights and interests of the respective parties and directing partition to be made.
"(10) From an order made appealable by the provisions of the Probate Code or the Family Code.
"(11) From an interlocutory judgment directing payment of monetary sanctions by a party or an attorney for a party if the amount exceeds five thousand dollars ($5,000).
"(12) From an order directing payment of monetary sanctions by a party or an attorney for a party if the amount exceeds five thousand dollars ($5,000).
"(b) Sanction orders or judgments of five thousand dollars ($5,000) or less against a party or an attorney for a party may be reviewed on appeal by that party after entry of final judgment in the main action, or, at the discretion of the court of appeal, may be reviewed upon petition for an extraordinary writ."
[5] To the extent that it may be inconsistent with this conclusion, we disapprove Supple v. City of Los Angeles (1988) 201 Cal. App. 3d 1004 [247 Cal. Rptr. 554].
[6] Labor Code section 2922: "An employment, having no specified term, may be terminated at the will of either party on notice to the other. Employment for a specified term means an employment for a period greater than one month."
[7] Tameny was decided on June 2, 1980. The FEHA, which originated as Assembly Bill No. 3165, was finally passed when the Assembly concurred in Senate amendments on August 26, 1980.
[8] Defendant also argues that the proposed amendment of the complaint could not state a cause of action because the Tameny claim in fact related to pension benefits and was preempted by the Employee Retirement Income Security Act (ERISA), 29 United States Code section 10001 et seq. This argument is based on Jennings's allegation that she was fired because her age made defendant's pension plan prohibitively expensive.
The Court of Appeal did not address the ERISA issue. Inasmuch as we have concluded that no common law Tameny-based cause of action may be stated for violation of the FEHA policy against age discrimination, we need not do so. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1517060/ | 51 Md. App. 190 (1982)
441 A.2d 1129
ED. WINKLER & SON, INC. ET AL.
v.
THE OHIO CASUALTY INSURANCE COMPANY ET. AL.
No. 896, September Term, 1981.
Court of Special Appeals of Maryland.
Decided March 5, 1982.
The cause was argued before GILBERT, C.J., and MOYLAN and WILNER, JJ.
Joseph P. Rieger for appellants.
John E. Mudd, with whom were Douglas W. Biser and Mudd & Harrison on the brief, for appellees.
WILNER, J., delivered the opinion of the Court.
*191 We are concerned here with a question of insurance coverage. Is appellee, Ohio Casualty Insurance Co., obliged under its Special Multi-Peril Policy to defend appellant, its insured,[1] in an action brought against appellant by Nina and Benjamin Cromwell? The Circuit Court for Baltimore County answered in the negative and we shall do likewise.
The Cromwells sued appellant for slander, malicious prosecution, and false arrest. They alleged in their Declaration that, while a customer in appellant's jewelry store on October 30, 1980, Mrs. Cromwell was wrongfully accused by appellant of stealing a $600 diamond and substituting for it a $20 zircon. When Mrs. Cromwell denied the accusation and refused to "replace" the diamond, appellant called the police, repeated and embellished his accusation, and caused Mrs. Cromwell to be arrested. As a result of the arrest, it was claimed, Mrs. Cromwell was detained for several hours in a police station, questioned, and strip-searched. Subsequently, according to the Declaration, it was shown that the alleged zircon was indeed a real diamond, that Mrs. Cromwell had done nothing wrong, and that appellant ultimately "decided not to prosecute."
In support of her action for damages, Mrs. Cromwell claimed "pecuniary loss, humiliation, embarrassment, indignity, mental anguish, fright, emotional distress, physical trauma, nervous upset and damage to reputation" and the Cromwells together claimed "loss of consortium, society, affection and assistance of the other."
When presented with the Cromwells' "suit papers," appellant demanded that appellee defend the action in accordance with its policy, and, when it declined to do so, appellant brought this proceeding for declaratory judgment. The court, as noted, declared that the policy did not afford coverage for *192 this type of action, and thus decided that appellee was not obliged to defend appellant or to pay any resulting judgment.
In St. Paul Fire & Marine Insurance Company v. Pryseski, 292 Md. 187 (1981), the Court of Appeals instructed us that:
"In determining whether a liability insurer has a duty to provide its insured with a defense in a tort suit, two types of questions ordinarily must be answered: (1) what is the coverage and what are the defenses under the terms and requirements of the insurance policy? (2) do the allegations in the tort action potentially bring the tort claim within the policy's coverage? The first question focuses upon the language and requirements of the policy, and the second question focuses upon the allegations of the tort suit. At times these two questions involve separate and distinct matters, and at other times they are intertwined, perhaps involving an identical issue." Id. at 193.
We start with the first question what coverage is afforded by the policy?
The relevant policy language here is as follows:
"The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence, and arising out of the ownership, maintenance or use of the insured premises and all operations necessary or incidental to the business of the named insured conducted at or from the insured premises, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, *193 but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements." (Emphasis supplied.)
The key phrase, in terms of this dispute, is that which we have underscored: "damages because of bodily injury ... to which this insurance applies, caused by an occurrence...." An "occurrence" is defined in the policy as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." (Emphasis supplied.)
The word "accident," unfortunately, is not defined in the policy. The term "bodily injury" is so defined, however; it means "bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom."
It is apparent from these provisions that coverage is afforded in this case if, from the allegations in the Cromwells' Declaration, it appears that (1) any of the injuries claimed by the Cromwells are "bodily injuries" or "property damage," and (2) such injuries were "caused by an occurrence." The first of these is not really in doubt; appellee does not dispute that at least some of the injuries claimed by the Cromwells amount to "bodily injuries." The real issue is the second one, and, given the definition of "occurrence" and the lack of any suggestion that the Cromwells' injuries arose from any "continuous or repeated exposure to conditions," it boils down in the end to whether the injuries were caused by an "accident." Coverage here depends on the interpretation of the word "accident," in light of the allegations in the Declaration.
This is the type of issue that is "intertwined" between the two considerations mentioned by the Court in Pryseski; it involves both an interpretation of policy language and a careful look at the tort action. We proceed with this synthesis by restating the general principle laid down in *194 Brohawn v. Transamerica Insurance Co., 276 Md. 396, 407-08 (1975):
"The obligation of an insurer to defend its insured under a contract provision such as here involved is determined by the allegations in the tort actions. If the plaintiffs in the tort suits allege a claim covered by the policy, the insurer has a duty to defend.... [citations omitted] Even if a tort plaintiff does not allege facts which clearly bring the claim within or without the policy coverage, the insurer still must defend if there is a potentiality that the claim could be covered by the policy." (Emphasis in the original.)
The question, in other words, is whether the acts and actions charged to appellant by the Cromwells, from which their injuries allegedly arose, can clearly or potentially be regarded as an "accident."
Maryland follows the rule that, in construing the language of an insurance policy, the words used "are to be given their customary and normal meanings." Harleysville Mutual Casualty Company v. Harris & Brooks, Inc., 248 Md. 148, 151 (1967). Thus, to determine what is meant by an "accident," we look first to a dictionary, as we did in Simkins Industries, Inc. v. Lexington Insurance Company, 42 Md. App. 396, cert. den. 285 Md. 730 (1979), and as the Court of Appeals did in Harleysville Mutual Casualty Company. We find there (Webster's Twentieth Century Dictionary) that an "accident" is "a happening; an event that takes place without one's foresight or expectation; an event which proceeds from an unknown cause, or is an unusual effect of a known cause, and therefore not expected." The key ingredient is not merely a "happening," for that would make every act or event an "accident"; rather, it is the unexpected nature of the event or its aftermath. 7A Appleman, Insurance Law and Practice, § 4492 (Berdal ed. 1979), states;
"An accident is anything that happens or is the result of that which is unanticipated and takes *195 place without the insured's foresight or anticipation.... As used in insurance policies it is simply an undesigned, sudden, and unexpected event, usually of an afflictive or unfortunate character, and often accompanied by a manifestation of force, but it does not mean the natural and ordinary consequences of a negligent act." (Emphasis supplied.)
With this focus on the expectability of the event or its consequences we can avoid the need to consider appellant's subjective state of mind. There is no express disclaimer in the policy for acts "intentionally" done, and so it would make no difference whether appellant's acts were prompted by malice or negligence, or some other motivating force. The only relevant consideration is whether, according to the Declaration, the chain of events leading to the injuries complained of was set in motion and followed a course consciously devised and controlled by appellant without the unexpected intervention of any third person or extrinsic force. Compare Pryseski, supra, where the Court discussed the undefined word "occurrence" in the context of intentional conduct.
The Declaration plainly and unmistakably alleges that the injuries complained of by the Cromwells were the natural consequence of appellant's charging Mrs. Cromwell with theft and causing her to be arrested. The implication is clear that, whether prompted by negligence or malice, (1) appellant's acts were committed consciously and deliberately, without the unexpected intervention of any third force, and (2) the likely (and actual) effect of those acts was well within appellant's foresight and anticipation. The Declaration permits no suggestion that it was by chance that appellant accused Mrs. Cromwell of being a thief, or that it was either by lack of design on his part or the unanticipated intervention of any third party or extrinsic force that she was arrested, or that he could have failed to anticipate that, once arrested, she would be subjected to the embarrassment, deprivation of liberty, and other indignities claimed by her. *196 In short, if the events and consequences occurred as alleged in the Declaration, the Cromwells' injuries cannot be said to have been caused by "an accident," or, thusly, by "an occurrence."
Appellant seeks support for his position from Levy v. Duclaux, 324 So. 2d 1 (La. App. 1975), cert. den. 328 So.2d 887-88 (La. 1976), but we find that case to be unpersuasive. The court there did construe similar policy language as providing coverage where the insured shopowner was sued by a customer whom he had wrongfully accused of shoplifting. However, it appears that the court reached that conclusion merely upon a finding that the injuries claimed by the customer constituted "bodily injuries." The court never addressed the more fundamental question of whether those injuries arose from an "occurrence"; at least the opinion does not reflect any such consideration. Compare American Home Assurance Company v. Osbourn, 47 Md. App. 73 (1980).
Upon the record before us, it is clear that the acts complained of in the tort suit did not constitute an "accident" or "occurrence," and accordingly, there is not even the "potentiality" of coverage under the policy.
Judgment affirmed; appellant to pay the costs.
NOTES
[1] There are two appellants Ed. Winkler & Son, Inc., the named insured, and Edward P. Winkler, the president of the corporation. As their respective interests in this proceeding are essentially the same and as appellee conceded in its answer to their bill for declaratory judgment that both are insureds under the policy, we shall refer to them collectively in the singular. The tortious acts complained of by the Cromwells were allegedly committed by Mr. Winkler, as an agent and employee of the corporation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1536837/ | 207 B.R. 586 (1997)
In re Debra OLLIE, Debtor.
Bankruptcy No. 96-34959-B.
United States Bankruptcy Court, W.D. Tennessee.
March 31, 1997.
*587 Benjamin T. Wages, Jr., Memphis, TN for Creditor.
Ellen E. Fite, Memphis, TN for the Debtor.
MEMORANDUM OPINION ON CREDITOR'S MOTION TO RESCIND REAFFIRMATION AGREEMENT
WILLIAM HOUSTON BROWN, Bankruptcy Judge.
Pending before the Court is the motion of Associates Financial ("Associates") to rescind a reaffirmation agreement. At issue is whether a unilateral mistake made by that creditor will allow the creditor to rescind the agreement. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (O). Based on the analysis below, the creditor's motion will be denied and the reaffirmation agreement will remain binding on the parties. The following constitutes findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
FACTUAL SUMMARY
The pertinent facts giving rise to the instant controversy are undisputed.[1] The debtor has two separate and distinct accounts with Associates. The first account was secured by a nonpurchase-money lien on a portion of the debtor's personal property. This lien has since been avoided pursuant to 11 U.S.C. § 522(f)(1)(B), and Associates does not contest this lien avoidance. The debtor's second account is secured by a purchase-money security interest ("PMSI") in the debtor's bedroom furniture. The balance on this second account is approximately $941.00.
At the section 341 meeting of creditors, the parties proceeded to negotiate a reaffirmation agreement. The debtor, her attorney, and the creditor's attorney reached an agreement to reaffirm a debt for $300.00, and on December 18, 1996 a reaffirmation agreement was filed with the Clerk. That agreement was signed by the debtor, the debtor's attorney, and the creditor's attorney as agent for Associates, and the agreement states that the debt "is secured by PMSI-Furniture." The debtor has tendered payments under the terms of the reaffirmation agreement. The creditor rejected those payments and now seeks to rescind the agreement based on its agent/attorney's unilateral mistake. Specifically, the creditor's attorney states that he thought the reaffirmation agreement was related to the nonpurchase-money account, and the creditor says that it would not have reaffirmed the purchase-money account for less than the full balance. On the other hand, the debtor says that she knew she was reaffirming in order to retain her bedroom furniture, which she believed to have a value of approximately $300.00.
DISCUSSION
A reaffirmation agreement is a contract that establishes a new repayment obligation, and the law governing such contracts is the "applicable nonbankruptcy law." 11 U.S.C. § 524(c). In order to determine the applicable law in this case, this Court is required to examine Tennessee state law. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). In Cofrancesco Constr. Co. v. Superior Components, Inc., 52 Tenn.App. 88, 371 S.W.2d 821 *588 (1963), the Court of Appeals of Tennessee announced the law concerning the recission of contracts based on a unilateral mistake. That court concluded that relief from the effect of a unilateral mistake will be allowed where one party knows or has reason to know of the other's error. Id. at 823. In addition, courts have generally granted relief from the effect of a unilateral mistake, through recission, where enforcement of the contract as made would be unconscionable. Id. at 823, 824. See also, Mullins v. Parkey, 874 S.W.2d 12 (Tenn.Ct.App.1992); General Electric Credit Co. v. Eassa (In re Eassa), 19 B.R. 153, 154 (Bankr.S.D.Ohio 1982) (citing Restatement of Contracts 2d, § 153).
In this case, the stipulated facts do not establish that this debtor had any reason to know that the creditor was making a mistake. The reaffirmation agreement clearly states "PMSI-Furniture," and "Furniture" is written in the same blue ink as that used in the written terms of $300.00 at $30.00 per month beginning January 20, 1977. This is also the same ink used in the signature of the creditor's attorney, who signed the reaffirmation as the creditor's agent. Furthermore, the debtor estimated that the used bedroom furniture had a value of approximately $300.00, and no valuation proof was offered by the creditor. The debtor had intended to surrender this furniture to Associates until the $300.00 amount was negotiated. Based upon these facts, there is no indication that the reaffirmation agreement or its negotiation would have put the debtor on notice of a unilateral mistake by the creditor. Moreover, no proof has been offered to the Court to explain why the creditor believes that this debtor would reaffirm the other nonpurchase-money loan. It has not been suggested, for example, that the nonpurchase-money loan was subject to a dischargeability complaint, and no such complaint has been filed. The totality of facts and circumstances surrounding this reaffirmation agreement do not lead to a finding that the debtor took advantage of the creditor's agent's unilateral mistake.
This Court also concludes that enforcement of the reaffirmation contract would not be unconscionable. Under the terms of the reaffirmation agreement, the creditor will receive $300.00 for the used bedroom furniture. The only value proof offered was in the stipulation that the debtor believed the furniture to have that value. If this Court were to allow the creditor to rescind the agreement, the creditor would most likely repossess and sell the furniture. Considering the market for used furniture, it would be speculation as to whether this creditor would receive more or less than $300.00 for used goods such as these. The creditor has given the Court no basis to find that the debtor would receive a windfall benefit by paying only $300.00 for the furniture. Even assuming that the creditor could sell the furniture for more that $300.00, it is not the business of the courts to save a party from a bad bargain. U.S.F. & G. Co. v. Barber, 70 F.2d 220, 226 (6th Cir.1934).
CONCLUSION
Based on the analysis above, by separate order, the creditor's motion to rescind the reaffirmation agreement will be denied.
NOTES
[1] This Court held a hearing on March 20, 1997. At the hearing, the parties stipulated to the relevant facts. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1370596/ | 173 Cal. App. 2d 587 (1959)
RUSSELL MASON, Appellant,
v.
MARGARET PEASLEE et al., Respondents.
Civ. No. 23627.
California Court of Appeals. Second Dist., Div. One.
Sept. 10, 1959.
Glenn B. Soelberg for Appellant.
Howser, Coughlin & Schmitt and James J. Coughlin for Respondents.
NOURSE, J. pro tem. [fn. *]
Plaintiff appeals from a judgment of dismissal entered after the trial court had granted defendant's motion for a judgment of nonsuit. [fn. 1]
[1] The judgment of the trial court cannot be sustained unless interpreting the evidence most favorably to plaintiff's case and most strongly against the defendant and resolving all presumptions, inferences and doubts in favor of the plaintiff a judgment for the defendant is required as a matter of law.
The action is one brought to recover upon a promissory note executed by the defendant. After offering the note in evidence and proving its execution by the defendant and that the note had not been paid, the plaintiff did not rest as he *589 might well have done but proceeded to offer evidence to show the consideration for the note. In substance this evidence, viewed in the light most favorable to plaintiff, established the following facts:
The plaintiff was engaged in business as a sound engineer. He had been in that business for 18 years. The plaintiff was not licensed as a private investigator under the provisions of division III of chapter 11 of the Business and Professions Code ( 7500 et seq.); he had never held himself out as being so licensed and had been advised by the Bureau of Private Investigators and Adjusters that the business he was engaged in did not require him to be so licensed; the work in which he was engaged was the recording of proceedings of meetings of boards of directors, conventions, speeches, business meetings, and personal conversations; he did this work not only for corporations, attorneys and individuals but for police departments, sheriff's offices and the federal government; in many instances the parties whose conversations were recorded did not know that a record was being made; he made these recordings by the installation of microphones and the transmission from the microphone to a recording device of the sounds picked up by the microphones through radio waves or through electric currents transmitted over wires; he was not listed in the classified section of the telephone directory as a private investigator but as having recording equipment for rent; he was first contacted by the defendant Mrs. Peaslee over the telephone; she stated to the plaintiff that she wanted to rent recording equipment to place in her husband's office; she wanted equipment that would work automatically; plaintiff advised her that as her husband's office was on a very busy street his equipment would not function automatically but that his recording device would have to be operated by him or one of his assistants. Thereafter the plaintiff met the defendant Peaslee and told her that it would be necessary to put a microphone in the office of her husband and to pick up the conversations that took place and record them in plaintiff's truck which was equipped with the recording devices. They discussed what plaintiff would charge and plaintiff quoted the defendant the price of $100 to $125 per day for the use of his equipment and services of someone to operate the recording devices, the price depending upon whether plaintiff could secure a connection to electric wires and obtain power or whether it would be necessary for him to use batteries for that purpose. Thereafter defendant took the plaintiff to *590 her husband's office and showed him where to install the microphones; plaintiff installed the microphones and defendant paid him $300 on account. Thereafter for a period of 11 or 12 days plaintiff recorded conversations that took place in the office of defendant's husband and on these days plaintiff operated the recording equipment and defendant listened to the conversations and monitored them. Defendant Peaslee told plaintiff that she wanted to record the conversations in the office to determine whether the employees of her husband were dishonest and secreting money or whether her husband was dishonest and secreting money. She also told him she was concerned over the question of whether her husband was a sex pervert.
After the completion of the recording in the office, defendant Peaslee told plaintiff that her husband was going to Florida in the company of another man and she desired him to go to Florida and record conversations between her husband and this man there. Plaintiff went to Florida. While there at the direction of defendant he employed a firm of private detectives to locate defendant's husband and installed a microphone in Mr. Peaslee's bedroom. He did not record any conversations. Plaintiff paid out of his own pocket monies for the entire expenses of the trip including the charges of the private investigators employed by him there.
On his return at defendant's request, he fixed a microphone and transmitting device to her person so that any conversations between herself and her husband might be recorded and set up a recording device for two nights in a garden house at the residence of defendant and her husband. Defendant advised plaintiff that she desired the conversations of her home recorded as she had been beaten by her husband and wanted evidence of his acts to use in a divorce or separate maintenance action. No recordings were made. Plaintiff at the same time, and at defendant's direction, placed microphones in the living room and bedroom of defendant's home and installed an induction coil which would enable her to have a record made of telephone conversations with her husband.
At the conclusion of his services he prepared an itemized bill on which there were six items listed and the total of these items, being $3,280.90. After this bill was presented and approved by defendant she executed the promissory note in the sum of $3,280.90 sued upon.
The motion for nonsuit was made on the sole ground that *591 the services performed by the plaintiff were those of a private investigator and that as he did not have a license from the state as such, the contract with the plaintiff was an illegal one and that the sole consideration for the note being the services performed under this contract, the note was unenforceable. In passing upon the motion the court found as a fact that the consideration for the note sued upon was for services rendered by the plaintiff in securing evidence to place before a court of law and that in rendering said services plaintiff acted as a private investigator and he not being licensed as such, the contract of the defendant to pay for his services was illegal and void.
[2] We have reached the conclusion that the judgment cannot be sustained. Section 7520 of the Business and Professions Code prohibits four things: (1) engaging in a business regulated by the statute, (2) acting or assuming to act as a licensed person without being so licensed, (3) representing himself to be a licensee without being so licensed, and (4) false representation by a person that he is employed by a licensee. There is no evidence whatsoever that plaintiff acted or assumed to act as a licensee, represented himself to be either a licensee or represented himself to be an employee of a licensee. The single transaction with the plaintiff did not constitute engaging in business for the word to "engage" connotes frequency of action. (City of Los Angeles v. Cohen, 124 Cal. App. 2d 225 at 228 [268 P.2d 183].) While there was evidence that plaintiff had for others secretly recorded conversations of persons and had done so for law enforcement agencies and it might be inferred that this was done for the purpose of gathering evidence for use "before any court, board, officer, or investigating committee" (Bus. & Prof. Code, 7521), yet the presumption is that plaintiff acted lawfully and that he did not record conversations for that purpose. (Code Civ. Proc., 1963, subds. 1, 19 and 33.) The court in passing upon the motion for nonsuit was obligated to give plaintiff the benefit of these presumptions and could not draw the inference that plaintiff's work in recording conversations for others was done in such a manner as to constitute doing business as a private investigator or that the work was done in contravention of section 7521 of the Business and Professions Code. (Lasry v. Lederman, supra, 147 Cal. App. 2d 480 at 488-490.)
Further, the evidence was such as to uphold a finding that *592 plaintiff did not himself conduct any investigation [fn. 2] but that he merely furnished to the defendant the devices with which she could carry on her own investigation and that in operating the devices he acted not as an investigator but as one employed by the defendant to render technical aid to her in operating the devices which she had rented from him.
As the trial court in acting upon the motion for nonsuit was not functioning as a finder of facts and as the evidence would support the findings we have suggested, the court clearly erred in granting the motion.
The judgment is reversed.
Fourt, Acting P. J., and Lillie, J., concurred.
NOTES
[fn. *] *. Assigned by Chairman of Judicial Council.
[fn. 1] 1. The court made written findings of fact and conclusions of law. In so doing the court misconceived its function in passing upon a motion for nonsuit. It did not, in ruling upon the motion, act as a judge of the facts but solely as a judge of the law, that is, as to whether the facts proven required a judgment for the defendant as a matter of law. (Estate of Baird, 198 Cal. 490 at 506 [246 P. 324]; Lasry v. Lederman, 147 Cal. App. 2d 480 at 489-490 [305 P.2d 663].)
[fn. 2] 2. The noun "investigation" means the process of inquiring into or tracking down through inquiry, and the verb "investigate" means to follow up by patient inquiry or observation; to inquire and examine with systematic attention to detail and relation. (Webster's New International Dictionary, second edition; People v. One 1941 Chevrolet Coupe, 113 Cal. App. 2d 578 at 582 [248 P.2d 786].) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1867749/ | 304 F. Supp. 603 (1969)
Alex CLARK, John T. Magee and Robert Turner, Plaintiffs,
v.
AMERICAN MARINE CORPORATION, a Louisiana corporation, Defendants.
Civ. A. No. 16315.
United States District Court E. D. Louisiana, New Orleans Division.
September 15, 1969.
*604 Franklin E. White, New York City, for plaintiffs.
Lolis E. Elie, New Orleans, La., for plaintiffs.
A. M. Trudeau, Jr., New Orleans, La., for plaintiffs.
Richard C. Keenan, New Orleans, La., for defendants.
RUBIN, District Judge:
This class action is brought by three individuals who allege that they were discharged in violation of Title VII of the 1964 Civil Rights Act, 42 U.S.C. § 2000e et seq., and the Civil Rights Act of 1870, 42 U.S.C. § 1981. They seek both personal redress for themselves and class relief for the other Negroes who allegedly have suffered discrimination in employment at the hands of the defendant.[1] In separate findings of fact, the court has found that the evidence shows a pattern of discrimination by the defendant against Negroes in hiring and in opportunities for promotion. Since the employer is clearly subject to the Equal Employment Opportunity requirements of the 1964 Civil Rights Act,[2] we turn to a discussion of the other findings and conclusions. The issues with respect to the rights of the individual plaintiffs are dealt with separately.
I. FACT FINDINGS WITH RESPECT TO THE INDIVIDUAL PLAINTIFFS
A. Robert Turner and John T. Magee
The testimony of Robert Turner and John T. Magee was credible, consistent and uncontradicted. Turner was hired in 1957. Magee was employed intermittently from 1959 on. Both were laid off on February 5, 1965. Classified initially as laborers, Turner and Magee were assigned to work in the carpentry shop. By February 1965, after Turner had worked in the carpentry shop about four years and Magee about two and one-half years, both of them were transferred from the carpentry shop to the "yard" to do general labor. Shortly thereafter they were discharged.
They were replaced in the carpentry shop by two white men who had just been hired. On August 17, 1965, after the effective date of Title VII of the 1964 Civil Rights Act,[3] they applied for re-employment but were told the company was not doing any hiring.
*605 The company did not attempt to offer any explanation for the discharge of Turner and Magee. Charles White, the company's General Superintendent, testified that Turner and Magee were moved from the carpentry shop to the "yard"; he did not personally know whether or not white employees replaced them, but, if so, it was "without his knowledge" and he was "not going to condone it."
The evidence is persuasive that Turner and Magee were replaced in the carpentry shop because of their race, and that this replacement resulted in their discharge shortly thereafter. This however occurred before the effective date of Title VII, July 2, 1965, although the refusal to re-employ them came after Title VII had become applicable. Their rights will be discussed below after a consideration of the scope of Title VII.
B. Alex Clark
By contrast with the evidence concerning the other individual plaintiffs, Alex Clark's testimony was uncorroborated, unconvincing, and denied by other credible witnesses. He testified that one day in August, 1965, his supervisor, Lawrence Rouse, told him to get a shovel and clean off "the barge on the dock." There were two barges on the dock, he said, and one was an oil barge. So he assumed he was to shovel shells off the other, which was a shell barge. He began doing so. Later Rouse returned, called him a "black stupid son of a bitch" for working on the wrong barge and, after the ensuing conversation, took him to the personnel manager who fired him. He testified he protested his discharge to the company's president (Durant), but his request for re-employment went unheeded.
Rouse, on the other hand, testified there was no oil barge at the dock. There were two barges, one carrying limestone and the other loaded with shell. He sent Clark to shovel shell, but found him shoveling limestone instead. Rouse told Clark that he was on the wrong barge. Clark then protested because Rouse was always moving him around, an argument ensued, and Clark demanded his pay check. Durant denied that Clark had ever spoken to him.
At the conclusion of the trial, when the impressions formed from the testimony and demeanor of the witnesses were fresh, the court observed, "[M]y present impression is Mr. Clark has not borne the burden of proof in his individual case." That conclusion has not been altered, and Clark's individual claim will be denied.
II. THE CLASS ACTION
A. Fact Findings[4]
The defendant stresses certain factual aspects of the case well supported by the evidence: it desegregated such facilities as wash rooms and rest rooms before or contemporaneously with the passage of the Civil Rights Act; it has not been shown to have refused initial employment to any qualified Negro because of race; it has not been shown to have refused to promote any qualified Negro or to have denied employment to any skilled Negro.
But serious discrimination against Negroes nonetheless exists. It is subtle but not unwitting. Three employment practices with discriminatory effects are deliberately pursued.
1. Racial Discrimination in Initial Classification
Upon hiring, unskilled Negroes are generally classified as laborers and whites are classified as helpers. Two "lines" of progression are formed in the company's unskilled ranks, each leading in a different direction. Laborers progress only to sandblasting, hooking, and painting. Whites, on the other hand, hired as "helpers", are assigned to assist semi-skilled and skilled employees. *606 They are paid the same wage as laborers, but they are afforded the opportunity to learn better paying, more interesting jobs. The company generally fills its craft positions from within its own ranks, and only helpers acquire the skills to advance to these jobs.
"Even if this be so," the defendant contends, "there is no way of knowing the extent to which Negro employees would have advanced. * * * Certainly every Negro helper would not have advanced to top grade." That is obvious. But the discrimination lies in barring the way to all Negroes: those who could have advanced and those who could not. Not all white employees reach the top of the industrial ladder; but each has a chance to do so on his individual merit, without racial discrimination, and also without competition from his black fellow workers.
2. Hiring Practices
Hiring is "at the gate"; no advertisements or public announcements are made when jobs become available. The word of mouth message that vacancies exist in better paying jobs therefore usually goes only to whites. See Lea v. Cone Mills, N.D.N.C.1969, 301 F. Supp. 97, holding similar practices discriminatory.
3. Instructional Opportunities
Finally, only whites were offered company sponsored instruction in tacking, a semi-skilled position, roughly equivalent to third-grade welding, that presents an excellent opportunity to learn skilled jobs such as welding. One of the white senior welders instructed white employees in tacking during their lunch hour, with company encouragement, using company equipment and supplies. He was paid for time thus spent, but taught no Negroes.[5]
While there is no affirmative evidence that any Negro requested admission to the class and was refused, the evidence points irresistibly to the conclusion that racial exclusion was intentional. The instructor taught whom he chose. He chose only white employees. All tackers and welders in the company's employ were white. Negroes working at a plant that had so clearly demonstrated a racial bar to the classification of Negroes could not be expected to jeopardize their jobs by seeking to cross the barrier so evident to them.
B. Class Relief
Title VII of the 1964 Civil Rights Act was a recognition by Congress of widespread racial discrimination in employment that might affect any or all of the twenty-odd million Negroes in these United States, and an attempt to provide a remedy. See Hearings on S. 773 and S. 1937 Before the Subcomm. on Employment and Manpower of the Senate Comm. on Labor and Welfare, 88th Cong., 1st Sess., pp. 2-3; 72-74 (1963).
Here we have a clear demonstration of the condition that the Act was designed to eliminate. The defendant has pursued policies that discriminate against Negroes in initial hiring as well as in opportunity for advancement.
Title VII, 42 U.S.C. § 2000e-2, declares:
"It shall be an unlawful employment practice for an employer
(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin; or
(2) to limit, segregate, or classify his employees in any way which would deprive or tend to deprive *607 any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's race, color, religion, sex, or national origin."
The company's conduct violates both subparagraphs. Its actions have not even been veiled with a gauze of objectivity by employment tests or other standards. Its employment policies have violated not only the express statutory language of the Act and the congressional policy embodied in it, but the truth, proclaimed to be self-evident by those who declared America's independence, that "all men are created equal."
No working man should be deprived of the right to earn his industrial way on free and equal terms. In Judge Gewin's words, "The ethic which permeates the American dream is that a person may advance as far as his talents and his merit will carry him." Miller v. International Paper Co., 5 Cir. 1969, 408 F.2d 283, 294.
Under Section 706(g) of Title VII, 42 U.S.C. § 2000e-5(g), the court is authorized to enjoin any unlawful employment practice that defendant "has intentionally engaged in or is intentionally engaging in," and it may "order such affirmative action as may be appropriate * * *."
There is no doubt that the defendant's actions were knowingly and voluntarily done and that its conduct was "intentional" within the meaning of the Act. The Act does not require that the defendant specifically intend to discriminate against Negroes. United States by Clark v. H. K. Porter Co., N.D.Ala.1968, 296 F. Supp. 40, 115. Cf. Dobbins v. Local 212, International Brotherhood of Electrical Workers, S.D. Ohio 1968, 292 F. Supp. 413, 443. However, should it be material, the conclusion that the conduct was deliberately intended to discriminate against Negroes is, on the present record, irresistible.
The plaintiffs are clearly entitled to an injunction against discriminatory practices in hiring. The company will be enjoined from classifying employees as "helpers" or as "laborers" by reference to race or in any other manner that violates Title VII. The company will also be enjoined from discriminatory practices in hiring skilled workers.
But such relief will not remedy the conditions that the company's past practices have wrought. Negroes presently employed, who were initially assigned as laborers and whose progress thereafter has been stymied, are entitled to relief as well. They are not aided by an order directing the company to cease discriminating in selecting new employees. Most whites who have remained at the company any length of time have ultimately reached a job paying a minimum of $3.50 per hour. Even those who have not progressed to skilled jobs are earning more than Negroes employed the same or longer periods of time. The company has presented neither evidence nor argument that these discrepancies stem from any identifiable differences based on ability, intelligence or aptitude. Title VII operates only prospectively. Local 189, United Papermakers & Paperworkers, AFL-CIO, et al. v. United States, 5 Cir. 1969, 416 F.2d 980. But it is not sufficient to meet its requirements that the employer merely end explicit racial discrimination. Id. at 988. "The Act should be construed to prohibit the future awarding of vacant jobs on the basis of a seniority system that `locks in' prior racial classification.' Id. at 988. See also, United States v. Hayes International Corporation, 5th Cir. 1969, 415 F.2d 1038.
Plaintiffs suggest, "[A]ppropriate relief would be to require that the earnings of Negroes who began as laborers be adjusted to that being earned by whites with the same length of service who began as helpers. Only in this fashion can the consequences of the initial race discrimination and all of its ramifications be eliminated." But *608 this would severely penalize the defendant without providing Negro workers an opportunity to qualify for promotion to better jobs. More appropriate and enduring relief can be obtained by enabling Negro workers to secure the training and promotional benefits that have hitherto been denied them.
The proper solution to the problems raised by the company's discriminatory practices is to permit Negroes access to all jobs in the company that they have the skill and ability to do. In order to accomplish this result the company will be:
(1) Enjoined from filling any new or vacant "helper" positions until all Negroes presently employed are given an opportunity, on the basis of plant seniority, to bid for and transfer to these jobs competitively with any white employees who desire such transfers on the basis of plant seniority, provided that the employee desiring transfer can demonstrate his ability to qualify in the job to which he seeks transfer within a reasonable period of time, not to exceed 30 days after he applies for the transfer.
(2) Required to effect such transfers without any decrease in the transferring employee's hourly rate of pay, seniority, or other employment rights or benefits, since some Negroes, even though they have been discriminated against, have, as a result of seniority and ability, progressed to jobs paying more than the "helper" classification.
(3) Enjoined from filling any new jobs as "tacker" or transferring white employees to the "tacker" classification until all present Negro employees are given an opportunity to bid for and transfer to these jobs competitively with any white employees who desire such transfers, on the basis of plant seniority, provided that the employee desiring transfer can demonstrate his ability to qualify in the job to which he seeks transfer within a reasonable period of time, not to exceed 30 days after he applies for the transfer.
(4) Required to effect such transfers without decrease in the transferring employee's hourly rate of pay, seniority or other employment rights or benefits.
(5) Required to make available training and practicing opportunity in tacking, hooking, and other skills to those Negro employees who desire such training on the same terms and conditions upon which such training and opportunity are provided to white employees.
(6) Required to make known job vacancies generally to its work force by posting on bulletin boards, or by publicity in some other manner calculated to bring vacancies to the attention of all employees, regardless of race.
Such relief will permit Negroes access to the progression ladder, through its initial "learning" rungs, the helper and tacker jobs, without the penalty of a pay reduction as the price of achieving the equal treatment that they should originally have been afforded.
There can be little doubt of the court's authority to enter such an order. The Supreme Court has pointed out in another context:
"[T]he court has not merely the power but the duty to render a decree which will so far as possible eliminate the discriminatory effects of the past as well as bar like discrimination in the future." Louisiana v. United States, 1965, 380 U.S. 145, 154,[6] 85 S. Ct. 817, 822, 13 L. Ed. 2d 709.
*609 Even if nondiscriminatory on its face, a practice that operates to perpetuate past discrimination must be enjoined under the court's equity powers.[7]
In Local 53, International Association of Heat and Frost Insulators and Asbestos Workers v. Vogler, 5 Cir. 1969, 407 F.2d 1047, 1052 the Fifth Circuit held:
"In formulating relief * * * the courts are not limited to simply parroting the Act's prohibitions but are permitted, if not required, to `order such affirmative action as may be appropriate' * * *. Where necessary to ensure compliance with the Act, the District Court was fully empowered to eliminate the present effects of past discrimination."
In Vogler the court approved an order by Judge Christenberry that not only enjoined the union from continuing to exclude Negro and Mexican-American workers from membership, but:
"* * * prohibit[ed] use of members' endorsements, family relationship or elections as criteria for membership; ordered that four individuals be admitted to membership and nine others be referred for work; ordered the development of objective membership criteria and prohibited new members other than the four until developed; and ordered continuation of chronological referrals for work, with alternating white and negro referrals until objective membership criteria are developed." 407 F.2d at page 1051.
Other courts have also enjoined policies that served to perpetuate past discrimination even when these policies were nondiscriminatory on their face. See Local 189, United Papermakers & Paperworkers, AFL-CIO, et al. v. United States, 5 Cir. 1969, 416 F.2d 980; and Quarles v. Philip Morris, Inc., E.D.Va. 1968, 279 F. Supp. 505. Nor does anything in the present decree interfere with the operation of a seniority system or grant preferential treatment on account of racial imbalance. Title VII, § 703(j); Local 189, United Papermakers & Paperworkers, AFL-CIO, et al. v. United States, 5 Cir. 1969, 416 F.2d 980.
III. RELIEF FOR TURNER AND MAGEE
The discharge of Turner and Magee did not itself violate Title VII since it occurred after the enactment of that Title but five months before it became effective. However, plaintiffs assert that it violated a portion of the 1870 Civil Rights Act, Section 1981, 42 U.S.C. § 1981, which provides:
"All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other."
Prior to 1968, Section 1981, like the related sections of the early Civil Rights Acts, had been held applicable only to State action, not to acts by private individuals, although there were intimations in United States v. Guest, 1966, 383 U.S. 745, 86 S. Ct. 1170, 16 L. Ed. 2d 239, that this interpretation might be too restrictive. In 1968, the Supreme Court reconsidered the scope of one of those provisions in Jones v. Alfred H. Mayer Co., 1968, 392 U.S. 409, 88 S. Ct. 2186, 20 L. Ed. 2d 1189. It there held *610 that 42 U.S.C. § 1982 was passed under the enabling authority of Section 2 of the Thirteenth Amendment rather than the Fourteenth Amendment and therefore that it applies to private as well as state discrimination.[8] Both § 1981 and § 1982 are derived from the same statute, Section One of the Civil Rights Act of 1866, 14 Stat. 27, which provided:
"Be it enacted * * * that all persons born in the United States and not subject to any foreign power, * * * are hereby declared to be citizens of the United States; and such citizens, of every race and color, without regard to any previous condition of slavery or involuntary servitude * * * shall have the same right, in every State and Territory in the United States, to make and enforce contracts, to sue, be parties, and give evidence, to inherit, purchase, lease, sell, hold, and convey real and personal property, and to full and equal benefit of all laws and proceedings for the security of person and property, as is enjoyed by white citizens, and shall be subject to like punishment, pains and penalties, and to none other, any law, statute, ordinance, regulation, or custom, to the contrary notwithstanding."
The Court ruled in Jones, supra at 426, 88 S.Ct. at 2196, "that § 1 was meant to prohibit all racially motivated deprivations of the rights enumerated in the statute although only those deprivations perpetrated `under the color of law' were to be criminally punishable under § 2."[9] "In its original form, 42 U.S.C. § 1982 was part of § 1 of the Civil Rights Act of 1866." Id. at 422, 88 S.Ct. at 2194. It follows inescapably therefore that, if 42 U.S.C. § 1982 covers private discrimination in housing, 42 U.S.C. § 1981 covers private discrimination in making and enforcing contracts.
"[T]he right * * * to make and enforce contracts," afforded all persons by Section 1981, applies to contracts of employment as well as to other kinds of contracts. When Congress enacted the 1866 Act, it was concerned with the employment difficulties of the freed men. As Justice Stewart pointed out in Jones, supra at 427, 88 S.Ct. at 2197:
"The congressional debates are replete with references to private injustices against Negroes references to white employers who refused to pay their Negro workers, white planters who agreed among themselves not to hire freed slaves without the permission of their former masters * * *."
Furthermore in Jones,[10] the Court expressly overruled Hodges v. United States, 1906, 203 U.S. 1, 27 S. Ct. 6, 51 L. Ed. 65, which had indicated that Section 1981 did not apply to a conspiracy by private individuals to interfere with a contract of employment. Subsequently, in Dobbins v. Local 212, International Brotherhood of Electrical Workers, S.D.Ohio 1968, 292 F. Supp. 413, 442, the only case to rule on Section 1981 since Jones v. Mayer, supra, private employment contracts were held *611 to be covered by the Act. Thus the termination of Turner's and Magee's contractual relationship for racially discriminatory reasons would violate Section 1981, as interpreted in the light of Jones v. Mayer.[11]
The question remains whether that Section should be applied to cases involving private discrimination occurring before Jones authoritatively determined that the Act reaches such situations. We do not reach this issue on the facts presented here, for Turner and Magee urge only two claims under Section 1981, one for back pay and the other for reinstatement.
As there was no proof that the two suffered any loss of pay, nor of the amount of any such loss, it is unnecessary to decide whether they would be due compensatory damages had the amount been proved. For the same reason, we need not deal with the question whether an action for compensatory damages would be barred by the statute of limitations.[12]
Turner and Magee applied for reinstatement after the effective date of Title VII. 42 U.S.C. § 2000e-2, which is quoted in full above, makes it an unlawful employment practice for an employer "to fail or refuse to hire * * * or otherwise to discriminate against any individual with respect to his compensation, terms, conditions or privileges of employment because of such individual's race * * *."
The evidence demonstrates that Turner and Magee were discharged on account of their race only six months before they sought re-employment. It is a fair inference from the testimony that, if an application for re-employment had been made by white employees who had been discharged without cause, they would have been rehired. The failure to re-employ Turner and Magee was a refusal to hire them because of their race and therefore constituted a violation of Title VII; hence relief should be granted under that Title whether or not it is also mandated by Section 1981. Turner and Magee are therefore entitled to reinstatement, with seniority credit from the date of their application.
IV. ATTORNEY'S FEES
Plaintiffs are entitled to reasonable attorney's fees in accordance with 42 U.S.C. 2000e-5(k). See Newman v. Piggie Park Enterprises, Inc., 1968, 390 U.S. 400, 88 S. Ct. 964, 19 L. Ed. 2d 1263.[13]
*612 The plaintiffs will prepare a decree in accordance with this opinion, and submit it to opposing counsel for approval. Upon submission of the decree, an injunction will be granted in favor of the plaintiffs.
NOTES
[1] In Clark v. American Marine Corp., E.D. La.1969, 297 F. Supp. 1305, 1306, the class was defined as "other Negroes, who (1) may previously have been discharged on account of race; or (2) are presently employed or (3) who may subsequently be employed by the defendant."
[2] 42 U.S.C. § 2000e to 2000e-15.
[3] The effective date of the Sections of Title VII pertinent to the present case was July 2, 1965. See subsections (a) and (b) of Section 716 of Pub.L. 88-352.
[4] Additional facts are set forth in a separate Findings of Fact.
[5] The instructor later did teach one Negro employee to tack at the request of his superintendent. This action was taken only after the Negro worker, a long time employee, had been told by the welder foreman that Negroes were not permitted to weld or tack, and had then made a special request for tacking.
[6] See also Local 189, United Papermakers & Paperworkers, AFL-CIO, et al. v. United States, 5 Cir. 1969, 416 F.2d 980. For further discussion of the court's equity powers in effectuating legislative policies, see Mitchell v. Robert De Mario Jewelry, Inc., 1960, 361 U.S. 288, 291-292; 80 S. Ct. 332, 4 L. Ed. 2d 323; Alabama v. United States, 5 Cir. 1962, 304 F.2d 583, 591, affirmed, 1962, 371 U.S. 37, 83 S. Ct. 145, 9 L. Ed. 2d 112.
[7] See, e. g., United States v. Mississippi, 5 Cir. 1964, 339 F.2d 679; Franklin v. Parker, M.D.Ala.1963, 223 F. Supp. 724, affirmed, 5 Cir. 1964, 331 F.2d 841; United States v. Louisiana (three judge court), E.D.La., 1963, 225 F. Supp. 353, 362, 385, affirmed, 1965, 380 U.S. 145, 85 S. Ct. 817, 13 L. Ed. 2d 709.
[8] The court held in Dobbins, supra, 292 F.Supp. at 447, that remedial relief "should `so far as possible eliminate the * * * effects of the past,' Louisiana v. United States, supra, and may, in this respect, affect otherwise valid or unlawful practices if that is necessary `in order that the ground may be cleansed effectually from the vice of the former illegality,' United States v. Bausch and Lomb Optical Company, 321 U.S. 707, 724, 64 S. Ct. 805, 88 L. Ed. 1024." (Other citations omitted.) See Cooper and Sobol, "Fair Employment Criteria," 82 Harv. L.Rev. 1598, 1626-27 (1968).
[9] Emphasis in the original Supreme Court opinion. The legislative history of § 1 of the 1866 Civil Rights Act was discussed in Justice Stewart's opinion in Jones v. Alfred H. Mayer Co., 1968, 392 U.S. 409, 88 S. Ct. 2186, 20 L. Ed. 2d 1189. 42 U.S.C. § 1982 guaranteed all persons the same right "to inherit, purchase, lease, sell, hold, and convey real and personal property. * * *"
[10] Jones v. Alfred H. Mayer Co., 1968, 392 U.S. 409, 441-442 n. 78, 88 S. Ct. 2186, 20 L. Ed. 2d 1189.
[11] Jones indicates that 42 U.S.C. § 1982 "is not a comprehensive open housing law." Similarly, 42 U.S.C. § 1981 is not a comprehensive employment practice law. As said in Jones, "[A]lthough it can be enforced by injunction, it contains no provision expressly authorizing a federal court to order the payment of damages." 392 U.S. at 414, 88 S.Ct. at 2189. The court there indicated that "we need not decide here whether, in some circumstances, a party aggrieved by a violation of § 1982 might properly assert an implied right to compensatory damages." 392 U.S. at 414, n. 14, 88 S.Ct. at 2190. See the comprehensive discussion in Baylor, Liabilities under Civil Rights Statutes and Insurance Coverages Thereof, paper delivered before the Section of Insurance, Negligence, and Compensation Law, American Bar Association Convention, 1969, Dallas, Texas.
[12] The Civil Rights Act, § 1981, provides no limitation period. In the absence of any express period, under companion § 1983, the courts have held that the period provided by the state statute for similar actions applies. O'Sullivan v. Felix, 1914, 233 U.S. 318, 34 S. Ct. 596, 58 L. Ed. 980; Crawford v. Zeitler, 6 Cir. 1964, 326 F.2d 119; Horn v. Bailie, 9 Cir. 1962, 309 F.2d 167. The Louisiana prescriptive period of one year under Civil Code Article 3536, applicable generally to delictual actions, might well be appropriate here with respect to any claim for damages. See O'Sullivan v. Felix, supra. Cf. Weiser v. Schwartz, E.D.La.1968, 286 F. Supp. 389, in which it was held that federal law determines when the period commenecs to run.
[13] If counsel are unable to agree on the amount of the attorneys' fees, the Court will set a hearing to fix this. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1424680/ | 435 F. Supp. 584 (1977)
Dorothy S. McKEITHEN, Individually and on behalf of her Deceased husband, Charles F. McKeithen
v.
The M/T FROSTA, the M/V GEORGE PRINCE, A/S J. L. Mowinkels Rederi, and the Department of Highways of the State of Louisiana.
In the Matter of A/S J. LUDWIG MOWINKELS REDERI, as owner of the M/T FROSTA, petitioning for exoneration from or limitation of liability.
In the Matter of the DEPARTMENT OF HIGHWAYS, STATE OF LOUISIANA ex rel. William J. Guste, Jr., Attorney General, as owner of the M/V GEORGE PRINCE, petitioning for exoneration from or limitation of liability.
Civ. A. Nos. 76-3251, 76-3275 and 76-3654.
United States District Court, E. D. Louisiana.
June 29, 1977.
*585 Daniel E. Becnel, Jr., Reserve, La., Joel T. Chaisson, Destrehan, La., Eldon E. Fallon, A. Remy Fransen, Jr., New Orleans, La., James A. George, Baton Rouge, La., Salvador H. Gutierrez, Jr., John R. Martzell, New Orleans, La., for plaintiff.
Walter C. Thompson, Jr., New Orleans, La., for Wanda Zito Auletto.
Walter Carroll, Jr., Charles F. Lozes, Benjamin W. Yancey, New Orleans, La., for S.S. Frosta and A/S J. L. Mowinkels Rederi.
John P. Hammond, John R. Peters, Jr., Henry J. Read, New Orleans, La., for the M/V George Prince.
Nigel Rafferty, New Orleans, La., for Southern American Insurance Co.
Donald Ensenat, New Orleans, La., for Department of Highways, State of Louisiana.
Francis J. Mooney, Jr., New Orleans, La., for New Orleans-Baton Rouge Steamship Pilots Association and Nicholas F. Columbo.
ALVIN B. RUBIN, District Judge:
OPINION WITH RESPECT TO MOTION TO DISMISS CLAIMS AGAINST THE SUCCESSION OF EGIDIO PAUL AULETTO
The present motion to dismiss claims against the succession of Egidio Paul Auletto raises the issue: Does a wrongful death action under the general maritime law, founded on the decision in Moragne v. States Marine Lines, 1970, 398 U.S. 375, 90 S. Ct. 1772, 26 L. Ed. 2d 339, or a survival action for the damages suffered by the deceased before his death, recognized pursuant to the Moragne course by the Circuit Courts of Appeal, survive against the estate of a deceased mariner?
I.
Mrs. Wanda Auletto is the widow of the deceased pilot of the ferry M/V George Prince, Egidio Paul Auletto. She has qualified as administratrix of his succession. In that capacity, she has filed claims in the proceedings brought by the owners of the M/V George Prince and the M/T Frosta pursuant to 46 U.S.C. §§ 181-189, for exoneration from, or limitation of, liability for claims arising out of the October 20, 1976, collision between those vessels in which seventy-eight commuters lost their lives. The plaintiffs, in turn, have brought maritime wrongful death actions against the succession (see Pre-Trial Order No. 6, Pre-Trial *586 Order No. 11). The succession argues that these claims should be dismissed because they abated upon the death of Captain Auletto, who died in the same catastrophe.
II.
The Supreme Court, in Moragne, supra, recognized a wrongful death action under the general maritime law.[1] But that court has not addressed the question whether the general maritime law provides a survival action. A wrongful death action is brought for the benefit of the decedent's family and other dependents; the amount of recovery is determined by what the members of the protected class would have received from the decedent during his life.[2] A survival or survivorship action is for the recovery of claims the decedent could himself have asserted; the decedent's representative recovers for such items as pain and suffering before death, medical expenses and lost wages.[3] See, Gilmore & Black, The Law of Admiralty, 2d Ed., at 360. The issue presented here is whether the Moragne wrongful death action, or the victim's own survival action,[4] or both, survive the death of the tort-feasor.
At the outset, we note that the decision in Moragne to overrule the Harrisburg, 1886, 119 U.S. 199, 7 S. Ct. 140, 30 L. Ed. 358 resulted from a need for a uniform federal remedy. See Gilmore & Black, The Law of Admiralty, §§ 6-31, 6-32, at 362-369. Similar considerations, as well as the "humane and liberal character" of admiralty proceedings, moved the court in Sea-Land Services, Inc. v. Gaudet, 1974, 414 U.S. 573, 94 S. Ct. 806, 39 L. Ed. 2d 9, to provide damages for loss of society pursuant to Moragne. These principles of uniformity and liberality must be guiding fixtures in charting the development of post-Moragne admiralty rules.
III.
Although several circuit courts have concluded that an action for pain and suffering survives the death of the victim, Law v. Sea Drilling Corp., 5 Cir. 1975, 510 F.2d 242, 248-250; Barbe v. Drummond, 1 Cir. 1974, 507 F.2d 794, 799; Spiller v. Thomas M. Lowe, Jr. & Assoc., Inc., 8 Cir. 1972, 466 F.2d 903, 909-911, no court has considered the problem whether maritime wrongful death and survival actions abate upon the tort-feasor's death.[5] The reasoning of the circuit courts in concluding that such a nonstatutory survival action exists is peculiarly instructive with regard to the issue raised here.
In Barbe, supra, the court refused to supplement federal maritime law with applicable state law survival statutes, cf., Dugas v. National Aircraft Corp., 3d Cir. 1971, 438 F.2d 1386, because resort to specific state schemes would reintroduce the very disparities in recovery, resulting from one's locus at the moment of death, that Moragne was designed to eliminate. See Moragne, supra, 90 S.Ct. at 1784-1785; Barbe, supra, 507 F.2d at 798.[6] As the court in Barbe concluded:
*587 [T]he policy enunciated by the Supreme Court in Moragne provides ample support for us to hold that there is a federal maritime survival action, created by decisional law, for pain and suffering prior to death. This conclusion comports well with the philosophy of Moragne, in that it remedies the non-existence of a federal cause of action and thereby avoids the problem of making plaintiff's recovery turn on the existence of a state survival statute, as under the Dugas theory.
507 F.2d at 799-800.
The Fifth Circuit, which had recognized the survival of a pain and suffering action following death upon the navigable waters of the states in Dennis v. Central Gulf Steamship Corp., 5 Cir. 1972, 453 F.2d 137, cert. denied, 409 U.S. 948, 93 S. Ct. 286, 34 L. Ed. 2d 218, has agreed with the court in Barbe, and extended the action to the high seas,[7] including the area defined by DOHSA. Law, supra, 510 F.2d at 250.
The question of abatement of these actions should likewise be governed by a uniform federal rule, not by state law.[8] The rule with respect to abatement should also be the same whether the injured claimant has lived or has died. In either event, the availability of relief for a wrong committed on the navigable waters should not depend upon whether the tort-feasor himself survives. As the Eighth Circuit has stated:
Certainly the fortuitous event of death should not deprive the survivors nor benefit the wrongdoer. Such a result would be contrary to the established principles of admiralty.
Spiller, supra, 466 F.2d at 909.
Both the failure of the common law to provide for survival of an action following the death of an injured party and its adoption of the rule that claims abate on the death of the tort-feasor result from the historic origins of tort law.[9] According to Harper:
From the early notions of the untransmittability of blame and the quasicriminal nature of early tort law must not be forgotten to the crystallization of the maxim actio personalis moritur cum persona, the common law was developed ... that tort actions died with the parties.
Harper, Law of Torts, 1933, at 673-674. At first,
[A]ll tort actions [were] penal in nature; consequently, when the wrongdoer died, it seemed logical to allow the tort claim against him to lapse since he could no longer be prosecuted for the criminal offense and because the tort action derived from the Crown's action for criminal trespass.
Survival of Tort Actions Under Federal Maritime Law, 16 B.C.Ind.&Comm.L.Rev. 801, 814. See also W. Prosser, Handbook of the Law of Torts, 4th Ed., § 126, at 898.
*588 A modern rationale for the rule has been offered:
An alleged tortfeasor who is deceased may have been the only witness to events which might fairly exculpate him from legal responsibility. The rule that a tort action against him abates with his death was predicated upon the belief that public policy would be best served by avoiding the possibility that heirs suffer injustice because death foreclosed the opportunity for successful defense.
Capital Insurance & Surety Co. v. Kelly, 9th Cir. 1966, 361 F.2d 567, 569, cert. denied, 385 U.S. 1025, 87 S. Ct. 742, 17 L. Ed. 2d 673. But, much like a dead man's statute, such a prophylactic rule is a drastic remedy for an infrequent problem and accords too little respect to the judicial system's capacity for ferreting out the truth of a controversy in the absence of the best of all possible evidence. See McCormick, Evidence, 2d ed., § 65.
Harper and James contend:
[A]llow[ing] suits against the tort-feasor's personal representative as well as the revival of . . . pending actions . . is the only satisfactory type of provision.
Harper & James, The Law of Torts, 1956, Vol. 2, § 24.2, 1288. Prosser also favors the non-abatement of tort actions, arguing "that the question is ... one of why a fortuitous event such as death should extinguish a valid action," and predicting, "ultimately all tort actions will survive to the same extent as those founded on contract." Prosser, The Law of Torts, 4th Ed., § 126, at 901. This prophecy has largely materialized. Through legislation, survival "has now become the rule in almost every common law jurisdiction."[10]Cox v. Roth, 1954, 348 U.S. 207, 210, 75 S. Ct. 242, 244, 99 L. Ed. 260. Additionally, "the federal courts, at least in the more recent cases, lean strongly toward ... survival." Pritchard v. Smith, 8th Cir. 1961, 289 F.2d 153, 158, 88 A.L.R. 2d 1146, 1153. See also, Rogers v. Douglas Tobacco Board of Trade, 5 Cir. 1957, 244 F.2d 471, 483.
Hence, the early common law rule has outgrown its original vitality and purpose. It is not consistent with the function of modern tort law, nor with the broad remedial policies expressed in Moragne. Accordingly, it is the common law rule, rather than the claims against the succession, that ought not survive.
IV.
The methodology to be followed in giving full shape to the Moragne remedies has been described by the Fifth Circuit thus:
... [W]e look first to existing maritime law to which Moragne has allowed access in a death action. We next examine the remedial policies indicated by Congress in the federal maritime statutes. Heed to these statutes will assist in ensuring that `uniform vindication of federal policies' mandated by the Moragne Court. . . . Finally we look for `persuasive analogies' in the state wrongful death acts.
Petition of M/V Elaine Jones (Canal Barge), 5th Cir. 1973, 480 F.2d 11, 31, 1973 A.M.C. 843, 869-873.
Maritime law prior to Moragne, like the common law, did not provide for the survival of personal rights of action in tort. Cortes v. Baltimore Insular Line, Inc., 1932, 287 U.S. 367, 371, 53 S. Ct. 173, 174, 77 L. Ed. 368. But if general maritime law did not provide for survival, it found nothing repugnant in allowing for it when provided for by relevant state law. Just v. Chambers, 1941, 312 U.S. 383, 61 S. Ct. 687, 85 L. Ed. 903. Moreover, after Moragne, death could no longer be termed "a composer of strife by the general law of the sea." Cortes, supra, 287 U.S. at 371, 53 S.Ct. at 174. The First Circuit in Barbe concluded Cortes and its progeny abated with Moragne. 507 F.2d at 800, note 6.
The federal statutory scheme does provide for defendant survival. The Jones Act expressly provides for plaintiff survival, 46 U.S.C. § 688, and this action can be maintained by a personal representative of the victim even against a deceased defendant. *589 Cox v. Roth, 1955, 348 U.S. 207, 75 S. Ct. 242, 99 L. Ed. 260. Although DOHSA does not contain either kind of survival provision, "the courts [have] hit upon a variety of devices under which the decedent's predeath damages [are] included in ... DOHSA actions." Gilmore & Black, The Law of Admiralty, 2d Ed., at 361. Under the rule of The Hamilton, 1907, 207 U.S. 398, 28 S. Ct. 133, 52 L. Ed. 264, recovery under DOHSA can be supplemented by a decedent's personal action under a relevant state survival statute. See Petition of Gulf Oil Corp., S.D.N.Y.1959, 172 F. Supp. 911, and cases cited therein. The issue of defendant survival (or abatement) under DOHSA does not appear to have been determined.
Finally, prior to Moragne, where personal injuries were sustained in state territorial waters, a survival action could be had against the estate of the deceased tort-feasor under a relevant state statute. Just v. Chambers, 1941, 312 U.S. 383, 61 S. Ct. 687, 85 L. Ed. 903. The Supreme Court has taken "note that advancing civilization and social progress have brought 43 of our states to include in their general law the principle of the survival of causes of action against deceased tort-feasors, and that such recovery, rather than being exceptional, has now become the rule in almost every common-law jurisdiction." Cox v. Roth, 1955, 348 U.S. 207, 210, 75 S. Ct. 242, 244, 99 L. Ed. 260. As noted in Part III of this opinion, the commentators concur in this result. See also Gaudet, supra, 414 U.S. at 575, 94 S.Ct. at 810, note 2; 1 Speiser, Recovery for Wrongful Death, 2d Ed. 1975, § 8:15, at 758. Such an action would have been available under Louisiana law. Ruiz v. Clancy, 1935, 182 La. 935, 162 So. 734, 737; Smith v. Nicholson, 1851, 6 La.Ann. 704.
Although such a direct application of state law runs contrary to the uniformity envisioned by Moragne, the Moragne death remedy should, for completeness, provide what was generally available under state remedial schemes prior to the decision. The court in Gaudet, supra, was moved, in part, to provide damages for loss of society under Moragne so as to "align the maritime wrongful-death remedy with a majority of state wrongful-death statutes." Providing for a survival action here would produce a similar alignment. As the Fifth Circuit has observed, in a related context, "It would be anomalous for us to take away a pre-Moragne remedy which was almost universally available by the application of state survival statutes when there is no federal maritime policy against [it]." Dennis v. Central Gulf Steamship Corp., 5th Cir. 1972, 453 F.2d 137, 140.
Hence, to permit a maritime tort action to die with the tort-feasor would render Moragne less-encompassing than the federal statutory and state law remedial schemes it was intended to supplant. Yet Moragne "requires that the shape of the new maritime wrongful-death remedy ... be guided by the principle of maritime law that `certainly it better becomes the humane and liberal character of the proceedings in admiralty to give than to withhold the remedy, when not required to withhold it by established and inflexible rules.' The Sea Gull, 21 F. Cas. 909 (No. 12,578) (C.C.Md.1865), quoted in Moragne, 398 U.S. at 387, 90 S.Ct. at 1781." Gaudet, supra, 414 U.S. at 583, 94 S.Ct. at 814.
No such obstacle lies in our course, for, "as admiralty takes cognizance of maritime torts, there is no repugnancy to its characteristic features either in permitting recovery for wrongful death or in allowing compensation for a wrong to the living to be obtained from a tortfeasor's estate." Just v. Chambers, supra, 312 U.S. at 392, 61 S.Ct. at 693.
V.
Counsel for the succession contends that imposing such a remedy against a deceased mariner, who perished in the same incident as plaintiff's decedent,[11] would withdraw from him and his estate the "special solicitude" *590 of the admiralty. It is contended that whatever award the succession receives will be exhausted by the claims against the succession. But whether or not a judgment against the succession could be used to attach successful damage claims by the succession, either pursuant to Moragne or the Jones Act or both, is not now before us. It suffices that solicitude for men who go to sea has never warranted cloaking a mariner or his estate with immunity, nor depriving others who face the waters' perils of their appropriate remedies.[12] Accordingly, the motion to dismiss the claims against the succession of Paul Egidio Auletto is DENIED.
NOTES
[1] The court overruled the Harrisburg, 1886, 119 U.S. 199, 7 S. Ct. 140, 30 L. Ed. 358, which held no cause of action was provided by the general maritime law.
[2] As to non-pecuniary benefits that the class would have received such as companionship, see Sea-Land Services, Inc. v. Gaudet, 1974, 414 U.S. 573, 94 S. Ct. 806, 39 L. Ed. 2d 9.
[3] On the various types of survival and death statutes, see Gaudet, supra, 94 S.Ct. at 810, note 2; Harper & James, The Law of Torts, 1956, §§ 24.2, 25.13, et seq.
[4] The claimant seeks $150,000 for the deceased's pain and suffering, mental anguish and emotional distress prior to death.
[5] The provisional administrator of a deceased tort-feasor's estate was cast in judgment in a maritime wrongful death action in Skidmore v. Grueninger, 5th Cir. 1975, 506 F.2d 716. However the issue of abatement was not considered on appeal, nor by the trial court. E.D.La., CA No. 70-1015.
[6] For these reasons, the court concluded:
No action lies under state law to recover damages for wrongful death occurring on navigable waters; the wrongful death action under the general maritime law has preempted the field. To allow a state death claim to be joined with a ... Moragne claim ... would destroy the uniformity Moragne sought.
Hamilton v. Canal Barge Co., Inc., E.D.La.1975, 395 F. Supp. 978, 983, note 1.
[7] It is difficult to follow the court's reasons in Barbe for refusing to allow pain and suffering as part of a Moragne action, as opposed to part of a separate survival action:
[I]n a case like the instant one, where the accident occurred on high seas, it is not so easy to apply Moragne to generate a cause of action. The distinction is that Moragne provided a cause of action where one did not previously exist, but here a congressionally provided cause of action already exists, namely DOHSA.
507 F.2d at 799. The theory that DOHSA cannot, within its territorial parameters, be supplemented or superseded by a general maritime action, was clearly rejected by the Supreme Court in Gaudet, 414 U.S. at 587, 94 S.Ct. at 816, note 22.
[8] In Kernan v. American Dredging, 1958, 355 U.S. 426, 430, 78 S. Ct. 394, 397, note 4, 2 L. Ed. 2d 382, the Supreme Court noted that recovery for damages sustained prior to death on the high seas would survive if based on an appropriate state statute. Of course, under Law and Barbe, survival does not depend upon an applicable state statute.
[9] For a thorough historical analysis of wrongful death and survival actions in admiralty law, see George & Moore, Wrongful Death and Survival Actions Under the General Maritime Law: Pre-Harrisburg Through Post-Moragne, 4 J. Mar.L. &Comm. 1.
[10] Restatement, Torts § 900 (1939) reflects the common law rule.
[11] See, Annotation, Survival of Cause of Action for Personal Injury or Death Against Tort-feasor Killed in the Same Accident, 70 A.L.R. 1319.
[12] The special solicitude is not reserved for mariners, but extends to all who are injured within the jurisdiction. Gaudet, supra, 414 U.S. at 588, 94 S.Ct. at 816. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1152486/ | 481 So. 2d 924 (1985)
Charles FERGUSON, Appellant,
v.
STATE of Florida, Appellee.
No. 85-108.
District Court of Appeal of Florida, Second District.
October 25, 1985.
Rehearing Denied January 3, 1986.
James Marion Moorman, Public Defender, and Ann N. Radabaugh, Asst. Public Defender, Bartow, for appellant.
Jim Smith, Atty. Gen., Tallahassee, and Davis G. Anderson, Asst. Atty. Gen., Tampa, for appellee.
PER CURIAM.
Affirmed on the authority of Schevling v. State, 426 So. 2d 580 (Fla. 1st DCA 1982), petition for review denied, 431 So. 2d 989 (Fla. 1983).
RYDER, C.J., and GRIMES and FRANK, JJ., concur.
ON MOTION FOR REHEARING
PER CURIAM.
Appellant was convicted of a third degree felony, determined to be a habitual felony offender under section 775.084, Florida Statutes (1983), and sentenced to ten years. On appeal, we rejected the substantive issue raised by appellant and affirmed the judgment without opinion. Relying upon the recent decision of Hendrix v. State, 475 So. 2d 1218 (Fla. 1985), appellant now argues that his sentence constituted an improper departure from the sentencing guidelines. In Hendrix the supreme court held that prior convictions which had been factored into the guidelines scoresheet may *925 not be used to justify a guidelines departure.
Appellant had previously been convicted of five felonies and thirteen misdemeanors. The guidelines recommendation for appellant's sentence was twelve to thirty months incarceration or community control. The reason given for the guidelines departure was that appellant was a habitual felony offender. The predicate felony for the determination that he was a habitual felony offender was factored into the guidelines computation. Thus, appellant contends that his conviction was improperly counted twice contrary to the rule of Hendrix.
In McCuiston v. State, 462 So. 2d 830 (Fla. 2d DCA 1985), this court held that sentencing as a habitual offender constituted a clear and convincing reason for departing from the guidelines. Admittedly, proof of a prior felony is an integral part of classifying the defendant as a habitual felony offender. Nevertheless, before a person may be declared a habitual felony offender, the court must also hold a formal hearing and make a finding that the imposition of an enhanced sentence "is necessary for the protection of the public from further criminal activity by the defendant." In making such a finding, the court necessarily considers such matters relating to appellant's conduct and background as are customarily contained in a presentence investigation. See Eutsey v. State, 383 So. 2d 219 (Fla. 1980). Thus, the determination that a person is a habitual felony offender requires more than a simple consideration of prior felonies.
Section 775.084 was enacted to provide a special method for handling certain repeat offenders. We do not believe that either the legislature or the supreme court intended that the enactment of sentencing guidelines would so curtail the application of section 775.084 that its only function would be to permit the enhancement of the statutory sentencing maximums. Accord Fleming v. State, 480 So. 2d 715 (Fla. 2d DCA 1986).
Accordingly, we deny the motion for rehearing. Recognizing, however, that this is an issue which is likely to frequently reoccur, we certify as a matter of great public importance the following question:
IS THE DETERMINATION OF A DEFENDANT AS A HABITUAL FELONY OFFENDER PURSUANT TO SECTION 775.084 A SUFFICIENT REASON FOR DEPARTURE FROM THE RECOMMENDED RANGE OF THE SENTENCING GUIDELINES?
RYDER, C.J., and GRIMES and FRANK, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1516435/ | 916 F. Supp. 1289 (1996)
Kai Wu CHAN, Yong Sun Li, Fu Xin Li, Ren Ping Zheng, and Liang Wen Pan, Plaintiffs,
v.
Janet RENO, United States Attorney General, Defendant.
No. 95 Civ. 2586.
United States District Court, S.D. New York.
February 13, 1996.
*1290 *1291 Theodore N. Cox, New York City, for Plaintiffs.
Mary Jo White, United States Attorney for the Southern District of New York (F. James Loprest, Jr., Special Assistant US Attorney, of counsel), New York City, for Defendant.
SWEET, District Judge.
Defendant Janet Reno, United States Attorney General (the "Government"), has moved to dismiss the Amended Complaint of Plaintiffs Kai Wu Chan, Yong Sun Li, Fu Xin Li, Ren Ping Zheng, and Liang Wen Pan (collectively, "Plaintiffs"), pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, on the grounds that it is not ripe for review by reason of Plaintiffs' failure to exhaust administrative remedies and that this Court lacks subject matter jurisdiction. The Government has moved in the alternative to dismiss, pursuant to Rule 12(b)(6), Fed. R.Civ.P., on the grounds that Plaintiffs have failed to state a claim upon which relief can be granted.
Plaintiffs have moved, pursuant to Rule 15(a), Fed.R.Civ.P., for leave to amend the Amended Complaint, and pursuant to Rule 56(c), Fed.R.Civ.P., for summary judgment.
For the reasons set forth below, the Government's motion to dismiss for lack of jurisdiction will be granted, Plaintiffs' motion for *1292 summary judgment will be denied as moot, and Plaintiffs' motion to amend will be denied.
Prior Proceedings
Kai Wu Chan filed his Initial Complaint on April 14, 1995, seeking a declaratory judgment reversing the denial of his application for adjustment of his immigration status and a mandatory injunction that the I.N.S. adjust his status to that of lawful permanent resident ("LPR") under the Chinese Student Protection Act of October 9, 1992, Pub.L. No. 102-404, 106 Stat. 1969-1971 (1992) (the "CSPA"), see 8 U.S.C. § 1255. Kai Wu Chan amended that Initial Complaint as of right on May 31, 1995 (the "First Amended Complaint"), adding Yong Sun Li, Fu Xin Li, Ren Ping Zheng, and Liang Wen Pan as plaintiffs. The Government answered on July 24, 1995.
On August 23, 1995, Plaintiffs served the Government with a proposed "Second Amended Complaint" dated May 25, 1995, naming eight additional plaintiffs.
On September 20, 1995, the Government filed its notice of motion to dismiss the First Amended Complaint, accompanied by a memorandum of law. On September 29, 1995, Plaintiffs filed a memorandum of law in support of a motion for summary judgment and in opposition to the Government's motion to dismiss. On October 13, 1995, the day of oral argument, Plaintiffs filed their motions for summary judgment on the First Amended Complaint and to amend that complaint.
On the invitation of the Court, the parties supplemented the record with further submissions after argument. On November 13, 1995, the Government submitted its reply memorandum in support of its motion to dismiss the First Amended Complaint and in opposition to Plaintiffs' motions. That reply memorandum addressed its arguments regarding the motion to dismiss and for summary judgment to the substance of the First Amended Complaint. On November 22, 1995, Plaintiffs submitted their reply memorandum "for summary judgment and in opposition to the motion to dismiss the complaint". This memorandum addressed itself largely to the substance of the Proposed Fourth Amended Complaint, in addition to the substance of the First Amended Complaint.
Plaintiffs' Rule 3(g) statement was submitted on December 18, 1995, and filing was granted nunc pro tunc. Further letter submissions were accepted from the parties through January 30, 1996.
Parties
Plaintiffs are nationals of the People's Republic of China ("China" or the "PRC") residing in the United States. All entered the United States without inspection on or before April 11, 1990.
Janet Reno is the Attorney General and head of the Department of Justice of the United States.
Facts and Relevant Legislation
The facts set forth here do not constitute findings of fact by the Court. They are drawn from the allegations made by Plaintiffs in the First Amended Complaint.
I. The Statutory Framework of Immigration Status Adjustment
Section 245 of the I.N.A., 8 U.S.C. § 1255, allows an alien to apply for status as a lawful permanent resident in the United States rather than requiring him to return to his own country to apply for such status. This is known as "adjustment of immigration status" or "status adjustment". Section 245 provides in pertinent part:
The status of an alien who was inspected and admitted or paroled into the United States may be adjusted by the Attorney General, in his discretion and under such regulations as he may prescribe, to that of an alien lawfully admitted for permanent residence if (1) the alien makes an application for such adjustment, (2) the alien is eligible to receive an immigrant visa and is admissible to the United States for permanent residence, and (3) an immigrant visa is immediately available to him at the time his application is filed.
INA § 245, 8 U.S.C. § 1255(a). Because of the special benefit it confers upon an alien who would otherwise be required to depart from the United States to apply for an immigrant *1293 visa and then return, Section 245 adjustment is considered to be "extraordinary relief." Howell v. I.N.S., 72 F.3d 288, 290 (2d Cir. Dec. 20, 1995) (quoting Jain v. I.N.S., 612 F.2d 683, 687 (2d Cir.1979), cert. denied, 446 U.S. 937, 100 S. Ct. 2155, 64 L. Ed. 2d 789 (1980)); see also Randall v. Meese, 854 F.2d 472, 474 (D.C.Cir.1988) (Ruth Bader Ginsburg, J.) (quoting Jain, 612 F.2d at 687), cert. denied, 491 U.S. 904, 109 S. Ct. 3186, 105 L. Ed. 2d 694 (1989); Rahman v. McElroy, 884 F. Supp. 782, 785 (S.D.N.Y. 1995).
Section 245(a) requires explicitly that an alien must have been inspected, admitted, or paroled into the United States at the alien's last entry in order to receive status adjustment. "Parole" is, in essence, advance authorization for entry, which may be applied for by an alien before leaving the United States in anticipation of a return voyage to this country. By virtue of Section 245(a), those who enter this country illegally are not generally eligible for status adjustment.
II. The Tiananmen Square Massacre and Executive Order 12711
In the spring of 1989, over one million peaceful protestors gathered in Beijing's Tiananmen Square calling for democracy in China and protesting rampant corruption. On June 4, 1989, harsh military repression crushed the democracy movement. The attention of the United States and its President and Congress was focussed on the plight of Chinese nationals in the United States who were, or could eventually become, deportable. Among them were students; non-students in temporary, lawful status; and those who had come to the United States without lawful status. Some Chinese nationals had come to the United States fearing persecution based on China's coercive family-planning policy.
The President of the United States is expressly authorized to increase refugee admissions, INA § 207, 8 U.S.C. § 1157, or to suspend the "entry of any aliens or of any class of aliens...." INA § 212(f), 8 U.S.C. § 1182(f). In response to a foreign crisis, the President can authorize the entry of particular groups or extend temporary protection to members of such groups who may already be in the United States, even in the absence of eligibility according to family-based immigration categories.
On April 11, 1990, President Bush issued Executive Order 12711 ("E.O. 12711" or the "Executive Order"), entitled "Policy Implementation With Respect to Nationals of the People's Republic of China." Executive Order 12711, 55 Fed.Reg. 13897-88 (1990), reprinted in 1992 U.S.C.C.A.N. 1356. The Executive Order provided expansive protection for Chinese nationals. All Chinese nationals in the United States at the time whether of lawful or unlawful status were included in the Executive Order, in its Section 1. See 1992 U.S.C.C.A.N. at 1356-57. For Chinese nationals who had entered the United States without authorization, the effect of the Executive Order was to stay deportation proceedings against them until January 1, 1994. They thus were placed in a position known as Deferred Enforcement of Departure ("DED"). Plaintiffs were among those who applied for and benefitted from receiving DED under the Executive Order.
III. The Chinese Student Protection Act
The Chinese Student Protection Act was passed in September 1992, and signed into law the following month. See 1992 U.S.C.C.A.N. 1355-61. The CSPA amended INA Section 245 the statute governing status adjustment for aliens in general by providing an avenue for adjustment to at least some of those persons whose enforced departure from the United States had been deferred as a result of Executive Order 12/11. See 55 Fed.Reg. 13,897 (Apr. 11, 1990). The CSPA took effect on July 1, 1993, and provided for an application period of one year for the filing of adjustment applications. CSPA § 2(e); 106 Stat. 1971.
Section 2(a) of the CSPA conferred significant advantages upon qualified PRC nationals in the United States seeking adjustment to LPR status. For example, Section 2(a) exempted qualifying Chinese nationals from the requirements of Section 245(c) of the I.N.A., which generally makes adjustment unavailable to aliens whose legal status has lapsed at the time of application. CSPA *1294 § 2(a)(5). In addition, Section 2(a) permitted the Attorney General to bypass national quotas, id. at § 2(a)(4), and the requirement that an alien have an immigrant visa number, id. at § 2(a)(3).
Section 2(a) accorded these benefits to aliens described in CSPA § 2(b). Section 2(b) required that the applicant 1) be a Chinese national described in Executive Order 12711 (that is, have been present in the United States at some time between June 5, 1989, and April 11, 1990, the date of the Order); 2) have resided continuously in the United States since April 11, 1990; and 3) not have been physically present in China for more than ninety days between April 11, 1990, and October 9, 1992, the date of enactment of the CSPA.
At the time of implementation of the CSPA, the I.N.S. issued "interim guidelines" for its application, including 8 C.F.R. § 245.9. Regulation 245.9 interpreted the CSPA not to waive the requirement of inspection and admission or parole the requirement generally required of any alien seeking status adjustment pursuant to Section 245(a) for CSPA applicants.
On January 1, 1994, protection under the Executive Order expired, and those Chinese nationals who had otherwise been subject to deportation lost the benefits they had gained while privileged as DED. On June 30, 1994, the period to apply for status adjustment under the CSPA expired. At that time, no further applications for status adjustment were possible.
IV. Advance Parole and Its Effect
When the I.N.S. announced Regulation 245.9 as part of its interim guidelines interpreting the CSPA to allow status adjustment under the CSPA only to those who had been inspected or paroled pursuant to Section 245(a) many Chinese nationals who had illegally entered the United States and had DED status pursuant to the Executive Order applied for advance parole. In so doing, these Section 1 nationals could avail themselves of status adjustment under the CSPA by leaving the country without eligibility for status adjustment and returning as eligible applicants by virtue of their advance parole.
For the first month-and-a-half of the application period for status adjustment under the CSPA, beginning July 1, 1993, the I.N.S. pursuant to a directive to its field offices known as Cable 1 continued to grant liberally advance parole to Section 1 nationals, even those without legal status. On August 16, 1993, approximately a month-and-a-half after the CSPA and the interim guidelines had taken effect, the I.N.S. issued a directive to its field offices known as Cable 5, imposing far more stringent requirements on eligibility for advance parole for DED Chinese nationals. As a result, those Section 1 nationals who had applied for advance parole during the month-and-a-half-long period during which advance parole had been relatively easy to obtain became eligible for status adjustment under the CSPA, while those who had delayed in applying for advance parole until the Government restricted its availability were, in effect without an avenue to become eligible for status adjustment.
V. Section 245(i)
On August 26, 1994, what became Section 245(i) of the I.N.A. was enacted. See 8 U.S.C. § 1255(i). Section 245(i) permits aliens who entered the United States without inspection ("E.W.I.'s") to adjust their statuses to those of lawful permanent resident if they are eligible for immigrant classification and have an immigrant visa number immediately available. Id. The statute provides for effective dates from October 1, 1994, through October 1, 1997.
The implementing regulation, 8 C.F.R. § 245.10, provides that the provisions of Section 245(i) shall not be retroactive. Thus, Section 245(i) is not applied to applications for status adjustment filed before October 1, 1994, nor to motions to reopen or reconsider any applications filed before that date. Since the last date to apply for status adjustment under the CSPA was June 30, 1994, Regulation 245.10 bars resort to Section 245(i) for CSPA applicants who entered without inspection.
VI. Plaintiffs' Applications
Plaintiffs, all of whom entered the United States without inspection, applied for and *1295 were granted DED benefits under Executive Order 12711 and enjoyed its protection and benefits throughout its duration, until January 1, 1994. Among the temporary benefits and benefits they enjoyed were work authorization and eased restrictions on international travel to and from the United States.
Each of the Plaintiffs applied for adjustment of status in the manner prescribed by the CSPA at some time on or before June 30, 1994. All but one were denied adjustment on the ground that they had not been inspected and admitted or paroled that is, that they had not legally entered the United States at the time of their most recent entries.[1]
Kai Wu Chan subsequently applied for and was granted advance parole, so that he could visit his critically ill mother in China. He entered the PRC on August 28, 1994, and reentered the United States on or about October 19, 1994. Fu Xin Li and Ren Ping Zheng applied for but were denied advance parole. The First Amended Complaint does not allege that Liang Wen Pan ever applied for advance parole.
Kai Wu Chan filed a motion to reopen and reconsider his application for status adjustment on October 22, 1994, basing his application on his legal entry on October 19, 1994. That motion was denied on February 13, 1995, on the grounds that at the time of the application, he was ineligible for adjustment. On November 28, 1994, Liang Wen Pan filed a motion to reopen. The application was denied on the ground that he had not been admitted, inspected, or paroled.
Issues Presented in the First Amended Complaint
In the First Amended Complaint, Plaintiffs seek two declaratory judgments: first, that the I.N.S. unlawfully abused its discretion by denying their applications for status adjustment and their motions to reconsider the initial denial;[2] second, that Regulation 245.9 and Cable 5 are unlawful. In addition, Plaintiffs seek a negative injunction enjoining the I.N.S. from applying Regulation 245.9 and a mandatory injunction ordering that the grant of Plaintiffs' status adjustment applications.
Plaintiffs advance two arguments to support their assertion that the Government improperly denied them status adjustment. They contend that Section 245(a) the requirement that only those who entered the United States with inspection and admission or advance parole are eligible for status adjustment was not meant to apply to Chinese nationals otherwise eligible for adjustment under the CSPA, because the CSPA was meant to accord the same privileges and cover the same people as E.O. 12711. In the alternative, Plaintiffs argue that Cable 5 the directive that constricted the availability of advance parole to Chinese nationals and thus made many unable to meet the terms of Section 245(a) violated the Executive Order. These two arguments are addressed fully below, but they will be summarized here.
I. Plaintiffs' Argument that the CSPA Meant to Include All Those Covered by the Executive Order
Plaintiffs invoke principles of statutory construction and excerpts from the legislative history of the CSPA to support their contention that the Act was not meant to impose a requirement of inspection and admission or parole on Chinese nationals covered by the Executive Order. First, they assert that the CSPA incorporates by reference the definition of "Chinese National" contained in Section 1 of the Executive Order. They note that the Executive Order anticipated a successor statute, as indicated by its expiration date of January 1, 1994, and that the CSPA refers explicitly to "national[s] of the People's Republic of China described in section 1 of Executive Order No. 12711...." CSPA § 2(b)(1).
Second, Plaintiffs point to the text and legislative history of the CSPA. They argue that the words "under section 245" in the general clause of CSPA Section 2 do not *1296 imply by negative inference that INA § 245(a) applies. They contend further that the legislative history indicates that the removal of barriers to adjustment set out in INA § 245(c) was added in conference purposely to expand the scope of eligibility. Moreover, argue Plaintiffs, the legislative history also acknowledges the close kinship between the Executive Order and the CSPA.
As a final argument in support of their claim that the CSPA did not mean to require inspection and admission or parole, Plaintiffs address traditional canons of interpretation. They contend that the canons require that doubt as to the correct construction of a statute should be resolved in favor of an alien.
II. Plaintiffs' Argument that Cable 5 Violates the Executive Order
As a second argument in support of their claim for relief, Plaintiffs argue that Cable 5 the I.N.S. directive constricting the availability of advance parole to Chinese nationals, reversing earlier policy violated the Executive Order, which had the force of law.
Discussion
I. Standard of Review
The exclusion and admission of aliens are fundamental acts of sovereignty, and authority over these areas is vested exclusively in the legislative and executive branches of government. See, e.g., Landon v. Plasencia, 459 U.S. 21, 34, 103 S. Ct. 321, 330, 74 L. Ed. 2d 21 (1982) ("control over matters of immigration is a sovereign prerogative"); United States v. Valenzuela-Bernal, 458 U.S. 858, 864, 102 S. Ct. 3440, 3444, 73 L. Ed. 2d 1193 (1982) ("[t]he power to regulate immigration an attribute of sovereignty essential to the preservation of any nation has been entrusted by the Constitution to the political branches); Galvan v. Press, 347 U.S. 522, 531, 74 S. Ct. 737, 742, 98 L. Ed. 911 (1954) ("that the formulation of [immigration] policies is entrusted exclusively to Congress has become about as firmly embedded in the legislative and judicial tissues of our body politic as any aspect of our government"); Oceanic Steam Navigation Co. v. Stranahan, 214 U.S. 320, 339, 29 S. Ct. 671, 676, 53 L. Ed. 1013 (1909) ("over no conceivable subject is the legislative power of Congress more complete" than the processing of aliens).
Accordingly, the Supreme Court has repeatedly instructed that judicial review in immigration matters is narrowly circumscribed. See, e.g., Reno v. Flores, 507 U.S. 292, 305, 113 S. Ct. 1439, 1449, 123 L. Ed. 2d 1 (1993); Fiallo v. Bell, 430 U.S. 787, 792, 97 S. Ct. 1473, 1478, 52 L. Ed. 2d 50 (1977); Kleindienst v. Mandel, 408 U.S. 753, 766, 92 S. Ct. 2576, 2583, 33 L. Ed. 2d 683 (1972); Rahman, 884 F.Supp. at 785 (S.D.N.Y.1995). As the Supreme Court has observed, "Enforcing the immigration laws, and the conditions for residency in this country, is becoming more difficult.... Moreover, the I.N.S. is the agency primarily charged by Congress to implement the public policy underlying these laws.... Appropriate deference must be accorded its decisions." I.N.S. v. Miranda, 459 U.S. 14, 19, 103 S. Ct. 281, 284, 74 L. Ed. 2d 12 (1982) (citations omitted); see also Zhang v. Slattery, 55 F.3d 732, 748 (2d Cir.1995) ("it is not the role of the federal courts to administer the executive branch" in immigration matters); Dhine v. Slattery, 3 F.3d 613, 619 (2d Cir.1993) ("The Supreme Court has cautioned against `improvidently encroach[ing] on the authority which the ... Act confers upon the Attorney General and his delegates'" (citations omitted)).
Because Congress has charged the Attorney General with the responsibility for interpreting and implementing the immigration laws, such as the CSPA and INA § 245, at issue in this case, see 8 U.S.C. § 1103(a); Sale v. Haitian Ctrs. Council, Inc., 509 U.S. 155, 171-74, 113 S. Ct. 2549, 2559-60, 125 L. Ed. 2d 128 (1993), her interpretation of those laws is entitled to this Court's deference. See, e.g., Zhang, 55 F.3d at 749. Where reasonable, the Attorney General's interpretation must be sustained, even if a court finds that the interpretation is not "the only reasonable one" or where "had the question arisen in the first instance in judicial proceedings," the court would have reached a different result. See Udall v. Tallman, 380 U.S. 1, 16, 85 S. Ct. 792, 801, 13 L. Ed. 2d 616 (1965); Japan Whaling Ass'n. v. American Cetacean Soc'y, 478 U.S. 221, 233, 106 S.Ct. *1297 2860, 2867, 92 L. Ed. 2d 166 (1986); Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843, 104 S. Ct. 2778, 2781, 81 L. Ed. 2d 694 (1984) (where the statute is unclear, "the question for the court is whether the agency's answer is based on a permissible construction of the statute"); Isaacs v. Bowen, 865 F.2d 468, 472 (2d Cir. 1989); Weeks v. Quinlan, 838 F.2d 41, 43 (2d Cir.1988).
II. The Issues Presented in the First Amended Complaint Are Not Justiciable
Plaintiffs assert jurisdiction under the Administrative Procedure Act, 5 U.S.C. § 704, which provides that "[a]gency action[s] made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review," and 28 U.S.C. § 1331, which provides district courts with original jurisdiction over federal questions. The I.N.A., the CSPA, and the regulations promulgated under them, paired with the doctrine of exhaustion of administrative remedies, render Plaintiffs' claims unripe for review and deprive the Court of subject matter jurisdiction. The First Amended Complaint is, therefore, non-justiciable, and it will be dismissed.
This matter is not one of settled law. "[T]he Supreme Court has not yet grappled with the question whether, outside the context of a deportation proceeding or order, district director status adjustment or asylum application denials are amenable to court review." Randall, 854 F.2d at 482 n. 16. Our Court of Appeals recently declined to pass on the question of whether a district court possesses subject matter jurisdiction to review a denial of adjustment of status before the applicant is subject to deportation proceedings. Howell, 72 F.3d at 293 n. 5.
This is not to say that some district courts, and some courts of appeals in other circuits, have not addressed this and similar questions. The courts that have been asked to determine if a district court has jurisdiction to review a district director's denial of adjustment of status have differed in their conclusions. Some have held there to be jurisdiction. See, e.g., Jaa v. United States I.N.S., 779 F.2d 569 (9th Cir.1986); Reid v. I.N.S., No. 91 Civ. 6535, 1993 WL 267278 (S.D.N.Y. Nov. 7, 1993). Yet, as our Court of Appeals has noted, those cases' applicability here is limited by their reliance on the Supreme Court's decision in Cheng Fan Kwok v. I.N.S., 392 U.S. 206, 88 S. Ct. 1970, 20 L. Ed. 2d 1037 (1968). Howell, 72 F.3d at 290. Cheng Fan Kwok did not address directly whether district courts have jurisdiction to review a district director's denial of an application for adjustment of status; rather, it held that judicial review is available at the district court level, before the court of appeals level, when a district director denies a stay of deportation. Howell, 72 F.3d at 290 (citing Cheng Fan Kwok at 210, 88 S.Ct. at 1973); see Randall, 854 F.2d at 482 n. 16.
Other courts have held district courts to lack jurisdiction over district directors' denials of Section 245 status adjustments. They have generally done so, however, where deportation proceedings have already commenced. See id. at 472. In one case from the Seventh Circuit, the court did hold that a district court properly declined to exercise jurisdiction because the claim was not ripe for judicial review, even though deportation proceedings had not yet commenced. Massignani v. I.N.S., 438 F.2d 1276 (7th Cir. 1971). These courts have held that because the alien challenging the adjustment denial has opportunity for de novo administrative consideration and subsequent appellate review a direct challenge to an adjustment denial constitutes a failure to exhaust administrative remedies, making the claim unripe for review. See Rahman v. McElroy, 884 F. Supp. 782, 785 (S.D.N.Y.1995) (dismissing complaint of aliens simultaneously seeking adjustment and immigrant visas where the adjustment applications had not yet been adjudicated, and holding that "[f]ailure to seek ... administrative review before challenging an adjustment denial in a district court constitutes a failure to exhaust administrative remedies"); Yeung v. Reno, 868 F. Supp. 53, 57 (S.D.N.Y.1994), aff'd., 57 F.3d 1062 (2d Cir.1995) ("This court has concluded that its direct review of an adjustment determination is precluded by the requirement of exhaustion of remedies." (citations omitted)); Augoustinakis v. United States I.N.S., 693 *1298 F.Supp. 1554, 1556 (S.D.N.Y.1988) (holding that, because deportation proceedings may produce a different outcome, any "decision [by this Court] regarding the appropriateness of the District Director's refusal to exercise his discretion to adjust the plaintiff's status would constitute an advisory opinion," which is prohibited (citations omitted)).
As a general rule, subject matter jurisdiction in cases "arising under" the I.N.A. is granted by statute. 8 U.S.C. § 1329 provides, "The district courts of the United States shall have jurisdiction of all causes, civil and criminal, arising under any of the provisions of Subchapter II of the I.N.A. That subchapter includes the section governing adjustment of status." 8 U.S.C. § 1255; see Augoustinakis, 693 F.Supp. at 1555.
The doctrine of exhaustion of administrative remedies, however, circumscribes the jurisdiction granted by these provisions and the Administrative Procedure Act. That doctrine was described by our Court of Appeals in Howell:
"a party may not seek federal judicial review of an adverse administrative determination until the party has first sought all possible relief within the agency itself." Guitard v. United States Secretary of Navy, 967 F.2d 737, 740 (2d Cir.1992) (citing Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-51 [58 S. Ct. 459, 463-64, 82 L. Ed. 638] (1938)). The requirement of exhaustion "may arise from explicit statutory language or from an administrative scheme providing for agency relief." Kennedy v. Empire Blue Cross & Blue Shield, 989 F.2d 588, 592 (2d Cir. 1993). If a party fails to exhaust administrative remedies, then the court may dismiss the action because subject matter jurisdiction does not exist. DiLaura v. Power Auth., 982 F.2d 73, 79 (2d Cir.1992).
Howell, 72 F.3d at 291.
Howell explored the consequences of this doctrine where an application for adjustment of status is denied. The court upheld a district court's ruling that it lacked jurisdiction to review the I.N.S.'s denial of an alien's application to adjust immigration status to that of a lawful, permanent United States resident, pursuant to section 245(a). There, unlike here, the I.N.S. had commenced deportation proceedings against an alien. Under those circumstances, held the Howell court, the alien "has the opportunity, pursuant to the regulations, to renew her application for adjustment of status before an immigration judge," and must therefore exhaust administrative remedies before seeking judicial review. See Howell, 72 F.3d at 293.
As in Howell, here both statutory language and an administrative scheme invoke the doctrine of administrative exhaustion. The regulations promulgated under the I.N.A. create several levels of review. First, they provide that if an application is denied initially by the I.N.A. district director, "[n]o appeal lies from the denial of an application by the director, but the applicant retains the right to renew his or her application in [deportation proceedings]." 8 C.F.R. § 245.2(a)(5)(ii); see Howell, 72 F.3d at 291-92; Jain, 612 F.2d at 689-90; Randall, 854 F.2d at 474 ("the regulations preclude a direct administrative appeal" from denial of a status adjustment application).
Deportation proceedings do not commence automatically upon denial of an application for adjustment of status; instead, they are "commenced by the filing of an order to show cause with the Office of the Immigration Judge." 8 C.F.R. § 242.1(a); see Howell, 72 F.3d at 291. However, once an alien is identified for deportation, he has three more levels of review available. First, he "[m]ay apply to the immigration judge for ... adjustment of status under section 245...." 8 C.F.R. § 242.17(a). At this initial stage of proceedings to determine deportability, "the alien is entitled to a de novo review of his application...." Jain, 612 F.2d at 689-90; see Randall, 854 F.2d at 474. Indeed, "[a]t this stage, the alien is accorded a plenary hearing [at which] he has the right to be represented by counsel, to introduce evidence, and to cross-examine...." Id. (citing 8 C.F.R. §§ 242.17(a), 245.2(a)(5)(ii)).
If the immigration judge denies the alien's application for adjustment during deportation proceedings, two levels of appeal remain. The first avenue is to the Board of Immigration Appeals (the "B.I.A."). 8 C.F.R. *1299 §§ 3.1(b)(2), 242.21. Finally, by prescription of the I.N.A. itself, a final appeal can then made to a circuit court of appeals. 8 U.S.C. § 1105a(a); see Randall, 854 F.2d at 475. There, "the petition shall be determined solely upon the administrative record upon which the deportation order is based[,] and the Attorney General's findings of fact, if supported by reasonable, substantial, and probative evidence on the record considered as a whole, shall be conclusive." 8 U.S.C. § 1105a(a)(4).
In essence, then, an alien seeking adjustment of status has a right to four reviews, two of which are de novo one in the course of the initial application, the other in the course of deportation and two of which are appellate reviews of the second de novo proceeding. Plaintiffs, because they have not been subjected to deportation proceedings, have not yet exhausted their administrative remedies, and if the doctrine of exhaustion of administrative remedies applies, this Court lacks subject matter jurisdiction.
There are, however, as noted by the Howell court, "established exceptions to the exhaustion rule." Specifically:
Exhaustion of administrative remedies may not be required when: (1) available remedies provide no genuine opportunity for adequate relief; (2) irreparable injury may occur without immediate judicial relief; (3) administrative appeal would be futile; and (4) in certain instances a plaintiff has raised a substantial constitutional question.
Howell, 72 F.3d at 291-92 (quoting Guitard, 967 F.2d at 741 (internal quotations omitted)). None of these exceptions applies to the First Amended Complaint.
First, the remedies available to Plaintiffs provide a genuine opportunity for adequate relief. In Jain, 612 F.2d 683, an alien denied section 245 adjustment of status by a district director argued to our Court of Appeals (on appeal from a decision of the B.I.A.) that he had been denied due process because he was unable to appeal the original denial of that application prior to deportation proceedings. Id. at 689. The Court of Appeals found the argument to lack merit, because:
the alien is entitled to a de novo review of his application in the context of deportation proceedings. [8 C.F.R. § 245.2(a)(4).] We consider this dual opportunity to present a section 245 application to provide ample process, particularly in light of the discretionary nature of section 245 relief. The fact that the second consideration of the application takes place within the context of a deportation proceeding is irrelevant.
612 F.2d at 690; see also Howell, 72 F.3d at 293.
Second, as in Howell, "requiring [Plaintiffs] to renew their application for adjustment of status before an immigration judge at the deportation proceedings rather than allowing immediate review in district court will not cause irreparable injury to [them]." Howell, 72 F.3d at 293. Howell held so where deportation proceedings had already begun, and it could be argued that by compelling Plaintiffs to wait until deportation proceedings have begun, they will injured. It is true that, pending deportation proceedings, Plaintiffs will be left in limbo. However, that injury is by no means "irreparable"; to the contrary, the de novo review in the context of deportation plus the two levels of appeal provide for the repair of any injury suffered by Plaintiffs. As our Court of Appeals noted in Small v. Kiley, 567 F.2d 163, "Irreparable harm cannot be established by a mere reliance on the burden of submitting to agency hearings." Id. at 165 (citing Sears, Roebuck & Co. v. NLRB, 473 F.2d 91, 93 (D.C.Cir.1972), cert. denied, 415 U.S. 950, 94 S. Ct. 1474, 39 L. Ed. 2d 566 (1974) (preliminary injunction sought to enjoin administrative process pending determination of deportability)).
Third, the administrative appeal will not be futile, since, as in Howell, "if the immigration judge approves [Plaintiffs'] application for adjustment of status at the deportation proceedings [they] will have had an adequate remedy." Howell, 72 F.3d at 293.
Fourth, the First Amended Complaint does not set forth "substantial constitutional questions"; rather, it merely poses issues of agency interpretation and statutory construction. The declaratory judgments it seeks *1300 require (in contrast to the proposed "Fourth Amended Complaint", discussed below) only an analysis of whether the I.N.S. properly construed the I.N.A., the CSPA, and the Executive Order in promulgating its regulations and directives and in denying Plaintiffs' the relief sought. As such, "substantial constitutional questions" are not raised.
In sum, none of the exceptions to the doctrine of administrative exhaustion are met by the First Amended Complaint. It is not, therefore, ripe for review, nor does this Court possess subject matter jurisdiction.
Finally, it should be noted, as then-Judge Ginsburg noted in Randall, that:
To treat the question cogently, one must face a historical obstacle. To this day, "decisions of United States consuls on visa matters are nonreviewable by the courts." A district director's status adjustment decision, it has been observed, "simply provides a replacement for traveling overseas to obtain an immigrant visa in the classic fashion, from a consular officer."
Randall, 854 F.2d at 482 n. 16 (citations omitted). This peculiar anomaly reinforces the conclusion that the district courts have no jurisdiction over matters involving adjustment of status, even before deportation proceedings have commenced.
Because the First Amended Complaint does not present a claim ripe for review over which this Court possesses jurisdiction, it will be dismissed, in grant of the Government's motion. Plaintiffs' motion for summary judgment on the First Amended Complaint will, therefore, be denied as moot.
III. Plaintiffs' Motion to Amend Will Be Denied
Plaintiffs have moved to amend their complaint for a second time. Although this latest complaint is styled the "Fourth Amended Complaint", it is only the second amended complaint that has been brought before the Court. Because the Proposed Fourth Amended Complaint non-justiciable like the First Amended Complaint and therefore futile, the motion to amend will be denied.
A. The Substance of the Fourth Amended Complaint
In the Proposed Fourth Amended Complaint, Plaintiffs seek to add twenty-six new plaintiffs to the action (the "Proposed Plaintiffs"), to assert several new legal theories in support of the relief sought in the First Amended Complaint, and to receive additional relief. Proposed Plaintiffs fall into several categories. Although the Proposed Fourth Amended Complaint does not differentiate the relief requested by each defendant, only certain relief would be pertinent to each group, depending on the posture in which its members approach the Court.
1. The Xiu Ji Chen Parties: Those Who Did Not Apply for Advance Parole or Move to Reopen Their Denials of Status Adjustment
Proposed Plaintiffs Xiu Ji Chen, Zi Xiong Zhang, Zhou Qiang Dong, Fu Jie Pan, Chang Ming You, Jian Chun Pan[3], Jian Tai Zhang, Jun Nang Pan, Yu Guan Zhang, Ren Xiang Zheng, and Xiao Shu Zheng (the "Xiu Ji Chen Parties") applied for and received DED privileges under the Executive Order. All then applied for and were denied status adjustment under the CSPA on the ground that they had not been admitted, inspected, or paroled at the time of their most recent entries that is, that they did not meet the requirements of Section 245(a).[4] The Proposed Fourth Amended Complaint would seek declaratory relief similar to that requested in the First Amended Complaint: first, that the I.N.S. abused its discretion in failing to waive the requirements of Section 245(a) for those covered by the CSPA; second, that the CSPA must be construed to waive those requirements. Also as in the case of the First Amended Complaint, two injunctions would be sought by the Proposed *1301 Fourth Amended Complaint: first, to require the I.N.S. to interpret the CSPA to waive the requirement of inspection and admission or parole; and second, to grant Plaintiffs' applications. As in the case of the First Amended Complaint, the Proposed Fourth Amended Complaint would support these claims with arguments based chiefly on statutory interpretation and legislative intent.
Unlike the First Amended Complaint, however, the Proposed Fourth Amended Complaint would add a constitutional argument in support of the petition for this relief. Because they did not apply for, and thus did not receive, advance parole, the Xiu Ji Chen Parties were ineligible for status adjustment under the CSPA and I.N.A., in contrast to similarly situated E.W.I. Chinese nationals who applied for and received advance parole, left the country, and returned. The Proposed Fourth Amended Complaint argues that because there is no rational basis to distinguish E.W.I. Chinese nationals who traveled from and reentered the United States from those who did not, the Government's interpretation of the CSPA constitutes a violation of the right of equal protection under the law.
2. The Fu Xin Li Parties: Those Who Applied For and Were Denied Advance Parole
Like the Xiu Ji Chen Parties, plaintiffs Fu Xin Li and Ren Ping Zheng and proposed plaintiffs Tian Dong Zhang, Jun Ting Zhang, Wei Yang, Hui Lan Chen, Fen Yong Chen, Li Yong Chen, Yong Zhi Chen, Zhen Xiang Chen, Li Yun Dong, Mao Sheng Dong, Yi Lu Dong, Yu Zheng, and Jing Kui You (the "Fu Xin Li Parties") applied for and were granted protection under Executive Order 12711.[5] Unlike the Xiu Ji Chen Parties, the Fu Xin Li Parties also applied for advance parole after August 16, 1993 that is, after Cable 5 was promulgated by the I.N.S., reversing the liberal policy of granting advance parole to E.W.I. Chinese nationals. All had their applications denied.
In the Proposed Fourth Amended Complaint, in addition to the arguments advanced by the Xiu Ji Chen Parties, these parties would argue that Cable 5 was unlawfully promulgated. They argue that because Cable 5 resulted in an arbitrary distinction between those who had applied for advance parole before its promulgation while Cable 1's liberal policy was still in effect and those who applied afterwards, it violated their right to equal protection.
3. The Liang Wen Pan Parties: Those Who Did Not Apply for Advance Parole and Whose Motions to Reopen Were Denied on the Ground that Section 245(i) Was Not Retroactive
Like the Xiu Ji Chen Parties, plaintiff Liang Wen Pan and proposed plaintiff Ming Xing Lin (the "Liang Wen Pan Parties") received DED privileges under the Executive Order and were denied adjustment of status on the ground of lack of inspection and admission or parole. Also like the Xiu Ji Chen Parties, there is no suggestion that Liang Wen Pan or Ming Xing Lin applied for advance parole.[6] Unlike the other plaintiffs and proposed plaintiffs, the Liang Wen Pan Parties filed motions to reopen their applications for status adjustment based on INA § 245(i). Section 245(i), it will be recalled, *1302 was enacted in August 1994 to permit E.W.I.'s to apply for status adjustment as long as they are eligible for immigrant classification and have an immigrant visa number immediately available. 8 U.S.C. § 1255(i). It will also be recalled that the I.N.S. has interpreted Section 245(i), through 8 C.F.R. § 245.10, not to apply retroactively, with the result of depriving E.W.I. Chinese nationals of the ability to use Section 245(i) to have their denials of status adjustment reconsidered in the light of the new legislation.
The Proposed Fourth Amended Complaint would seek to enjoin the I.N.S. to approve the applications of individuals denied status adjustment on motion for reconsideration as a result of Section 245(i). In support of that claim, Plaintiffs would argue, first, that Regulation 245.10, interpreting Section 245(i) not to apply retroactively, violates the principle that a case should be decided on the basis of present law if a change in law occurs during the pendency of a case. Second, Plaintiffs would argue that such an interpretation is patently unreasonable and serves merely as a pretext by the I.N.S. to limit E.W.I. Chinese nationals from adjusting to L.P.R. status.
4. The Daoyu Li Parties: Those Whose Motions for Adjustment Were Denied on the Grounds That They Had Spent Over Ninety Days Cumulatively in PR China
Proposed Plaintiffs Daoyu Li and Shao Fa Hao, like the other plaintiffs and proposed plaintiffs, applied for and received DED privileges under the Executive Order. Each applied for adjustment of status and was denied on the ground that he had been in China for a cumulative total of more than ninety days between April 11, 1990, and October 9, 1992, despite the fact that neither of his two trips had alone exceeded ninety days.
Daoyu Li and Shao Fa Hao therefore seek substantially different relief than that sought by the other Plaintiffs and Proposed Plaintiffs. They seek declaratory judgments:
[a] declaring the "90 in PR China" exclusion in the CSPA to be an unconstitutional violation of equal protection [b] declaring the "90 in PR China" exclusion to be an unconstitutional violation of due process; [c] if the "90 in PR China" exclusion is found constitutional, then declaring that the regulation 8 C.F.R. § 245.9(b)(4), requiring that time in PR China on different trips must be added together to be an abuse of discretion.
Proposed Fourth Am.Compl. ¶ 23 (emphasis in original).
B. The Standard for Leave to Amend
Rule 15(a) provides that leave to amend a complaint "shall be freely given when justice so requires." The Supreme Court has, however, interpreted Rule 15 to permit such amendments only when (1) the party seeking the amendment has not unduly delayed, (2) when that party is not acting in bad faith or with a dilatory motive, (3) when the opposing party will not be unduly prejudiced by the amendment, and (4) when the amendment is not futile. Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed. 2d 222 (1962); see Mackensworth v. S.S. Am. Merchant, 28 F.3d 246, 251 (2d Cir.1994); Prudential Ins. Co. v. BMC Indus., Inc., 655 F. Supp. 710, 711 (S.D.N.Y. 1987).
An amendment is considered futile if the amended pleading fails to state a claim or would be subject to a successful motion to dismiss on some other basis. See, e.g., S.S. Silberblatt, Inc. v. East Harlem Pilot Block, 608 F.2d 28, 42 (2d Cir.1979); Freeman v. Marine Midland Bank-New York, 494 F.2d 1334, 1338 (2d Cir.1974). As will be discussed herein, the Proposed Fourth Amended Complaint, like the First Amended Complaint, presents a non-justiciable claim and fails to present this Court with subject matter jurisdiction. Therefore, because the Proposed Fourth Amended Complaint would be subject to a successful motion to dismiss on Rule 12(b)(1) grounds, amendment would be futile. Therefore, Plaintiffs' motion will be denied.
C. Amendment Would Be Futile
1. The Daoyu Li Parties Cannot Be Joined With Plaintiffs
The Daoyu Li Parties cannot be properly joined with Plaintiffs in this action. Federal Rule of Civil Procedure 20(a) permits *1303 joinder of plaintiffs only if they "assert any right to relief jointly, severally or in the alternative in respect of or arising out of the same transaction, occurrence or series of transactions or occurrences." Unlike those of the other proposed plaintiffs, the claims of the Daoyu Li Parties do not arise out of the same transaction, occurrence, or series of transactions or occurrences as those of Plaintiffs. Indeed, none of the claims of Plaintiffs or Proposed Plaintiffs can be said to have arisen from the same "transaction or occurrence", since each submitted a separate application and the I.N.S. considered each application in a separate transaction and as a separate occurrence. The other plaintiffs and proposed plaintiffs, however, can be said to have alleged claims arising from the same "series of transactions or occurrences", because the I.N.S. disposed of their applications in a series of similar occurrences and transactions based on the same interpretations of the I.N.A., the CSPA, and the Executive Order.
In contrast, Daoyu Li and Shao Fa Hao allege that they were denied adjustment of status because of the Government's interpretation of and imposition of the ninety-day exclusion. They do not allege that the Government's failure to adjust their status resulted from any of the interpretations or actions alleged by the other parties to have underlay their failures to receive adjustment. There is, then, no common series of occurrences or transactions underlying the claims of the Daoyu Li Parties and those of the other plaintiffs and proposed plaintiffs.
Because their claims do not arise from the same transaction, occurrence, or series of transactions or occurrences as Plaintiffs or Proposed Plaintiffs, Daoyu Li and Shao Fa Hao cannot be joined, and any amended complaint must omit their claims.
2. The Fourth Amended Complaint is Not Justiciable
The fact that Daoyu Li and Shao Fa Hao cannot be joined is sufficient to deny Plaintiffs' motion to amend. However, because "leave shall be freely given when justice so requires," Rule 15(a), courts generally construe Rule 15(a) liberally, and such defects generally do not of themselves cause such a motion to be denied. In such an instance, a court "may narrow the scope of the amendment if it considers the request too broad." 6 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1486, at 610 (2d ed. 1990). If the Proposed Fourth Amended Complaint were so narrowed, it would have to be reshaped to omit the claims of Daoyu Li and Shao Fa Hao.
In the absence of those claims, which are based heavily on constitutional arguments, the claims in the Proposed Fourth Amended Complaint, like the First Amended Complaint, are, for the reasons set forth below, not ripe for review, and this Court lacks jurisdiction. Therefore, the Proposed Fourth Amended Complaint could not, if Plaintiffs were granted leave to file it, survive a motion to dismiss. Because it could not survive a motion to dismiss, its filing would be futile. Plaintiffs' motion to amend will, therefore, be denied.
a. The Fourth Amended Complaint Does Not Meet Any of the First Three Established Exceptions to the Exhaustion Rule
As in the case of the First Amended Complaint, Plaintiffs would bring the Proposed Fourth Amended Complaint without having exhausted their administrative remedies. Here, as there, none the first three established exceptions to the exhaustion rule, which would permit this Court to address the claims, applies. For the same reasons as those discussed with regard to the First Amended Complaint, available remedies do provide genuine opportunities for adequate relief; irreparable injury will not occur without immediate judicial relief; and administrative appeal would not be futile. Therefore, to present a claim ripe for review, the Proposed Fourth Amended Complaint must present a "substantial constitutional question" of the type contemplated by Guitard, Howell, and other cases recognizing that exception.
b. The Fourth Amended Complaint Does Not Meet the Fourth Exception to the Exhaustion Rule
Plaintiffs have raised some "substantial constitutional questions." However, only "in *1304 certain instances" do substantial constitutional questions present exceptions to the exhaustion rule. See Howell, 72 F.3d at 293; Guitard, 967 F.2d at 741. Two lines of cases demonstrate that the claims asserted in the Proposed Fourth Amended Complaint do not present one of the instances contemplated by the cases and that, therefore, administrative remedies must be exhausted.
i. Substantial Constitutional Questions Are Raised in the Fourth Amended Complaint
Having established that the claims pertinent to the Daoyu Li Parties those involving the ninety-day exclusion could not properly be considered part of any newly amended complaint, only the claims relevant to the other three groups of parties need be addressed.
For the most part, the claims and arguments relevant to the Xiu Ji Chen Parties duplicate those set out in the First Amended Complaint. As there, most of these claims and arguments simply involve matters of statutory construction, legislative intent, and administrative interpretation. Therefore, they do not present substantial constitutional claims.
The Fourth Amended Complaint would, with reference to the Liang Wen Pan parties, argue that by refusing to apply Section 245(i) retroactively, the I.N.S.'s interpretation violates the principle that a case should be decided on the basis of present law if a change in law occurs during the pendency of the case. They would argue further that such an interpretation is unreasonable. Neither of these arguments rises to the level of a substantial constitutional question.
The Proposed Fourth Amended Complaint does, however, raise a constitutionally based equal protection argument: that there is no rational basis to distinguish between E.W.I. Chinese nationals who travelled from and reentered the United States from those who did not and that, as a result, the I.N.A.'s requirement of advance parole violates the right to equal protection. Similarly, the Proposed Fourth Amended Complaint would, in addition to this argument, argue that Cable 5 was unlawfully promulgated. Although part of the argument relating to Cable 5 rests on the nonconstitutional argument that the I.N.S. violated the Executive Order in promulgating Cable 5, another part of the argument is based on the Constitution: that by creating an arbitrary distinction between those who had applied for advance parole before its promulgation and those who applied afterwards, the I.N.S. violated equal protection rights.
These substantial constitutional claims raised are not without merit. Cable 5 was created to close a loophole. As the Honorable Patricia M. Wald noted in Lin v. Meissner, 70 F.3d 136 (D.C.Cir.1995):
the INS had indeed granted advanced parole liberally under the Executive Order. However, the agency became less generous when it realized that its advanced parole grants had created a "loophole" with respect to the adjustment of all EWIs (not just PRC nationals under the CSPA) who left the country on advanced parole and who could then claim eligibility for adjustment under § 245(a) upon return. The INS has since attempted to close this loophole, and we do not believe the agency's former practice in any way constituted a binding interpretation of the CSPA.
Lin, 70 F.3d at 141 (footnote omitted). Regardless of whether or not Cable 5 properly interpreted the I.N.A., CSPA, and Executive Order, it appears to lack a rational relation to a legitimate government purpose. No basis for the distinction between E.W.I. Chinese nationals who traveled from and reentered the United States with advance parole and those who did not has been offered. Because of the difference in availability of advance parole status under Cables 1 and 5, the eligibility of otherwise similarly situated individuals depended solely on the date they applied for advance parole. Plaintiffs' rights to equal protection therefore may well have been violated by the lack of rational basis for the distinction between these two nearly identical groups. Nothing in E.O. 12711 or the CSPA suggests that this distinction is rationally related to a legitimate government interest.
"[T]he constitutional promise of equal protection of the laws applies to aliens as well as citizens. Yick Wo v. Hopkins, 118 U.S. 356, *1305 6 S. Ct. 1064, 30 L. Ed. 220 (1886); Francis v. Immigration and Naturalization Serv., 532 F.2d 268. Minimal scrutiny is applied in such instances, Francis, 532 F.2d at 272, requiring that "distinctions between different classes of persons must be reasonable, not arbitrary, and must rest upon some ground of difference having a fair and substantial relation to the object of the legislation, so that all persons similarly circumstances shall be treated alike." Id. at 272 (citations omitted).
In Francis, as here, the availability of an immigration benefit hinged on whether or not the alien had departed and returned to the United States. Section 212(c) of the I.N.A. on its face allows discretionary relief from exclusion under section 212(a) for aliens returning to "lawful unrelinquished domicile of seven consecutive years." Id. The plaintiff, a Jamaican, was excludable under a subsection of Section 212(a) relating to possession of marijuana.
The court found that the underlying purpose of section 212(c) was to provide "some degree of flexibility to permit worthy returning aliens to continue their relationships with family members in the United States despite a ground for exclusion." Id. at 272. The Court noted the lack of "any reason why this petitioner's failure to travel abroad following his conviction should be a crucial factor in determining whether he may be permitted to remain in this country." Id. at 273. The court thus held the agency interpretation of Section 212(c) to be unconstitutional.
The reasoning of Francis appears to apply directly to Plaintiffs' claim that the travel requirement as a condition of the grant of CSPA benefits is constitutionally infirm. Whether or not a particular alien left the United States is wholly unrelated to the purpose of the CSPA. The legislative history makes clear that one purpose of the CSPA is to address the legal limbo of the temporarily protected E.O. 12711 beneficiaries so that they can plan for the future and make long-term plans for their families, considerations underlying the holding in Francis. In any case, none of the legislation pertinent here suggests any governmental purpose that could be achieved by favoring those who have left the country for some time. Indeed, quite the opposite would appear to be the case. As the Court of Appeals noted in Francis, "[r]eason and fairness would suggest that an alien whose ties with this country are so strong that he has never departed after his initial entry should receive at least as much consideration as an individual who may leave and return from time to time."
Thus, the Government here has presented no legitimate purpose in distinguishing between those Chinese nationals who, often by happenstance, applied before August 16, 1993, received advance parole, and thus qualified under Section 245 from those who applied afterwards and are unable to apply for status adjustment. Equal protection rights may well have been violated, and a substantial constitutional claim would, therefore, be presented by the Proposed Fourth Amended Complaint.
ii. The Substantial Constitutional Questions Raised in the Fourth Amended Complaint Are Not of the Type Presenting an Exception to the Administrative Exhaustion Doctrine
Although Plaintiffs' equal protection claims thus appear to be tenable, they are not within this Court's jurisdiction. An examination of two lines of cases relevant to the fourth exception to the exhaustion rule demonstrates that the substantial constitutional questions in the Proposed Fourth Amended Complaint would raise is of the type contemplated by that exception.
First, the roots of the Guitard constitutional question exception involved complaints distinguishable from the Proposed Fourth Amended Complaint. The exception was imported to our Circuit from the Court of Appeals for the Ninth Circuit, via the Fifth Circuit. The former held that "exhaustion may not be required, under some precedents, if the plaintiff has raised a substantial constitutional question." Downen v. Warner, 481 F.2d 642, 643 (9th Cir.1973) (cited in Von Hoffburg v. Alexander, 615 F.2d 633, 638 (1980) (5th Cir.1980) (cited in Guitard, 967 F.2d at 741 (cited in Howell, 72 F.3d at 293))). Downen, however, applied such an exemption where there was "a claim founded solely on a constitutional right." In contrast *1306 to Downen and Guitard, the Fourth Amended Complaint, involves not only constitutional rights, but also issues of administrative interpretation.
A second line of cases interpreting the impact of constitutional questions has descended from the Supreme Court's holdings in McNary v. Haitian Refugee Ctr., Inc., 498 U.S. 479, 111 S. Ct. 888, 112 L. Ed. 2d 1005 (1991), and Heckler v. Ringer, 466 U.S. 602, 104 S. Ct. 2013, 80 L. Ed. 2d 622 (1984). McNary involved a challenge to the procedural mechanism by which applicants were selected for an amnesty program for special agricultural workers ("SAW"s), pursuant to the Immigration Reform and Control Act of 1986. The I.N.S. determined SAW status eligibility based on evidence presented at a personal interview with each applicant. Appeal from rejections of applications for SAW status was limited by language specific to the Immigration Reform and Control Act, § 210(e), not that governing status adjustments in this action to judicial review of a deportation order by the circuit courts of appeals. The Haitian Refugee Center and a class of unsuccessful SAW applicants brought an action in federal district court alleging that the initial application review process was conducted arbitrarily, violating the Immigration Reform and Control Act and their due process rights.
The Supreme Court framed the question to be addressed as "whether § 210(e), which bars judicial review of individual determinations except in deportation proceedings, also forecloses this general challenge to the I.N.S.' unconstitutional practices." McNary, 498 U.S. at 491, 111 S.Ct. at 895. The Court held that the district court had federal question jurisdiction to hear the aliens' constitutional and statutory challenges to the I.N.S. procedures.
McNary involved the interpretation of a particular statute, and, therefore, its applicability here is limited. Nonetheless, the fact that both the statute there and the I.N.A.'s provisions on administrative appeal set forth specific paths for review and appeal suggests applying the reasoning of McNary to the case at bar. That analysis demonstrates that although Plaintiffs have raised equal protection questions, they are not presented in the context McNary suggested merits a departure from the exhaustion rule.
McNary's general thrust was to vest the district courts with jurisdiction only where "the administrative appeals process does not address the kind of procedural and constitutional claims respondents bring." Id.; see Rahim v. McNary, 827 F. Supp. 224, 224 (S.D.N.Y.1993), aff'd., 24 F.3d 440 (2d Cir. 1994). Thus, the McNary court singled out for district court review only actions addressing themselves solely to practices and procedures, rather than to adjudication of specific claims on their merits. Id. at 492, 111 S.Ct. at 896; see Rahim, 827 F.Supp. at 228. Put another way, McNary required that a district court review only those claims where the relief sought was merely collateral to any claims for relief, not dispositive of the claim on the merits, and thus inappropriate for administrative review alone.
In drawing this distinction, McNary contrasted its facts with those in the Court's earlier decision in Heckler. In Heckler, the respondents had sought to establish a right to reimbursement under the Medicare Act for a particular form of surgery they had undergone (or in one case, needed). Although they had not exhausted all of the statutorily required administrative procedures, the respondents had filed an action in District Court seeking review of Secretary Heckler's policy of refusing reimbursement for that surgery.
The Supreme Court in Heckler had held that the district court had properly dismissed the case for lack of subject matter jurisdiction because "the essence of the complaint was a claim of entitlement to payment for the surgical procedure ... since success in their challenge of the Secretary's policy denying reimbursement would have the practical effect of also deciding their claims for benefits on the merits." Id. at 494, 111 S.Ct. at 897. Thus, the Supreme Court concluded in McNary, the "respondents' judicial action was not `collateral' to their claims for benefits." Id. (citing Heckler at 617, 104 S.Ct. at 2023). The McNary Court distinguished the facts in front of it from those in Heckler, noting first that "the individual respondents *1307 in this action do not seek a substantive declaration that they are entitled to SAW status." Id. at 495, 111 S.Ct. at 898.
The case at bar resembles Heckler more than it does McNary. Although the equal protection claims raised in the Proposed Fourth Amended Complaint are addressed to I.N.S. Interpretations, they are not clearly collateral. Granting Plaintiffs the relief they seek here will have the effect of adjudicating their cases on the merits as well. Thus, under McNary, this is not an instance where departure from the administrative exhaustion doctrine is warranted.
As a second reason for finding district court jurisdiction in McNary, the Supreme Court held that district court review was appropriate where the claim involved a "pattern and practice" of procedural abuse that could not be proven through the administrative process. The Court stated that:
[t]o establish the unfairness of the INS practices, respondents in this case adduced a substantial amount of evidence, most of which would have been irrelevant in the processing of a particular individual application. Not only would a court of appeals reviewing an individual SAW determination therefore most likely not have an adequate record as to the pattern of INS' allegedly unconstitutional practices, but it also would lack the factfinding and record-developing capabilities of a federal district court.
Id., at 497, 111 S.Ct. at 898; see Thunder Basin Coal Co. v. Reich, 510 U.S. 200, ___, 114 S. Ct. 771, 779, 127 L. Ed. 2d 29 (1994) (laying emphasis on McNary's reliance on the fact that "the statutory language did not evidence an intent to preclude broad `pattern and practice' challenges to the program" and that "if not allowed to pursue their claims in the District Court, respondents would not as a practical matter be able to obtain meaningful judicial review"). In contrast, no pattern and practice need be proved by Plaintiffs raising the equal protection claims in the Proposed Fourth Amended Complaint. The questions raised can be addressed in the context of reviewing any particular individual application involved here: reference to others is unnecessary. Thus, there is no need for district court review.
Third, and relatedly, McNary suggested that a district court has jurisdiction where the standard of review involved in the administrative review process is inadequate to address the questions before the Court. McNary held the district court to have jurisdiction largely because no de novo review was available. Thus:
the abuse-of-discretion standard of judicial review under § 210(e)(3)(B) would make no sense if we were to read the Reform Act as requiring constitutional and statutory challenges to INS procedures to be subject to its specialized review provision. Although the abuse-of-discretion standard is appropriate for judicial review of an administrative adjudication of the facts of an individual application for SAW status, such a standard does not apply to constitutional or statutory claims, which are reviewed de novo by the courts.
Id. at 493, 111 S.Ct. at 897; see also Reno v. Catholic Social Servs., 509 U.S. 43, 56, 113 S. Ct. 2485, 2495, 125 L. Ed. 2d 38 (1993) (holding similar language to mandate "district court jurisdiction over an action challenging the legality of a regulation without referring to or relying on the denial of any individual application."); Rahim, 827 F.Supp. at 228; Wang v. Reno, 862 F. Supp. 801 (E.D.N.Y. 1994).
In contrast, the process set out for review of § 245 status adjustment applications provides for de novo review by an immigration judge, and the McNary considerations do not, therefore, apply. Indeed, our Court of Appeals recently indicated its approval of the recognition by the D.C. Circuit and the Seventh Circuit that "requiring an alien to utilize available administrative remedies will allow a full record to develop concerning the alien's application for adjustment of status." Howell, 72 F.3d at 293 (citing Randall, 854 F.2d at 482; Massignani, 438 F.2d at 1278).
The McNary Court suggested further that challenges to administrative mechanisms, as opposed to substantive determinations, mandate district court review. In Rahim, this Court held that it had jurisdiction where "the *1308 essence of the complaints [was] a challenge to the I.N.S.'s regulations barring motions to reopen." Id. at 229. The Court, citing McNary, held that it had jurisdiction because, "plaintiffs do not seek `a substantive declaration that they are entitled to SAW status.' Rather, if allowed to prevail in this action, respondents would only be entitled to have their case files reopened and their applications reconsidered in light of the newly prescribed INS procedures." Id. (quoting McNary, 498 U.S. at 495, 111 S.Ct. at 898). Here, the administrative mechanisms of the status adjustment process are not before the court; rather, Plaintiffs seek an injunction after the I.N.S.'s substantive application of the legislation. This is not the sort of question McNary contemplated.
In sum, the substantial constitutional claims that would be presented by the Proposed Fourth Amended Complaint contrast with the type of constitutional claim held to constitute an exception to the exhaustion rule. Because Guitard on the one hand and McNary and Heckler on the other suggest that departure from the doctrine of administrative exhaustion is not warranted, and because Plaintiffs' claims would be adequately addressed by review in the course of deportation proceedings, their claims are not justiciable. The Proposed Fourth Amended Complaint would, therefore, be subject to a successful motion to dismiss on jurisdictional grounds, and amendment would be futile. Hence, Plaintiffs' motion to amend will be denied.
Conclusion
For the reasons set forth above, the Government's motion to dismiss for lack of jurisdiction is granted. As a consequence, Plaintiffs' motion for summary judgment is denied as moot. Plaintiff's motion to amend is denied.
It is so ordered.
NOTES
[1] Yong Sun Li was notified that his case had been transferred to the INS Newark Asylum Office, perhaps in error. His application remains pending.
[2] Because Yong Sun Li's application has not yet been processed, he seeks a declaratory judgment that he is eligible for status adjustment under the CSPA.
[3] Also referred to as Chun Jian Pan. See Proposed Fourth Am.Compl. ¶ 20.
[4] Plaintiff Yong Sun Li approaches the Court in a similar but somewhat different posture. As noted above, his application was transferred to the INS Newark Asylum Office, perhaps in error, and the INS has not yet disposed of his application. He seeks a declaratory judgment that he is eligible for status adjustment under the CSPA on the same theory as these proposed plaintiffs.
[5] Proposed plaintiff Wan Nong Lu is included in this category in the Proposed Fourth Amended Complaint, ¶ 20, but is not included in the caption of that document.
[6] Kai Wu Chan, who filed the initial complaint in this action, stands in a posture unique from the other plaintiffs and proposed plaintiffs. As noted above, Kai Wu Chan applied for and was denied adjustment of status. Subsequently, on August 17, 1994, he was granted advance parole, allowing him to leave and legally reenter the United States, so that he could visit his critically ill mother in China. He entered the PRC on August 28, 1994 and reentered the United States on or about October 19, 1994.
By Motion to Reopen or Reconsider dated October 2, 1994, Kai Wu Chan moved the INS to reopen its decision denying his application under the CSPA, based on his legal entry on October 19, 1994. By letter dated February 13, 1995, the INS denied that motion, stating only that at the time the initial application had been made, Kai Wu Chan had been ineligible for status adjustment.
It would appear, then, that Kai Wu Chan's claim arises primarily from the INS's promulgation of 8 C.F.R. § 245.10. He is, therefore, placed with the Liang Wen Pan Parties, despite the fact that he, unlike they, did apply for and receive advance parole. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1951390/ | 316 F. Supp. 144 (1970)
Joseph B. PREVETTE, Plaintiff,
v.
Elliot L. RICHARDSON, Secretary of Health, Education and Welfare, Defendant.
Civ. A. No. 70-287.
United States District Court, D. South Carolina, Rock Hill Division.
September 3, 1970.
*145 Charles H. Chiles, Spencer & Spencer, Rock Hill, S. C., for plaintiff.
Oscar Bannister, Jr., Asst. U. S. Atty., Greenville, S. C., for defendant.
ORDER
HEMPHILL, District Judge.
Plaintiff brought this action pursuant to Section 205(g) of the Social Security Act, as amended (42 U.S.C.A. Section 405(g)), to obtain judicial review of a "final decision" of the Secretary of Health, Education, and Welfare, denying his claim for social security disability benefits.
The "final decision" of the Secretary, rendered by a hearing examiner on November 18, 1969, held that plaintiff was not entitled to a period of disability (previously established beginning January 16, 1966) and to disability insurance benefits (beginning August 1966) because it was subsequently determined that plaintiff did not, in fact, meet the definition of "disability". It further held that the disability insurance benefits totaling $4,488.60 paid the plaintiff for the period of August 1966 through February 1969, constituted an overpayment; and that he was not without fault in causing and accepting said overpayment totaling $4,488.60.
The issue in this case is whether or not there is substantial evidence in the record to support the "final decision" of the Secretary that plaintiff was not entitled to a period of disability under Section 216(i) of the Social Security Act (42 U.S.C.A. Section 416(i)), and to monthly disability insurance benefits under Section 223 of the Act (42 U.S.C. A. Section 423), and if so whether the recovery of the overpayment of disability insurance benefits may not be waived pursuant to Section 204 of the Social Security Act (42 U.S.C.A. Section 404).
The plaintiff was born June 18, 1907 and completed the eighth grade in the public schools. The plaintiff began working in textile mills at the age of 17, but after five years left the mills to hold a series of jobs unrelated to the textile industry. He serviced a laundry route for fourteen years, operated a package store for five years, sold furniture for eight years, and finally was an automobile salesman for the eleven years preceding the onset of the claimed disability. His employment as an automobile salesman was terminated May 6, 1966.
The medical evidence of record reflects that the plaintiff was hospitalized in York General Hospital from January 28 until February 11, 1964 at which time a diagnosis of arteriosclerotic heart disease with angina pectoris was given by the attending physician. In January 1966 the plaintiff spent two weeks in the York hospital at which time a hemorrhoidectomy was performed and the diagnosis of the attending physician was internal and external hemorrhoids, chronic peptic ulcer, hypertensive cardiovascular disease. From March 29 until April 6, the plaintiff was again confined to the York hospital for treatment of his heart condition, the diagnosis being arteriosclerotic heart disease with *146 angina. From the 9th until the 26th of May 1966, the plaintiff, having suffered a coronary thrombosis, was for a third time in five months confined to the hospital.
On August 9, 1966, the plaintiff filed for disability benefits and the Examiner found his condition as follows:
Arteriosclerotic heart with angina pectoris; consider impending coronary thrombosis; pulmonary emphysema and peptic ulcer symptoms by history. EKG confirmed myocardial infarction. His family physician gives a diagnosis of arteriosclerotic heart disease; previous coronary thrombosis, pulmonary emphysema and old peptic ulcer disease * * *. He has shortness of breath on slight activity and chest pains on slight activity.
The date of the commencement of the disability was determined by the Examiner as January 16, 1966, the date of the plaintiff's first admittance to York hospital in 1966 and his work activity from that date classified as an unsuccessful attempt to return to work.
In March 1969 the plaintiff was notified by the Department of Health, Education, and Welfare that he had returned to work and his Social Security benefit was not paid for that month nor has it been subsequently paid. In June of 1969 the plaintiff was formally notified that his claim for disability had been reviewed and denied and that the Social Security Administration demanded repayment of all amounts previously paid.
The initial burden of proving disability was upon the plaintiff. Laws v. Celebrezze, 368 F.2d 640 (4th Cir. 1966). The plaintiff met that burden in August 1966 showing the assortment of ailments set forth above. In the absence of proof to the contrary there is a presumption that the condition of the plaintiff remains unchanged. Hall v. Celebrezze, 314 F.2d 686 (6 Cir. 1963). The only medical evidence subsequent to the initial determination of disability which was a part of the record below consisted of reports of two local physicians who it appears had treated the plaintiff for a long period. Neither report indicated any recovery by the plaintiff and one suggested that his condition had in fact deteriorated.
The plaintiff, in spite of his weakened condition, continues to direct limited activity toward the conduct of an advertising business which he began in his spare time while an automobile salesman. It was as a result of this activity that the original determination of disability was reversed.
While it is true that work performed during a period of disability may demonstrate ability to engage in substantial gainful activity,[1] it is also true that a plaintiff need not be totally helpless to be considered disabled within the meaning of the Social Security Act. Foster v. Ribicoff, 206 F. Supp. 99 (W. D.S.C.1964).
The record shows that some time before the beginning of the year 1966, the plaintiff began an advertising business to which he devoted time not taken in his regular employment. The nature of the business appears to have been the soliciting of orders for specialty items for use by his customers in promoting their respective interests. At some time subsequent to May 1966 the advertising business began to operate again. In 1966 the business had gross sales of $11,206.00 and profit of $1,139. In 1967 sales were $23,553 and the profit was $291, and in 1968 the sales were $38,861.00 and the profit $2,393.00. The business license was in the name of the plaintiff's wife. The plaintiff testified that the business belonged to her, that she devoted her full time to the conduct of it. He further stated that he worked in the business as much as he was able because in the words of the plaintiff and his daughter, "[y]ou can't sit there with your hands between your legs." According to his account and that of his daughter *147 who testified at the hearing, the plaintiff goes to the post office, types invoices and checks, answers the telephone, gives advice and counsel to his wife and calls on some customers. His activities in the business which is located in his home take an hour in the morning and two hours in the afternoon and he performs them only when he feels like doing something. He appears a man without education interests or hobbies, a man whose life has been devoted to his work.
From a review of the entire record it is clear that the activities outlined above do not meet the test of substantial gainful activity so as to defeat his claim for benefits. There is no justification for a belief that the plaintiff is a malingerer but rather that he wanted to work, indeed had to work, if able to do so. The activity relied upon by the government in denying a claim for disability benefits must be both substantial and gainful. (Hibler v. Ribicoff, 196 F. Supp. 460 (D.Mont.1961). The term "substantial gainful activity means the performance of substantial services with reasonable regularity in some competitive employment or self-employment." (Foster v. Ribicoff, 206 F. Supp. 99 (W.D.S.C.1962)). The hours that the plaintiff devoted to his wife's marginally profitable business demonstrate activity which is neither substantial nor gainful within the meaning of the Act. In designating it so, the Examiner labored under a misunderstanding of the law which is shown by his statement in the record that, "They can only get disability benefits under social security when you're incapable of working any more." The Examiner was greatly impressed by the report of some customers that they dealt with the plaintiff rather than with his wife. This, however, is not inconsistent with the testimony of the plaintiff that he worked when he could because it provided an outlet for his energies and was indeed essential therapy. There is no reason to believe that the plaintiff is physically able to work for more than two or three hours daily on an irregular basis. Such activity is not substantial or gainful within the meaning of the Act.
It follows that the only reasonable conclusion that can be sustained is that the plaintiff has demonstrated a requisite physical disability. The decision of the Secretary was not based on substantial evidence and it must therefore be reversed.
The Clerk will enter judgment for the plaintiff.
And it is so ordered.
NOTES
[1] See, Simmons v. Celebrezze, 362 F.2d 753 (1966); 20 C.F.R. § 404.1532. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2286839/ | 39 F.Supp.2d 787 (1999)
Houston GOODSPEED, Plaintiff,
v.
Charles HARMAN, Sr., Defendant.
Sue Kendrick, Plaintiff,
v.
Charles Harman, Sr., Defendant.
John Kendrick, Plaintiff,
v.
Charles Harman, Sr., Defendant.
Don Timberlake, Plaintiff,
v.
Charles Harman, Sr., Defendant.
Amy Peavy Wood, Plaintiff,
v.
Charles Harman, Sr., Defendant.
Virginia Moore, Plaintiff,
v.
Charles Harman, Sr., Defendant.
Dave Richardson, Plaintiff,
v.
Charles Harman, Sr., Defendant.
Jay Stephenson, Plaintiff,
v.
Charles Harman, Sr., Defendant.
Nos. 3-97-CV-2681-BD through 3-97-CV-2686-BD, 3-97-CV-2739-BD and 3-97-CV-2740-BD.
United States District Court, N.D. Texas, Dallas Division.
March 11, 1999.
*788 Michael J. Quilling, Quilling Selander Cummiskey Clutts & Lownds, Dallas, Texas, for plaintiffs.
Thomas S. Leatherbury, William D. Sims, Vinson & Elkins, Dallas, Texas, for defendants WFAA-TV and Robert Riggs.
*789 Frank H. Jackson, Law Office of Frank Jackson, Dallas, Texas, for defendant Charles James Harman, Sr.
MEMORANDUM OPINION AND ORDER
KAPLAN, United States Magistrate Judge.
Plaintiffs have sued Charles Harman, Sr. in separate actions under Title III of the Omnibus Crime Control and Safe Streets Act of 1968, as amended by the Electronic Communications Privacy Act of 1996, 18 U.S.C. § 2510, et seq. ("Title III").[1] A bench trial was held on January 19, 25 & 26, 1999. The Court now makes the following findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.
I.
The facts of this case are set forth at length in the report and recommendation of the magistrate judge in two related lawsuits. Carver Dan Peavy, et al. v. Charles Harman, et al., No. 3-96-CV-1506-R and Eugene Oliver, et al. v. WFAA-TV, Inc., et al., No. 3-96-CV-3436-L.[2] Succinctly stated, Charles Harman purchased a police scanner in December 1994 to monitor criminal activity in his neighborhood. The first time Harman used the scanner he inadvertently intercepted a signal from a cordless telephone being used by his neighbor, Dan Peavy. Harman overheard Peavy talking to another neighbor about filing a class-action lawsuit against him and his wife.[3] This piqued his interest and he continued to monitor Peavy's phone calls.
Harman was unsure whether it was legal to tape these conversations. He consulted the scanner manual and talked with representatives of the Dallas Police Department and the Dallas County District Attorney's Office. Harman claims he was told that he could intercept and record private telephone calls between Peavy and others. Based on those assurances, Harman listened to his scanner every day for the next ten months and taped about 10% of what he heard.[4]
The Peavys talked over the telephone to countless friends, family members, and business associates during this ten-month period. Eight of them have now sued Harman for damages under the federal wiretap statute. The Court previously ruled that Harman violated the statute and rejected his defenses. See ORDER, 11/13/98 at 3. Two issues remain: (1) whether plaintiffs were parties to one or more of the intercepted telephone conversations; and (2) the appropriate amount of damages. The Court will address each issue in turn.
II.
Title III imposes criminal and civil liability upon any person who "intentionally intercepts, endeavors to intercept, or procures any other person to intercept or endeavor to intercept, any wire, oral, or electronic communication." 18 U.S.C. § 2511(1)(a). The Court has already determined that Harman acted consciously, as opposed to accidentally, to bring about the consequences of his actions. See *790 Peavy, No. 3-96-CV-1506-R, FINDINGS AND RECOMMENDATION OF THE MAGISTRATE JUDGE, 10/15/98 at ¶ V(A)(1). Therefore, he "intentionally" violated the statute.
Plaintiffs introduced transcripts of telephone conversations between themselves and Dan Peavy during their case-in-chief. (Plf.Exh.2-9). Each plaintiff testified that: (1) they listened to the tapes made by Harman; (2) they recognized their voice on the tapes; (3) the transcripts accurately reflected the contents of the tapes; and (4) they did not give anyone permission to record their conversations. Harman does not contest these facts. Plaintiffs therefore have proved that Harman intercepted their communications in violation of 18 U.S.C. § 2511(1)(a).
Plaintiffs further argue that Harman violated the disclosure prong of the statute. See 18 U.S.C. § 2511(1)(c). A communication is "disclosed" every time it is played to a third party who has not yet heard it. Fultz v. Gilliam, 942 F.2d 396, 402 (6th Cir.1991). However, a defendant "need not play the tapes or repeat the conversations to be liable." Deal v. Spears, 980 F.2d 1153, 1158 (8th Cir.1992). Title III prevents the disclosure of "any information concerning the substance, purport, or meaning of [the] communications." 18 U.S.C. § 2510(8). Therefore, even revealing the general nature of a communication or intimating its contents may constitute an actionable disclosure. See Deal, 980 F.2d at 1156.
Very little evidence was adduced at trial concerning the disclosure of these intercepted communications. Harman testified that he played part of a taped recorded conversation between Jay Stephenson and Dan Peavy when he met with a reporter for WFAA-TV in December 1994. This clearly constitutes an intentional disclosure in violation of Title III. Harman also said that he gave copies of other tapes to the reporter and various law enforcement officials. However, there was no evidence that the tapes contained communications with any of the plaintiffs or that these parties even listened to the tapes.[5] The Court finds that only Jay Stephenson is entitled to damages for the disclosure of information obtained in violation of the wiretap statute.
III.
A person whose wire, oral, or electronic communication is intentionally intercepted, disclosed, or used may file a civil action against the person or entity that violated the statute. 18 U.S.C. § 2520(a). Appropriate relief includes damages and reasonable attorney's fees. Id. § 2520(b). The Court may assess as damages "whichever is the greater of
(A) the sum of the actual damages suffered by the plaintiff and any profits made by the violator as a result of the violation; or
(B) statutory damages of whichever is the greater of $100 a day for each day of violation or $10,000."
Id. § 2520(c)(2). Here, plaintiffs seek only statutory damages for the interception and disclosure of their communications.
A.
The Court must first decide whether the award of statutory damages is mandatory once plaintiffs prove a violation of Title III. This is the rule in the Seventh Circuit. See Rodgers v. Wood, 910 F.2d 444, 448 (7th Cir.1990). At least one federal district court is in accord. See Menda Biton *791 v. Menda, 812 F.Supp. 283, 284 (D.P.R. 1993). However, this Court disagrees with those decisions.
Title III expressly provides that the Court may assess damages for a violation of the statute. 18 U.S.C. § 2520(c)(2). The use of the term "may" does not necessarily imply a grant of discretion if "indications of legislative intent to the contrary or ... obvious inferences from the structure and purpose of the statute" suggest otherwise. Reynolds v. Spears, 93 F.3d 428, 434 (8th Cir.1996), citing United States v. Rodgers, 461 U.S. 677, 706, 103 S.Ct. 2132, 2149, 76 L.Ed.2d 236 (1983). However, Congress specifically replaced the word "shall" with the word "may" when it amended section 2520(c) in 1986. Nalley v. Nalley, 53 F.3d 649, 652 (4th Cir.1995). "When the wording of an amended statute differs in substance from the wording of the statute prior to amendment, we can only conclude that Congress intended the amended statute to have a different meaning." Id., citing Muscogee (Creek) Nation v. Hodel, 851 F.2d 1439, 1444 (D.C.Cir. 1988), cert. denied, 488 U.S. 1010, 109 S.Ct. 795, 102 L.Ed.2d 786 (1989); see also Romano v. Terdik, 939 F.Supp. 144, 147 (D.Conn.1996) (failure to explain change in language allows court to rely on natural meaning of the word "may"). In these circumstances, the plain meaning of the term should prevail "except in the rare case in which the literal application of the statute will provide a result demonstrably at odds with congressional intent." Nalley, 53 F.3d at 652, citing United States v. Ron Pair Enterprises, 489 U.S. 235, 242, 109 S.Ct. 1026, 1030-31, 103 L.Ed.2d 290 (1989). Every other federal court that has considered this issue has found that Title III does not constitute such an exception. See Reynolds, 93 F.3d at 434-35; Nalley, 53 F.3d at 651; Romano, 939 F.Supp. at 148; Shaver v. Shaver, 799 F.Supp. 576, 580 (E.D.N.C.1992). The Court finds these authorities persuasive and holds that the award of statutory damages under Title III is discretionary rather than mandatory.[6]
B.
Next, the Court must decide what factors guide its discretion. Most courts have declined to award damages for de minimis violations of the wiretap statute. A variety of factors are relevant to this determination:
(1) the duration of the interception or the extent of the disclosure;
(2) the reason for the interception;
(3) whether the defendant reasonably believed that his actions were legal;
(4) whether the interceptions resulted in actual damages to the plaintiff;
(5) whether the defendant profited from the interception; and
(6) whether the defendant has already been punished in some other proceeding.
See, e.g. Morford v. City of Omaha, 98 F.3d 398, 401 (8th Cir.1996); Reynolds, 93 F.3d at 436; Nalley, 53 F.3d at 653-54; Romano, 939 F.Supp. at 150.[7]
The last three factors are not particularly relevant to this case. There is no evidence that Harman profited from his actions. Nor has he been punished in some other proceeding for the wiretap violations made the basis of this suit.[8] Finally, *792 the Court is not convinced that any of the plaintiffs suffered actual damages worthy of compensation. While they all expressed feelings of anger, embarrassment, and emotional distress, this testimony appeared largely rehearsed and was not particularly compelling.[9] The Court will therefore focus on the other three factors.
1.
The first inquiry is the reason for the interception. Harman maintains that he monitored Peavy's telephone calls and recorded these conversations out of fear for his safety. He relies on the tapes themselves as evidence of his concerns. Plaintiffs objected to the introduction of the tapes and filed a motion to suppress. The Court granted the motion at trial and now affirms this ruling.
a.
An aggrieved person may file a motion to suppress the contents of a communication intercepted in violation of Title III. 18 U.S.C. § 2518(10)(a). The statute provides:
Whenever any wire or oral communication has been intercepted, no part of the contents of such communication and no evidence derived therefrom may be received in evidence in any trial, hearing, or other proceeding in or before any court, grand jury, department, officer, agency, regulatory body, legislative committee, or other authority of the United States, a State, or a political subdivision thereof if the disclosure of that information would be in violation of this chapter.
Id. § 2515. The "contents" subject to suppression "include any information concerning the substance, purport, or meaning of [the] communication." Id. § 2510(8).
The Court previously recognized an "adjudicatory exception" to this exclusionary rule to enable the parties to prove their claims and affirmative defenses. Peavy, No. 3-96-CV-1506-R, FINDINGS AND RECOMMENDATION OF THE MAGISTRATE JUDGE, 10/15/98 at ¶ IV(A). See also McQuade v. Michael Gassner Mechanical & Electrical Contractors, Inc., 587 F.Supp. 1183, 1190-91 (D.Conn.1984) ("Section 2515 was no more designed to keep defendants in lawsuits brought under § 2520 from defending the alleged violations of § 2511 than it was to keep the [g]overnment from prosecuting violators under § 2511."). Harman now wants to apply this exception to the issue of damages.
The position advanced by Harman would effectively swallow the rule. Those courts that have recognized an "adjudicatory exception" to the exclusionary rule in civil cases have limited its application to the issue of liability. See Williams v. Poulos, 11 F.3d 271, 286 (1st Cir.1993); McQuade, 587 F.Supp. at 1188. To extend this exception any further would render the rule meaningless. The Court refuses to construe the statute in such a manner. See United States v. Campbell, 49 F.3d 1079, 1086 (5th Cir.), cert. denied, 516 U.S. 874, 116 S.Ct. 201, 133 L.Ed.2d 135 (1995) (statute should be construed so as to give effect to every part thereof).
b.
The evidence shows that Harman and Peavy had been involved in an acrimonious personal feud for more than ten years. It was in this context that Harman began to intercept Peavy's telephone calls. Harman admitted to Detective Kevin Navarro that he was "delighted" at the prospect of Peavy's downfall. Navarro, who spent more than a year and a half interacting with Harman on almost a daily basis, felt *793 that Harman hated Peavy and wanted to "take him down."
The Court finds that Harman's animus toward Peavy outweighed any other concerns that may have influenced his actions. Spite between neighbors is not a legitimate reason to intercept private communications in violation of federal law. See Peavy, No. 3-96-CV-1506-R, FINDINGS AND RECOMMENDATION OF THE MAGISTRATE JUDGE, 10/15/98 at ¶ VII(A)(1)(a). Cf. Reynolds, 93 F.3d at 436 (defendant who believed that recent burglary of his store had been an "inside job" had legitimate business reason for intercepting employees' phone calls). This factor weighs heavily in favor of awarding statutory damages.
2.
The second factor is whether the defendant reasonably believed that his actions were legal. Harman maintains that he was repeatedly assured by law enforcement officials that he could intercept and tape cordless telephone conversations. He first spoke to Assistant District Attorney Bill Geyer. Harman testified that Geyer told him, "anything over the air is free" and its "just like listening to the radio." He said that District Attorney John Vance and Detective Linda Irwin gave him similar advice. According to Harman, Vance specifically told him to "keep taping."
Geyer, Vance, and Irwin also testified at trial. Geyer explained that he receives 15 to 25 telephone calls a day from private citizens. He did not recall the specific details of his conversation with Harman, but said it was against office policy to give legal advice to members of the general public. Geyer testified that he probably would have referred Harman to the Dallas Police Department. He did not tell Harman that his actions were legal or encourage him to record the contents of private phone calls.[10]
Vance confirmed that his staff was prohibited from giving legal advice to the general public. Although he did not remember speaking with Harman over the telephone, Vance did recall a meeting in his office in January 1995. He said that Harman wanted to talk about the recent death of his son. Harman tried to play a tape at this meeting but had difficulty with the recorder. Vance testified that he never told Harman it was legal to intercept or tape cordless telephone calls. He specifically denied telling Harman to "keep taping."[11]
Linda Irwin said that she spoke with Harman on three or four occasions. During their first conversation, Harman told Irwin that he was intercepting cordless telephone calls and asked if he could record the communications. Irwin responded that it was legal to tape the calls if one of the parties consented.[12] She did not know that Harman was recording the phone calls without permission. When Irwin became aware of this fact, she advised Harman to speak to someone other than her about the legality of his actions.
The Court credits the testimony of these non-party witnesses and finds that Harman *794 was never told that his actions were legal. Rather, Harman was so blinded by his animosity toward Peavy that he only heard what he wanted to. This conclusion is bolstered by the fact that Harman continued to intercept Peavy's phone calls even after he learned it was illegal. On March 3, 1995, Assistant District Attorney Mike Gillette advised Harman that "[i]f you are monitoring the phone call [sic] of your neighbors ... that activity must, in my opinion, stop or to do otherwise violates federal law." (Plf.Exh.10). Assistant United States Attorney Philip Umphres gave similar advice on October 3, 1995. (Plf.Exh.11). Nevertheless, Harman continued to intercept private telephone conversations in violation of the federal wiretap laws until the FBI confiscated his police scanner on October 18, 1995.[13]
Harman should not be able to avoid damages simply because he subjectively thought his actions were legal. The evidence shows that no such advice was ever given by law enforcement authorities despite Harman's selective recollection to the contrary. This factor weighs in favor of a damage award.
3.
The third consideration is the duration of the interceptions. All the plaintiffs testified that they spoke with members of the Peavy household on a regular basis during the ten-month period that these interceptions occurred. However, the only evidence of specific conversations involving plaintiffs are contained in the transcripts. (Plf.Exh.2-9). Absent further proof, the Court is unable to conclude that Harman intercepted any communications other than those reflected in the transcripts introduced into evidence.
Harman recorded twelve conversations involving Jay Stephenson, four conversations involving Virginia Moore, three conversations involving Amy Peavy Wood, and two conversations involving Don Timberlake. The other plaintiffs were recorded one time each. Standing alone, the length of these interceptions provides no reasoned basis for distinguishing one case from another. The Court is unwilling to hold that a conversation lasting three minutes is entitled to less protection than one lasting five minutes, or that a certain number of conversations must be intercepted before damages are warranted. Consequently, each plaintiff is entitled to statutory damages.
C.
The final issue is the amount of damages to be awarded. Title III authorizes the court to assess "statutory damages of whichever is the greater of $100 a day for each day of the violation or $10,000." 18 U.S.C. § 2520(c)(2)(B). Plaintiffs argue that the statute allows the recovery of $10,000 in damages for each conversation intercepted or disclosed.[14]
The Court disagrees with that interpretation. No federal court has ever awarded damages on that basis. See Romano, 939 F.Supp. at 150 (citing cases). Nor does Fifth Circuit precedent compel a different result. In Steve Jackson Games, Inc. v. United States Secret Service, 36 F.3d 457 (5th Cir.1994), the court stated that a successful plaintiff is entitled to "statutory *795 damages of $10,000 per violation or $100 per day of the violation, whichever is greater." Id. at 460 (emphasis added). Not only is this statement pure dicta, but it inaccurately paraphrases the statute. See Romano, 939 F.Supp. at 150 (rejecting this same argument). Title III only permits a plaintiff to recover the greater of $100 per day of the violation or $10,000. 18 U.S.C. § 2520(c)(2)(B). Here, no plaintiff can prove that their damages exceed $10,000 when calculated on a per diem basis. Therefore, damages are limited to that amount.
CONCLUSION
The Court finds that Houston Goodspeed, Sue Kendrick, John Kendrick, Don Timberlake, Amy Peavy Wood, Virginia Moore, and Dave Richardson are entitled to damages in the amount of $10,000 each for the interception of their communications in violation of 18 U.S.C. § 2511(1)(a). Jay Stephenson is entitled to damages in the amount of $20,000 for the interception and disclosure of his communications in violation of 18 U.S.C. § 2511(1)(a) & (c). The Court will enter separate judgments in favor of each plaintiff and against Charles Harman, Sr.
Plaintiffs may file an application for costs and attorney's fees in accordance with Rule 54(d) of the Federal Rules of Civil Procedure by March 25, 1999.
SO ORDERED.
NOTES
[1] The cases were consolidated on January 20, 1998.
[2] The Peavy and Oliver cases were also consolidated for pretrial purposes. The parties filed cross-motions for summary judgment which were referred to the magistrate judge for recommendation. A joint report and recommendation was issued on October 15, 1998.
[3] Peavy and Harman have been involved in a number of petty disputes over the years. On one occasion, Peavy sued Harman because he refused to cut back vegetation on his property that obstructed Peavy's view of a lake. More recently, Harman complained to code enforcement officials after Peavy installed high intensity security lights around his house.
[4] Harman testified that he continued to monitor Peavy's phone calls until October 13, 1995, but only taped one conversation after March 3, 1995.
[5] There is summary judgment evidence in the Peavy and Oliver cases that Robert Riggs and P.J. Ward listened to the tapes provided by Harman. Peavy, No. 3-96-CV-1506-R (WFAA Exh. D at ¶ 36; WFAA Exh. F at ¶¶ 12 & 15). While sworn declarations are appropriate evidence in a summary judgment proceeding, they are pure hearsay in the context of a trial. FED.R.EVID. 801(c); Stokes v. City of Omaha, 23 F.3d 1362, 1366 (8th Cir.1994). Plaintiff has made no attempt to show that Riggs or Ward were unavailable to testify. See FED.R.EVID. 804(a); Mutuelles Unies v. Kroll & Linstrom, 957 F.2d 707, 713 (9th Cir.1992). Therefore, the Court may not consider their declarations for any purpose.
[6] However, the Court's discretion is limited to awarding the full amount of statutory damages or no damages at all. See Shaver, 799 F.Supp. at 580 (statute does not allow the court to award damages in an amount between these two choices).
[7] Some courts also consider the defendant's ability to pay an award of statutory damages. See Nalley, 53 F.3d at 653-54; Shaver, 799 F.Supp. at 580. While this may impact the collection of a judgment, it should not determine whether damages are awarded in the first instance. Therefore, the Court will not consider this factor.
[8] Harman pled guilty to one count of unlawful interception and paid a $5,000 fine. United States v. Harman, No. 3-96-CR-272-D. However, that charge was based on an unrelated interception that did not involve any of the plaintiffs. Cf. Reynolds, 93 F.3d at 430 & n. 3 (defendant already held liable for $40,000 in damages in related case).
[9] Dave Richardson also testified that he lost approximately $200,000 in business profits after he was linked to Peavy in a report broadcast by WFAA-TV. However, there was no evidence that this report was based on information derived from intercepted telephone conversations between Richardson and Peavy. Moreover, the lost profits claimed by Richardson are speculative.
[10] Harman attempted to impeach Geyer with his prior testimony at a suppression hearing held in the Peavy criminal trial. At that hearing, Geyer testified that Harman inquired whether his actions were legal. However, this does not prove that Geyer told Harman he could intercept and record the contents of private telephone conversations.
[11] Defendant sought leave to call Wilma Harman as a sur-rebuttal witness in order to dispute the substance of Vance's testimony. Wilma was identified as a fact witness prior to trial, and counsel represented that she would testify during the defendant's case-in-chief. However, she was never called as a witness. Plaintiffs' rebuttal case did not raise any issue that was not fully anticipated by the defendant before he rested. Under these circumstances, the Court denied leave to call a sur-rebuttal witness.
[12] Irwin acquired this information as a result of investigating cases involving telephone harassment and obscene phone calls. However, she was not familiar with the wiretap laws outside of this limited context.
[13] Harman testified that he met with FBI Agent Matt Chapman on March 15, 1995. According to Harman, Chapman said he could listen to telephone calls on his police scanner but not record them. Chapman acknowledged that he met with Harman but denied making any such statement. In fact, he told Harman that a new law prohibited the interception of cordless telephone communications. This is consistent with the advice given to Harman by Mike Gillette just twelve days earlier.
[14] Plaintiffs also seek damages for the illegal "use" of certain conversations in violation of 18 U.S.C. § 2511(1)(d). (Plf. Trial Brief at 8-9). However, the Court has previously held that Harman did not violate this prong of the wiretap statute. See Peavy, No. 3-96-CV-1506-R, FINDINGS AND RECOMMENDATION OF THE MAGISTRATE JUDGE, 10/15/98 at § V(C). | 01-03-2023 | 10-30-2013 |
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